2.Summary of Significant Accounting Policies

Definitions – The following defines certain of the commonly used terms in these financial statements:

“RMBS” refers to residential mortgage-backed securities backed by adjustable-rate, hybrid adjustable-rate, or fixed-rate residential loans;

“Agency RMBS” refers to RMBS representing interests in or obligations backed by pools of residential loans guaranteed by a government sponsored enterprise (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or an agency of the U.S. government, such as the Government National Mortgage Association (“Ginnie Mae”);

“non-Agency RMBS” refers to RMBS that are not guaranteed by any agency of the U.S. Government or GSE;

“IOs” refers collectively to interest only and inverse interest only mortgage-backed securities that represent the right to the interest component of the cash flow from a pool of mortgage loans;

“POs” refers to mortgage-backed securities that represent the right to the principal component of the cash flow from a pool of mortgage loans;

“ARMs” refers to adjustable-rate residential loans;

“Agency ARMs” refers to Agency RMBS comprised of adjustable-rate and hybrid adjustable-rate RMBS;

“Agency fixed-rate RMBS” refers to Agency RMBS comprised of fixed-rate RMBS;

“ABS” refers to debt and/or equity tranches of securitizations backed by various asset classes including, but not limited to, automobiles, aircraft, credit cards, equipment, franchises, recreational vehicles and student loans;

“CMBS” refers to commercial mortgage-backed securities comprised of commercial mortgage pass-through securities issued by a GSE, as well as PO, IO or mezzanine securities that represent the right to a specific component of the cash flow from a pool of commercial mortgage loans;

“Agency CMBS” refers to CMBS representing interests or obligations backed by pools of mortgage loans guaranteed by a GSE, such as Fannie Mae or Freddie Mac;

“multi-family CMBS” refers to CMBS backed by commercial mortgage loans on multi-family properties;

“CDO” refers to collateralized debt obligation;

“non-QM loans” refers to residential loans that are not deemed “qualified mortgage,” or “QM,” loans under the rules of the Consumer Financial Protection Bureau (“CFPB”);

“qualified mortgage” refers to a mortgage loan eligible for delivery to a GSE under the rules of the CFPB, which have certain requirements such as debt-to-income ratio, being fully-amortizing, and limits on loan fees;

“second mortgages” refers to liens on residential properties that are subordinate to more senior mortgages or loans;

“residential bridge loans” refers to short-term business purpose loans collateralized by residential properties made to investors who intend to rehabilitate and sell the residential property for a profit;

“Residential CDOs” refers to the debt that permanently finances the residential ~~ARM~~ loans held in the Company's residential loan securitization trusts and that we consolidate in our financial statements in accordance with GAAP;

“Consolidated SLST” refers to a Freddie Mac-sponsored residential loan securitization, comprised of seasoned re-performing and non-performing residential loans, of which we own or owned the first loss subordinated securities and certain IOs and senior securities that we consolidate in our financial statements in accordance with GAAP; and

“SLST CDOs” refers to the debt that permanently finances the residential loans held in Consolidated SLST that we consolidate in our financial statements in accordance with GAAP.

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Basis of Presentation – The accompanying condensed consolidated balance sheet as of December 31, 2019 has been derived from audited financial statements. The accompanying condensed consolidated balance sheet as of ~~March 31,~~September 30, 2020, the accompanying condensed consolidated statements of operations for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, the accompanying condensed consolidated statements of comprehensive income for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, the accompanying condensed consolidated statements of changes in stockholders’ equity for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 and the accompanying condensed consolidated statements of cash flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019 are unaudited. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with Article 10 of Regulation S-X and the instructions to Form 10-Q. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the U.S. Securities and Exchange Commission (“SEC”). Accordingly, significant accounting policies and other disclosures have been omitted since such items are disclosed in Note 2 in the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019. Provided ~~below~~in this section is a summary of additional accounting policies that are significant to, or newly adopted by, the Company for the three and nine months ended ~~March 31,~~September 30, 2020. The results of operations for the three and nine months ended ~~March 31,~~September 30, 2020 are not necessarily indicative of the operating results for the full year.

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The accompanying condensed consolidated financial statements have been prepared on the accrual basis of accounting in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the 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. Management has made significant estimates in several areas, including fair valuation of its residential loans, SLST CDOs and preferred equity in, and mezzanine loans to, owners of multi-family properties.

The ~~global impact of the~~ COVID-19 pandemic ~~has been rapidly evolving,~~ and ~~as cases of COVID-19~~resulting emergency measures have ~~continued~~led (and may continue to ~~be identified~~lead) to significant disruptions in additional countries, many countries have reacted by instituting stay-at-home orders and restrictions on travel, closing financial markets and/or restricting trading and operations of non-essential offices and retail centers. Such actions are creating disruption inthe global supply ~~chains, and adversely impacting many industries. In~~chain, global capital markets, the ~~U.S., the major disruption caused by COVID-19 brought to a halt most economic activity in most~~economy of the U.S. ~~resulting in a significant increase in unemployment claims, caused significant volatility~~ and ~~declines in~~ the public financial and credit markets and resulted in a significant decline in gross domestic product in the U.S. The outbreak could have a continued adverse impact on economic and market conditions and trigger a periodeconomies of ~~global economic slowdown.~~other countries impacted by COVID-19. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions. The Company believes the estimates and assumptions underlying our condensed consolidated financial statements are reasonable and supportable based on the information available as of ~~March 31,~~September 30, 2020; however, uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and our business in particular, makes any estimates and assumptions as of ~~March 31,~~September 30, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19. Accordingly, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially impact the Company’s results of operations and its financial condition.

Reclassifications – Certain prior period amounts have been reclassified in the accompanying condensed consolidated financial statements to conform to current period presentation.

Principles of Consolidation and Variable Interest Entities – The accompanying condensed consolidated financial statements of the Company include the accounts of all its subsidiaries which are majority-owned, controlled by the Company or a variable interest entity (“VIE”) where the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company consolidates a VIE when it is the primary beneficiary of such VIE, herein referred to as a "Consolidated VIE". As primary beneficiary, the Company has both the power to direct the activities that most significantly impact the economic performance of the VIE and a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE. The Company is required to reconsider its evaluation of whether to consolidate a VIE each reporting period, based upon changes in the facts and circumstances pertaining to the VIE.

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As of December 31, 2019, the Company, or one of ~~our~~its “special purpose entities” (“SPEs”), owned the first loss POs, certain IOs, and certain senior and mezzanine securities issued by certain Freddie Mac-sponsored multi-family loan K-Series securitizations that we consolidated in our financial statements in accordance with GAAP (the “Consolidated K-Series”). Based on a number of factors, management determined that the Company was the primary beneficiary of each VIE within the Consolidated K-Series and met the criteria for consolidation and, accordingly, consolidated these securitizations, including their assets, liabilities, income and expenses in our financial statements. In response to market conditions and the Company's intention to improve its liquidity, ~~during the three months ended~~in March ~~31,~~ 2020, the Company sold its entire portfolio of first loss POs issued by the Consolidated K-Series which resulted in the de-consolidation of each Consolidated K-Series as of the sale date of each first loss PO (see Note 6).

Goodwill – Goodwill in the amount of $25.2 million as of December 31, 2019 was related to the Company’s multi-family investment reporting unit.

Goodwill is not amortized but is evaluated for impairment on an annual basis, or more frequently if the Company believes indicators of impairment exist, by initially performing a qualitative screen and, if necessary, then comparing fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit is less than the carrying value, an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value (in an amount not to exceed the total amount of goodwill allocated to the reporting unit) is recognized.

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The Company’s annual evaluation of goodwill related to its multi-family investment reporting unit as of October 1, 2019 indicated no impairment. However, ~~during the three months ended March 31, 2020,~~ financial, credit and mortgage-related asset markets experienced significant volatility as a result of the spread of COVID-19, which in turn put significant pressure on the mortgage REIT industry, including financing operations, mortgage asset pricing and liquidity demands. In response to these conditions and the Company's intention to improve its liquidity, in March 2020, the Company sold its entire portfolio of first loss POs issued by the Consolidated K-Series, certain senior and mezzanine securities issued by the Consolidated K-Series, Agency CMBS and CMBS that were held by its multi-family investment reporting unit. As a result of the sales, the Company re-evaluated its goodwill balance associated with the multi-family investment reporting unit for impairment. The Company considered qualitative indicators such as macroeconomic conditions, disruptions in equity and credit markets, REIT-specific market considerations, and changes in the net assets in the multi-family investment reporting unit to determine that a quantitative assessment of the fair value of the reporting unit was necessary. The Company performed its quantitative analysis by updating its discounted cash flow projection for the multi-family investment reporting unit for the reduced investment portfolio. This analysis yielded an impairment of the entire goodwill balance reported as a $25.2 million impairment of goodwill on the accompanying condensed consolidated statements of operations for the ~~three~~nine months ended ~~March 31,~~September 30, 2020.

Receivables and Other Assets – Receivables and other assets as of ~~March 31,~~September 30, 2020 and December 31, 2019 include restricted cash held by third parties, including cash held by the Company's securitization trusts, of ~~$173.6~~$54.8 million and $2.8 million, respectively. ~~Restricted cash held by third parties as of March 31, 2020 includes $169.5 million related to net cash margin provided to repurchase agreement counterparties.~~ Receivables and other assets also ~~includes $39.4~~include collections receivable from loan servicers and interest receivable on residential loans totaling $36.7 million and $41.2 million ~~of receivables from borrowers related to residential loans~~ as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively. Also included in receivables and other assets are operating lease right of use assets of ~~$9.1~~$10.4 million and $9.3 million as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively (with corresponding operating lease liabilities of ~~$9.7~~$11.0 million and $9.8 million as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively, included in accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets).

Stock Based Compensation – The Company has awarded restricted stock to eligible employees and officers as part of their compensation. Compensation expense for equity based awards and stock issued for services are recognized over the vesting period of such awards and services based upon the fair value of the award at the grant date.

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, the Company granted Performance Stock Units (“PSUs”) to the ~~Chief Executive Officer, President, Chief Financial Officer~~Company's executive officers and certain other employees. The awards were issued pursuant to and are consistent with the terms and conditions of the Company’s 2017 Equity Incentive Plan (as amended, the “2017 Plan”). The PSUs are subject to performance-based vesting under the 2017 Plan pursuant to a form of PSU award agreement (the “PSU Agreement”). Vesting of the PSUs will occur after a three-year period based on the Company’s relative total ~~stockholders~~stockholders' return ~~("TSR"~~(“TSR”) percentile ranking as compared to an identified performance peer group. The feature in this award constitutes a “market condition” which impacts the amount of compensation expense recognized for these awards. The grant date fair values of PSUs were determined through Monte-Carlo simulation analysis. The PSUs awarded during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 also include dividend equivalent rights (“DERs”) which entitle the holders of vested PSUs to receive payments in an amount equal to any dividends paid by the Company in respect of the share of the Company's common stock underlying the vested PSU to which such DER relates.

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During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, the Company granted Restricted Stock Units (“RSUs”) to the ~~Chief Executive Officer, President, Chief Financial Officer~~Company's executive officers and certain other employees. The awards were issued pursuant to and are consistent with the terms and conditions of the 2017 Plan and are subject to a service condition, vesting ratably over a ~~three-year~~three-year period. Upon vesting, each RSU represents the right to receive one share of the Company’s common stock. The RSUs include DERs which entitle the holders of vested RSUs to receive payments in an amount equal to any dividends paid by the Company in respect of the share of the Company's common stock underlying the vested RSU to which such DER relates.

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Adoption of Financial Instruments — Credit Losses (Topic 326)

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts (“CECL”). In adopting ASU 2016-13, the Company elected to apply the fair value option in accordance with ASU 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”) to the Company’s residential loans, net and preferred equity and mezzanine loan investments that are accounted for as loans and preferred equity investments that are accounted for under the equity method. In adopting ASU 2016-13 and ASU 2019-05, the Company applied a modified retrospective basis by means of a cumulative-effect adjustment to the opening balance of accumulated deficit. Adjustments resulting from this one-time election to record the difference between the carrying value and the fair value of these assets have been reflected in our condensed consolidated balance sheets as of January 1, 2020. Subsequent changes in fair value for these assets are recorded in unrealized gains (losses), net or other income on our condensed consolidated statements of operations, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. As a result of the implementation of ASU 2019-05, we recorded a cumulative-effect adjustment of $12.3 million as an increase to stockholders’ equity as of January 1, 2020.

The following table presents the classification and balances at December 31, 2019, the transition adjustments, and the balances at January 1, 2020 for those balance sheet line items impacted by the implementation of ASU 2019-05 (dollar amounts in thousands):

December 31, 2019 Transition Adjustment January 1, 2020
Assets
Residential loans, net $ 202,756
$ 5,715
$ 208,471
Investments in unconsolidated entities 106,083
1,394
107,477
Preferred equity and mezzanine loan investments 180,045
2,420
182,465
Receivables and other assets 865
2,755
3,620
Total Assets $ 489,749
$ 12,284
$ 502,033

Stockholders' Equity

Accumulated deficit $ (148,863 ) $ 12,284
$ (136,579 )
Total Stockholders' Equity $ (148,863 ) $ 12,284
$ (136,579 )


	December 31, 2019		Transition Adjustment		January 1, 2020
Assets
Residential loans, net	$	202,756	$	5,715	$	208,471
Investments in unconsolidated entities	106,083		1,394		107,477
Preferred equity and mezzanine loan investments	180,045		2,420		182,465
Receivables and other assets	865		2,755		3,620
Total Assets	$	489,749	$	12,284	$	502,033

Stockholders' Equity
Accumulated deficit	$	(148,863)	$	12,284	$	(136,579)
Total Stockholders' Equity	$	(148,863)	$	12,284	$	(136,579)

The Company also assessed the impact of ASU 2016-13 on the Company’s investment securities available for sale where the fair value option has not been elected and determined that the adoption of the standard ~~would~~did not have a material effect on our financial statements as of January 1, 2020.

The following significant accounting policies have been updated as a result of the Company's adoption of ASU 2016-13 and ASU 2019-05 effective January 1, 2020.

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Investment Securities Available for Sale – The Company’s investment securities where the fair value option has not been elected and which are reported at fair value with unrealized gains and losses reported in Other Comprehensive Income (“OCI”), include non-Agency RMBS and CMBS (collectively, “CECL Securities”). Beginning in the fourth quarter of 2019, the Company made a fair value election at the time of acquisition of newly purchased investment securities pursuant to ASC 825, Financial Instruments (“ASC 825”). The fair value option was elected for these investment securities to provide stockholders and others who rely on our financial statements with a more complete and accurate understanding of our economic performance. Changes in fair value of investment securities subject to the fair value election are recorded in current period earnings in unrealized gains (losses), net on the accompanying condensed consolidated statements of operations.

The Company generally intends to hold its investment securities until maturity; however, from time to time, it may sell any of its securities as part of the overall management of its business. As a result, our investment securities are classified as available for sale securities. Realized gains and losses recorded on the sale of investment securities available for sale are based on the specific identification method and included in realized gains (losses), net on the accompanying condensed consolidated statements of operations.

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Interest income on our investment securities available for sale is accrued based on the outstanding principal balance and their contractual terms. Purchase premiums or discounts associated with Agency RMBS and Agency CMBS assessed as high credit quality at the time of purchase are amortized or accreted to interest income over the estimated life of these investment securities using the effective yield method. Adjustments to amortization are made for actual prepayment activity on our Agency RMBS.

Interest income on certain of our credit sensitive securities that were purchased at a premium or discount to par value, such as certain of our non-Agency RMBS, CMBS and ABS that are of less than high credit quality, is recognized based on the security’s effective yield. The effective yield on these securities is based on management’s estimate of the projected cash flows from each security, which incorporates assumptions related to fluctuations in interest rates, prepayment speeds and the timing and amount of credit losses. On at least a quarterly basis, management reviews and, if appropriate, adjusts its cash flow projections based on input and analysis received from external sources, internal models, and its judgment about interest rates, prepayment rates, the timing and amount of credit losses, and other factors. Changes in cash flows from those originally projected, or from those estimated at the last evaluation, may result in a prospective change in the yield (or interest income) recognized on these securities.

The Company accounts for investment securities that are of high credit quality (generally those rated AA or better by a Nationally Recognized Statistical Rating Organization, or NRSRO) at the date of acquisition in accordance with ASC 320-10, Investments - Debt and Equity Securities (“ASC 320-10”). The Company accounts for investment securities that are not of high credit quality (i.e., those whose risk of loss is more than remote) or securities that can be contractually prepaid such that we would not recover our initial investment at the date of acquisition in accordance with ASC 325-40, Investments - Beneficial Interests in Securitized Financial Assets (“ASC 325-40”). The Company considers credit ratings, the underlying credit risk and other market factors in determining whether the investment securities are of high credit quality; however, securities rated lower than AA or an equivalent rating are not considered of high credit quality and are accounted for in accordance with ASC 325-40. If ratings are inconsistent among NRSROs, the Company uses the lower rating in determining whether the securities are of high credit quality.

When the fair value of an investment security where the fair value option has not been elected is less than its amortized cost as of the reporting balance sheet date, the security is considered impaired. If the Company intends to sell an impaired security, or it is more likely than not that it will be required to sell the impaired security before its anticipated recovery, the Company recognizes a loss through earnings equal to the difference between the investment’s amortized cost and its fair value and reduces the amortized cost basis to the fair value as of the balance sheet date. If the Company does not expect to sell an impaired security, it performs an analysis to determine if a portion of the impairment is a result of credit losses. The portion of the impairment related to credit losses (limited by the difference between the fair value and amortized cost basis) is recognized through earnings and a corresponding allowance for credit losses is established against the amortized cost basis. The remainder of the impairment is recognized as a component of other comprehensive income (loss) on the accompanying condensed consolidated balance sheets and does not impact earnings. Subsequent changes in the allowance for credit losses are recorded through earnings with reversals limited to the previously recorded allowance for credit losses. The determination of whether a credit loss exists, and if so, the amount considered to be a credit loss is subjective, as such determinations are based on both observable and subjective information available at the time of assessment as well as the Company's estimates of the future performance and cash flow projections. As a result, the timing and amount of credit losses constitute material estimates that are susceptible to significant change.

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In determining if a credit loss evaluation is required for securities that are ~~not of high credit quality,~~impaired, the Company compares the present value of the remaining cash flows expected to be collected at the prior reporting date or purchase date, whichever is most recent, against the present value of the cash flows expected to be collected at the current financial reporting date. The Company considers information available about the past and expected future performance of underlying collateral, including timing of expected future cash flows, prepayment rates, default rates, loss severities and delinquency rates.

Residential Loans, at fair value – All of the Company’s acquired residential loans, including distressed residential loans, non-QM loans, second mortgages and residential bridge loans, are presented at fair value on the accompanying condensed consolidated balance sheets. Changes in fair value are recorded in current period earnings in unrealized gains (losses), net on the accompanying condensed consolidated statements of operations. The Company has elected the fair value option for residential loans either at the time of acquisition pursuant to ASC 825 or following the adoption of ASU 2019-05 effective January 1, 2020. As of ~~March 31,~~September 30, 2020, residential loans, at fair value on the accompanying condensed consolidated balance sheets includes those residential loans previously accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30"), and the Company's residential loans held in securitization trusts.

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Premiums and discounts associated with the purchase of residential loans, at fair value are amortized or accreted into interest income over the life of the related loan using the effective interest method. Any premium amortization or discount accretion is reflected as a component of interest income, residential loans on the accompanying condensed consolidated statements of operations.

Residential loans, at fair value are considered past due when they are 30 days past their contractual due date, and are placed on nonaccrual status when delinquent for more than 90 days or when, in management's opinion, the interest is not collectible in the normal course of business. Interest accrued but not yet collected at the time loans are placed on nonaccrual is reversed and subsequently recognized only to the extent it is received in cash or until it qualifies for return to accrual status. Loans are restored to accrual status only when contractually current or the collection of future payments is reasonably assured.

Investments in Unconsolidated Entities – Non-controlling, unconsolidated ownership interests in an entity may be accounted for using the equity method or the cost method. In circumstances where the Company has a non-controlling interest but either owns a significant interest or is able to exert influence over the affairs of the enterprise, the Company utilizes the equity method of accounting. Under the equity method of accounting, the initial investment is increased each period for additional capital contributions and a proportionate share of the entity’s earnings or preferred return and decreased for cash distributions and a proportionate share of the entity’s losses. Management periodically reviews its investments for impairment based on projected cash flows from the entity over the holding period. When any impairment is identified, the investments are written down to recoverable amounts.

Effective January 1, 2020, the Company has elected the fair value option for all investments in unconsolidated entities that are accounted for using the equity method. The Company elected the fair value option for investments in unconsolidated entities that own interests (directly or indirectly) in commercial or residential real estate assets or loans because the Company determined that such presentation represents the underlying economics of the respective investment. The Company records the change in fair value of its investment in other income on the accompanying condensed consolidated statements of operations (see Note 7).

Preferred Equity and Mezzanine Loan Investments – The Company invests in preferred equity in, and mezzanine loans to, entities that have significant multi-family real estate assets.

A preferred equity investment is an equity investment in the entity that owns the underlying property. Preferred equity is not secured by the underlying property, but holders have priority relative to common equity holders on cash flow distributions and proceeds from capital events. In addition, preferred equity holders may be able to enhance their position and protect their equity position with covenants that limit the entity’s activities and grant the holder the exclusive right to control the property after an event of default.

Mezzanine loans are secured by a pledge of the borrower’s equity ownership in the property. Unlike a mortgage, this loan does not represent a lien on the property. Therefore, it is always junior and subordinate to any first lien as well as second liens, if applicable, on the property. These loans are senior to any preferred equity or common equity interests in the entity that owns the property.

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The Company has evaluated its preferred equity and mezzanine loan investments for accounting treatment as loans versus equity investments utilizing the guidance provided by the Acquisition, Development and Construction Arrangements Subsection of ASC 310, Receivables. Effective January 1, 2020, preferred equity and mezzanine loan investments, for which the characteristics, facts and circumstances indicate that loan accounting treatment is appropriate, are stated at fair value. The Company elected the fair value option for its preferred equity investments in and mezzanine loan investments to entities that ~~that~~ have significant multi-family real estate assets because the Company determined that such presentation represents the underlying economics of the respective investment. Changes in fair value are recorded in current period earnings in unrealized gains (losses), net on the accompanying condensed consolidated statements of operations. The Company accretes or amortizes any discounts or premiums and deferred fees and expenses over the life of the related asset utilizing the effective interest method or straight line-method, if the result is not materially different.

As of December 31, 2019, preferred equity and mezzanine loan investments, for which the characteristics, facts and circumstances indicate that loan accounting treatment is appropriate, were stated at unpaid principal balance, adjusted for any unamortized premium or discount and deferred fees or expenses, net of valuation allowances. The Company accretes or amortizes any discounts or premiums and deferred fees and expenses over the life of the related asset utilizing the effective interest method or straight line-method, if the result is not materially different.

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Management evaluates the collectability of both interest and principal of each of these loans, if circumstances warrant, to determine whether they are impaired. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the existing contractual terms. When a loan is impaired, the amount of the loss accrual is calculated by comparing the carrying amount of the investment to the estimated fair value of the loan or, as a practical expedient, to the value of the collateral if the loan is collateral dependent. Interest income is accrued and recognized as revenue when earned according to the terms of the loans and when, in the opinion of management, it is collectible. The accrual of interest on loans is discontinued when, in management’s opinion, the interest is not collectible in the normal course of business, but in all cases when payment becomes greater than 90 days delinquent. Loans return to accrual status when principal and interest become current and are anticipated to be fully collectible.

Preferred equity and mezzanine loan investments where the risks and payment characteristics are equivalent to an equity investment are accounted for using the equity method of accounting. See “Investments in Unconsolidated Entities.”

Adoption of Fair Value Measurement (Topic 820)

On January 1, 2020, the Company adopted ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to Disclosure Requirements for Fair Value ~~Measurement~~ ~~("ASU 2018-13")~~.Measurement. These amendments added, modified, or removed disclosure requirements regarding the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, narrative descriptions of measurement uncertainty, and the valuation processes for Level 3 fair value measurements.

Summary of Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). ASU 2020-04 provides optional expedients and exceptions to GAAP requirements for modifications to debt agreements, leases, derivatives and other contracts, related to the expected market transition from LIBOR, and certain other floating rate benchmark indices, or collectively, IBORs, to alternative reference rates. ASU 2020-04 generally considers contract modifications related to reference rate reform to be an event that does not require contract remeasurement at the modification date nor a reassessment of a previous accounting determination. The guidance in ASU 2020-04 is optional and may be elected over time, through December 31, 2022, as reference rate reform activities occur. Once ASU 2020-04 is elected, the guidance must be applied prospectively for all eligible contract modifications. The Company continues to evaluate the impact of ASU 2020-04 and may apply elections, as applicable, as the expected market transition from IBORs to alternative reference rates continues to develop.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"). ASU 2020-06 simplifies an issuer's accounting for convertible instruments, enhances disclosure requirements for convertible instruments and modifies how particular convertible instruments and certain instruments that may be settled in cash or shares impact the diluted earnings per share computation. Entities may adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The amendments are effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not anticipate that the implementation of ASU 2020-06 will have a material impact on its consolidated financial statements or notes thereto.

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9.Use of Special Purpose Entities (SPE) and Variable Interest Entities (VIE)


9.	~~Use of Special Purpose Entities (SPE) and Variable Interest Entities (VIE)~~

The Company uses SPEs to facilitate transactions that involve securitizing financial assets or re-securitizing previously securitized financial assets. The objective of such transactions may include obtaining non-recourse financing, obtaining liquidity or refinancing the underlying securitized financial assets on improved terms. Securitization involves transferring assets to an SPE to convert all or a portion of those assets into cash before they would have been realized in the normal course of business through the SPE’s issuance of debt or equity instruments. Investors in an SPE usually have recourse only to the assets in the SPE and depending on the overall structure of the transaction, may benefit from various forms of credit enhancement, such as over-collateralization in the form of excess assets in the SPE, priority with respect to receipt of cash flows relative to holders of other debt or equity instruments issued by the SPE, or a line of credit or other form of liquidity agreement that is designed with the objective of ensuring that investors receive principal and/or interest cash flow on the investment in accordance with the terms of their investment agreement.

The Company has entered into financing transactions, including residential loan securitizations and re-securitizations, which required the Company to analyze and determine whether the SPEs that were created to facilitate the transactions are VIEs in accordance with ASC 810 ~~Consolidation~~, and if so, whether the Company is the primary beneficiary requiring consolidation.

In July 2020, the Company completed a securitization of certain residential loans for which the Company received net proceeds of approximately $241.1 million after deducting expenses associated with the securitization transaction. The Company engaged in this transaction for the purpose of obtaining non-recourse, longer-term financing on a portion of its residential loan portfolio. The residential loans serving as collateral for the financing are comprised of performing, re-performing and non-performing loans which are included in residential loans, at fair value on the accompanying condensed consolidated balance sheets. The securitization matures in June 2025 and has an expected redemption date of June 2023. The Company's net investment amount in the securitization is $89.9 million as of September 30, 2020.

In June 2020, the Company completed a re-securitization of certain non-Agency RMBS for which the Company received net cash proceeds of approximately $109.0 million after deducting expenses associated with the re-securitization transaction. The Company engaged in the re-securitization transaction primarily for the purpose of obtaining non-recourse, longer-term financing on a portion of its non-Agency RMBS portfolio and continues to classify the non-Agency RMBS collateral in the re-securitization as available for sale securities as the purpose is not to trade these securities. The securitization matures in June 2025 and has an expected redemption date in June 2022. The Company's net investment amount in the re-securitization is $93.3 million as of September 30, 2020.

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As of ~~March 31,~~September 30, 2020 and December 31, 2019, the Company evaluated its residential loan securitizations and re-securitization of non-Agency RMBS and concluded that the entities created to facilitate each of the financing transactions are VIEs and that the Company is the primary beneficiary of these VIEs (each a “Financing VIE” and collectively, the “Financing VIEs”). Accordingly, the Company ~~continues to consolidate~~consolidated the ~~Residential CDOs issued by its residential loan securitizations~~Financing VIEs as of ~~March 31,~~September 30, 2020 and December 31, 2019.

The Company invests in subordinated securities that represent the first loss position of the Freddie Mac-sponsored residential loan securitization from which they were issued, and certain IOs and senior securities issued from the securitization. The Company has evaluated its investments in this securitization trust to determine whether it is a VIE and if so, whether the Company is the primary beneficiary requiring consolidation. The Company has determined that the Freddie Mac-sponsored residential loan securitization trust is a VIE as of ~~March 31,~~September 30, 2020 and December 31, 2019, which we refer to as Consolidated SLST. The Company also determined that it is the primary beneficiary of the VIE within Consolidated SLST and, accordingly, has consolidated its assets, liabilities, income and expenses, in the accompanying condensed consolidated financial statements (see Notes 2 and 4). The Company’s investments that are included in Consolidated SLST were not included as collateral to any Financing VIE as of ~~March 31,~~September 30, 2020 and December 31, 2019.

As of December 31, 2019, the Company invested in multi-family CMBS consisting of POs that represent the first loss position of the Freddie Mac-sponsored multi-family K-series securitizations from which they were issued, and certain IOs and certain senior and mezzanine CMBS securities issued from those securitizations. The Company evaluated these CMBS investments in Freddie Mac-sponsored K-Series securitization trusts to determine whether they were VIEs and if so, whether the Company was the primary beneficiary requiring consolidation. The Company determined that the Freddie Mac-sponsored multi-family K-Series securitization trusts were VIEs as of December 31, 2019, which we refer to as the Consolidated K-Series. The Company also determined that it was the primary beneficiary of each VIE within the Consolidated K-Series and, accordingly, consolidated its assets, liabilities, income and expenses in the accompanying condensed consolidated financial statements (see Notes 2 and 6). In March 2019, the Company exercised its right to an optional redemption of its multi-family CMBS re-securitization with an outstanding principal balance of $33.2 million resulting in a loss on extinguishment of debt of $2.9 million.

~~During the three months ended March 31,~~ 2020, the Company sold its first loss POs and certain mezzanine securities issued by the Consolidated ~~K-Series. These sales, for total proceeds of approximately $555.2 million,~~K-Series which resulted in the de-consolidation of each Consolidated K-Series as of the sale date of each first loss PO, a realized net loss on de-consolidation of multi-family loans held in securitization trusts and multi-family collateralized debt obligations of $54.1 million and reversal of previously recognized net unrealized gains of $168.5 million. The sales also resulted in the de-consolidation of $17.4 billion in multi-family loans held in securitization trusts and $16.6 billion in multi-family collateralized debt obligations. The Company transferred its remaining IOs and mezzanine and senior securities owned in the Consolidated K-Series with a fair value of approximately $237.3 million to investment securities available for sale.PO.

In analyzing whether the Company is the primary beneficiary of the Financing VIEs, Consolidated SLST and the Consolidated K-Series, the Company considered its involvement in each of the VIEs, including the design and purpose of each VIE, and whether its involvement reflected a controlling financial interest that resulted in the Company being deemed the primary beneficiary of the VIEs. In determining whether the Company would be considered the primary beneficiary, the following factors were assessed:

•whether the Company has both the power to direct the activities that most significantly impact the economic performance of the VIE; and

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whether the Company has a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE.

The Company owns 100% of RB Development Holding Company, LLC ("RBDHC"). RBDHC owns 50% of Kiawah River View Investors LLC ("KRVI"), a limited liability company that owns developed land and residential homes under development in Kiawah Island, SC, for which RiverBanc LLC ("RiverBanc"), a wholly-owned subsidiary of the Company, is the manager. The Company has evaluated KRVI to determine if it is a VIE and if so, whether the Company is the primary beneficiary requiring consolidation. The Company has determined that KRVI is a VIE for which RBDHC is the primary beneficiary as the Company, collectively through its wholly-owned subsidiaries, RiverBanc and RBDHC, has both the power to direct the activities that most significantly impact the economic performance of KRVI and has a right to receive benefits or absorb losses of KRVI that could be potentially significant to KRVI. Accordingly, the Company has consolidated KRVI in its condensed consolidated financial statements with a non-controlling interest for the third-party ownership of KRVI membership interests. Real estate under development in KRVI as of ~~March 31,~~September 30, 2020 and December 31, 2019 of ~~$14.8~~$3.6 million and $14.5 million, respectively, is included in receivables and other assets on the condensed consolidated balance sheets.

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The following table presents a summary of the assets and liabilities of the Company's residential loan securitizations, non-Agency RMBS re-securitization, Consolidated SLST and KRVI of as of ~~March 31,~~September 30, 2020 (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.

Financing VIE Other VIEs

Residential
Loan Securitizations
Consolidated SLST Other Total
Cash and cash equivalents $ —
$ —
$ 4
$ 4
Residential loans, at fair value 42,984
1,218,299
—
1,261,283
Receivables and other assets 3,337
3,772
14,859
21,968
Total assets $ 46,321
$ 1,222,071
$ 14,863
$ 1,283,255

Residential collateralized debt obligations $ 38,959
$ —
$ —
$ 38,959
Residential collateralized debt obligations, at fair value —
1,034,992
—
1,034,992
Accrued expenses and other liabilities 6
2,646
75
2,727
Total liabilities $ 38,965
$ 1,037,638
$ 75
$ 1,076,678


	Financing VIEs				Other VIEs
	Residential Loan Securitizations		Non-Agency RMBS Re-Securitization		Consolidated SLST		KRVI		Total
Cash and cash equivalents	$	0	$	—	$	0	$	4,305	$	4,305
Investment securities available for sale, at fair value	—		131,836		—		—		131,836
Residential loans, at fair value	355,486		0		1,290,005		—		1,645,491



Receivables and other assets	12,568		50,635		4,162		3,660		71,025
Total assets	$	368,054	$	182,471	$	1,294,167	$	7,965	$	1,852,657

Residential collateralized debt obligations	$	268,820	$	0	$	0	$	0	$	268,820
Residential collateralized debt obligations, at fair value	—		—		1,077,980		—		1,077,980

Securitized debt	—		88,791		—		—		88,791
Accrued expenses and other liabilities	1,211		396		3,664		74		5,345
Total liabilities	$	270,031	$	89,187	$	1,081,644	$	74	$	1,440,936

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The following table presents a summary of the assets and liabilities of the Company's residential loan securitizations, the Consolidated K-Series, Consolidated SLST and KRVI as of December 31, 2019 (dollar amounts in thousands):. Intercompany balances have been eliminated for purposes of this presentation.

Financing VIE Other VIEs

Residential
Loan Securitizations
Consolidated K-Series Consolidated SLST Other Total
Cash and cash equivalents $ —
$ —
$ —
$ 107
$ 107
Residential loans held in securitization trusts, net 44,030
—
—
—
44,030
Residential loans, at fair value —
—
1,328,886
—
1,328,886
Multi-family loans held in securitization trusts, at fair value —
17,816,746
—
—
17,816,746
Receivables and other assets 1,328
59,417
5,244
14,626
80,615
Total assets $ 45,358
$ 17,876,163
$ 1,334,130
$ 14,733
$ 19,270,384

Residential collateralized debt obligations $ 40,429
$ —
$ —
$ —
$ 40,429
Residential collateralized debt obligations, at fair value —
—
1,052,829
—
1,052,829
Multi-family collateralized debt obligations, at fair value —
16,724,451
—
—
16,724,451
Accrued expenses and other liabilities 14
57,873
2,643
75
60,605
Total liabilities $ 40,443
$ 16,782,324
$ 1,055,472
$ 75
$ 17,878,314


	Financing VIE		Other VIEs
	Residential Loan Securitizations		Consolidated K-Series		Consolidated SLST		KRVI		Total
Cash and cash equivalents	$	0	$	0	$	—	$	107	$	107
Residential loans, net	44,030		—		—		—		44,030
Residential loans, at fair value	—		—		1,328,886		—		1,328,886

Multi-family loans held in securitization trusts, at fair value	—		17,816,746		—		—		17,816,746
Receivables and other assets	1,328		59,417		5,244		14,626		80,615
Total assets	$	45,358	$	17,876,163	$	1,334,130	$	14,733	$	19,270,384

Residential collateralized debt obligations	$	40,429	$	—	$	—	$	—	$	40,429
Residential collateralized debt obligations, at fair value	—		—		1,052,829		—		1,052,829
Multi-family collateralized debt obligations, at fair value	—		16,724,451		—		—		16,724,451
Accrued expenses and other liabilities	14		57,873		2,643		75		60,605
Total liabilities	$	40,443	$	16,782,324	$	1,055,472	$	75	$	17,878,314

The following table summarizes the Company’s securitized debt collateralized by non-Agency RMBS as of September 30, 2020 (dollar amounts in thousands):


	Principal Amount		Carrying Value (1)		Pass-through Rate of Notes Issued (2)
Non-Agency RMBS re-securitization	$	89,916	$	88,791	One-month LIBOR plus 5.25%

(1)Classified as securitized debt in the liability section of the Company’s accompanying condensed consolidated balance sheets. The securitized debt is non-recourse debt for which the Company has no obligation.

(2)Represents the pass-through rate through the payment date in December 2021. Pass-through rate increases to one-month LIBOR plus 7.75% for payment dates in or after January 2022.

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The following table presents contractual maturity information about the Company's securitized debt collateralized by non-Agency RMBS as of September 30, 2020 (dollar amounts in thousands):


ScheduledMaturity(principal amount)	September 30, 2020
Over 36 months	$	89,916

Debt issuance cost	(1,125)
Carrying value	$	88,791

Unconsolidated VIEs

As of ~~March 31,~~September 30, 2020 and December 31, 2019, the Company evaluated its investment securities available for sale, preferred equity, mezzanine loan and other equity investments to determine whether they are VIEs and should be consolidated by the Company. Based on a number of factors, the Company determined that, as of ~~March 31,~~September 30, 2020 and December 31, 2019, it does not have a controlling financial interest and is not the primary beneficiary of these VIEs. The following tables present the classification and carrying value of unconsolidated VIEs as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):


	September 30, 2020
	Investment securities available for sale, at fair value		Preferred equity and mezzanine loan investments		Investments in unconsolidated entities		Total
ABS	$	45,007	$	0	$	0	$	45,007
Preferred equity investments in multi-family properties	0		178,286		145,250		323,536
Mezzanine loans on multi-family properties	0		4,868		0		4,868
Equity investments in entities that invest in residential properties and loans	0		0		73,456		73,456
Total assets	$	45,007	$	183,154	$	218,706	$	446,867

March 31, 2020

Investment
securities
available for
sale, at fair value
Preferred equity and mezzanine loan investments Investments in unconsolidated entities Total
ABS $ 42,344
$ —
$ —
$ 42,344
Preferred equity investments in multi-family properties —
173,863
126,865
300,728
Mezzanine loans on multi-family properties —
5,429
—
5,429
Equity investments in entities that invest in residential properties and loans —
—
66,790
66,790
Total assets $ 42,344
$ 179,292
$ 193,655
$ 415,291


	December 31, 2019
	Investment securities available for sale, at fair value		Preferred equity and mezzanine loan investments		Investments in unconsolidated entities		Total
ABS	$	49,214	$	0	$	0	$	49,214
Preferred equity investments in multi-family properties	0		173,825		106,083		279,908
Mezzanine loans on multi-family properties	0		6,220		0		6,220
Equity investments in entities that invest in residential properties and loans	0		0		65,572		65,572
Total assets	$	49,214	$	180,045	$	171,655	$	400,914

December 31, 2019

Investment
securities
available for
sale, at fair value
Preferred equity and mezzanine loan investments Investments in unconsolidated entities Total
ABS $ 49,214
$ —
$ —
$ 49,214
Preferred equity investments in multi-family properties —
173,825
106,083
279,908
Mezzanine loans on multi-family properties —
6,220
—
6,220
Equity investments in entities that invest in residential properties and loans —
—
65,572
65,572
Total assets $ 49,214
$ 180,045
$ 171,655
$ 400,914

Our maximum loss exposure on the investment securities available for sale, preferred equity and mezzanine loan investments, and investments in unconsolidated entities was approximately ~~$415.3~~$446.9 million and $400.9 million at ~~March 31,~~September 30, 2020 and December 31, 2019, respectively. The Company’s maximum exposure does not exceed the carrying value of its investments.

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10.Derivative Instruments and Hedging Activities


~~10.~~	~~Derivative Instruments and Hedging Activities~~

The Company enters into derivative instruments in connection with its risk management activities. These derivative instruments may include interest rate swaps, swaptions, futures and options on futures. The Company may also purchase or sell “To-Be-Announced,” or TBAs, purchase options on U.S. Treasury futures or invest in other types of mortgage derivative securities. The Company's derivative instruments were comprised of interest rate swaps, which were designated as trading instruments and were terminated during the ~~three~~nine months ended ~~March 31,~~September 30, 2020.

Derivatives Not Designated as Hedging Instruments

The following table presents the fair value of derivative instruments and their location in our condensed consolidated balance sheets at ~~March 31, 2020 and~~ December 31, 2019 ~~respectively~~ (dollar amounts in thousands):

Type of Derivative Instrument Balance Sheet Location March 31, 2020 December 31, 2019
Interest rate swaps ⁽¹⁾
Derivative assets $ —
$ 15,878

Type of Derivative Instrument

Balance Sheet Location

December 31, 2019

^{Interest rate swaps}(1)

All of the Company's interest rate swaps were cleared through a central clearing house. The Company exchanged variation margin for swaps based upon daily changes in fair value. As a result of amendments to rules governing certain central clearing activities, the exchange of variation margin is treated as a legal settlement of the exposure under the swap contract. Previously, such payments were treated as cash collateral pledged against the exposure under the swap contract. Accordingly, the Company accounted for the receipt or payment of variation margin as a direct reduction to or increase of the carrying value of the interest rate swap asset or liability on the Company's condensed consolidated balance sheets. Includes $29.0 million of derivative liabilities netted against a variation margin of $44.8 million at December 31, 2019.

Derivative assets

15,878

(1)All of the Company's interest rate swaps were cleared through a central clearing house. The Company exchanged variation margin for swaps based upon daily changes in fair value. As a result of amendments to rules governing certain central clearing activities, the exchange of variation margin is treated as a legal settlement of the exposure under the swap contract. Previously, such payments were treated as cash collateral pledged against the exposure under the swap contract. Accordingly, the Company accounted for the receipt or payment of variation margin as a direct reduction to or increase of the carrying value of the interest rate swap asset or liability on the Company's condensed consolidated balance sheets. Includes $29.0 million of derivative liabilities netted against a variation margin of $44.8 million at December 31, 2019.

The tables below summarize the activity of derivative instruments not designated as hedges for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively (dollar amounts in thousands):

Notional Amount for the Three Months Ended March 31, 2020
Type of Derivative Instrument December 31, 2019 Additions Terminations March 31, 2020
Interest rate swaps $ 495,500
$ —
$ (495,500 ) $ —

Notional Amount for the Three Months Ended March 31, 2019
Type of Derivative Instrument December 31, 2018 Additions Terminations March 31, 2019
Interest rate swaps $ 495,500
$ —
$ —
$ 495,500


	Notional Amount for the Nine Months Ended September 30, 2020
Type of Derivative Instrument	December 31, 2019		Additions		Terminations		September 30, 2020






Interest rate swaps	$	495,500	$	0	$	(495,500)	$	0


	Notional Amount for the Nine Months Ended September 30, 2019
Type of Derivative Instrument	December 31, 2018		Additions		Terminations		September 30, 2019






Interest rate swaps	$	495,500	$	0	$	0	$	495,500

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The following table presents the components of realized gains (losses), net and unrealized gains (losses), net related to our derivative instruments that were not designated as hedging instruments, which are included in non-interest income (loss) ~~income~~ in our condensed consolidated statements of operations for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively (dollar amounts in thousands):


	Three Months Ended September 30,
	2020				2019
	Realized Gains (Losses)		Unrealized Gains (Losses)		Realized Gains (Losses)		Unrealized Gains (Losses)
Interest rate swaps	$	0	$	0	$	0	$	(12,595)
Total	$	0	$	0	$	0	$	(12,595)

Three Months Ended March 31,
2020 2019
Realized Gains (Losses) Unrealized Gains (Losses) Realized Gains (Losses) Unrealized Gains (Losses)
Interest rate swaps $ (73,078 ) $ 28,967
$ —
$ (14,586 )
Total $ (73,078 ) $ 28,967
$ —
$ (14,586 )


	Nine Months Ended September 30,
	2020				2019
	Realized Gains (Losses)		Unrealized Gains (Losses)		Realized Gains (Losses)		Unrealized Gains (Losses)
Interest rate swaps	$	(73,078)	$	28,967	$	0	$	(42,188)
Total	$	(73,078)	$	28,967	$	0	$	(42,188)

Derivatives Designated as Hedging Instruments

As of ~~March 31,~~September 30, 2020 and December 31, 2019, there were no derivative instruments designated as hedging instruments.

Outstanding Derivatives

The Company had no outstanding derivatives as of ~~March 31,~~September 30, 2020. The following table presents information about our interest rate swaps whereby we received floating rate payments in exchange for fixed rate payments as of December 31, 2019 (dollar amounts in thousands):

December 31, 2019
Swap Maturities

Notional
Amount

Weighted Average
Fixed
Interest Rate
Weighted Average
Variable Interest Rate
2024 $ 98,000
2.18 % 1.98 %
2027 247,500
2.39 % 1.94 %
2028 150,000
3.23 % 1.92 %
Total $ 495,500
2.60 % 1.95 %


	December 31, 2019
Swap Maturities		Notional Amount		Weighted Average Fixed Interest Rate		Weighted Average Variable Interest Rate
2024		$	98,000	2.18	%	1.98	%
2027		247,500		2.39	%	1.94	%
2028		150,000		3.23	%	1.92	%
Total		$	495,500	2.60	%	1.95	%

The use of derivatives exposes the Company to counterparty credit risks in the event of a default by a counterparty. If a counterparty defaults under the applicable derivative agreement, the Company may be unable to collect payments to which it is entitled under its derivative agreements and may have difficulty collecting the assets it pledged as collateral against such derivatives. All of the Company's interest rate swaps were cleared through CME Group Inc. ("CME Clearing") which is the parent company of the Chicago Mercantile Exchange Inc. CME Clearing serves as the counterparty to every cleared transaction, becoming the buyer to each seller and the seller to each buyer, limiting the credit risk by guaranteeing the financial performance of both parties and netting down exposures.

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11.Repurchase Agreements


~~11.~~	~~Repurchase Agreements~~

Investment Securities

The Company has entered into repurchase agreements with ~~third-party~~ financial institutions to finance its investment securities portfolio (including investment securities available for sale and securities owned in Consolidated SLST and the ~~Consolidation~~Consolidated K-Series). These repurchase agreements provide short-term ~~financings~~financing that bear interest rates typically based on a spread to LIBOR and are secured by the investment securities which they finance and additional collateral pledged, if any.

~~The following table presents detailed information about~~ During March 2020, in connection with the ~~amounts outstanding under~~significant market disruption caused by the ~~Company’s repurchase agreements secured by investment securities and associated assets pledged as collateral at March 31, 2020 and December 31, 2019, respectively (dollar amounts in thousands):~~

March 31, 2020 December 31, 2019
Outstanding Repurchase Agreements
Fair Value of
Collateral
Pledged

Amortized
Cost
of Collateral
Pledged
Outstanding Repurchase Agreements
Fair Value of
Collateral
Pledged

Amortized
Cost
of Collateral
Pledged
Agency RMBS ⁽¹⁾
$ —
$ —
$ —
$ 812,742
$ 865,765
$ 864,428
Agency CMBS ⁽²⁾
—
—
—
133,184
139,317
140,118
Non-Agency RMBS^{(3) (4)}
333,227
414,605
550,719
594,286
797,784
785,952
CMBS ^{(4) (5) (6)}
380,137
508,826
507,890
811,890
1,036,513
853,043
Balance at end of the period $ 713,364
$ 923,431
$ 1,058,609
$ 2,352,102
$ 2,839,379
$ 2,643,541


⁽¹⁾	~~Includes Agency RMBS securities with a fair value amounting to $26.2 million included in Consolidated SLST as of December 31, 2019.~~


⁽²⁾	~~Includes Agency CMBS securities with a fair value amounting to $88.4 million included in~~COVID-19 pandemic, the ~~Consolidated K-Series as of December 31, 2019.~~


⁽³⁾	Includes first loss subordinated RMBS securities with a fair value amounting to $155.4 million and $214.8 million included in Consolidated SLST as of March 31, 2020 and December 31, 2019, respectively.


⁽⁴⁾	Collateral pledged amounts include restricted cash posted as margin in the amount of $58.3 million related to non-Agency RMBS securities and $111.2 million related to CMBS securities included in receivables and other assets on the Company's condensed consolidated balance sheets as of March 31, 2020.


⁽⁵⁾	~~Includes first loss POs, IOs and mezzanine CMBS securities with a fair value amounting to $848.2 million included in the Consolidated K-Series as of December 31, 2019.~~


⁽⁶⁾	Includes first loss POs sold and pending settlement as of March 31, 2020 with outstanding repurchase agreement financing of $199.2 million. Proceeds from the sale in the amount of $211.2 million were subsequently used to repay the repurchase price under the repurchase agreements for these securities.

As of March 31, 2020 and December 31, 2019, the average days to maturity and the weighted average interest rate for repurchase agreements secured by investment securities were 15 days and 73 days, respectively, and 2.88% and 2.72%, respectively. The Company expects to roll outstanding amounts under its repurchase agreements into new repurchase agreements or other financings, or to repay outstanding amounts, prior to or at maturity. The Company’s accrued interest payable on outstanding repurchase agreements secured by investment securities at March 31, 2020 and December 31, 2019 amounts to $3.7 million and $8.8 million, respectively, and is included in accrued expenses and other liabilities on the Company’s condensed consolidated balance sheets.

The following table presents contractual maturity information about the Company’s outstanding repurchase agreements secured by investment securities at March 31, 2020 and December 31, 2019 (dollar amounts in thousands):

Contractual Maturity March 31, 2020 December 31, 2019
Within 30 days ⁽¹⁾
$ 562,919
$ 449,474
Over 30 days to 90 days 150,445
1,647,683
Over 90 days —
254,945
Total $ 713,364
$ 2,352,102

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⁽¹⁾	~~Includes outstanding repurchase agreement financing of $199.2 million related to first loss POs sold and pending settlement as of March 31, 2020.~~

As of March 31, 2020, the outstanding balance under our repurchase agreements secured by investment securities was funded at a weighted average advance rate of 75.1% that implies an average “haircut” of 24.9%. As of March 31, 2020, the weighted average “haircut” related to our repurchase agreement ~~financing~~counterparties for our ~~non-agency RMBS and CMBS was approximately 29%, and 21%, respectively.~~

~~During the three months ended March 31, 2020, our repurchase agreement counterparties~~investment securities increased haircuts, started to require additional collateral or determined to not roll our financing. As a result, we liquidated our investment securities at a disadvantageous time, which resulted in losses. ~~At March 31,~~As of September 30, 2020, ~~and~~we currently have no amounts outstanding under repurchase agreements to finance investment securities. At December 31, 2019, the Company had financing arrangements with ~~6 and~~ 14 counterparties ~~respectively. As of March 31, 2020~~ and ~~December 31, 2019, the Company~~ had no exposure to an individual counterparty where the amount at risk was in excess of 5% of the Company's stockholders’ equity.

The following table presents detailed information about the amounts outstanding under the Company’s repurchase agreements secured by investment securities and associated assets pledged as collateral at December 31, 2019 (dollar amounts in thousands):


	December 31, 2019
		Outstanding Repurchase Agreements		Fair Value of Collateral Pledged		Amortized Cost of Collateral Pledged

Agency RMBS (1)		$	812,742	$	865,765	$	864,428
Agency CMBS (2)		133,184		139,317		140,118
Non-Agency RMBS (3)		594,286		797,784		785,952
CMBS (4)		811,890		1,036,513		853,043
Balance at end of the period		$	2,352,102	$	2,839,379	$	2,643,541

(1)Collateral pledged includes Agency RMBS securities with a fair value amounting to $26.2 million included in Consolidated SLST as of December 31, 2019.

(2)Collateral pledged includes Agency CMBS securities with a fair value amounting to $88.4 million included in the Consolidated K-Series as of December 31, 2019.

(3)Collateral pledged includes first loss subordinated RMBS securities with a fair value amounting to $214.8 million included in Consolidated SLST as of December 31, 2019.

(4)Collateral pledged includes first loss POs, IOs and mezzanine CMBS securities with a fair value amounting to $848.2 million included in the Consolidated K-Series as of December 31, 2019.

As of ~~March~~December 31, ~~2020,~~2019, the average days to maturity for repurchase agreements secured by investment securities was 73 days and the weighted average interest rate was 2.72%. The Company’s accrued interest payable on outstanding repurchase agreements secured by investment securities at December 31, 2019 amounted to $8.8 million and is included in accrued expenses and other liabilities on the Company’s condensed consolidated balance sheets.

The following table presents contractual maturity information about the Company’s outstanding repurchase agreements secured by investment securities at December 31, 2019 (dollar amounts in thousands):


Contractual Maturity	December 31, 2019
Within 30 days	$	449,474
Over 30 days to 90 days	1,647,683
Over 90 days	254,945
Total	$	2,352,102

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As of December 31, 2019, the Company had assets available to be posted as margin which included liquid assets, such as unrestricted cash and cash equivalents, and unencumbered securities that could be monetized to pay down or collateralize a liability immediately. As of ~~March~~December 31, ~~2020,~~2019, the Company had ~~$172.5~~$118.8 million in cash and cash equivalents and ~~$527.3~~$535.8 million in unencumbered investment securities to meet additional haircuts or market valuation requirements, which collectively ~~represent 98.1%~~represented 27.8% of our outstanding repurchase agreements secured by investment securities. The following table presents information about the Company's unencumbered securities at ~~March 31, 2020 and~~ December 31, 2019 ~~respectively~~ (dollar amounts in thousands):


Unencumbered Securities	December 31, 2019
Agency RMBS	$	83,351
CMBS	235,199
Non-Agency RMBS	168,063
ABS	49,214
Total	$	535,827

Unencumbered Securities

March 31, 2020 December 31, 2019
Agency RMBS $ —
$ 83,351
CMBS 82,406
235,199
Non-Agency RMBS 402,564
168,063
ABS 42,344
49,214
Total $ 527,314
$ 535,827

Residential Loans

The Company has repurchase agreements with ~~two third-party~~three financial institutions to fund the purchase of residential loans, including both first and second mortgages. The following table presents detailed information about the Company’s financings under these repurchase agreements and associated residential loans pledged as collateral at ~~March 31,~~September 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):


	Maximum Aggregate Uncommitted Principal Amount		Outstanding Repurchase Agreements		Carrying Value of Loans Pledged (1)		Weighted Average Rate		Weighted Average Months to Maturity (2)
September 30, 2020	$	1,247,483	$	673,787	$	938,572	2.46	%	2.96
December 31, 2019	$	1,200,000	$	754,132	$	961,749	3.67	%	11.20

Maximum Aggregate Uncommitted Principal Amount
Outstanding
Repurchase Agreements

Carrying Value of Loans Pledged ⁽¹⁾
Weighted Average Rate Weighted Average Months to Maturity
March 31, 2020 $ 1,200,000
$ 715,436
$ 918,350
2.87 % 8.28
December 31, 2019 $ 1,200,000
$ 754,132
$ 961,749
3.67 % 11.20

(1)Includes residential loans, at fair value of $938.6 million and $881.2 million at September 30, 2020 and December 31, 2019, respectively, and residential loans, net of $80.6 million at December 31, 2019.

(2)The Company expects to roll outstanding amounts under these repurchase agreements into new repurchase agreements or other financings, or to repay outstanding amounts, prior to or at maturity.


⁽¹⁾	Includes residential loans, at fair value of $918.4 million and $881.2 million at March 31, 2020 and December 31, 2019, respectively, and residential loans, net of $80.6 million at December 31, 2019.

During the terms of the repurchase agreements, proceeds from the residential loans will be applied to pay any price differential and to reduce the aggregate repurchase price of the collateral. The financings under the repurchase agreements with two of the counterparties are subject to margin calls to the extent the market value of the residential loans falls below specified levels and repurchase may be accelerated upon an event of default under the repurchase agreements.

~~Table of Contents~~

During the three months ended March 31, 2020, the Company was not in compliance with the market capitalization covenants in its repurchase agreements with ~~both~~two counterparties. In March 2020, the Company executed an amended repurchase agreement with 1 counterparty to modify the terms of financial covenants. The Company also agreed to a reservation of rights with ~~another~~the other counterparty during the three months ended March 31, 2020 in which the counterparty elected not to declare an event of default in accordance with the terms of the repurchase agreement for non-compliance with a financial covenant. The Company subsequently executed an amended repurchase agreement with this counterparty in April to modify the terms of financial covenants. ~~Subsequent to~~As of September 30, 2020, the ~~amendments, the~~Company's repurchase agreements contain various covenants, including among other things, the maintenance of certain amounts of liquidity and total stockholders' equity. The Company is in compliance with such covenants as of ~~May 26,~~November 6, 2020. ~~The Company expects to roll outstanding amounts under these repurchase agreements into new repurchase agreements or other financings, or to repay outstanding amounts, prior to or at maturity.~~

Costs related to ~~the establishment of~~ the repurchase agreements which include commitment, underwriting, legal, accounting and other fees are reflected as deferred charges. Such costs are presented as a deduction from the corresponding debt liability on the Company’s accompanying condensed consolidated balance sheets in the amount of ~~$0.7~~$1.3 million as of ~~March 31,~~September 30, 2020 and $0.8 million as of December 31, 2019. These deferred charges are amortized as an adjustment to interest expense using the effective interest method, or straight line-method, if the result is not materially different.

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12. Debt


~~12.~~	~~Debt~~

Convertible Notes

~~On January 23, 2017,~~As of September 30, 2020, the Company ~~issued~~had $138.0 million aggregate principal amount of its 6.25% Senior Convertible Notes due 2022 (the "Convertible Notes") in an underwritten public offering. The net proceeds to the Company from the sale of the Convertible Notes, after deducting the underwriter's discounts, commissions and offering expenses, were approximately $127.0 million with the total cost to the Company of approximately 8.24%.outstanding. Costs related to the issuance of the Convertible Notes which include underwriting, legal, accounting and other fees, are reflected as deferred charges. The underwriter's discount and deferred charges, net of amortization, are presented as a deduction from the corresponding debt liability on the Company's accompanying condensed consolidated balance sheets in the amount of ~~$4.5~~$3.3 million and $5.0 million as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively. The underwriter's discount and deferred charges are amortized as an adjustment to interest expense using the effective interest ~~method.~~method, resulting in a total cost to the Company of approximately 8.24%.

The Convertible Notes were issued at 96% of the principal amount, bear interest at a rate equal to 6.25% per year, payable semi-annually in arrears on January 15 and July 15 of each year, and are expected to mature on January 15, 2022, unless earlier converted or repurchased. The Company does not have the right to redeem the Convertible Notes prior to maturity and no sinking fund is provided for the Convertible Notes. Holders of the Convertible Notes are permitted to convert their Convertible Notes into shares of the Company's common stock at any time prior to the close of business on the business day immediately preceding January 15, 2022. The conversion rate for the Convertible Notes, which is subject to adjustment upon the occurrence of certain specified events, initially equals 142.7144 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes, which is equivalent to a conversion price of approximately $7.01 per share of the Company’s common stock, based on a $1,000 principal amount of the Convertible Notes. The Convertible Notes are senior unsecured obligations of the Company that rank senior in right of payment to the Company's subordinated debentures and any of its other indebtedness that is expressly subordinated in right of payment to the Convertible Notes.

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, none of the Convertible Notes were converted. As of ~~May 26,~~November 6, 2020, the Company has not been notified, and is not aware, of any event of default under the indenture for the Convertible Notes.

Subordinated Debentures

Subordinated debentures are trust preferred securities that are fully guaranteed by the Company with respect to distributions and amounts payable upon liquidation, redemption or repayment. The following table summarizes the key details of the Company’s subordinated debentures as of ~~March 31,~~September 30, 2020 and December 31, 2019 (dollar amounts in thousands):


	NYM Preferred Trust I		NYM Preferred Trust II
Principal value of trust preferred securities	$	25,000	$	20,000
Interest rate	Three month LIBOR plus 3.75%, resetting quarterly		Three month LIBOR plus 3.95%, resetting quarterly
Scheduled maturity	March 30, 2035		October 30, 2035

NYM Preferred Trust I NYM Preferred Trust II
Principal value of trust preferred securities $ 25,000
$ 20,000
Interest rate Three month LIBOR plus 3.75%, resetting quarterly
Three month LIBOR plus 3.95%, resetting quarterly
Scheduled maturity March 30, 2035
October 30, 2035

As of ~~May 26,~~November 6, 2020, the Company has not been notified, and is not aware, of any event of default under the indenture for the subordinated debentures.

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Debt Maturities

~~Debt Maturities~~

As of ~~March 31,~~September 30, 2020, maturities for debt on the Company's condensed consolidated balance sheet are as follows (dollar amounts in thousands):

Year Ending December 31, Total
2020 $ —
2021 —
2022 138,000
2023 —
2024 —
2025 —
Thereafter 45,000
$ 183,000


Year Ending December 31,	Total
2020	$	0
2021	0
2022	138,000
2023	0
2024	0
2025	0
Thereafter	45,000
	$	183,000

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13. Commitments and Contingencies


~~13.~~	~~Commitments and Contingencies~~

Impact of COVID-19

As further discussed in Notes 1 and 2, the full extent of the impact of the COVID-19 pandemic on the global economy generally, and the Company's business in particular, is uncertain. As of ~~March 31,~~September 30, 2020, no contingencies have been recorded on our condensed consolidated balance sheets as a result of the COVID-19 pandemic; however, as the global pandemic ~~continues~~ and ~~the~~its economic implications ~~worsen,~~continue, it may have long-term impacts on the Company's operations, financial condition, liquidity or cash flows.

Outstanding Litigation

The Company is at times subject to various legal proceedings arising in the ordinary course of business. As of ~~March 31,~~September 30, 2020, the Company does not believe that any of its current legal proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s operations, financial condition or cash flows.

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14. Fair Value of Financial Instruments


~~14.~~	~~Fair Value of Financial Instruments~~

The Company has established and documented processes for determining fair values. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, then fair value is based upon internally developed models that primarily use inputs that are market-based or independently sourced market parameters, including interest rate yield curves.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of valuation hierarchy are defined as follows:

Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following describes the valuation methodologies used for the Company’s financial instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

a.Investment Securities Available for Sale – The Company determines the fair value of the investment securities available for sale in our portfolio by considering several observable market data points, including prices obtained from third-party pricing services or dealers who make markets in similar financial instruments, as well as dialogue with market participants. Third-party pricing services typically incorporate commonly used market pricing methods, trading activity observed in the marketplace and other data inputs. The methodology considers the characteristics of the particular security and its underlying collateral, which are observable inputs. These inputs include, but are not limited to, historical performance, coupon, periodic and life caps, collateral type, rate reset period, seasoning, prepayment speeds and credit enhancement levels. The Company’s investment securities available for sale are valued based upon readily observable market parameters and are classified as Level 2 fair values.

b.Multi-Family Loans Held in Securitization Trusts and Residential Loans Held in Consolidated SLST – Multi-family loans held in securitization trusts and residential loans held in Consolidated SLST are carried at fair value and classified as Level 3 fair values. In accordance with the practical expedient in ASC 810, the Company determines the fair value of multi-family loans held in securitization trusts and residential loans held in Consolidated SLST based on the fair value of its Multi-Family CDOs and SLST CDOs and its retained interests from these securitizations (eliminated in consolidation in accordance with GAAP), as the fair value of these instruments is more observable.

c.Residential Loans and Residential Loans Held in Securitization Trusts – The Company’s acquired residential loans are recorded at fair value and classified as Level 3 in the fair value hierarchy. The fair value for residential loans is determined using valuations obtained from a third party that specializes in providing valuations of residential loans. The valuation approach depends on whether the residential loan is considered performing, re-performing or non-performing at the date the valuation is performed.

– The Company determines the fair value of the investment securities available for sale in our portfolio using a third-party pricing service or quoted prices provided by dealers who make markets in similar financial instruments. Dealer valuations typically incorporate common market pricing methods, including a spread measurement to the Treasury curve or interest rate swap curve as well as underlying characteristics of the particular security including coupon, periodic and life caps, collateral type, rate reset period and seasoning or age of the security. If quoted prices for a security are not reasonably available from a dealer, the security will be classified as a Level 3 security and, as a result, management will determine fair value by modeling the security based on its specific characteristics and available market information. The Company’s investment securities available for sale are valued based upon readily observable market parameters and are classified as Level 2 fair values.

~~Multi-Family Loans Held in Securitization Trusts and Residential Loans Held in Consolidated SLST~~ – Multi-family loans held in securitization trusts and residential loans held in Consolidated SLST are carried at fair value and classified as Level 3 fair values. In accordance with the practical expedient in ASC 810, the Company determines the fair value of multi-family loans held in securitization trusts and residential loans held in Consolidated SLST based on the fair value of its Multi-Family CDOs and SLST CDOs and its retained interests from these securitizations (eliminated in consolidation in accordance with GAAP), as the fair value of these instruments is more observable.

~~Residential Loans and Residential Loans Held in Securitization Trusts –~~ The Company’s acquired residential loans are recorded at fair value and classified as Level 3 in the fair value hierarchy. The fair value for residential loans is determined using valuations obtained from a third party that specializes in providing valuations of residential loans. The valuation approach depends on whether the residential loan is considered performing, re-performing or non-performing at the date the valuation is performed.

For performing and re-performing loans, estimates of fair value are derived using a discounted cash flow model, where estimates of cash flows are determined from scheduled payments for each loan, adjusted using forecast prepayment rates, default rates and rates for loss upon default. For non-performing loans, asset liquidation cash flows are derived based on the estimated time to liquidate the loan, expected liquidation costs and home price appreciation. Estimated cash flows for both performing and non-performing loans are discounted at yields considered appropriate to arrive at a reasonable exit price for the asset. Indications of loan value such as actual trades, bids, offers and generic market color may be used in determining the appropriate discount yield.


d.	~~Derivative Instruments –~~ The Company’s derivative instruments as of December 31, 2019 were classified as Level 2 fair values and were measured using valuations reported by the clearing house, CME Clearing, through which these instruments were cleared. The derivatives were presented net of variation margin payments pledged or received.

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d.Derivative Instruments – The Company’s derivative instruments as of December 31, 2019 were classified as Level 2 fair values and were measured using valuations reported by the clearing house, CME Clearing, through which these instruments were cleared. The derivatives were presented net of variation margin payments pledged or received.

e.Investments in Unconsolidated Entities – Fair value for investments in unconsolidated entities is determined by (i) the valuation process for residential loans as described in c. above, (ii) the valuation process for preferred equity and mezzanine loan investments as described in f. below or (iii) provided by the general partner of the equity investment entity. These fair value measurements are generally based on unobservable inputs and, as such, are classified as Level 3 in the fair value hierarchy.

f.Preferred Equity and Mezzanine Loan Investments– Fair value for preferred equity and mezzanine loan investments is determined by both market comparable pricing and discounted cash flows. The discounted cash flows are based on the underlying contractual cash flows and estimated changes in market yields. The fair value also reflects consideration of changes in credit risk since the origination or time of initial investment. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 in the fair value hierarchy.

g.Multi-Family and Residential Collateral Debt Obligations, at fair value – Multi-Family CDOs and SLST CDOs are classified as Level 3 fair values. The fair value of Multi-Family CDOs and SLST CDOs is determined by considering several market data points, including prices obtained from third-party pricing services or dealers who make markets in similar financial instruments. The third-party pricing service or dealers incorporate common market pricing methods, including a spread measurement to the Treasury curve or interest rate swap curve as well as underlying characteristics of a particular security. They will also consider contractual cash payments and yields expected by market participants.

~~Fair value for investments in unconsolidated entities is determined by (i) the valuation process for residential loans as described in~~ c. ~~above, (ii) the valuation process for preferred equity and mezzanine loan investments as described in~~ f. below or (iii) provided by the general partner of the equity investment entity. These fair value measurements are generally based on unobservable inputs and, as such, are classified as Level 3 in the fair value hierarchy.

~~Preferred Equity and Mezzanine Loan Investments~~– Fair value for preferred equity and mezzanine loan investments is determined by both market comparable pricing and discounted cash flows. The discounted cash flows are based on the underlying contractual cash flows and estimated changes in market yields. The fair value also reflects consideration of changes in credit risk since the origination or time of initial investment. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 in the fair value hierarchy.

~~Multi-Family and Residential Collateral Debt Obligations, at fair value~~ – Multi-Family CDOs and SLST CDOs are classified as Level 3 fair values. The fair value of Multi-Family CDOs and SLST CDOs is determined using a third-party pricing service or are based on quoted prices provided by dealers who make markets in similar financial instruments. The dealers will consider contractual cash payments and yields expected by market participants. Dealers also incorporate common market pricing methods, including a spread measurement to the Treasury curve or interest rate swap curve as well as underlying characteristics of the particular security including coupon, periodic and life caps, collateral type, rate reset period and seasoning or age of the security.

Management reviews all prices used in determining fair value to ensure they represent current market conditions. This review includes surveying similar market transactions and comparisons to interest pricing models as well as offerings of like securities by dealers. Any changes to the valuation methodology are reviewed by management to ensure the changes are appropriate. As markets and products develop and the pricing for certain products becomes more transparent, the Company continues to refine its valuation methodologies. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The Company uses inputs that are current as of each reporting date, which may include periods of market dislocation, during which time price transparency may be reduced. This condition could cause the Company’s financial instruments to be reclassified from Level 2 to Level 3 in future periods.

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The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively, on the Company’s condensed consolidated balance sheets (dollar amounts in thousands):


	Measured at Fair Value on a Recurring Basis at																	Measured at Fair Value on a Recurring Basis at
	March 31, 2020								December 31, 2019									September 30, 2020								December 31, 2019
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets carried at fair value																	Assets carried at fair value
Investment securities available for sale, at fair value:																	Investment securities available for sale, at fair value:
Agency RMBS	$	—	$	—	$	—	$	—	$	—	$	922,877	$	—	$	922,877	Agency RMBS	$	0	$	0	$	0	$	0	$	0	$	922,877	$	0	$	922,877
Agency CMBS	—		—		—		—		—		50,958		—		50,958		Agency CMBS	0		0		0		0		0		50,958		0		50,958
Non-Agency RMBS	—		576,108		—		576,108		—		715,314		—		715,314		Non-Agency RMBS	0		375,765		0		375,765		0		715,314		0		715,314
CMBS	—		268,856		—		268,856		—		267,777		—		267,777		CMBS	0		182,925		0		182,925		0		267,777		0		267,777
ABS	—		42,344		—		42,344		—		49,214		—		49,214		ABS	0		45,007		0		45,007		0		49,214		0		49,214
Residential loans, at fair value:																	Residential loans, at fair value:
Residential loans	—		—		1,515,347		1,515,347		—		—		1,429,754		1,429,754		Residential loans	0		0		1,177,298		1,177,298		0		0		1,429,754		1,429,754
Consolidated SLST	—		—		1,218,299		1,218,299		—		—		1,328,886		1,328,886		Consolidated SLST	—		—		1,290,005		1,290,005		—		—		1,328,886		1,328,886
Residential loans held in securitization trusts	—		—		42,984		42,984		—		—		—		—		Residential loans held in securitization trusts	0		0		355,486		355,486		0		0		0		0
Investments in unconsolidated entities	—		—		211,965		211,965		—		—		83,882		83,882		Investments in unconsolidated entities	0		0		218,706		218,706		—		—		83,882		83,882
Preferred equity and mezzanine loan investments	—		—		179,292		179,292		—		—		—		—		Preferred equity and mezzanine loan investments	—		—		183,154		183,154		—		—		0		0
Multi-family loans held in securitization trusts, at fair value	—		—		—		—		—		—		17,816,746		17,816,746		Multi-family loans held in securitization trusts, at fair value	0		0		0		0		0		0		17,816,746		17,816,746
Derivative assets:																	Derivative assets:
Interest rate swaps ⁽¹⁾	—		—		—		—		—		15,878		—		15,878		Interest rate swaps (1)	0		0		0		0		0		15,878		0		15,878
Total	$	—	$	887,308	$	3,167,887	$	4,055,195	$	—	$	2,022,018	$	20,659,268	$	22,681,286	Total	$	0	$	603,697	$	3,224,649	$	3,828,346	$	0	$	2,022,018	$	20,659,268	$	22,681,286
Liabilities carried at fair value																	Liabilities carried at fair value
Multi-family collateralized debt obligations, at fair value	$	—	$	—	$	—	$	—	$	—	$	—	$	16,724,451	$	16,724,451	Multi-family collateralized debt obligations, at fair value	$	0	$	0	$	0	$	0	$	0	$	0	$	16,724,451	$	16,724,451

Residential collateralized debt obligations, at fair value	—		—		1,034,992		1,034,992		—		—		1,052,829		1,052,829		Residential collateralized debt obligations, at fair value	—		—		1,077,980		1,077,980		—		—		1,052,829		1,052,829
Total	$	—	$	—	$	1,034,992	$	1,034,992	$	—	$	—	$	17,777,280	$	17,777,280	Total	$	0	$	0	$	1,077,980	$	1,077,980	$	0	$	0	$	17,777,280	$	17,777,280


⁽¹⁾ (1)All of the Company's interest rate swaps were cleared through a central clearing house. The Company exchanged variation margin for swaps based upon daily changes in fair value. Included derivative liabilities of $29.0 million netted against a variation margin of $44.8 million at December 31, 2019.	All of the Company's interest rate swaps were cleared through a central clearing house. The Company exchanged variation margin for swaps based upon daily changes in fair value. Included derivative liabilities of $29.0 million netted against a variation margin of $44.8 million at December 31, 2019.

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The following tables detail changes in valuation for the Level 3 assets for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively ~~(amounts~~(dollar amounts in thousands):

Level 3 Assets:


	Nine Months Ended September 30, 2020
	Residential loans		Consolidated SLST		Residential loans held in securitization trusts		Investments in unconsolidated entities		Preferred equity and mezzanine loan investments		Multi-family loans held in securitization trusts		Total
Balance at beginning of period	$	1,429,754	$	1,328,886	$	0	$	83,882	$	0	$	17,816,746	$	20,659,268
Total (losses)/gains (realized/unrealized)
Included in earnings	(26,069)		24,096		8,836		14,573		9,760		41,795		72,991

Transfers in (1)	164,279		0		46,572		107,477		182,465		0		500,793
Transfers out (2) (3)	(5,061)		0		(1,497)		0		0		(237,297)		(243,855)
Transfer to securitization trust (4)	(317,089)		0		317,089		0		0		0		0
Contributions	0		0		0		35,951		13,712		0		49,663
Paydowns/Distributions	(224,073)		(62,977)		(15,514)		(23,177)		(22,783)		(239,796)		(588,320)
Recovery of charge-off	0		0		0		0		0		35		35
Sales (3)	(93,755)		0		0		0		0		(17,381,483)		(17,475,238)
Purchases	249,312		0		0		0		0		0		249,312
Balance at the end of period	$	1,177,298	$	1,290,005	$	355,486	$	218,706	$	183,154	$	0	$	3,224,649

Three Months Ended March 31, 2020
Residential loans Consolidated SLST Residential loans held in securitization trusts Investments in unconsolidated entities Preferred equity and mezzanine loan investments Multi-family loans held in securitization trusts Total
Balance at beginning of period $ 1,429,754
$ 1,328,886
$ —
$ 83,882
$ —
$ 17,816,746
$ 20,659,268
Total (losses)/gains (realized/unrealized)
Included in earnings (94,418 ) (89,087 ) (1,739 ) 494
(209 ) 41,795
(143,164 )
Transfers in ⁽¹⁾
164,035
—
46,572
107,477
182,465
—
500,549
Transfers out ^{(2) (3)}
(3,166 ) —
(349 ) —
—
(237,297 ) (240,812 )
Contributions —
—
—
22,106
8,440
—
30,546
Paydowns/Distributions (84,719 ) (21,500 ) (1,500 ) (1,994 ) (11,404 ) (239,796 ) (360,913 )
Recovery of charge-off —
—
—
—
—
35
35
Sales ⁽³⁾
(49,960 ) —
—
—
—
(17,381,483 ) (17,431,443 )
Purchases 153,821
—
—
—
—
—
153,821
Balance at the end of period $ 1,515,347
$ 1,218,299
$ 42,984
$ 211,965
$ 179,292
$ —
$ 3,167,887

⁽¹⁾

As of January 1, 2020, the Company has elected to account for all residential loans, residential loans held in securitization trusts, investments in unconsolidated entities and preferred equity and mezzanine loan investments using the fair value option (see Note 2).

(2)Transfers out of Level 3 assets include the transfer of residential loans to real estate owned.

(3)During the nine months ended September 30, 2020, the Company sold first loss PO securities included in the Consolidated K-Series and, as a result, de-consolidated multi-family loans held in securitization trusts and transferred its remaining securities owned in the Consolidated K-Series to investment securities available for sale (see Notes 2 and 6).

(4)In July 2020, the Company completed a securitization of certain performing, re-performing and non-performing residential loans (see Note 9).


⁽²⁾	~~Transfers out of Level 3 assets include the transfer of residential loans to real estate owned.~~


⁽³⁾	During the three months ended March 31, 2020, the Company sold first loss PO securities included in the Consolidated K-Series and, as a result, de-consolidated multi-family loans held in securitization trusts and transferred its remaining securities owned in the Consolidated K-Series to investment securities available for sale (~~see Notes 2 and 6~~).

Three Months Ended March 31, 2019
Residential loans Investments in unconsolidated entities Multi-family loans held in securitization trusts CMBS held in securitization trusts Total
Balance at beginning of period $ 737,523
$ 32,994
$ 11,679,847
$ 52,700
$ 12,503,064
Total gains/(losses) (realized/unrealized)
Included in earnings 9,945
3,892
259,764
17,734
291,335
Included in other comprehensive income (loss) —
—
—
(13,665 ) (13,665 )
Transfers in —
—
—
—
—
Transfers out (182 ) —
—
—
(182 )
Contributions —
—
—
—
—
Paydowns/Distributions (24,930 ) (311 ) (37,485 ) —
(62,726 )
Sales (6,448 ) —
—
(56,769 ) (63,217 )
Purchases ⁽¹⁾
159,658
—
2,426,210
—
2,585,868
Balance at the end of period $ 875,566
$ 36,575
$ 14,328,336
$ —
$ 15,240,477

Table of Contents


	Nine Months Ended September 30, 2019
	Residential loans		Investments in unconsolidated entities		Multi-family loans held in securitization trusts		CMBS held in securitization trusts		Total
Balance at beginning of period	$	737,523	$	32,994	$	11,679,847	$	52,700	$	12,503,064
Total gains/(losses) (realized/unrealized)
Included in earnings	44,913		7,169		760,132		17,734		829,948
Included in other comprehensive income (loss)	0		0		0		(13,665)		(13,665)
Transfers in	0		0		0		0		0
Transfers out	(437)		0		0		0		(437)
Contributions	0		50,000		0		0		50,000
Paydowns/Distributions	(106,113)		(13,914)		(368,811)		0		(488,838)
Charge-off	0		0		(3,510)		0		(3,510)
Sales	(19,814)		0		0		(56,769)		(76,583)
Purchases (1)	460,056		0		3,795,606		0		4,255,662
Balance at the end of period	$	1,116,128	$	76,249	$	15,863,264	$	0	$	17,055,641

⁽¹⁾

(1)During the nine months ended September 30, 2019, the Company purchased first loss PO securities and certain IOs and senior or mezzanine CMBS securities issued from securitizations that it determined to consolidate and included in the Consolidated K-Series. As a result, the Company consolidated assets of these securitizations in the amount of $3.8 billion during the nine months ended September 30, 2019 (see Notes 2 and 6).

Table of Contents

During the three months ended March 31, 2019, the Company purchased first loss PO securities and certain IOs and mezzanine CMBS securities issued from securitizations that it determined to consolidate and included in the Consolidated K-Series. As a result, the Company consolidated assets of these securitizations in the amount of $2.4 billion during the three months ended March 31, 2019 (~~see Notes 2 and 6~~).

The following tables detail changes in valuation for the Level 3 liabilities for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively ~~(amounts~~(dollar amounts in thousands):

Level 3 Liabilities:


	Nine Months Ended September 30, 2020
	Multi-Family CDOs		SLST CDOs		Total
Balance at beginning of period	$	16,724,451	$	1,052,829	$	17,777,280
Total losses/(gains) (realized/unrealized)
Included in earnings	35,018		66,203		101,221


Paydowns	(147,376)		(63,278)		(210,654)
Sales (1)	(16,612,093)		22,226		(16,589,867)
Transfers out	0		0		0
Balance at the end of period	$	0	$	1,077,980	$	1,077,980

Three Months Ended March 31, 2020
Multi-Family CDOs SLST CDOs Total
Balance at beginning of period $ 16,724,451
$ 1,052,829
$ 17,777,280
Total losses/(gains) (realized/unrealized)
Included in earnings 35,018
(18,855 ) 16,163
Paydowns (147,376 ) (21,208 ) (168,584 )
Sales ⁽¹⁾
(16,612,093 ) 22,226
(16,589,867 )
Transfers out —
—
—
Balance at the end of period $ —
$ 1,034,992
$ 1,034,992

(1)During the nine months ended September 30, 2020, the Company sold first loss PO securities included in the Consolidated K-Series and, as a result, de-consolidated the Multi-Family CDOs (see Notes 2 and 6). Also includes the Company's net sales of senior securities issued by Consolidated SLST during the nine months ended September 30, 2020 (see Note 4).


	Nine Months Ended September 30, 2019
	Multi-Family CDOs
Balance at beginning of period	$	11,022,248
Total losses (realized/unrealized)
Included in earnings	694,043

^Purchases(1)	~~During the three months ended March 31, 2020, the Company sold first loss PO securities included in the Consolidated K-Series and, as a result, de-consolidated the Multi-Family CDOs (~~3,633,525 ~~see Notes 2 and 6). Also includes the Company's net sales of senior securities issued by Consolidated SLST during the three months ended March 31, 2020 (see Note 4~~).

Three Months Ended March 31, 2019
Multi-Family CDOs
Balance at beginning of period $ 11,022,248
Total losses (realized/unrealized)
Included in earnings 237,789
Purchases ⁽¹⁾
2,324,639
Paydowns (37,481 )
Balance at the end of period $ 13,547,195


⁽¹⁾Paydowns	~~During~~(368,107)

Charge-off	(3,510)
Balance at the three months ended March 31, 2019, the Company purchased first loss PO securities and certain IOs and mezzanine CMBS securities issued from securitizations that it determined to consolidate and included in the Consolidated K-Series. As a result, the Company consolidated liabilitiesend of ~~these securitizations in the amount of $2.3 billion during the three months ended March 31, 2019 (~~period	~~see Notes 2 and 6~~$	).14,978,199

(1)During the nine months ended September 30, 2019, the Company purchased first loss PO securities and certain IOs and senior or mezzanine CMBS securities issued from securitizations that it determined to consolidate and included in the Consolidated K-Series. As a result, the Company consolidated liabilities of these securitizations in the amount of $3.6 billion during the nine months ended September 30, 2019 (see Notes 2 and 6).

Table of Contents

The following table discloses quantitative information regarding the significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value (dollar amounts in thousands, except input values):


September 30, 2020	Fair Value	Valuation Technique	Unobservable Input	Weighted Average	Range
Assets
Residential loans, at fair value:
Residential loans and residential loans held in securitization trusts (1)	$1,397,090	Discounted cash flow	Lifetime CPR	9.6%	0	-	67.6%
			Lifetime CDR	2.6%	0	-	100.0%
			Loss severity	16.3%	0	-	100.0%
			Yield	5.3%	2.3%	-	35.0%

	$135,694	Liquidation model	Annual home price appreciation	0.1%	0	-	5.7%
			Liquidation timeline (months)	29	1	-	57
			Property value	$572,723	$12,430	-	$3,550,000
			Yield	7.1%	7.0%	-	35.0%

Residential loans held in Consolidated SLST (2)	$1,290,005		Liability price	N/A

Total	$2,822,789

Investments in unconsolidated entities (1)	$145,250	Discounted cash flow	Discount rate	12.5%	12.0%	-	13.5%
			Months to assumed redemption	42	18	-	56
			Loss severity	—

Preferred equity and mezzanine loan investments (1)	$183,154	Discounted cash flow	Discount rate	12.4%	11.5%	-	16.0%
			Months to assumed redemption	45	1	-	186
			Loss severity	—
Liabilities
Residential collateralized debt obligations, at fair value
SLST CDOs (2) (3)	$1,077,980	Discounted cash flow	Yield	2.3%	1.2%	-	11.5%
			Collateral prepayment rate	5.5%	2.8%	-	6.1%
			Collateral default rate	2.0%	0	-	6.8%
			Loss severity	21.1%	0	-	23.7%

(1)Weighted average amounts are calculated based on the weighted average fair value of the assets.

(2)In accordance with the practical expedient in ASC 810, the Company determines the fair value of the residential loans held in Consolidated SLST based on the fair value of SLST CDOs, including securities we own, as the fair value of these instruments is more observable. At September 30, 2020, the fair value of securities we owned in Consolidated SLST was $210.9 million.

(3)Weighted average yield calculated based on the weighted average fair value of the liabilities. Weighted average collateral prepayment rate, weighted average collateral default rate, and weighted average loss severity are calculated based on the weighted average unpaid balance of the liabilities.

March 31, 2020 Fair Value Valuation Technique Unobservable Input Weighted Average Range
Assets
Residential loans, at fair value:
Residential loans and residential loans held in securitization trusts $1,390,197 Discounted cash flow Lifetime CPR 9.6% — - 55.3%
Lifetime CDR 1.5% — - 23.0%
Loss severity 16.4% — - 100.0%
Yield 6.1% 2.8% - 17.0%

$168,134 Liquidation model Annual home price appreciation 0.2% — - 5.6%
Liquidation timeline (months) 28 1 - 57
Property value $482,658 $2,500 - $3,400,000
Yield 7.5% 7.5% - 15.0%

Residential loans held in Consolidated SLST ⁽¹⁾
$1,218,299 Liability price N/A

Total $2,776,630

Investments in unconsolidated entities $126,865 Discounted cash flow Discount rate 12.4% 12.0% - 13.5%
Months to assumed redemption 46 21 - 59
Loss severity —

Preferred equity and mezzanine loan investments $179,292 Discounted cash flow Discount rate 12.2% 11.5% - 13.5%
Months to assumed redemption 48 10 - 189
Loss severity —
Liabilities
Residential collateralized debt obligations, at fair value
SLST CDOs ⁽¹⁾
$1,034,992 Discounted cash flow Yield 4.0% 2.7% - 14.9%
Collateral prepayment rate 5.7% 3.8% - 6.2%
Collateral default rate 2.0% — - 2.7%
Loss severity 22.2% 0.1% - 24.4%


⁽¹⁾	In accordance with the practical expedient in ASC 810, the Company determines the fair value of the residential loans held in Consolidated SLST based on the fair value of SLST CDOs, including securities we own, as the fair value of these instruments is more observable. At March 31, 2020, the fair value of securities we owned in Consolidated SLST was $182.8 million.

Table of Contents

The following table details the changes in unrealized gains (losses) included in earnings for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 for our Level 3 assets and liabilities held as of ~~March 31,~~September 30, 2020 and 2019, respectively (dollar amounts in thousands):


	Three Months Ended March 31,							Three Months Ended September 30,				Nine Months Ended September 30,
	2020			2019				2020		2019		2020		2019
Assets							Assets
Residential loans, at fair value							Residential loans, at fair value
Residential loans ⁽¹⁾	$	(76,295	)	$	9,337		Residential loans (1)	$	35,420	$	17,413	$	(883)	$	37,079
Consolidated SLST ⁽¹⁾	(88,100		)	—			Consolidated SLST (1)	41,063		0		28,014		0
Residential loans held in securitization trusts ⁽¹⁾	(1,700		)	—			Residential loans held in securitization trusts (1)	817		0		(823)		0
Investments in unconsolidated entities ⁽²⁾	(4,023		)	3,661			Investments in unconsolidated entities (2)	7		449		(4,052)		1,295
Preferred equity and mezzanine loan investments ⁽¹⁾	(5,559		)	—			Preferred equity and mezzanine loan investments (1)	(955)		0		(6,518)		0
Multi-family loans held in securitization trusts, at fair value ⁽¹⁾	—			274,683			Multi-family loans held in securitization trusts, at fair value (1)	0		197,837		0		802,625
Liabilities							Liabilities
Multi-family collateralized debt obligations, at fair value ⁽¹⁾	—			(265,273		)	Multi-family collateralized debt obligations, at fair value (1)	0		(190,207)		0		(780,378)
Residential collateralized debt obligations, at fair value ⁽¹⁾	21,966			—			Residential collateralized debt obligations, at fair value (1)	(13,918)		0		(62,907)		0


⁽¹⁾ (1)Presented in unrealized gains (losses), net on the Company's condensed consolidated statements of operations. (2)Presented in other income on the Company's condensed consolidated statements of operations.	~~Presented in unrealized gains (losses), net on the Company's condensed consolidated statements of operations.~~


⁽²⁾	~~Presented in other income on the Company's condensed consolidated statements of operations.~~

The following table presents assets measured at fair value on a non-recurring basis as of December 31, 2019, on the Company's condensed consolidated balance sheets (dollar amounts in thousands):


	December 31, 2019
	Level 1	Level 2	Level 3		Total
Residential loans held in securitization trusts – impaired loans, net	0	0	$	5,256	$	5,256

December 31, 2019
Level 1 Level 2 Level 3 Total
Residential loans held in securitization trusts – impaired loans, net —
—
$ 5,256
$ 5,256

The following table presents gains (losses) incurred for assets measured at fair value on a non-recurring basis for the three and nine months ended ~~March 31,~~September 30, 2019, respectively, on the Company’s condensed consolidated statements of operations (dollar amounts in thousands):


	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Residential loans held in securitization trusts – impaired loans, net	$	13	$	(24)

Three Months Ended March 31, 2019
Residential loans held in securitization trusts – impaired loans, net $ (38 )

Residential Loans Held in Securitization Trusts – Impaired Loans, net – Impaired residential loans held in securitization trusts, net were recorded at amortized cost less specific loan loss reserves. Impaired loan value was based on management’s estimate of the net realizable value taking into consideration local market conditions of the property, updated appraisal values of the property and estimated expenses required to remediate the impaired loan.

Table of Contents

The following table presents the carrying value and estimated fair value of the Company’s financial instruments at ~~March 31,~~September 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):

March 31, 2020 December 31, 2019

Fair Value
Hierarchy Level

Carrying
Value

Estimated
Fair Value

Carrying
Value

Estimated
Fair Value
Financial Assets:
Cash and cash equivalents Level 1 $ 172,513
$ 172,513
$ 118,763
$ 118,763
Cash margin ⁽¹⁾
Level 1 169,484
169,484
—
—
Receivable for securities sold Level 1 213,585
213,585
—
—
Investment securities available for sale, at fair value Level 2 887,308
887,308
2,006,140
2,006,140
Residential loans, at fair value
Residential loans Level 3 1,515,347
1,515,347
1,429,754
1,429,754
Consolidated SLST Level 3 1,218,299
1,218,299
1,328,886
1,328,886
Residential loans held in securitization trusts Level 3 42,984
42,984
—
—
Residential loans, net Level 3 —
—
202,756
208,471
Investments in unconsolidated entities Level 3 211,965
211,965
189,965
191,359
Preferred equity and mezzanine loan investments Level 3 179,292
179,292
180,045
182,465
Multi-family loans held in securitization trusts, at fair value Level 3 —
—
17,816,746
17,816,746
Derivative assets Level 2 —
—
15,878
15,878
Loans held for sale, net ⁽¹⁾
Level 3 —
—
2,406
2,482
Financial Liabilities:
Repurchase agreements Level 2 1,428,124
1,428,124
3,105,416
3,105,416
Residential collateralized debt obligations Level 3 38,959
35,029
40,429
38,888
Multi-family collateralized debt obligations, at fair value Level 3 —
—
16,724,451
16,724,451
Residential collateralized debt obligations, at fair value Level 3 1,034,992
1,034,992
1,052,829
1,052,829
Subordinated debentures Level 3 45,000
12,451
45,000
41,592
Convertible notes Level 2 133,534
76,794
132,955
140,865


⁽¹⁾	~~Included in receivables and other assets in the accompanying condensed consolidated balance sheets.~~


		September 30, 2020				December 31, 2019
	Fair Value Hierarchy Level	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets:
Cash and cash equivalents	Level 1	$	649,822	$	649,822	$	118,763	$	118,763
Investment securities available for sale, at fair value	Level 2	603,697		603,697		2,006,140		2,006,140
Residential loans, at fair value
Residential loans	Level 3	1,177,298		1,177,298		1,429,754		1,429,754
Consolidated SLST	Level 3	1,290,005		1,290,005		1,328,886		1,328,886
Residential loans held in securitization trusts	Level 3	355,486		355,486		0		0
Residential loans, net	Level 3	0		0		202,756		208,471
Investments in unconsolidated entities	Level 3	218,706		218,706		189,965		191,359
Preferred equity and mezzanine loan investments	Level 3	183,154		183,154		180,045		182,465
Multi-family loans held in securitization trusts, at fair value	Level 3	0		0		17,816,746		17,816,746
Derivative assets	Level 2	0		0		15,878		15,878
Loans held for sale, net (1)	Level 3	0		0		2,406		2,482


Financial Liabilities:
Repurchase agreements	Level 2	672,519		672,519		3,105,416		3,105,416
Securitized debt	Level 2	88,791		90,096		0		0
Residential collateralized debt obligations	Level 3	268,820		269,749		40,429		38,888
Multi-family collateralized debt obligations, at fair value	Level 3	0		0		16,724,451		16,724,451
Residential collateralized debt obligations, at fair value	Level 3	1,077,980		1,077,980		1,052,829		1,052,829


Subordinated debentures	Level 3	45,000		32,548		45,000		41,592
Convertible notes	Level 2	134,720		135,457		132,955		140,865

Table of Contents

In addition to the methodology to determine the fair value of the Company’s financial assets and liabilities reported at fair value on a recurring basis and non-recurring basis, as previously described, the following methods and assumptions were used by the Company in arriving at the fair value of the Company’s other financial instruments in the table immediately above:


a.	~~Cash and cash equivalents –~~ ~~Estimated fair value approximates the carrying value of such assets.~~


b.	~~Cash margin~~– ~~Estimated fair value approximates the carrying value of such assets.~~


c.	~~Receivable for securities sold~~– ~~Estimated fair value approximates the carrying value of such assets.~~


d.	~~Repurchase agreements –~~ ~~The fair value of these repurchase agreements approximates cost as they are short term in nature.~~


e.	~~Residential collateralized debt obligations –~~ ~~The fair value of these CDOs is based on discounted cash flows as well as market pricing on comparable obligations.~~


f.	~~Subordinated debentures –~~ ~~The fair value of these subordinated debentures is based on discounted cash flows using management’s estimate for market yields.~~


g.	~~Convertible notes –~~ ~~Thefair value is based on quoted prices provided by dealers who make markets in similar financial instruments.~~

a.Cash and cash equivalents – Estimated fair value approximates the carrying value of such assets.

b.Repurchase agreements – The fair value of these repurchase agreements approximates cost as they are short term in nature.

c.Securitized debt - The fair value is based on discounted cash flows as well as market pricing on comparable obligations.

d.Residential collateralized debt obligations – The fair value of these CDOs is based on discounted cash flows as well as market pricing on comparable obligations.

e.Subordinated debentures – The fair value of these subordinated debentures is based on discounted cash flows using management’s estimate for market yields.

f.Convertible notes – Thefair value is based on quoted prices provided by dealers who make markets in similar financial instruments.

Table of Contents

15. Stockholders' Equity


~~15.~~	~~Stockholders' Equity~~

(a) Preferred Stock

The Company had 200,000,000 authorized shares of preferred stock, par value $0.01 per share, with 20,872,888 shares issued and outstanding as of ~~March 31,~~September 30, 2020 and December 31, 2019.

As of ~~March 31,~~September 30, 2020, the Company has issued four series of cumulative redeemable preferred stock (the “Preferred Stock”): 7.75% Series B Cumulative Redeemable Preferred Stock (“Series B Preferred Stock”), 7.875% Series C Cumulative Redeemable Preferred Stock (“Series C Preferred Stock”), 8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series D Preferred Stock”) and 7.875% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series E Preferred Stock”). Each series of the Preferred Stock is senior to the Company’s common stock with respect to dividends and distributions upon liquidation, dissolution or winding up.

The following ~~tables summarize~~table summarizes the Company’s Preferred Stock issued and outstanding as of ~~March 31,~~September 30, 2020 and December 31, 2019 ~~respectively~~ (dollar amounts in thousands):


Class of Preferred Stock	Shares Authorized	Shares Issued and Outstanding	Carrying Value		Liquidation Preference		Contractual Rate (1)		Redemption Date (2)	Fixed-to-Floating Rate Conversion Date (1)(3)	Floating Annual Rate (4)
Fixed Rate
Series B	6,000,000	3,156,087	$	76,180	$	78,902	7.750	%	June 4, 2018
Series C	6,600,000	4,181,807	101,102		104,545		7.875	%	April 22, 2020
Fixed-to-Floating Rate
Series D	8,400,000	6,123,495	148,134		153,087		8.000	%	October 15, 2027	October 15, 2027	3M LIBOR + 5.695%
Series E	9,900,000	7,411,499	179,349		185,288		7.875	%	January 15, 2025	January 15, 2025	3M LIBOR + 6.429%
Total	30,900,000	20,872,888	$	504,765	$	521,822

~~March 31, 2020~~

(1)Each series of fixed rate preferred stock is entitled to receive a dividend at the contractual rate shown, respectively, per year on its $25 liquidation preference. Each series of fixed-to-floating rate preferred stock is entitled to receive a dividend at the contractual rate shown, respectively, per year on its $25 liquidation preference up to, but excluding, the fixed-to-floating rate conversion date.

Class of Preferred Stock Shares Authorized Shares Issued and Outstanding Carrying Value
Liquidation Preference ⁽¹⁾

Contractual Rate ⁽²⁾

Redemption Date ⁽³⁾

Fixed-to-Floating Rate Conversion Date⁽²⁾⁽⁴⁾

Floating Annual Rate⁽⁵⁾
Fixed Rate
Series B 6,000,000
3,156,087
$ 76,180
$ 80,431
7.750 % June 4, 2018
Series C 6,600,000
4,181,807
101,102
106,603
7.875 % April 22, 2020
Fixed-to-Floating Rate
Series D 8,400,000
6,123,495
148,134
156,149
8.000 % October 15, 2027 October 15, 2027 3M LIBOR + 5.695%
Series E 9,900,000
7,411,499
179,349
188,936
7.875 % January 15, 2025 January 15, 2025 3M LIBOR + 6.429%
Total 30,900,000
20,872,888
$ 504,765
$ 532,119

(2)Each series of Preferred Stock is not redeemable by the Company prior to the respective redemption date disclosed except under circumstances intended to preserve the Company’s qualification as a REIT and except upon occurrence of a Change in Control (as defined in the Articles Supplementary designating the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, respectively).

(3)Beginning on the respective fixed-to-floating rate conversion date, each of the Series D Preferred Stock and Series E Preferred Stock is entitled to receive a dividend on a floating rate basis according to the terms disclosed in footnote (4) below.

~~December 31, 2019~~(4)On and after the fixed-to-floating rate conversion date, each of the Series D Preferred Stock and Series E Preferred Stock is entitled to receive a dividend at a floating rate equal to three-month LIBOR plus the respective spread disclosed above per year on its $25 liquidation preference.

Class of Preferred Stock Shares Authorized Shares Issued and Outstanding Carrying Value Liquidation Preference
Contractual Rate ⁽²⁾

Redemption Date ⁽³⁾

Fixed-to-Floating Rate Conversion Date⁽²⁾⁽⁴⁾

Floating Annual Rate⁽⁵⁾
Fixed Rate
Series B 6,000,000
3,156,087
$ 76,180
$ 78,902
7.750 % June 4, 2018
Series C 6,600,000
4,181,807
101,102
104,545
7.875 % April 22, 2020
Fixed-to-Floating Rate
Series D 8,400,000
6,123,495
148,134
153,087
8.000 % October 15, 2027 October 15, 2027 3M LIBOR + 5.695%
Series E 9,900,000
7,411,499
179,349
185,288
7.875 % January 15, 2025 January 15, 2025 3M LIBOR + 6.429%
Total 30,900,000
20,872,888
$ 504,765
$ 521,822


⁽¹⁾	The Company did not declare or accrue quarterly dividends on the Preferred Stock for the period January 15, 2020 to April 14, 2020. The liquidation preference shown as of March 31, 2020 includes such accumulated dividends.

⁽²⁾

Each series of fixed rate preferred stock is entitled to receive a dividend at the contractual rate shown, respectively, per year on its $25 liquidation preference. Each series of fixed-to-floating rate preferred stock is entitled to receive a dividend at the contractual rate shown, respectively, per year on its $25 liquidation preference up to, but excluding, the fixed-to-floating rate conversion date.

⁽³⁾

Each series of Preferred Stock is not redeemable by the Company prior to the respective redemption date disclosed except under circumstances intended to preserve the Company’s qualification as a REIT and except upon occurrence of a Change in Control (as defined in the Articles Supplementary designating the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, respectively).

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⁽⁴⁾	Beginning on the respective fixed-to-floating rate conversion date, each of the Series D Preferred Stock and Series E Preferred Stock is entitled to receive a dividend on a floating rate basis according to the terms disclosed in footnote ⁽⁵⁾ ~~below.~~


⁽⁵⁾	On and after the fixed-to-floating rate conversion date, each of the Series D Preferred Stock and Series E Preferred Stock is entitled to receive a dividend at a floating rate equal to three-month LIBOR plus the respective spread disclosed above per year on its $25 liquidation preference.

For each series of Preferred Stock, on or after the respective redemption date disclosed, the Company may, at its option, redeem the respective series of Preferred Stock in whole or in part, at any time or from time to time, for cash at a redemption price equal to $25.00 per share, plus any accumulated and unpaid dividends. In addition, upon the occurrence of a Change of Control, the Company may, at its option, redeem the Preferred Stock in whole or in part, within 120 days after the first date on which such Change of Control occurred, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends.

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The Preferred Stock generally do not have any voting rights, subject to an exception in the event the Company fails to pay dividends on such stock for 6 or more quarterly periods (whether or not consecutive). Under such circumstances, holders of the Preferred Stock voting together as a single class with the holders of all other classes or series of our preferred stock upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Preferred Stock will be entitled to vote to elect 2 additional directors to the Company’s Board of Directors until all unpaid dividends have been paid or declared and set apart for payment. In addition, certain material and adverse changes to the terms of any series of the Preferred Stock cannot be made without the affirmative vote of holders of at least two-thirds of the outstanding shares of the series of Preferred Stock whose terms are being changed.

The Preferred Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless repurchased or redeemed by the Company or converted into the Company’s common stock in connection with a Change of Control.

Upon the occurrence of a Change of Control, each holder of Preferred Stock will have the right (unless the Company has exercised its right to redeem the Preferred Stock) to convert some or all of the Preferred Stock held by such holder into a number of shares of our common stock per share of the applicable series of Preferred Stock determined by a formula, in each case, on the terms and subject to the conditions described in the applicable Articles Supplementary for such series.

(b) Dividends on Preferred Stock

From the time of original issuance of the Preferred Stock through December 31, 2019, the Company declared and paid all required quarterly dividends on such series of stock. On March 23, 2020, the Company announced that it had suspended quarterly dividends on its Preferred Stock that would have been payable in April 2020 to focus on conserving capital during the difficult market conditions resulting from the COVID-19 pandemic. ~~As a result,~~On June 15, 2020, the Company ~~did not declare or accrue quarterly~~reinstated the payment of dividends on ~~the~~its Preferred Stock ~~during~~and declared dividends in arrears for the ~~three months~~quarterly period that began on January 15, 2020 and ended ~~March 31,~~on April 14, 2020. ~~The following table presents accumulated dividends on the Preferred Stock as of March 31, 2020 (dollar amounts in thousands):~~

Class of Preferred Stock Accumulated Dividends Per Share Total Accumulated Dividends
Fixed Rate
Series B $ 0.4843750
$ 1,529
Series C 0.4921875
2,058
Fixed-to-Floating Rate
Series D 0.5000000
3,062
Series E 0.4921875
3,648
Total $ 10,297

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~~From the time of original issuance of the Preferred Stock through December 31, 2019, the Company declared and paid all required quarterly dividends on such series of stock.~~ The following table presents the relevant information with respect to quarterly cash dividends declared on the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock commencing January 1, 2019 through ~~December 31, 2019~~September 30, 2020 and on the Series E Preferred Stock from its time of original issuance through ~~December 31, 2019:~~September 30, 2020:


			Cash Dividend Per Share
Declaration Date	Record Date	Payment Date	Series B Preferred Stock			Series C Preferred Stock			Series D Preferred Stock			Series E Preferred Stock
September 14, 2020	October 1, 2020	October 15, 2020	$	0.484375		$	0.4921875		$	0.50		$	0.4921875
June 15, 2020	July 1, 2020	July 15, 2020	0.96875		(1)	0.984375		(1)	1.00		(1)	0.984375		(1)
December 10, 2019	January 1, 2020	January 15, 2020	0.484375			0.4921875			0.50			0.47578		(2)
September 9, 2019	October 1, 2019	October 15, 2019	0.484375			0.4921875			0.50			—
June 14, 2019	July 1, 2019	July 15, 2019	0.484375			0.4921875			0.50			—
March 19, 2019	April 1, 2019	April 15, 2019	0.484375			0.4921875			0.50			—

Cash Dividend Per Share
Declaration Date Record Date Payment Date Series B Preferred Stock Series C Preferred Stock Series D Preferred Stock Series E Preferred Stock
December 10, 2019 January 1, 2020 January 15, 2020 $ 0.484375
$ 0.4921875
$ 0.50
$ 0.47578
⁽¹
⁾
September 9, 2019 October 1, 2019 October 15, 2019 0.484375
0.4921875
0.50
—

June 14, 2019 July 1, 2019 July 15, 2019 0.484375
0.4921875
0.50
—

March 19, 2019 April 1, 2019 April 15, 2019 0.484375
0.4921875
0.50
—

(1)Preferred Stock dividends declared on June 15, 2020 included cash dividends in arrears for the quarterly period that began on January 15, 2020 and ended on April 14, 2020 and cash dividends for the quarterly period that began on April 15, 2020 and ended on July 14, 2020.

(2)Cash dividend for the partial quarterly period that began on October 18, 2019 and ended on January 14, 2020.


⁽¹⁾ 58 Table of Contents	~~Cash dividend for the partial quarterly period that began on October 18, 2019 and ended on January 14, 2020.~~

On March 23, 2020, the Company announced that it had suspended its quarterly dividend on common stock ~~commencing with~~for the first quarter of 2020 to focus on conserving capital during the difficult market conditions resulting from the COVID-19 pandemic. As a result, the Company did ~~not~~0t declare a cash dividend on its common stock during the three months ended March 31, 2020. The Company declared a regular quarterly cash dividend on common stock for the second and third quarters of 2020. The following table presents cash dividends declared by the Company on its common stock with respect to ~~each of~~ the quarterly periods commencing January 1, 2019 and ended ~~March 31,~~September 30, 2020:

Period

Declaration Date

Record Date

Payment Date

Cash Dividend Per Share

Third Quarter 2020

September 14, 2020

September 24, 2020

October 26, 2020

0.075

Second Quarter 2020

June 15, 2020

July 1, 2020

July 27, 2020

0.050

Fourth Quarter 2019

December 10, 2019

December 20, 2019

January 27, 2020

0.200

Third Quarter 2019

September 9, 2019

September 19, 2019

October 25, 2019

0.200

Second Quarter 2019

June 14, 2019

June 24, 2019

July 25, 2019

0.200

First Quarter 2019

March 19, 2019

March 29, 2019

April 25, 2019

0.200

Period Declaration Date Record Date Payment Date Cash Dividend Per Share
Fourth Quarter 2019 December 10, 2019 December 20, 2019 January 27, 2020 $ 0.20
Third Quarter 2019 September 9, 2019 September 19, 2019 October 25, 2019 0.20
Second Quarter 2019 June 14, 2019 June 24, 2019 July 25, 2019 0.20
First Quarter 2019 March 19, 2019 March 29, 2019 April 25, 2019 0.20

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18. Income Taxes


~~18.~~	~~Income Taxes~~

For the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, the Company qualified to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), for U.S. federal income tax purposes. As long as the Company qualifies as a REIT, the Company generally will not be subject to U.S. federal income taxes on its taxable income to the extent it annually distributes at least 100% of its taxable income to stockholders and does not engage in prohibited transactions. Certain activities the Company performs may produce income that will not be qualifying income for REIT purposes. The Company has designated its TRSs to engage in these activities. The tables below reflect the taxes accrued at the TRS level and the tax attributes included in the consolidated financial statements.

The income tax provision for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively, is comprised of the following components (dollar amounts in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Current income tax (benefit) expense	$	(659)	$	(33)	$	1,386	$	(25)
Deferred income tax benefit	(113)		(154)		(469)		(222)
Total (benefit) provision	$	(772)	$	(187)	$	917	$	(247)

Three Months Ended March 31,
2020 2019
Current income tax expense (benefit) $ 11
$ (7 )
Deferred income tax (benefit) expense (250 ) 81
Total (benefit) provision $ (239 ) $ 74

Deferred Tax Assets and Liabilities

The major sources of temporary differences included in the deferred tax assets and their deferred tax effect as of ~~March 31,~~September 30, 2020 and December 31, 2019 are as follows (dollar amounts in thousands):


	September 30, 2020		December 31, 2019
Deferred tax assets
Net operating loss carryforward	$	5,488	$	3,975
Capital loss carryover	4,991		739
GAAP/Tax basis differences	2,053		3,699
Total deferred tax assets (1)	12,532		8,413
Deferred tax liabilities
Deferred tax liabilities	2		5
Total deferred tax liabilities (2)	2		5
Valuation allowance (1)	(10,681)		(7,029)
Total net deferred tax asset	$	1,849	$	1,379

March 31, 2020 December 31, 2019
Deferred tax assets
Net operating loss carryforward $ 6,238
$ 3,975
Capital loss carryover 1,727
739
GAAP/Tax basis differences 3,948
3,699
Total deferred tax assets ⁽¹⁾
11,913
8,413
Deferred tax liabilities
Deferred tax liabilities 3
5
Total deferred tax liabilities ⁽²⁾
3
5
Valuation allowance ⁽¹⁾
(10,281 ) (7,029 )
Total net deferred tax asset
$ 1,629
$ 1,379
(1)Included in receivables and other assets in the accompanying condensed consolidated balance sheets.


⁽¹⁾(2)Included in accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets.	~~Included in receivables and other assets in the accompanying condensed consolidated balance sheets.~~


⁽²⁾	~~Included in accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets.~~

As of ~~March 31,~~September 30, 2020, the Company, through wholly-owned TRSs, had incurred net operating losses in the aggregate amount of approximately ~~$16.5~~$15.2 million. The Company’s carryforward net operating losses of approximately ~~$15.6~~$14.3 million can be carried forward indefinitely until they are offset by future taxable income. The remaining $0.9 million of net operating losses will expire between 2036 and 2037 if they are not offset by future taxable income. Additionally, as of ~~March 31,~~September 30, 2020, the Company, through ~~one of~~ its wholly-owned TRSs, had also incurred approximately ~~$5.1~~$14.7 million in capital losses. The Company's carryforward capital losses will expire between 2023 and 2024 if they are not offset by future capital gains.

At ~~March 31,~~September 30, 2020, the Company has recorded a valuation allowance against certain deferred tax assets as management does not believe that it is more likely than not that these deferred tax assets will be realized. The change in the valuation for the current year is approximately ~~$3.3~~$3.7 million. We will continue to monitor positive and negative evidence related to the utilization of the remaining deferred tax assets for which a valuation allowance continues to be provided.

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The Company files income tax returns with the U.S. federal government and various state and local jurisdictions. The Company's federal, state and city income tax returns are subject to examination by the Internal Revenue Service and related tax authorities generally for three years after they were filed. The Company has assessed its tax positions for all open years and concluded that there are no material uncertainties to be recognized.

Based on the Company’s evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. To the extent that the Company incurs interest and accrued penalties in connection with its tax obligations, including expenses related to the Company’s evaluation of unrecognized tax positions, such amounts will be included in income tax expense.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act ~~(the “CARES Act”)~~ was enacted in the U.S. This legislation was intended to support the economy during the COVID-19 pandemic with temporary changes to income and non-income based tax laws. For the three and nine months ended ~~March 31,~~September 30, 2020, the changes are not expected to have a material impact to our financial statements. We will continue to monitor as additional guidance is issued by the U.S. Treasury Department, the Internal Revenue Service and others.

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19. Subsequent Events


~~19.~~	~~Subsequent Events~~

In ~~April 2020, the following events occurred:~~

~~The Company settled its outstanding receivable for securities sold as of March 31, 2020 in the amount of $213.6 million.~~

~~The Company obtained proceeds from additional financing for residential loans pledged under a repurchase agreement in the amount of $248.8 million.~~

~~Using the proceeds described above, combined with $137.2 million in cash margin outstanding as of March 31,~~October 2020, the Company ~~terminated~~completed a securitization of residential loans, resulting in approximately $299.4 million in net proceeds to the Company after deducting estimated expenses associated with the transaction. The Company utilized the net proceeds to repay approximately $236.0 million on outstanding repurchase agreements ~~to finance investment securities, repaying $562.9 million. As of May 26, 2020, the Company had an outstanding repurchase agreement~~ related to ~~investment securities with one counterparty.~~residential loans.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

When used in this Quarterly Report on Form 10-Q, in future filings with the SEC or in press releases or other written or oral communications issued or made by us, statements which are not historical in nature, including those containing words such as “will,” “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “could,” “would,” “should,” “may”, “expect” or similar expressions, are intended to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, as such, may involve known and unknown risks, uncertainties and assumptions.

Forward-looking statements are based on estimates, projections, beliefs and assumptions of management of the Company at the time of such statements and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties in predicting future results and conditions. Actual results and outcomes could differ materially from those projected in these forward-looking statements due to a variety of factors, including, without limitation:

•changes in our business and investment strategy;

•changes in interest rates and the fair market value of our assets, including negative changes resulting in margin calls relating to the financing of our assets;

•changes in credit spreads;

•changes in the long-term credit ratings of the U.S., Fannie Mae, Freddie Mac, and Ginnie Mae;

•general volatility of the markets in which we invest;

•changes in prepayment rates on the loans we own or that underlie our investment securities;

•increased rates of default or ~~delinquencies~~delinquency and/or decreased recovery rates on our assets;

•our ability to identify and acquire our targeted assets, including assets in our investment pipeline;

•changes in our relationships with our financing counterparties and our ability to borrow to finance our assets and the terms thereof;

•our ability to predict and control costs;

•changes in governmental laws, regulations or policies affecting our business, including ~~in response~~actions that may be taken to ~~COVID-19;~~contain or address the impact of the COVID-19 pandemic;

•our ability to make distributions to our stockholders in the future;

•our ability to maintain our qualification as a REIT for federal tax purposes;

•our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended;

•risks associated with investing in real estate assets, including changes in business conditions and the general economy, the availability of investment opportunities and the conditions in the market for Agency RMBS, non-Agency RMBS, ABS and CMBS securities, residential loans, structured multi-family investments and other mortgage-, residential housing- and credit-related assets, including changes resulting from the ongoing spread and economic effects of COVID-19; and

•the impact of COVID-19 on us, our operations and our personnel.

These and other risks, uncertainties and factors, including the risk factors described herein and in Part I, Item ~~1A -~~1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019 and Part II, Item 1A. "Risk Factors" of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, as updated by those risks described in our subsequent filings with the SEC under the Exchange Act, could cause our actual results to differ materially from those projected in any forward-looking statements we make. All forward-looking statements speak only as of the date on which they are made. New risks and uncertainties arise over time and it is not possible 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.

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Special Note Regarding COVID-19 Pandemic

Because there have been no comparable recent global pandemics that resulted in similar impact, 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. Any future developments in this regard will be highly uncertain and cannot be predicted with any certainty, including the scope and duration of the pandemic, the effectiveness of our work from home arrangements, third-party providers’ ability to support our operations, any actions taken by governmental authorities and other third parties in response to the pandemic, and the other factors discussed above and throughout this Quarterly Report on Form 10-Q. The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.

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Defined Terms

In this Quarterly Report on Form 10-Q we refer to New York Mortgage Trust, Inc., together with its consolidated subsidiaries, as “we,” “us,” “Company,” or “our,” unless we specifically state otherwise or the context indicates otherwise, and refer to our wholly-owned taxable REIT subsidiaries as “TRSs” and our wholly-owned qualified REIT subsidiaries as “QRSs.” In addition, the following defines certain of the commonly used terms in this report:

•“ABS” refers to debt and/or equity tranches of securitizations backed by various asset classes including, but not limited to, automobiles, aircraft, credit cards, equipment, franchises, recreational vehicles and student loans;

•“Agency ARMs” refers to Agency RMBS comprised of adjustable-rate and hybrid adjustable-rate RMBS;

•“Agency CMBS” refers to CMBS representing interests in or obligations backed by pools of multi-family mortgage loans guaranteed by a government sponsored enterprise (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”);

•“Agency fixed-rate RMBS” refers to Agency RMBS comprised of fixed-rate RMBS;

•“Agency RMBS” refers to RMBS representing interests in or obligations backed by pools of residential loans guaranteed by Fannie Mae or Freddie Mac, or an agency of the U.S. government, such as the Government National Mortgage Association (“Ginnie Mae”);

•“ARMs” refers to adjustable-rate residential loans;

•“CDO” refers to collateralized debt obligation;

•“CMBS” refers to commercial mortgage-backed securities comprised of commercial mortgage pass-through securities issued by a GSE, as well as PO, IO or mezzanine securities that represent the right to a specific component of the cash flow from a pool of commercial mortgage loans;

•“Consolidated K-Series” refers to Freddie Mac-sponsored multi-family loan K-Series securitizations, of which we, or one of our “special purpose entities,” or “SPEs,” owned the first loss POs and certain IOs and certain senior or mezzanine securities, that we consolidated in our financial statements in accordance with GAAP;

•“Consolidated SLST” refers to a Freddie Mac-sponsored residential loan securitization, comprised of seasoned re-performing and non-performing residential loans, of which we own or owned the first loss subordinated securities and certain IOs and senior securities, that we consolidate in our financial statements in accordance with GAAP;

•“Consolidated VIEs” refers to VIEs where the Company is the primary beneficiary, as it has both the power to direct the activities that most significantly impact the economic performance of the VIE and a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE and that we consolidate in our financial statements in accordance with GAAP;

•“distressed residential loans” refers to pools of seasoned re-performing, non-performing and other delinquent loans secured by first liens on one- to four-family properties;

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•“excess mortgage servicing spread” refers to the difference between the contractual servicing fee with Fannie Mae, Freddie Mac or Ginnie Mae and the base servicing fee that is retained as compensation for servicing or subservicing the related mortgage loans pursuant to the applicable servicing contract;

•“GAAP” refers to generally accepted accounting principles within the United States;

•“IOs” refers collectively to interest only and inverse interest only mortgage-backed securities that represent the right to the interest component of the cash flow from a pool of mortgage loans;

•“MBS” refers to mortgage-backed securities;

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“Multi-family CDOs” refers to the debt that permanently finances the multi-family mortgage loans held by the Consolidated K-Series that we consolidated in our financial statements in accordance with GAAP;

•“multi-family CMBS” refers to CMBS backed by commercial mortgage loans on multi-family properties;

•“non-Agency RMBS” refers to RMBS that are not guaranteed by any agency of the U.S. Government or GSE;

•“non-QM loans” refers to residential loans that are not deemed “qualified mortgage,” or “QM,” loans under the rules of the Consumer Financial Protection Bureau;

•“POs” refers to mortgage-backed securities that represent the right to the principal component of the cash flow from a pool of mortgage loans;

•“residential bridge loans” refers to short-term business purpose loans collateralized by residential properties made to investors who intend to rehabilitate and sell the residential property for a profit;

•“Residential CDOs” refers to the debt that permanently finances the residential ~~ARM~~ loans held in the Company's residential loan securitization trusts and that we consolidate in our financial statements in accordance with GAAP;

•“RMBS” refers to residential mortgage-backed securities backed by adjustable-rate, hybrid adjustable-rate or fixed-rate residential loans;

•“second mortgages” refers to liens on residential properties that are subordinate to more senior mortgages or loans;

•“SLST CDOs” refers to the debt that permanently finances the residential loans held in Consolidated SLST that we consolidate in our financial statements in accordance with GAAP; and

•“Variable Interest Entity” or “VIE” refers to an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.

General

We are a real estate investment trust (“REIT”) for U.S. federal income tax purposes, in the business of acquiring, investing in, financing and managing primarily mortgage-related single-family and ~~residential-housing related~~multi-family residential assets. Our objective is to deliver long-term stable distributions to our stockholders over changing economic conditions through a combination of net interest margin and capital gains from a diversified investment portfolio. Our investment portfolio includes credit sensitive residential and multi-family assets, including investments that may have been sourced from distressed markets.

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Executive Summary

~~On March 11, 2020, the World Health Organization declared the outbreak of the~~The global pandemic associated with novel coronavirus ~~("COVID-19"~~(“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~~its related economic conditions have caused, and continue to cause, a significant disruption in the U.S. and world economies. To slow the spread of COVID-19, since mid-March, many countries, including in the U.S., ~~have~~ implemented public heath responses that involved social distancing measures ~~which have~~that substantially prohibited large gatherings, including at sporting events, ~~movie theaters,~~ religious services and ~~schools. Further, many regions, including the majority of U.S. states, have required additional measures, such as~~schools, shelter-in-place and stay-at-home ~~orders.~~orders or other measures designed to limit capacity or services on a number of businesses. 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 economic fallout caused by the ~~COVID-19~~ pandemic and certain of the actions taken to reduce its spread have ~~resulted~~been startling, resulting 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 the Company invests.~~assets. These conditions, or some level thereof, are expected to continue over the near term and ~~may~~are likely to prevail throughout 2020.

Although economic data and markets generally, including those in which we invest, showed signs of improvement beginning in the second quarter and continuing through the third quarter, these markets and the economy continue to face significant challenges from the impact of the ongoing pandemic. The exact timing and pace of the economic recovery are uncertain with a large swath of the U.S. and many countries now experiencing a surge or resurgence of COVID-19 cases, some of which are halting or re-instituting various restrictions on economic and social activity. Moreover, the lack of additional economic stimulus measures from the U.S. government and other authorities is expected to put even more pressure on the ability of borrowers and renters, including borrowers and renters that own or rent properties that back directly, or indirectly, the assets we finance or invest in, to meet their financial obligations.

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~~Beginning in mid-March, the~~The global pandemic associated with COVID-19 and related economic conditions caused financial and mortgage-related asset markets to come under extreme duress beginning in mid-March, 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~~counterparties in March, particularly with respect to ~~pause the escalating negative impacts caused by the market dislocation and allow the markets for many of~~ our assets to stabilize, on March 23, 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.investment securities portfolio. In an effort to manage our portfolio through this unprecedented turmoil in the financial markets and improve liquidity, in March, we ~~executed the following measures during the three months ended March 31, 2020:~~

~~Sold~~paused funding of margin calls to our repurchase agreement financing counterparties, sold approximately $2.0 billion of assets, ~~recognizing a total net loss of approximately $301.7 million.~~

~~Terminated~~terminated interest rate swap positions with an aggregate notional value of $495.5 million ~~recognizing a total net loss of $44.1 million.~~

~~Reduced~~and reduced our outstanding repurchase agreements that finance our investment securities and residential loan portfolios, which had exposed our investment portfolio and the financing thereof to unprecedented volatility in mark-to-market collateral repricing determinations by ~~$1.7 billion from year-end levels,~~financing counterparties, reducing our overall leverage to less than one times as of March 31, 2020.

~~In addition, subsequent~~Since the market disruption and through the date hereof, we have continued our deliberate and patient approach to ~~March 31, 2020, we took the following actions:~~

~~Settled outstanding receivable for securities sold as~~enhancing liquidity and strengthening our balance sheet by completing two non-mark-to-market securitizations of ~~March 31, 2020 in the amount~~residential mortgage loans, a non-mark-to-market re-securitization of ~~$213.6 million and obtained additional~~non-Agency RMBS, a non-mark-to-market repurchase agreement financing ~~in the amount of $248.8 million~~ for residential loans ~~pledged under a repurchase agreement.~~

~~Used the~~and opportunistically selling non-Agency RMBS and CMBS in our portfolio. The proceeds from ~~the~~these transactions ~~immediately described above, combined with $137.2 million in cash margin~~were used to reduce our outstanding ~~as of March 31, 2020, to terminate~~ repurchase agreements ~~to finance investment securities, repaying $562.9 million~~ and ~~further reducing overall leverage to 0.7 times as~~invest in new single-family residential and multi-family investments. As of ~~April 7, 2020.~~

~~Announced that as of April 7,~~September 30, 2020, we have ~~total~~reduced our portfolio leverage, which is the portion that is exposed to fluctuations in mark-to-market pricing, to 0.3 times and reduced to zero our outstanding repurchase agreement financing of $1.1 billion, comprised of $150.4 million of outstanding repurchase agreement financing with one counterparty collateralized by non-Agency RMBS and $962.2 million of outstanding repurchase agreement financing secured by residential loans.agreements that finance investment securities.

~~Announced that we are current on all of our repurchase agreement payment obligations and no longer needed to enter into forbearance agreements with our financing counterparties.~~

We ~~believe these actions have allowed us to better navigate these difficult market conditions.~~

Intransitioned in March ~~we transitioned~~ to a fully remote work force, ensuring the safety and well-being of our employees. Our prior investments in technology, business continuity planning and cyber-security protocols have enabled us to continue working with limited operational ~~impact.~~impact and we expect to continue our remote work arrangement for the foreseeable future.

Our targeted investments include the following (i) residential loans, including distressed residential ~~loans, non-QM~~ loans, second mortgages, residential bridge loans and other residential loans, (ii) structured multi-family property investments such as ~~multi-family CMBS and~~ preferred equity in, and mezzanine loans to, owners of multi-family properties, (iii) non-Agency RMBS, (iv) Agency RMBS (v) CMBS and ~~(v)~~(vi) certain other mortgage-, residential housing- and credit-related assets. Subject to maintaining our qualification as a REIT and the maintenance of our exclusion from registration as an investment company under the Investment Company Act, we also may opportunistically acquire and manage various other types of mortgage-, residential housing- and other credit-related assets that we believe will compensate us appropriately for the risks associated with them, including, without limitation, collateralized mortgage obligations, mortgage servicing rights, excess mortgage servicing spreads and securities issued by newly originated securitizations, including credit sensitive securities from these securitizations.

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We intend to continue to focus on our core portfolio strengths of single-family residential and multi-family credit assets, which we believe will deliver better risk adjusted returns over time. 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~~We expect to maintain a defensive posture ~~in the near term~~ as it relates to new investments ~~until~~due to the uncertainty relating to the duration and ongoing economic impact associated with the COVID-19 pandemic and to currently focus on assets that may benefit from active management in a prolonged, low rate environment, although we ~~have greater clarity~~do expect that volatility surrounding the U.S. elections and the COVID-19 pandemic will present better entry points for investment during the balance of ~~market~~2020 and ~~economic conditions as COVID-19 related restrictions are reduced~~early 2021. We also expect to continue to selectively monetize gains from the price recovery experienced by our non-Agency RMBS and ~~states "re-open."~~Freddie-K mezzanine securities.

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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~~longer-term repurchase agreement borrowings with terms between one year and 24 months and longer term financings, such as securitizations and convertible notes, with terms longer than one year. As a result of the severe market dislocations related to the COVID-19 pandemic and, more specifically, the unprecedented illiquidity in our repurchase agreement financing and MBS markets, looking forward, we expect to place a greater emphasis on procuring stable, longer-termed financing, such as securitizations and term financings, that provide less or no exposure to fluctuations in the collateral repricing determinations of financing counterparties or rapid liquidity reductions in repurchase agreement financing markets. While longer-termed financings may involve greater expense relative to repurchase agreement funding, we believe, over time, this approach may better allow us to manage our liquidity risk and reduce exposures to events like those caused by the COVID-19 pandemic. Consistent with this emphasis on procuring financings that provide limited or no mark-to-market repricing exposure and more committed lines of financing and as discussed above, we have completed four non-mark-to-market financings since June 2020. We ~~have explored and will~~intend to 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, additional issuances of our equity and 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.

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Portfolio Update

In ~~March, as a direct result~~the third quarter of ~~the negative impact of the COVID-19 pandemic on our markets,~~2020, we ~~executed an extensive portfolio reduction to improve our liquidity~~pursued new single-family residential and ~~risk management exposures, including approximately $1.9 billion in securities sales.~~

multi-family investments while we opportunistically sold investment securities. The following table presents the activity for our investment portfolio for the three months ended ~~March 31,~~September 30, 2020 (dollar amounts in thousands):


	June 30, 2020		Acquisitions		Repayments (1)		Sales		Fair Value Changes and Other (2)		September 30, 2020
Investment securities




Non-Agency RMBS	$	630,196	$	—	$	(16,684)	$	(259,493)	$	21,746	$	375,765
CMBS	288,112		—		(359)		(110,680)		5,852		182,925
ABS	42,500		—		—		—		2,507		45,007
Total investment securities available for sale	960,808		—		(17,043)		(370,173)		30,105		603,697
Consolidated SLST (3)	185,310		—		—		—		25,592		210,902

Total investment securities	1,146,118		—		(17,043)		(370,173)		55,697		814,599
Residential loans	1,483,378		92,673		(80,653)		—		37,386		1,532,784
Preferred equity investments, mezzanine loans and investments in unconsolidated entities	395,139		19,117		(20,943)		—		8,547		401,860
Other investments (4)	10,550		327		—		(7,292)		—		3,585
Totals	$	3,035,185	$	112,117	$	(118,639)	$	(377,465)	$	101,630	$	2,752,828

(1)Primarily includes principal repayments.

(2)Primarily includes net realized gains or losses, changes in net unrealized gains or losses (including reversals of previously recognized net unrealized gains or losses on sales), net amortization/accretion and transfers within investment categories.

(3)Consolidated SLST is presented on our condensed consolidated balance sheets as of June 30, 2020 and September 30, 2020, respectively, as residential loans, at fair value and residential collateralized debt obligations, at fair value. A reconciliation to our condensed consolidated financial statements follows (dollar amounts in thousands):


	June 30, 2020		September 30, 2020
Residential loans, at fair value	$	1,274,850	$	1,290,005
Deferred interest (a)	(1,307)		(1,123)
Less: Residential collateralized debt obligations, at fair value	(1,088,233)		(1,077,980)
Consolidated SLST investment securities owned by NYMT	$	185,310	$	210,902

(a)Included in accrued expenses and other liabilities on our condensed consolidated balance sheets at September 30, 2020.

(4)Includes real estate under development in Consolidated VIEs in the amounts of $3.6 million and $10.6 million as of September 30, 2020 and June 30, 2020, respectively.

December 31, 2019 Acquisitions
Repayments ⁽¹⁾
Sales
Fair Value Changes and Other ⁽²⁾
March 31, 2020
Investment securities
Agency securities
Agency RMBS ⁽³⁾
$ 922,877
$ 60,925
$ (43,783 ) $ (930,391 ) $ (9,628 ) $ —
Agency CMBS ^{(3) (4)}
50,958
—
(77 ) (145,411 ) 94,530
—
Total agency securities 973,835
60,925
(43,860 ) (1,075,802 ) 84,902
—
Non-Agency RMBS 715,314
273,897
(93,281 ) (130,948 ) (188,874 ) 576,108
CMBS ⁽⁵⁾
267,777
72,896
(5,667 ) (114,038 ) 47,888
268,856
ABS 49,214
—
—
—
(6,870 ) 42,344
Total investment securities available for sale 2,006,140
407,718
(142,808 ) (1,320,788 ) (62,954 ) 887,308
Consolidated SLST ⁽⁶⁾
276,770
39,984
(1,152 ) (62,602 ) (70,221 ) 182,779
Consolidated K-Series ⁽⁷⁾
1,092,295
—
(92,425 ) (555,218 ) (444,652 ) —
Total investment securities 3,375,205
447,702
(236,385 ) (1,938,608 ) (577,827 ) 1,070,087
Residential loans 1,632,510
153,821
(86,220 ) (49,960 ) (91,820 ) 1,558,331
Preferred equity investments, mezzanine loans and investments in unconsolidated entities 370,010
30,546
(7,711 ) —
(1,588 ) 391,257
Other investments ⁽⁸⁾
16,870
763
(105 ) (313 ) (2,204 ) 15,011
Totals $ 5,394,595
$ 632,832
$ (330,421 ) $ (1,988,881 ) $ (673,439 ) $ 3,034,686


⁽¹⁾	~~Primarily includes principal repayments and preferred equity redemptions.~~


⁽²⁾	Primarily includes net realized gains or losses, changes in net unrealized gains or losses (including reversals of previously recognized net unrealized gains or losses on sales), net amortization/accretion and transfers within investment categories.


~~(3)~~	~~Agency RMBS issued by Consolidated SLST is included in footnote~~ ⁽⁶⁾~~below. Agency CMBS issued by the Consolidated K-Series as of December 31, 2019 is included in footnote~~ ⁽⁷⁾ ~~below.~~


⁽⁴⁾	~~Includes transfers of Agency CMBS issued by the Consolidated K-Series as a result of de-consolidation of the Consolidated K-Series and the subsequent sale of these Agency CMBS during the quarter.~~


⁽⁵⁾	~~Includes IOs and mezzanine securities transferred from the Consolidated K-Series as a result of de-consolidation with a total fair value of $124.2 million as of March 31, 2020.~~


~~(6)~~	Consolidated SLST is presented on our condensed consolidated balance sheets as of December 31, 2019 and March 31, 2020, respectively, as residential loans, at fair value and residential collateralized debt obligations, at fair value. A reconciliation to our condensed consolidated financial statements follows (dollar amounts in thousands):

December 31, 2019 March 31, 2020
Residential loans, at fair value $ 1,328,886
$ 1,218,299
Deferred interest ^(a)
713
(528 )
Less: Residential collateralized debt obligations, at fair value (1,052,829 ) (1,034,992 )
Consolidated SLST investment securities owned by NYMT $ 276,770
$ 182,779


^(a)	~~Included in receivables and other assets on our condensed consolidated balance sheets.~~

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⁽⁷⁾	The Consolidated K-Series are presented on our condensed consolidated balance sheets as multi-family loans held in securitization trusts, at fair value and multi-family collateralized debt obligations, at fair value. A reconciliation to our condensed consolidated financial statements as of December 31, 2019 follows (dollar amounts in thousands):

December 31, 2019
Multi-family loans held in securitization trusts, at fair value $ 17,816,746
Less: Multi-family collateralized debt obligations, at fair value (16,724,451 )
Consolidated K-Series investment securities owned by NYMT $ 1,092,295


⁽⁸⁾	Includes real estate under development in Consolidated VIEs in the amounts of $14.8 million and $14.5 million as of March 31, 2020 and December 31, 2019, respectively, and other loan investments in the amounts of $0.2 million and $2.4 million as of March 31, 2020 and December 31, 2019, respectively.

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Current Market Conditions and Commentary

The results of our business operations are affected by a number of factors, many of which are beyond our control, and primarily depend on, among other things, the level of our net interest income, the market value of our assets, which is driven by numerous factors including the supply and demand for mortgage, housing and credit assets in the marketplace, the ability of our operating partners and borrowers of our loans and those that underlie our investment securities to meet their payment obligations, the terms and availability of adequate financing and capital, general economic and real estate conditions (both on a national and local level), the impact of government actions in the real estate, mortgage, credit and financial markets, and the credit performance of our credit sensitive assets.

~~During the first quarter of 2020 and continuing into the second quarter, financial~~Financial and mortgage-related asset markets ~~have~~ experienced ~~significant volatility as a result~~improving conditions during the third quarter of 2020 with the U.S. economy in recovery. U.S. stocks continued to show signs of recovery during the third quarter of 2020 following the sharp sell-off during the back half of the ~~ongoing~~first quarter. Reflective of abundant liquidity and sustained progress on the re-opening of state and the global economies, asset prices continued to experience improvements during the third quarter. Overall, global economic activity and consumer sentiment showed signs of advancement as well during the third quarter of 2020. However, in some sectors activity levels remain well below normal levels and economic progress is generally likely to be impacted going forward by the evolution of the COVID-19 ~~pandemic. We expect~~pandemic and further stimulus initiatives.

Similar to assets in the larger economy, pricing for our investment portfolio during the third quarter rebounded with credit spreads tightening across a large swath of the portfolio. Liquidity to MBS and mortgage financing markets was stable during the third quarter, as evidenced by the Company completing multiple longer-term, securitization financing transactions during the quarter and subsequent to end of the quarter. Due to the possibility that a number of states or the U.S. federal government may again impose greater restrictions on economic and social activity in light of rising COVID-19 daily case counts this ~~volatility may continue over the near term~~fall and ~~may prevail throughout 2020 due to the~~ heightened uncertainty relating to the ~~duration~~U.S. elections, stimulus negotiations and ~~potential impact~~other policy matters, we expect market volatility generally to remain elevated throughout the balance of the pandemic. The significant dislocation in the financial markets caused, among other things, credit spread widening, a sharp decrease in interest rates, unprecedented illiquidity in repurchase agreement financing and MBS markets and declines in the fair value of many of our investments. These conditions have put significant pressure on the mortgage REIT industry, including financing operations, asset pricing and liquidity demands.2020.

The market conditions discussed below significantly influence our investment strategy and results, many of which have been significantly impacted since mid-March by the ongoing COVID-19 pandemic:

General. Global and U.S. equity markets experienced the steepest decline since the 2008 recession during the first quarter of 2020, driven by the response to the COVID-19 pandemic. As a result of stay-at-home or shelter-in-place orders issued by state and local governments throughout the country, many businesses switched to remote work or canceled or reduced operations. In addition, consumers responded by reducing or redirecting their spending. U.S. economic data released over the past quarter shows that the U.S. economy has ~~greatly contracted~~begun its recovery from the short but steep recession, with U.S. gross domestic product (“GDP”) ~~estimated to have decreased~~having advanced by ~~4.8%~~33.1% (advance estimate) in the ~~first~~third quarter of 2020, ~~down~~up from GDP ~~growth~~contraction of ~~2.1%~~31.4% (revised) ~~in the fourth quarter of 2019. We expect GDP growth and the labor market data~~ in the second quarter of ~~2020 to indicate a further decline as the economic consequences of the COVID-19 pandemic unfold.~~2020.

The U.S. labor market ~~remained strong through February before similarly declining in March as many businesses began responding~~continued to show improvements throughout the third quarter. The U.S. Department of Labor attributed these improvements to the ~~stay-at-home orders by laying off employees.~~resumption of economic activity that had been curtailed due to the COVID-19 pandemic. According to the U.S. Department of Labor, the U.S. unemployment rate ~~increased~~continued to ~~4.4%~~decrease in the third quarter from 10.2% in July to 7.9% in September, as the number of ~~the end of March.~~unemployed persons decreased from 16.3 million in July to 12.6 million in September. Total nonfarm payroll employment posted a decrease of 870,000 jobs during March 2020, as compared to an average increase of 196,000 jobs per month for the prior year. The effects of the COVID-19 pandemic and efforts to contain it were further feltrose by 661,000 in ~~April as~~September. While the unemployment rate ~~rose to 14.7% according to the U.S. Department~~and number of ~~Labor. Total nonfarm payroll employment posted a decrease~~unemployed persons have decreased for five consecutive months, each of ~~20,500,000 jobs during April.~~these measures remains higher than February.

Single-Family Homes and Residential Mortgage Market. The residential real estate market displayed signals of continued modest growth ~~into~~in the ~~first half of the first quarter of 2020.~~third quarter. Data released by the S&P Dow Jones Indices for their S&P CoreLogic Case-Shiller National Home Price NSA Indices for ~~February~~July 2020 showed that, on average, home prices increased ~~3.5%~~3.9% for the 20-City Composite over ~~February~~July 2019, up from ~~3.1%~~3.5% the previous month. Data from the S&P Dow Jones Indices for March is not available currently, but we would expect the data to reflect the negative impact of the stay-at-home orders that have closed much of the economy by causing home price increases to moderate. In addition, according to data provided by the U.S. Department of Commerce, privately-owned housing starts for single-family homes averaged a seasonally adjusted annual rate of ~~962,000 during~~1,040,000 and 925,000 for the three and nine months ended ~~March 31,~~September 30, 2020, asrespectively, compared to 766,000 for the second quarter of 2020 and an annual rate of 894,000 for the year ended December 31, ~~2019; however, the preliminary estimate for March of 856,000 housing starts was 17.5% below February levels.~~2019. Declining single-family housing fundamentals may adversely impact the borrowers of our residential mortgage loans and those that underlie our RMBS, and thus the overall credit profile of our existing portfolio of single-family residential credit investments, as well as the availability of certain of our targeted assets. As of ~~April~~September 30, 2020, approximately 2% of borrowers ~~under 17.2% of~~in our residential loan portfolio ~~where we control the servicing had requested some form of payment deferral.~~remained in an active COVID-19 plan.

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Multi-family Housing. ~~Apartments and other residential rental properties experienced a slight average increase in the first quarter of 2020.~~ According to data provided by the U.S. Department of Commerce, starts on multi-family homes containing five units or more averaged a seasonally adjusted annual rate of ~~492,000 during~~375,000 and 394,000 for the three and nine months ended ~~March 31,~~September 30, 2020, respectively, compared to 391,000 for the year ended December 31, 2019. ~~However,~~While starts on multi-family homes containing five units or more ~~steadily declined each month during~~experienced a slight increase from second quarter levels in the ~~first~~beginning of the third quarter, these rates saw a decrease towards the end of ~~2020,~~the third quarter, eventually reaching ~~347,000~~295,000 in ~~March, a 44% decrease from January 2020 levels.~~September. Moreover, ~~with record jobless claims filed in recent months,~~as many workers remain unemployed or under-employed, the financial ability of households to meet their rental payment obligations is ~~a present and growing~~an ongoing concern. Data released by the National Multifamily Housing Council (“NMHC”) shows that ~~80.2%~~86.8% of professionally-managed apartment households made a full or partial ~~May~~October rent payment by ~~May 6,~~October 13, 2020 in its survey of ~~11.4~~11.5 million professionally-managed apartment units across the country. This represents a ~~1.5-percentage~~2.4-percentage point decrease in the share who paid rent through ~~May 6,~~October 13, 2019 and compares to ~~78.0%~~86.2% that had paid by ~~April 6,~~September 13, 2020. These data encompass a wide variety of market-rate rental properties, which can vary by size, type and average rental price. As of ~~April~~September 30, 2020, the Company had one operating partner, ~~in forbearance with an outstanding loan balance~~ representing approximately ~~1.1%~~1.0% of our total preferred equity and mezzanine loan investment ~~portfolio.~~portfolio, that was delinquent in making distributions to us. Weakness in the multi-family housing sector, including, among other things, widening capitalization rates, reduced demand, increased vacancy rates, increased tenant lease defaults and reduced liquidity for owners of multi-family properties, may cause our operating partners to fail to meet their obligations to us and/or contribute to valuation declines for multi-family properties, and in turn, many of the structured multi-family investments that we own.

Credit Spreads. Credit spreads ~~held steady~~tightened further during the ~~first part~~third quarter as economic activity accelerated. Tightening credit spreads generally increase the value of ~~the first quarter~~many of ~~2020 and then began~~our credit sensitive assets, while widening credit spreads tend to ~~sharply widen in March as the economy became impacted by the COVID-19 pandemic. This widening had~~have a negative impact on the value of many of our credit sensitive ~~assets, whereas tightening credit spreads generally increase the value of many of our credit sensitive~~ assets.

Financing markets. During the ~~first~~third quarter, ~~of 2020,~~ the bond market ~~experienced volatility~~was largely stable with the closing yield of the 10-year U.S. Treasury Note trading between ~~0.54%~~0.52% and ~~1.88%~~0.74% during the quarter, closing the quarter at ~~0.70%~~0.69%. Overall interest rate volatility tends to increase the costs of hedging and may place downward pressure on some of our strategies. During the ~~first~~third quarter of 2020, the Treasury curve increased with the spread between the 2-Year U.S. Treasury yield and the 10-Year U.S. Treasury yield at 4756 basis points, up 1322 basis points from December 31, 2019. This spread is important as it is indicative of opportunities for investing in levered assets. Increases in interest rates raise the costs of many of our liabilities, while overall interest rate volatility generally increases the costs of hedging.

Monetary Policy and Recent Regulatory Developments. 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~~taken a number of actions to ~~address disruptions in~~stabilize markets as a result of the ~~U.S. Treasury, Agency debt and Agency RMBS financing markets. These operations have been increased substantially due to~~impact of the COVID-19 pandemic. To address funding disruptions resulting from the economic crisis and market dislocations resulting from the COVID-19 ~~pandemic. The~~pandemic, the Federal Reserve has ~~taken a number of other actions~~been conducting large scale overnight repo operations to ~~stabilize~~address disruptions in the U.S. Treasury, Agency debt and Agency RMBS financing markets ~~as a result of the impact of the COVID-19 pandemic.~~and has substantially increased these operations. 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. By mid-August, the Federal Reserve had increased its holdings of U.S. Treasuries and Agency MBS by approximately $2.36 trillion, since mid-March.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law to provide many forms of direct support to individuals and small businesses in order to stem the steep decline in economic activity resulting from the COVID-19 pandemic. The over $2 trillion 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), funding to hospitals and health care providers, loans and investments to businesses, states and municipalities and grants to the airline industry. On April 24, 2020, President Trump signed an additional funding bill into law that provided an additional $484 billion of funding to individuals, small businesses, hospitals, health care providers and additional coronavirus testing efforts. In addition, in response to the economic impact of the COVID-19 pandemic, governors of several states issued executive orders prohibiting evictions and foreclosures for specified periods of time, and many courts enacted emergency rules delaying hearings related to evictions or foreclosures. While some of these state protections have expired, the Centers for Disease Control and Prevention issued an order to temporarily halt residential evictions under certain circumstances in an effort to prevent the spread of the COVID-19 pandemic, which became effective on September 4, 2020 and expires on December 31, 2020.

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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~~in March as a result of the ~~second half of March, which resulted in forced selling of assets to satisfy margin calls.~~COVID-19 pandemic. 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”)~~CARES Act. The FHFA ~~has~~ instructed the GSEs on how ~~they will~~to handle servicer advances for loans that back Agency RMBS that enter into forbearance, which ~~should limit~~limits 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. WeOn October 19, 2020, the FHFA announced the extension of certain COVID-19 related loan origination flexibilities until November 30, 2020, including alternative appraisals on purchase and rate term refinance loans and alternative methods for documenting income and verifying employment before loan closing.

The increased unemployment benefits under the CARES Act expired in July and negotiations in Congress to provide additional relief are ongoing. Without additional government support or related measures, we anticipate that the number of our operating partners and borrowers of our residential loans and those that underlie our investment securities that become delinquent or default on their financial obligations may increase ~~significantly as a result of the ongoing pandemic and such~~significantly. Such increased levels could materially adversely affect our business, financial condition, results of operations and our ability to make distributions to our stockholders.

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The CARES Act, which was signed into law on March 27, 2020, 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 grantsAccording to the ~~airline industry. On April 24, 2020, President Trump signed an additional funding bill into law that provides an additional $484 billion~~Board of ~~funding~~Governors of the Federal Reserve, trading conditions in U.S. Treasuries and MBS markets have improved gradually since the announcement of Federal Reserve policies and the functioning and liquidity of the MBS market have mostly returned to ~~individuals, small businesses, hospitals, health care providers~~pre-February standards, though strains continue in less liquid parts of the market. However, bid-ask spreads for longer-maturity and ~~additional coronavirus testing efforts.~~off-the-run Treasuries remain wider than in mid-February.

In 2017, policymakers announced that LIBOR will be replaced by 2021. The directive was spurred by the fact that banks are uncomfortable contributing to the LIBOR panel given the shortage of underlying transactions on which to base levels and the liability associated with submitting an unfounded level. LIBOR will be replaced with a new Secured Overnight Funding Rate ~~("SOFR"~~(“SOFR”), a rate based on U.S. repo trading. The new benchmark rate will be based on overnight Treasury General Collateral repo rates. The rate-setting process will be managed and published by the Federal Reserve and the Treasury’s Office of Financial Research. Many banks believe that it may take four to five years to complete the transition to SOFR, despite the 2021 deadline. We will monitor the emergence of this new rate carefully as it will likely become the new benchmark for hedges and a range of interest rate investments.

The scope and nature of the 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.~~evolve. There can be no assurance as to 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.

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~~First~~Third Quarter 2020 Summary

Earnings and Return Metrics

The following table presents key earnings and return metrics for the three and nine months ended ~~March 31,~~September 30, 2020 (dollar amounts in thousands, except per share data):


	Three Months Ended September 30, 2020			Nine Months Ended September 30, 2020
Net interest income	$	25,529		$	101,134
Net income (loss) attributable to Company's common stockholders	$	91,344		$	(399,819)
Net income (loss) attributable to Company's common stockholders per share (basic)	$	0.24		$	(1.08)
Comprehensive income (loss) attributable to Company's common stockholders	$	113,834		$	(436,889)
Comprehensive income (loss) attributable to Company's common stockholders per share (basic)	$	0.30		$	(1.18)
Book value per common share	$	4.58		$	4.58
Economic return on book value (1)	7.0		%	(18.6)		%

(1)Economic return on book value is based on the periodic change in GAAP book value per common share plus dividends declared per common share, if any, during the respective periods.

Three Months Ended March 31, 2020
Net interest income $ 47,082
Net loss attributable to Company's common stockholders $ (598,680 )
Net loss attributable to Company's common stockholders per share (basic) $ (1.71 )
Comprehensive loss attributable to Company's common stockholders $ (740,844 )
Comprehensive loss attributable to Company's common stockholders per share (basic) $ (2.11 )
Book value per common share $ 3.89
Economic return on book value for the quarter ⁽¹⁾
(32.7 )%


⁽¹⁾	~~Economic return on book value is based on the change in GAAP book value per common share plus dividends declared per common share, if any, during the period.~~

Developments

~~We experienced unprecedented market conditions~~•Completed a securitization of residential loans, resulting ~~from~~in approximately $241.1 million of net proceeds to the ~~COVID-19 pandemic. In response, we took~~Company. A portion of the ~~following actions~~net proceeds were utilized to ~~manage our portfolio~~repay approximately $230.6 million on an outstanding repurchase agreement related to residential loans.

•Obtained non-mark-to-market financing for residential loans through ~~the disruption and improve liquidity:~~

~~Sold all of our first loss POs and certain mezzanine CMBS securities issued by the Consolidated K-Series for total sales~~a repurchase agreement with a new counterparty, receiving net proceeds of ~~$555.2 million, recognized a net realized loss of $54.1 million and reversed previously recognized net unrealized gains of $168.5~~approximately $47.2 million. As a result of the sales, we de-consolidated $17.4 billion in multi-family loans held in securitization trusts and $16.6 billion in multi-family collateralized debt obligations. We consolidated the Consolidated K-Series in accordance with U.S. GAAP, but had no claims to the assets or obligations for the liabilities of the Consolidated K-Series (other than those securities represented by the first loss POs, IOs and certain senior and mezzanine securities that we owned).

•Sold ~~$1.4 billion of investment securities, including $993.0 million of Agency RMBS, $145.4 million of Agency CMBS, $130.9 million of~~ non-Agency RMBS for approximately $259.5 million in proceeds and ~~$114.0~~CMBS for approximately $110.7 million ~~of CMBS investment securities and recognized a net realized loss of $58.7 million.~~in proceeds.

~~Sold~~•Purchased residential loans for approximately ~~$50.0 million in proceeds, recognized a realized loss of $16.2 million and reversed previously recognized unrealized gains of $4.5~~$92.7 million.

Terminated interest rate swaps resulting in a net realized loss of $73.1 million, which was partially offset by the reversal of previously recognized unrealized losses of $29.0 million for a total net loss of $44.1 million.

~~Reduced outstanding~~•Repaid last remaining repurchase ~~agreements for~~agreement to finance investment securities ~~by $1.6 billion from year-end levels, resulting in a portfolio leverage ratio of 0.7 times as of March 31, 2020.~~

~~Prior to the market disruption, we acquired residential and multi-family credit assets totaling $531.2 million.~~

~~During the first half of the quarter, we issued 85.1 million shares of common stock collectively through two underwritten public offerings, resulting in total net proceeds of $511.9 million.~~

~~Subsequent Developments~~

~~In addition to the actions above, in early April 2020, we settled our outstanding receivable for securities sold as of March 31, 2020~~ in the amount of ~~$213.6 million and obtained additional financing in the amount~~approximately $87.6 million.

Subsequent Developments

In October 2020, we completed a securitization of ~~$248.8 million for~~ residential loans, ~~pledged under a repurchase agreement. Using the proceeds from these transactions, combined with $137.2~~resulting in approximately $299.4 million in ~~previously pledged cash margin, we terminated investment securities~~net proceeds to the Company after deducting estimated expenses associated with the transaction. We utilized the net proceeds to repay approximately $236.0 million on outstanding repurchase agreements ~~repaying $562.9 million.~~related to residential loans.

Table of Contents

~~As of April 7, 2020, we had approximately $200 million in cash and cash equivalents, $1.5 billion in total unencumbered investment portfolio and a portfolio leverage ratio of 0.6 times.~~

~~Table of Contents~~

Significant Estimates and 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,~~September 30, 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 under “Note 2 – Summary of Significant Accounting Policies” to the consolidated financial statements included therein.

Recent Accounting Pronouncements

A discussion of recent accounting pronouncements and the possible effects on our consolidated financial statements is included in “Note 2 — Summary of Significant Accounting Policies” included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Table of Contents

Capital Allocation

The following provides an overview of the allocation of our total equity as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively. We fund our investing and operating activities with a combination of cash flow from operations, proceeds from common and preferred equity and debt securities offerings, including convertible notes, short-term and longer-term repurchase agreements, ~~borrowings,~~ CDOs, securitized debt and trust preferred debentures. A detailed discussion of our liquidity and capital resources is provided in “Liquidity and Capital Resources” elsewhere in this section.

The following tables set forth our allocated capital by investment category at ~~March 31,~~September 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands). As previously discussed, in an effort to manage our portfolio through the unprecedented turmoil in the financial markets and improve liquidity, we sold our entire Agency CMBS and Agency RMBS portfolio during ~~March:~~March 2020.

At ~~March 31,~~September 30, 2020:


	Single-Family Credit		Multi- Family Credit		Other		Total
Investment securities available for sale, at fair value	$	375,765	$	182,925	$	45,007	$	603,697
Residential loans, at fair value	2,822,789		—		—		2,822,789

Residential collateralized debt obligations, at fair value	(1,077,980)		—		—		(1,077,980)
Investments in unconsolidated entities	73,456		145,250		—		218,706
Preferred equity and mezzanine loan investments	—		183,154		—		183,154

Other investments (1)	—		3,585		—		3,585
Carrying value	2,194,030		514,914		45,007		2,753,951
Liabilities:
Repurchase agreements	(672,519)		—		—		(672,519)
Securitized debt	(88,791)		—		—		(88,791)
Residential collateralized debt obligations	(268,820)		—		—		(268,820)
Subordinated debentures	—		—		(45,000)		(45,000)
Convertible notes	—		—		(134,720)		(134,720)
Cash, cash equivalents and restricted cash (2)	119,578		47,952		537,094		704,624
Other	50,362		(4,356)		(41,348)		4,658
Net capital allocated	$	1,333,840	$	558,510	$	361,033	$	2,253,383

Total Leverage Ratio (3)							0.4
Portfolio Leverage Ratio (4)							0.3

Single- Family Credit Multi-
Family Credit Other Total
Investment securities available for sale, at fair value $ 576,108
$ 268,856
$ 42,344
$ 887,308
Residential loans, at fair value 2,776,630
—
—
2,776,630
Residential collateralized debt obligations, at fair value (1,034,992 ) —
—
(1,034,992 )
Residential collateralized debt obligations (38,959 ) —
—
(38,959 )
Investments in unconsolidated entities 66,790
145,175
—
211,965
Preferred equity and mezzanine loan investments —
179,292
—
179,292
Other investments ⁽¹⁾
242
14,769
—
15,011
Carrying value 2,345,819
608,092
42,344
2,996,255
Liabilities:
Repurchase agreements (1,047,987 ) (380,137 ) —
(1,428,124 )
Subordinated debentures —
—
(45,000 ) (45,000 )
Convertible notes —
—
(133,534 ) (133,534 )
Cash and restricted cash ⁽²⁾
65,695
112,899
167,513
346,107
Other 57,001
202,767
4,979
264,747
Net capital allocated $ 1,420,528
$ 543,621
$ 36,302
$ 2,000,451

Total Leverage Ratio ⁽³⁾
0.8
Portfolio Leverage Ratio ⁽⁴⁾
0.7


⁽¹⁾(1)Includes real estate under development presented in the Company's accompanying condensed consolidated balance sheets in receivables and other assets.	Includes real estate under development in the amount of $14.8 million and other loan investments in the amount of $0.2 million, both of which are included in the Company's accompanying condensed consolidated balance sheets in receivables and other assets.


⁽²⁾	~~Restricted cash is included in the Company's accompanying condensed consolidated balance sheets in receivables and other assets.~~


⁽³⁾	Represents total outstanding repurchase agreement financing, subordinated debentures and Convertible Notes divided by the Company's total stockholders' equity. Does not include SLST CDOs amounting to $1.0 billion and Residential CDOs amounting to $39.0 million that are consolidated in the Company's financial statements as they are non-recourse debt for which the Company has no obligation.


⁽⁴⁾	~~Represents outstanding repurchase agreement financing divided by the Company's total stockholders' equity.~~

(2)Restricted cash is included in the Company's accompanying condensed consolidated balance sheets in receivables and other assets.

(3)Represents total outstanding repurchase agreement financing, subordinated debentures and Convertible Notes divided by the Company's total stockholders' equity. Does not include SLST CDOs amounting to $1.1 billion, Residential CDOs amounting to $268.8 million and securitized debt amounting to $88.8 million as they are non-recourse debt to the Company.

(4)Represents outstanding repurchase agreement financing divided by the Company's total stockholders' equity.

Table of Contents

At December 31, 2019:


	Agency		Single-Family Credit		Multi- Family Credit		Other		Total
Investment securities available for sale, at fair value	$	973,835	$	715,314	$	267,777	$	49,214	$	2,006,140
Residential loans, at fair value	26,239		2,732,401		—		—		2,758,640
Residential collateralized debt obligations, at fair value	—		(1,052,829)		—		—		(1,052,829)
Residential loans, net	—		202,756		—		—		202,756
Investments in unconsolidated entities	—		65,573		124,392		—		189,965
Preferred equity and mezzanine loan investments	—		—		180,045		—		180,045
Multi-family loans held in securitization trusts, at fair value	88,359		—		17,728,387		—		17,816,746
Multi-family collateralized debt obligations, at fair value	—		—		(16,724,451)		—		(16,724,451)

Other investments (1)	—		3,119		14,464		—		17,583
Carrying value	1,088,433		2,666,334		1,590,614		49,214		5,394,595
Liabilities:
Repurchase agreements	(945,926)		(1,347,600)		(811,890)		—		(3,105,416)
Residential collateralized debt obligations	—		(40,429)		—		—		(40,429)
Subordinated debentures	—		—		—		(45,000)		(45,000)
Convertible notes	—		—		—		(132,955)		(132,955)
Hedges (net) (2)	15,878		—		—		—		15,878
Cash, cash equivalents and restricted cash (3)	9,738		44,604		4,152		63,118		121,612
Goodwill	—		—		—		25,222		25,222
Other	(1,449)		54,895		(10,123)		(71,801)		(28,478)
Net capital allocated	$	166,674	$	1,377,804	$	772,753	$	(112,202)	$	2,205,029

Total Leverage Ratio (4)									1.5
Portfolio Leverage Ratio (5)									1.4

(1)Includes real estate under development in the amount of $14.5 million, other loan investments in the amount of $2.4 million and deferred interest related to residential loans, at fair value held in Consolidated SLST of $0.7 million, all of which are included in the Company's accompanying condensed consolidated balance sheets in receivables and other assets.

(2)Includes derivative liabilities of $29.0 million netted against a $44.8 million variation margin.

(3)Restricted cash is included in the Company's accompanying condensed consolidated balance sheets in receivables and other assets.

(4)Represents total outstanding repurchase agreement financing, subordinated debentures and Convertible Notes divided by the Company's total stockholders' equity. Does not include Multi-family CDOs amounting to $16.7 billion, SLST CDOs amounting to $1.1 billion and Residential CDOs amounting to $40.4 million as they are non-recourse debt to the Company.

(5)Represents outstanding repurchase agreement financing divided by the Company's total stockholders' equity.

Agency Single-Family Credit
Multi-
Family Credit
Other Total
Investment securities available for sale, at fair value $ 973,835
$ 715,314
$ 267,777
$ 49,214
$ 2,006,140
Residential loans, at fair value 26,239
2,732,401
—
—
2,758,640
Residential collateralized debt obligations, at fair value —
(1,052,829 ) —
—
(1,052,829 )
Residential loans, net —
202,756
—
—
202,756
Residential collateralized debt obligations —
(40,429 ) —
—
(40,429 )
Investments in unconsolidated entities —
65,573
124,392
—
189,965
Preferred equity and mezzanine loan investments —
—
180,045
—
180,045
Multi-family loans held in securitization trusts, at fair value 88,359
—
17,728,387
—
17,816,746
Multi-family collateralized debt obligations, at fair value —
—
(16,724,451 ) —
(16,724,451 )
Other investments ⁽¹⁾
—
3,119
14,464
—
17,583
Carrying value 1,088,433
2,625,905
1,590,614
49,214
5,354,166
Liabilities:
Repurchase agreements (945,926 ) (1,347,600 ) (811,890 ) —
(3,105,416 )
Subordinated debentures —
—
—
(45,000 ) (45,000 )
Convertible notes —
—
—
(132,955 ) (132,955 )
Hedges (net) ⁽²⁾
15,878
—
—
—
15,878
Cash and restricted cash ⁽³⁾
9,738
44,604
4,152
63,118
121,612
Goodwill —
—
—
25,222
25,222
Other (1,449 ) 54,895
(10,123 ) (71,801 ) (28,478 )
Net capital allocated $ 166,674
$ 1,377,804
$ 772,753
$ (112,202 ) $ 2,205,029

Total Leverage Ratio ⁽⁴⁾
1.5
Portfolio Leverage Ratio ⁽⁵⁾
1.4


⁽¹⁾	Includes real estate under development in the amount of $14.5 million, other loan investments in the amount of $2.4 million and deferred interest related to residential loans, at fair value held in Consolidated SLST of $0.7 million, all of which are included in the Company's accompanying condensed consolidated balance sheets in receivables and other assets.


⁽²⁾	~~Includes derivative liabilities of $29.0 million netted against a $44.8 million variation margin.~~


⁽³⁾	~~Restricted cash is included in the Company's accompanying condensed consolidated balance sheets in receivables and other assets.~~

⁽⁴⁾

Represents total outstanding repurchase agreement financing, subordinated debentures and Convertible Notes divided by the Company's total stockholders' equity. Does not include Multi-family CDOs amounting to $16.7 billion, SLST CDOs amounting to $1.1 billion and Residential CDOs amounting to $40.4 million that are consolidated in the Company's financial statements as they are non-recourse debt for which the Company has no obligation.


⁽⁵⁾	~~Represents outstanding repurchase agreement financing divided by the Company's total stockholders' equity.~~

Table of Contents

Analysis of Changes in Book Value Per Share

The following table analyzes the changes in book value of our common stock for the three and nine months ended ~~March 31,~~September 30, 2020 (amounts in thousands, except per share data):


	Three Months Ended September 30, 2020					Nine Months Ended September 30, 2020
	Amount		Shares	Per Share (1)		Amount		Shares	Per Share (1)
Beginning Balance	$	1,642,883	377,465	$	4.35	$	1,683,911	291,371	$	5.78
Cumulative-effect adjustment for implementation of fair value option (2)	—					12,284
Common stock issuance, net (3)	3,175		279			519,473		86,373


Balance after cumulative-effect adjustment and share issuance activity	1,646,058		377,744	4.36		2,215,668		377,744	5.87
Dividends declared	(28,331)			(0.08)		(47,218)			(0.13)
Net change in accumulated other comprehensive income (loss):

Investment securities available for sale (4)	22,490			0.06		(37,070)			(0.10)

Net income (loss) attributable to Company's common stockholders	91,344			0.24		(399,819)			(1.06)
Ending Balance	$	1,731,561	377,744	$	4.58	$	1,731,561	377,744	$	4.58

(1)Outstanding shares used to calculate book value per common share for the three and nine months ended September 30, 2020 are 377,744,476.

(2)On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and elected to apply the fair value option provided by ASU 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief to our residential loans, net, preferred equity and mezzanine loan investments that are accounted for as loans and preferred equity investments that are accounted for under the equity method, resulting in a cumulative-effect adjustment to beginning book value of our common stock and book value per common share.

(3)Includes amortization of stock based compensation.

(4)The changes primarily relate to unrealized gains (losses) in our investment securities due to increases or reductions in pricing.

Three Months Ended March 31, 2020
Amount Shares
Per Share⁽¹⁾
Beginning Balance $ 1,683,911
291,371
$ 5.78
Cumulative-effect adjustment for implementation of fair value option ⁽²⁾
12,284

Common stock issuance, net ⁽³⁾
513,869
86,094

Balance after cumulative-effect adjustment and share issuance activity 2,210,064
377,465
5.86
Dividends declared —

—
Net change in accumulated other comprehensive income (loss):

Investment securities available for sale ⁽⁴⁾
(142,164 )

(0.38 )
Net loss attributable to Company's common stockholders (598,680 )

(1.59 )
Ending Balance $ 1,469,220
377,465
$ 3.89


⁽¹⁾	~~Outstanding shares used to calculate book value per common share for the three months ended March 31, 2020 are 377,465,405.~~

⁽²⁾

~~On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13,~~ ~~Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ ~~and elected to apply the fair value option provided by ASU 2019-05,~~ ~~Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief~~ to our residential loans, net, preferred equity and mezzanine loan investments that are accounted for as loans and preferred equity investments that are accounted for under the equity method, resulting in a cumulative-effect adjustment to beginning book value of our common stock and book value per common share.


⁽³⁾	~~Includes amortization of stock based compensation.~~


⁽⁴⁾	~~The decreases primarily relate to unrealized losses in our investment securities due to reductions in pricing.~~

Table of Contents

Results of Operations

Beginning in mid-March and continuing into the second quarter, the global pandemic associated with COVID-19 and related economic conditions caused financial and mortgage-related asset markets to ~~come under extreme duress, resulting~~experience significant volatility. The significant dislocation in the financial markets in March and part of April caused, among other things, credit spread widening, a sharp decrease in interest rates, higher unemployment levels and unprecedented illiquidity in repurchase agreement financing and MBS markets, which in turn ~~has~~materially negatively impacted liquidity and pricing of our assets. While ~~we have taken~~market conditions improved and volatility subsided to an extent in the latter part of the second quarter and into the third quarter as parts of the global and U.S. economy "re-opened", leading to partial pricing recovery for a number of ~~steps~~assets in ~~response~~our portfolio, we expect volatility and markets to continue to fluctuate and that these conditions ~~as discussed above, the COVID-19 pandemic and related disruptions in the real estate, mortgage and financial markets have materially negatively affected and is expected to~~may continue to negatively affect our ~~business.~~business through the balance of 2020 and into 2021 due to the uncertain duration and ongoing impact of the pandemic. The factors described above and throughout this Quarterly Report on Form 10-Q (particularly as related to the COVID-19 pandemic) have driven the majority of our results of operations for the three and nine months ended ~~March 31,~~September 30, 2020, and are expected to continue to impact our results of operations in future periods. Thus, our results of operations should be read and viewed in the context of these unprecedented conditions.

The following discussion provides information regarding our results of operations for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019,, including a comparison of year-over-year results and related commentary. A number of the tables contain a “change” column that indicates the amount by which results from ~~the three months ended March 31,~~ 2020 are greater or less than the results from the respective period in 2019. Unless otherwise specified, references in this section to increases or decreases in ~~2020~~the "three-month periods" refer to the change in results for the three months ended ~~March 31,~~September 30, 2020 when compared to the three months ended ~~March 31,~~September 30, 2019 and increases or decreases in the "nine-month periods" refer to the change in results for the nine months ended September 30, 2020 when compared to the nine months ended September 30, 2019.

The following table presents the main components of our net income (loss) ~~income~~ for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively (dollar amounts in thousands, except per share data):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		$ Change		2020		2019		$ Change
Net interest income	$	25,529	$	31,971	$	(6,442)	$	101,134	$	83,866	$	17,268
Total non-interest income (loss)	90,528		21,396		69,132		(427,060)		60,822		(487,882)
Total general, administrative and operating expenses	13,424		12,288		1,136		41,382		37,326		4,056
Income (loss) from operations before income taxes	102,633		41,079		61,554		(367,308)		107,362		(474,670)
Income tax (benefit) expense	(772)		(187)		(585)		917		(247)		1,164
Net income (loss) attributable to Company	101,641		41,379		60,262		(368,929)		108,254		(477,183)
Preferred stock dividends	10,297		6,544		3,753		30,890		18,726		12,164
Net income (loss) attributable to Company's common stockholders	91,344		34,835		56,509		(399,819)		89,528		(489,347)
Basic earnings (loss) per common share	$	0.24	$	0.15	$	0.09	$	(1.08)	$	0.44	$	(1.52)
Diluted earnings (loss) per common share	$	0.23	$	0.15	$	0.08	$	(1.08)	$	0.43	$	(1.51)

Three Months Ended
March 31,
2020 2019 $ Change
Net interest income $ 47,082
$ 26,203
$ 20,879
Total non-interest (loss) income (622,003 ) 30,865
(652,868 )
Total general, administrative and operating expenses 13,885
12,644
1,241
(Loss) income from operations before income taxes (588,806 ) 44,424
(633,230 )
Income tax (benefit) expense (239 ) 74
(313 )
Net (loss) income attributable to Company (588,383 ) 44,139
(632,522 )
Preferred stock dividends⁽¹⁾
10,297
5,925
4,372
Net (loss) income attributable to Company's common stockholders (598,680 ) 38,214
(636,894 )
Basic (loss) earnings per common share $ (1.71 ) $ 0.22
$ (1.93 )
Diluted (loss) earnings per common share $ (1.71 ) $ 0.21
$ (1.92 )


⁽¹⁾	~~Includes accumulated dividends for the three months ended March 31, 2020.~~

Net Interest Income

Our results of operations for our investment portfolio during a given period typically reflect, in large part, the net interest income earned on our investment portfolio of RMBS, CMBS, residential loans and preferred equity investments and mezzanine loans, where the risks and payment characteristics are equivalent to and accounted for as loans (collectively, our “Interest Earning Assets”). The net interest spread is impacted by factors such as our cost of financing, the interest rate that our investments bear and our interest rate hedging strategies. Furthermore, the amount of premium or discount paid on purchased portfolio investments and the prepayment rates on portfolio investments will impact the net interest spread as such factors will be amortized over the expected term of such investments.

~~Table of Contents~~

The ~~$20.9 million increase~~decrease in net interest income ~~in 2020~~for the three-month periods was primarily driven by a ~~$1.5 billion increase~~decrease in average interest earning assets in our single-family and multi-family credit portfolios from purchase activity since March 31, 2019. The increase in average interest earnings assets was funded by a combination of the equity capital raised and increased borrowings in our repurchase agreements over the last twelve months. The net interest margin was 2.92% for the three months ended March 31, 2020, an improvement of 52 basis points primarily due to ~~lower financing costs which began in the third quarter of last year. The average interest earning assets for the three months ended March 31, 2020 was minimally impacted by our $2.0 billion in~~ asset sales in response to the impacts of the COVID-19 ~~pandemic as these sales were completed late~~pandemic. In particular, we sold our entire portfolio of higher yielding first loss POs within the Consolidated K-Series in ~~the quarter. Due to the significant portfolio reduction as a response to the COVID-19 market turmoil, the Company expects second quarter~~March 2020.

Table of Contents

The increase in net interest income for the nine-month periods was primarily driven by a decrease in interest expense due to the repayment of all of our outstanding repurchase agreements that finance our investment securities and an increase in assets in our single-family credit portfolio resulting from purchase activity since September 30, 2019, which was funded by a combination of equity capital raised in 2019 and in the first quarter of 2020 and repurchase agreement financing. This increase during the nine-month period was partially offset by a decrease ~~significantly.~~in net interest income related to the sale of higher yielding first loss POs within the Consolidated K-Series in March 2020.

Portfolio Net Interest Margin

The following tables set forth certain information about our portfolio by investment category and their related interest income, interest expense, average yield on interest earning assets, average portfolio financing cost and portfolio net interest margin for our average interest earning assets (by investment category) for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively (dollar amounts in thousands):

Three Months Ended ~~March 31,~~September 30, 2020

Agency ⁽¹⁾

Single-Family Credit ^{(2) (4)}

Multi-
Family Credit ⁽³⁾ ⁽⁴⁾

Other ⁽⁸⁾
Total
Interest Income ⁽⁵⁾
$ 6,402
$ 34,321
$ 30,214
$ 1,379
$ 72,316
Interest Expense (4,930 ) (10,205 ) (6,715 ) (3,384 ) (25,234 )
Net Interest Income (Expense) $ 1,472
$ 24,116
$ 23,499
$ (2,005 ) $ 47,082

Average Interest Earning Assets ^{(4) (6)}
$ 1,074,013
$ 2,591,264
$ 1,116,461
$ 50,333
$ 4,832,071
Average Yield on Interest Earning Assets ⁽⁷⁾
2.38 % 5.30 % 10.82 % 10.96 % 5.99 %
Average Portfolio Financing Cost ⁽⁸⁾
(2.28 )% (3.16 )% (3.90 )% —
(3.07 )%
Portfolio Net Interest Margin ⁽⁹⁾
0.10 % 2.14 % 6.92 % 10.96 % 2.92 %


	Single-Family Credit (1) (3)			Multi- Family Credit (2)			Other (7)			Total
Interest Income (4)	$	28,747		$	7,846		$	1,203		$	37,796
Interest Expense	(9,025)			—			(3,242)			(12,267)
Net Interest Income (Expense)	$	19,722		$	7,846		$	(2,039)		$	25,529

Average Interest Earning Assets (3) (5)	$	2,279,813		$	417,102		$	41,540		$	2,738,455
Average Yield on Interest Earning Assets (6)	5.03		%	7.52		%	11.58		%	5.51		%
Average Portfolio Financing Cost (7)	(3.33)		%	—			—			(3.33)		%
Portfolio Net Interest Margin (8)	1.70		%	7.52		%	11.58		%	2.18		%

Three Months Ended ~~March 31,~~September 30, 2019

Agency ⁽¹⁾
Single-Family Credit
Multi-
Family Credit ⁽³⁾ ⁽⁴⁾

Other ⁽⁸⁾
Total
Interest Income ⁽⁵⁾
$ 7,568
$ 19,384
$ 24,233
$ —
$ 51,185
Interest Expense (6,360 ) (8,832 ) (6,357 ) (3,433 ) (24,982 )
Net Interest Income (Expense) $ 1,208
$ 10,552
$ 17,876
$ (3,433 ) $ 26,203

Average Interest Earning Assets ^{(4) (6)}
$ 1,053,529
$ 1,312,263
$ 927,201
$ —
$ 3,292,993
Average Yield on Interest Earning Assets ⁽⁷⁾
2.87 % 5.91 % 10.45 % —
6.22 %
Average Portfolio Financing Cost ⁽⁸⁾
(2.76 )% (4.71 )% (4.37 )% —
(3.82 )%
Portfolio Net Interest Margin ⁽⁹⁾
0.11 % 1.20 % 6.08 % —
2.40 %


	Agency (9)			Single-Family Credit			Multi- Family Credit (2) (3)			Other (7)			Total
Interest Income (4)	$	6,512		$	23,668		$	28,413		$	681		$	59,274
Interest Expense	(4,980)			(10,499)			(8,400)			(3,424)			(27,303)
Net Interest Income (Expense)	$	1,532		$	13,169		$	20,013		$	(2,743)		$	31,971

Average Interest Earning Assets (3) (5)	$	1,001,567		$	1,772,485		$	1,104,560		$	26,235		$	3,904,847
Average Yield on Interest Earning Assets (6)	2.60		%	5.34		%	10.29		%	10.38		%	6.07		%
Average Portfolio Financing Cost (7)	(2.38)		%	(4.27)		%	(4.29)		%	—			(3.67)		%
Portfolio Net Interest Margin (8)	0.22		%	1.07		%	6.00		%	10.38		%	2.40		%


⁽¹⁾	~~Includes Agency RMBS and Agency CMBS.~~

⁽²⁾

The Company, through its ownership of certain securities during the three months ended March 31, 2020, has determined it is the primary beneficiary of Consolidated SLST and has consolidated Consolidated SLST into the Company's condensed consolidated financial statements. Interest income amounts represent interest income earned by securities that are owned by the Company. A reconciliation of net interest income generated by our single-family credit portfolio to our condensed consolidated financial statements for the three months ended March 31, 2020 is set forth below (dollar amounts in thousands):

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Nine Months Ended September 30, 2020


	Agency (9)			Single-Family Credit (1) (3)			Multi- Family Credit (2) (3)			Other (7)			Total
Interest Income (4)	$	6,401		$	92,676		$	46,914		$	3,933		$	149,924
Interest Expense	(4,930)			(27,138)			(6,774)			(9,948)			(48,790)
Net Interest Income (Expense)	$	1,471		$	65,538		$	40,140		$	(6,015)		$	101,134

Average Interest Earning Assets (3) (5)	$	337,084		$	2,444,464		$	696,812		$	46,524		$	3,524,884
Average Yield on Interest Earning Assets (6)	2.46		%	5.05		%	8.98		%	11.27		%	5.66		%
Average Portfolio Financing Cost (7)	(2.25)		%	(3.12)		%	(3.41)		%	—			(3.02)		%
Portfolio Net Interest Margin (8)	0.21		%	1.93		%	5.57		%	11.27		%	2.64		%

Nine Months Ended September 30, 2019


	Agency (9)			Single-Family Credit			Multi- Family Credit (2) (3)			Other (7)			Total
Interest Income (4)	$	20,768		$	61,842		$	79,479		$	710		$	162,799
Interest Expense	(17,225)			(29,423)			(22,003)			(10,282)			(78,933)
Net Interest Income (Expense)	$	3,543		$	32,419		$	57,476		$	(9,572)		$	83,866

Average Interest Earning Assets (3) (5)	$	1,046,265		$	1,541,787		$	1,028,659		$	9,112		$	3,625,823
Average Yield on Interest Earning Assets (6)	2.65		%	5.35		%	10.30		%	10.39		%	5.99		%
Average Portfolio Financing Cost (7)	(2.58)		%	(4.47)		%	(4.27)		%	—			(3.73)		%
Portfolio Net Interest Margin (8)	0.07		%	0.88		%	6.03		%	10.39		%	2.26		%

(1)The Company, through its ownership of certain securities purchased in the fourth quarter of 2019, has determined it is the primary beneficiary of Consolidated SLST and has consolidated Consolidated SLST into the Company's condensed consolidated financial statements. Interest income amounts represent interest income earned by securities that are owned by the Company. A reconciliation of net interest income generated by our single-family credit portfolio to our condensed consolidated financial statements for the three and nine months ended September 30, 2020, respectively, is set forth below (dollar amounts in thousands):


	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Interest income, residential loans	$	30,704	$	94,424
Interest income, investment securities available for sale (a)	5,605		22,507
Interest expense, SLST CDOs (b)	(7,562)		(24,255)
Interest income, Single-Family Credit, net	28,747		92,676
Interest expense, repurchase agreements	(5,341)		(22,617)
Interest expense, Residential CDOs (b)	(2,160)		(2,527)
Interest expense, securitized debt	(1,524)		(1,994)
Net interest income, Single-Family Credit	$	19,722	$	65,538

(a)Included in the Company’s accompanying condensed consolidated statements of operations in interest income, investment securities and other interest earning assets.

(b)Included in the Company’s accompanying condensed consolidated statements of operations in interest expense, residential collateralized debt obligations.

Three Months Ended March 31, 2020
Interest income, residential loans $ 34,300
Interest income, investment securities available for sale ^(a)
8,556
Interest expense, SLST CDOs ^(b)
(8,535 )
Interest income, Single-Family Credit, net 34,321
Interest expense, repurchase agreements (9,968 )
Interest expense, Residential CDOs ^(b)
(237 )
Net interest income, Single-Family Credit $ 24,116


^(a)	~~Included in the Company’s accompanying condensed consolidated statements of operations in interest income, investment securities and other interest earning assets.~~


^(b)	~~Included in the Company’s accompanying condensed consolidated statements of operations in interest expense, residential collateralized debt obligations.~~

⁽³⁾

Prior to the sale of first loss POs in 2020, the Company had determined it was the primary beneficiary of the Consolidated K-Series and had consolidated the Consolidated K-Series into the Company’s condensed consolidated financial statements. Interest income amounts represent interest income earned by securities that were owned by the Company. A reconciliation of net interest income generated by our multi-family credit portfolio to our condensed consolidated financial statements for the three months ended March 31, 2020 and 2019, respectively, is set forth below (dollar amounts in thousands):

Three Months Ended
March 31,
2020 2019
Interest income, multi-family loans held in securitization trusts $ 151,841
$ 111,768
Interest income, investment securities available for sale ^(a)
2,762
4,255
Interest income, preferred equity and mezzanine loan investments 5,373
5,007
Interest expense, multi-family collateralized debt obligations (129,762 ) (96,797 )
Interest income, Multi-Family Credit, net 30,214
24,233
Interest expense, repurchase agreements (6,715 ) (5,863 )
Interest expense, securitized debt —
(494 )
Net interest income, Multi-Family Credit $ 23,499
$ 17,876


^(a)	~~Included in the Company’s accompanying condensed consolidated statements of operations in interest income, investment securities and other interest earning assets.~~


⁽⁴⁾	Average Interest Earning Assets for the periods indicated exclude all Consolidated SLST (for the three months ended March 31, 2020) and Consolidated K-Series assets other than those securities owned by the Company.


⁽⁵⁾	~~Includes interest income earned on cash accounts held by the Company.~~


⁽⁶⁾	~~Average Interest Earning Assets is calculated based on daily average amortized cost for the respective periods.~~


⁽⁷⁾	~~Average Yield on Interest Earning Assets was calculated by dividing our annualized interest income by our Average Interest Earning Assets for the respective periods.~~

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⁽⁸⁾

(2)Prior to the sale of first loss POs in March 2020, the Company had determined it was the primary beneficiary of the Consolidated K-Series and had consolidated the Consolidated K-Series into the Company’s condensed consolidated financial statements. Interest income amounts represent interest income earned by securities that were owned by the Company. A reconciliation of net interest income generated by our multi-family credit portfolio to our condensed consolidated financial statements for the three and nine months ended September 30, 2020 and 2019, respectively, is set forth below (dollar amounts in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Interest income, multi-family loans held in securitization trusts	$	—	$	139,818	$	151,841	$	384,743
Interest income, investment securities available for sale (a)	2,546		3,419		8,960		11,117
Interest income, preferred equity and mezzanine loan investments	5,300		5,505		15,875		15,660
Interest expense, multi-family collateralized debt obligations	—		(120,329)		(129,762)		(332,041)
Interest income, Multi-Family Credit, net	7,846		28,413		46,914		79,479
Interest expense, repurchase agreements	—		(8,400)		(6,774)		(21,509)
Interest expense, securitized debt	—		—		—		(494)
Net interest income, Multi-Family Credit	$	7,846	$	20,013	$	40,140	$	57,476

(a)Included in the Company’s accompanying condensed consolidated statements of operations in interest income, investment securities and other interest earning assets.

(3)Average Interest Earning Assets for the periods indicated exclude cash and cash equivalents, all Consolidated SLST assets (for the three and nine months ended September 30, 2020) and all Consolidated K-Series assets (for the nine months ended September 30, 2020 and the three and nine months ended September 30, 2019) other than, in each case, those securities owned by the Company.

(4)Includes interest income earned on cash accounts held by the Company.

(5)Average Interest Earning Assets is calculated each quarter based on daily average amortized cost for the respective periods.

(6)Average Yield on Interest Earning Assets was calculated by dividing our annualized interest income relating to our interest earning assets by our Average Interest Earning Assets for the respective periods.

(7)Average Portfolio Financing Cost was calculated by dividing our annualized interest expense relating to our interest earning assets by our average interest bearing liabilities, excluding our subordinated debentures and convertible notes, for the respective periods. For the three and nine months ended September 30, 2020 and 2019, respectively, interest expense generated by our subordinated debentures and convertible notes is set forth below (dollar amounts in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Subordinated debentures	$	483	$	711	$	1,714	$	2,185
Convertible notes	2,759		2,713		8,234		8,097
Total	$	3,242	$	3,424	$	9,948	$	10,282

(8)Portfolio Net Interest Margin is the difference between our Average Yield on Interest Earning Assets and our Average Portfolio Financing Cost, excluding the weighted average cost of subordinated debentures and convertible notes.

(9)Includes Agency RMBS and Agency CMBS.

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Average Portfolio Financing Cost was calculated by dividing our annualized interest expense relating to our interest earning assets by our average interest bearing liabilities, excluding our subordinated debentures and convertible notes, for the respective periods. For the three months ended March 31, 2020 and 2019, respectively, interest expense generated by our subordinated debentures and convertible notes is set forth below (dollar amounts in thousands):

Three Months Ended
March 31,
2020 2019
Subordinated debentures $ 649
$ 741
Convertible notes 2,735
2,691
Total $ 3,384
$ 3,432


⁽⁹⁾	Portfolio Net Interest Margin is the difference between our Average Yield on Interest Earning Assets and our Average Portfolio Financing Cost, excluding the weighted average cost of subordinated debentures and convertible notes.

Non-interest Income (Loss) ~~Income~~

Realized (Losses) Gains, Net

~~As previously discussed, the~~The Company sold approximately ~~$2.0~~$377.5 million and $2.5 billion of assets during the three and nine months ended ~~March 31, 2020.~~September 30, 2020, respectively in response to the disruption of the financial markets caused by the COVID-19 pandemic. The following table presents the components of realized (losses) gains, net recognized for the three and nine months ended~~March 31,~~ September 30, 2020 and 2019,, respectively (dollar amounts in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		$ Change		2020		2019		$ Change
Investment securities and related hedges	$	(2,575)	$	5,013	$	(7,588)	$	(134,452)	$	21,815	$	(156,267)
Residential loans	1,508		1,089		419		(15,467)		10,741		(26,208)
Total realized (losses) gains, net	$	(1,067)	$	6,102	$	(7,169)	$	(149,919)	$	32,556	$	(182,475)

Three Months Ended
March 31,
2020 2019 $ Change
Investment securities and related hedges $ (131,835 ) $ 16,801
$ (148,636 )
Residential loans (16,083 ) 5,205
(21,288 )
Total realized (losses) gains, net $ (147,918 ) $ 22,006
$ (169,924 )

InDuring the three months ended September 30, 2020, the Company recognized net realized losses of ~~$58.7~~$2.6 million on the sale of non-Agency RMBS and CMBS while the Company recognized net realized gains of $5.0 million, primarily on sales of CMBS, during the three months ended September 30, 2019. Realized gain activity on residential loans in both three-month periods is primarily a result of loan prepayment activity.

During the nine months ended September 30, 2020, the Company recognized net realized losses of $61.4 million on the sale of Agency RMBS, Agency CMBS, non-Agency RMBS and CMBS and realized losses of $73.1 million on the termination of interest rate swaps. InThe Company also recognized net realized losses on residential loans in 2020, primarily as a result of the sale of performing and re-performing loans. The Company sold residential loans with an aggregate unpaid principal balance of $116.4 million that resulted in net realized losses of $18.2 million during the nine months ended September 30, 2020, which was mostly incurred in the first quarter of 2020.

During the nine months ended September 30, 2019, the Company recognized ~~$16.8~~$21.8 million of net realized gains primarily on sales of certain Freddie Mac-sponsored multi-family loan K-Series first loss POs and ~~IOs.~~

IOs and CMBS. The Company also recognized net realized losses on residential loans in 2020, primarily due to the sale of a pool of re-performing loans with an aggregate unpaid principal balance of $70.1 million that resulted in a realized loss of $16.2 million. In 2019, the Company recognized net realized gains on residential loans during the nine months ended September 30, 2019, primarily as a result of ~~$4.4 million~~sale activity and ~~$1.2 million in realized gains recognized on the sale and payoff of residential loans, respectively.~~loan prepayments.

Realized Loss on De-consolidation of Multi-family Loans Held in Securitization Trusts and Multi-family Collateralized Debt Obligations, Net

~~As previously discussed,~~In March 2020, the Company sold its entire ~~position~~portfolio of first loss POs and certain mezzanine securities issued by the Consolidated K-Series. These sales, for total proceeds of approximately $555.2 million, resulted in the de-consolidation of each Consolidated K-Series as of the sale date of each first loss PO and a realized net loss on de-consolidation of multi-family loans held in securitization trusts and multi-family collateralized debt obligations of $54.1 ~~million.~~million for the nine months ended September 30, 2020. The sales also resulted in the de-consolidation of $17.4 billion in multi-family loans held in securitization trusts and $16.6 billion in multi-family collateralized debt obligations.

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Unrealized Gains (Losses) ~~Gains,~~, 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.~~markets during the first quarter of 2020. 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,~~first quarter. Pricing for our investment portfolio during the second and third quarters of 2020 rebounded with credit spreads tightening on a majority of our assets, which resulted in a partial reversal of unrealized losses recognized in the first quarter of 2020. The following table presents the components of unrealized gains (losses) ~~gains,~~, net recognized for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively (dollar amounts in thousands):

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	Three Months Ended March 31,										Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			$ Change				2020		2019		$ Change		2020		2019		$ Change
Investment securities and related hedges	$	(70,590	)	$	(14,586	)	$	(56,004	)	Investment securities and related hedges	$	19,193	$	(13,336)	$	32,529	$	9,303	$	(42,929)	$	52,232
Residential loans	(83,409		)	7,884			(91,293		)	Residential loans	35,726		16,818		18,908		(9,481)		34,580		(44,061)
Consolidated SLST	(66,134		)	—			(66,134		)	Consolidated SLST	27,145		—		27,145		(34,893)		—		(34,893)
Consolidated K-Series	(171,011		)	9,410			(180,421		)	Consolidated K-Series	—		7,630		(7,630)		(171,011)		22,247		(193,258)
Preferred equity and mezzanine loan investments	(5,636		)	—			(5,636		)	Preferred equity and mezzanine loan investments	(866)		—		(866)		(6,629)		—		(6,629)
Total unrealized (losses) gains, net	$	(396,780	)	$	2,708		$	(399,488	)
Total unrealized gains (losses), net										Total unrealized gains (losses), net	$	81,198	$	11,112	$	70,086	$	(212,711)	$	13,898	$	(226,609)

InFor the three months ended September 30, 2020, the Company recognized ~~a $399.5~~$81.2 million ~~increase~~ in net unrealized ~~losses. These losses were due directly~~gains. The credit markets continued to improve in the ~~disruptions~~third quarter, which translated to improved pricing across most of our asset classes.

For the ~~financial markets caused by~~nine months ended September 30, 2020, the ~~COVID-19 pandemic and the Company's response thereto, including $2.0 billion~~Company recognized $212.7 million in ~~asset sales and a significant decrease in asset valuations over the last two weeks of the quarter.~~net unrealized losses. Included in unrealized losses on both investment securities and related hedges and the Consolidated K-Series are net unrealized gain reversals due to sales and interest rate swap terminations during the ~~first quarter of~~nine months ended September 30, 2020 totaling ~~$139.1~~$135.3 million. ~~Unrealized losses on investments securities that remained in our investment portfolio at March 31, 2020 in the amount of $99.9 million were due to decreases in valuation.~~

Impairment of Goodwill

In March 2020, the Company sold its entire portfolio of first loss POs issued by the Consolidated K-Series, certain senior and mezzanine securities issued by the Consolidated K-Series, Agency CMBS and CMBS that were held by its multi-family investment reporting unit. As a result of the sales, the Company re-evaluated its goodwill balance associated with the multi-family investment reporting unit for impairment. This analysis yielded an impairment of the entire goodwill balance of $25.2 ~~million.~~million for the nine months ended September 30, 2020.

Other Income

The following table presents the components of other income for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively (dollar amounts in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		$ Change		2020		2019		$ Change
Income from preferred equity investments accounted for as equity (1)	$	4,302	$	2,458	$	1,844	$	7,364	$	5,557	$	1,807
Income from joint venture equity investments in multi-family properties	122		985		(863)		(949)		6,331		(7,280)
Income from entities that invest in residential properties and loans	5,542		431		5,111		8,158		826		7,332
Preferred equity and mezzanine loan premiums resulting from early redemption (2)	463		—		463		518		3,364		(2,846)
Losses in Consolidated VIEs (3)	(159)		(185)		26		(2,280)		(2,158)		(122)
Income from real estate held for sale in consolidated variable interest entities	—		—		—		—		215		(215)
Miscellaneous income	127		249		(122)		2,099		485		1,614
Total other income	$	10,397	$	3,938	$	6,459	$	14,910	$	14,620	$	290

Three Months Ended
March 31,
2020 2019 $ Change
Income from preferred equity investments accounted for as equity ⁽¹⁾
$ (963 ) $ 1,445
$ (2,408 )
Income from joint venture equity investments in multi-family properties 239
3,648
(3,409 )
Income from entities that invest in residential properties and loans 1,218
232
986
Preferred equity and mezzanine loan premiums resulting from early redemption ⁽²⁾
54
2,842
(2,788 )
Losses in Consolidated VIEs ⁽³⁾
(342 ) (514 ) 172
Miscellaneous income 1,829
75
1,754
Total other income $ 2,035
$ 7,728
$ (5,693 )

(1)Includes income earned from preferred equity ownership interests in entities that invest in multi-family properties accounted for under the equity method of accounting.


⁽¹⁾ (2)Includes premiums resulting from early redemptions of preferred equity and mezzanine loan investments accounted for as loans.	~~Includes income earned from preferred equity ownership interests in entities that invest in multi-family properties accounted for under the equity method of accounting.~~


⁽²⁾	~~Includes premiums resulting from early redemptions of preferred equity and mezzanine loan investments accounted for as loans.~~

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(3)Losses in Consolidated VIEs exclude income or loss from the Consolidated K-Series and Consolidated SLST and are offset by allocations of losses or increased by allocations of income to non-controlling interests in the respective Consolidated VIEs, resulting in net losses to the Company of $0.1 million for the three months ended September 30, 2020 and 2019 and $1.1 million and $1.5 million for the nine months ended September 30, 2020 and 2019, respectively.


⁽³⁾	Losses in Consolidated VIEs exclude income or loss from the Consolidated K-Series and Consolidated SLST and are offset by allocations of losses or increased by allocations of income to non-controlling interests in the respective Consolidated VIEs, resulting in net losses to the Company of $0.2 million and $1.0 million for the three months ended March 31, 2020 and 2019, respectively.

The ~~decrease~~increase in other income ~~in 2020~~during both the three- and nine-month periods is primarily due to ~~$4.3 million~~an increase in the income generated by the Company's investment in entities that invest in residential properties and loans resulting from realized gains on sale and unrealized ~~losses~~gains recognized onby these entities as well as an increase in income from preferred equity investments accounted for as equity due to additional investments made since September 30, 2019. The increase during both the ~~current period~~three- and nine-month periods was partially offset by a ~~$3.4 million~~ decrease in ~~unrealized gains on~~income from joint venture equity investments in multi-family properties ~~from~~due to the ~~period ended March 31, 2019.~~redemption of these investments. The ~~change~~increase in other income during the nine-month periods was also ~~due to~~partially offset by a ~~$2.8 million~~ decrease in income ~~from~~related to the redemptions of preferred equity and mezzanine loan ~~premiums resulting from early~~investments as a result of fewer redemptions ~~from the period ended March 31, 2019.~~in 2020.

Expenses

The following tables present the components of general, administrative and operating expenses for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively (dollar amounts in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		$ Change		2020		2019		$ Change
General and Administrative Expenses
Salaries, benefits and directors’ compensation	$	7,247	$	5,780	$	1,467	$	23,018	$	17,943	$	5,075
Professional fees	1,176		983		193		4,113		3,263		850

Other	2,106		1,551		555		6,026		5,833		193
Total general and administrative expenses	$	10,529	$	8,314	$	2,215	$	33,157	$	27,039	$	6,118

Three Months Ended March 31,
2020 2019 $ Change
General and Administrative Expenses
Salaries, benefits and directors’ compensation $ 7,185
$ 5,671
$ 1,514
Professional fees 1,773
1,138
635
Base management and incentive fees —
723
(723 )
Other 1,848
1,378
470
Total general and administrative expenses $ 10,806
$ 8,910
$ 1,896

The increase in compensation in the three- and nine-month periods is primarily due to an increase in employee headcount as part of the ~~internalization and~~ expansion of our ~~single-family credit~~ investment ~~platform and overall asset growth which was partially offset by the elimination of management fees.~~platforms. Professional fees also increased in the ~~current period~~nine-month periods as a result of additional legal expenses incurred in March 2020 in connection with the disruptions in the financial markets. Other expenses increased in the three-month periods due mainly to increased technology costs related to overall asset growth and tools to enhance efficiencies for working remotely.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		$ Change		2020		2019		$ Change
Operating Expenses
Expenses related to residential loans	$	2,895	$	3,974	$	(1,079)	$	8,225	$	9,805	$	(1,580)
Expenses related to real estate held for sale in Consolidated VIEs	—		—		—		—		482		(482)
Total	$	2,895	$	3,974	$	(1,079)	$	8,225	$	10,287	$	(2,062)

The decrease in expenses related to residential loans for the three- and nine-month periods can be attributed primarily to a reduction in investment activity related to residential loans in 2020.

Three Months Ended March 31,
2020 2019 $ Change
Operating Expenses
Expenses related to residential loans $ 3,079
$ 3,252
$ (173 )
Expenses related to real estate held for sale in Consolidated VIEs —
482
(482 )
Total $ 3,079
$ 3,734
$ (655 )

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Comprehensive Income (Loss) ~~Income~~

The main components of comprehensive income (loss) ~~income~~ for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively, are detailed in the following table (dollar amounts in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		$ Change		2020		2019		$ Change
NET INCOME (LOSS) ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS	$	91,344	$	34,835	$	56,509	$	(399,819)	$	89,528	$	(489,347)
OTHER COMPREHENSIVE INCOME (LOSS)
Increase (decrease) in fair value of available for sale securities
Agency RMBS	—		5,405		(5,405)		—		35,173		(35,173)
Non-Agency RMBS	11,161		6,972		4,189		(34,946)		12,640		(47,586)
CMBS	1,484		2,979		(1,495)		(9,462)		14,347		(23,809)

Total	12,645		15,356		(2,711)		(44,408)		62,160		(106,568)
Reclassification adjustment for net loss (gain) included in net income (loss)	9,845		(4,444)		14,289		7,338		(18,109)		25,447
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)	22,490		10,912		11,578		(37,070)		44,051		(81,121)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS	$	113,834	$	45,747	$	68,087	$	(436,889)	$	133,579	$	(570,468)

Three Months Ended March 31,
2020 2019 $ Change
NET (LOSS) INCOME ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS $ (598,680 ) $ 38,214
$ (636,894 )
OTHER COMPREHENSIVE (LOSS) INCOME
(Decrease) increase in fair value of available for sale securities
Agency RMBS —
16,796
(16,796 )
Non-Agency RMBS (115,139 ) 4,622
(119,761 )
CMBS (20,188 ) 5,294
(25,482 )
Total (135,327 ) 26,712
(162,039 )
Reclassification adjustment for net gain included in net (loss) income (6,837 ) (13,665 ) 6,828
TOTAL OTHER COMPREHENSIVE (LOSS) INCOME (142,164 ) 13,047
(155,211 )
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS $ (740,844 ) $ 51,261
$ (792,105 )

The changes in other comprehensive income ("OCI") for the three-month periods can be attributed primarily to the reversal of previously recognized net unrealized losses reported in OCI that were reclassified to net realized loss as a result of the ~~2020 period~~sale of certain investment securities during the third quarter of 2020.

The changes in OCI for the nine-month periods can be attributed primarily to a decrease in the fair value of our investment securities where fair value option was not elected as a result of ~~general~~significant spread widening during the first quarter of 2020 due to the market turmoil caused by the COVID-19 pandemic. ~~Additionally,~~These losses were partially offset by fair value increases during the second and third quarters of 2020 as well as the reversal of previously recognized net unrealized ~~gains~~losses reported in OCI that were reclassified to net realized loss ~~in relation to~~as a result of the sale of certain investment securities ~~during the 2020 period.~~in 2020.

Beginning in the fourth quarter of 2019, the Company’s newly purchased investment securities are presented at fair value as a result of a fair value election made at the time of acquisition pursuant to ASC 825, Financial Instruments (“ASC 825”). The fair value option was elected for these investment securities to provide stockholders and others who rely on our financial statements with a more complete and accurate understanding of our economic performance. Changes in the market values of investment securities where the Company elected the fair value option are reflected in earnings instead of in OCI.

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Balance Sheet Analysis

As of ~~March 31,~~September 30, 2020, we had approximately ~~$4.7~~$4.6 billion of total assets. Included in this amount was approximately ~~$1.2~~$1.3 billion of assets held in Consolidated SLST, which we consolidate in accordance with GAAP.

As of December 31, 2019, we had approximately $23.5 billion of total assets, $17.9 billion of which represented assets comprising the Consolidated K-Series that we consolidated in accordance with GAAP. The Company subsequently sold its first loss POs and certain mezzanine securities issued by the Consolidated K-Series resulting in the de-consolidation of $17.4 billion in multi-family loan assets. The Company had no claims to the assets or obligations for the liabilities of the Consolidated K-Series (other than those securities that were owned by the Company). As of December 31, 2019, Consolidated SLST assets amounted to approximately $1.3 billion.

For a reconciliation of our actual interests in Consolidated SLST and the Consolidated K-Series to our financial statements, see “Capital Allocation” and “Portfolio Net Interest Margin” above.

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Investment Securities

At ~~March 31,~~September 30, 2020, our investment securities portfolio included non-Agency RMBS, CMBS and ABS, which are classified as investment securities available for sale. Our securities investments also included first loss subordinated securities and certain IOs issued by Consolidated SLST. At ~~March 31,~~September 30, 2020, we had no investment securities in a single issuer or entity that had an aggregate book value in excess of 5% of our total assets. The decrease in the carrying value of our investment securities as of ~~March 31,~~September 30, 2020 as compared to December 31, 2019 is ~~primarily~~ due to our ~~$1.9~~$2.4 billion in asset sales related, in part, to our response to the significant disruption in the financial markets caused by the COVID-19 ~~response,~~pandemic and opportunistic dispositions, including $1.1 billion of our entire portfolio of Agency securities (including Agency RMBS issued by Consolidated SLST), $555.2 million of first loss POs and certain mezzanine securities issued by the Consolidated K-Series, ~~$130.9~~$428.3 million of non-Agency RMBS and ~~$114.0~~$248.7 million of CMBS. The decrease in carrying value was also due to a decline in the fair value of a number of our investment securities since December 31, 2019 as a result of the ongoing pandemic.

Table of Contents

The following tables summarize our investment securities portfolio as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):


	September 30, 2020
					Unrealized						Weighted Average
Investment Securities	Current Par Value		Amortized Cost		Gains		Losses		Fair Value		Coupon (1)		Yield (2)		Outstanding Repurchase Agreements
Available for Sale (“AFS”)
Non-Agency RMBS
Senior	$	112,947	$	113,238	$	—	$	(6,457)	$	106,781	4.00	%	4.16	%	$	—
Mezzanine	215,089		212,055		425		(8,884)		203,596		4.04	%	4.60	%	—
Subordinated	78,183		67,876		—		(6,950)		60,926		4.28	%	5.32	%	—
IO	545,549		6,890		153		(2,581)		4,462		0.44	%	5.91	%	—
Total Non-Agency RMBS	951,768		400,059		578		(24,872)		375,765		1.83	%	4.55	%	—
CMBS
Mezzanine	106,153		101,146		4,098		(3,493)		101,751		4.32	%	4.81	%	—
Subordinated	6,000		6,000		—		(960)		5,040		7.97	%	7.97	%	—
IO	12,268,487		77,549		387		(1,802)		76,134		0.10	%	4.71	%	—
Total CMBS	12,380,640		184,695		4,485		(6,255)		182,925		0.14	%	4.84	%	—
ABS
Residuals	113		39,519		5,488		—		45,007		—		11.27	%	—
Total ABS	113		39,519		5,488		—		45,007		—		11.27	%	—
Total - AFS	$	13,332,521	$	624,273	$	10,551	$	(31,127)	$	603,697	0.50	%	5.11	%	$	—
Consolidated SLST
Non-Agency RMBS
Subordinated	$	256,807	$	214,012	$	—	$	(31,901)	$	182,111	4.67	%	4.96	%	$	—
IO	214,548		31,866		—		(3,075)		28,791		3.50	%	8.25	%	—
Total Non-Agency RMBS	471,355		245,878		—		(34,976)		210,902		4.13	%	5.40	%	—
Total - Consolidated SLST	$	471,355	$	245,878	$	—	$	(34,976)	$	210,902	4.13	%	5.40	%	$	—
Total Investment Securities	$	13,803,876	$	870,151	$	10,551	$	(66,103)	$	814,599	0.54	%	5.19	%	$	—

March 31, 2020
Unrealized Weighted Average
Investment Securities Current Par Value Amortized Cost Gains Losses Fair Value
Coupon ⁽¹⁾

Yield ⁽²⁾
Outstanding Repurchase Agreements
Available for Sale (“AFS”)
Non-Agency RMBS
Senior $ 236,602
$ 236,785
$ —
$ (37,886 ) $ 198,899
4.43 % 4.46 % $ 3,124
Mezzanine 257,275
253,610
—
(44,523 ) 209,087
4.81 % 5.06 % 72,659
Subordinated 238,748
228,180
153
(66,478 ) 161,855
5.24 % 5.33 % 106,999
IO 770,502
8,073
314
(2,120 ) 6,267
0.45 % 5.94 % —
Total Non-Agency RMBS 1,503,127
726,648
467
(151,007 ) 576,108
2.32 % 4.95 % 182,782
CMBS
Mezzanine 236,924
228,559
—
(35,719 ) 192,840
4.62 % 5.32 % 139,993
Subordinated 6,000
6,000
—
(2,087 ) 3,913
2.91 % 8.74 % —
IO 12,351,933
81,843
—
(9,740 ) 72,103
0.10 % 4.71 % 40,939
Total CMBS 12,594,857
316,402
—
(47,546 ) 268,856
0.17 % 5.15 % 180,932
ABS
Residuals 113
49,820
—
(7,476 ) 42,344
—
10.99 % —
Total ABS 113
49,820
—
(7,476 ) 42,344
—
10.99 % —
Total - AFS $ 14,098,097
$ 1,092,870
$ 467
$ (206,029 ) $ 887,308
0.88 % 5.35 % $ 363,714
Consolidated SLST
Non-Agency RMBS
Subordinated $ 256,807
$ 214,647
$ —
$ (59,238 ) $ 155,409
4.69 % 4.88 % $ 150,445
IO 223,563
34,349
—
(6,979 ) 27,370
3.50 % 8.39 % —
Total Non-Agency RMBS 480,370
248,996
—
(66,217 ) 182,779
4.13 % 5.37 % 150,445
Total - Consolidated SLST $ 480,370
$ 248,996
$ —
$ (66,217 ) 182,779
4.13 % 5.37 % $ 150,445
Total Investment Securities $ 14,578,467
$ 1,341,866
$ 467
$ (272,246 ) $ 1,070,087
0.55 % 5.34 % $ 514,159
Receivable for Consolidated K-Series POs sold $ —
$ 211,174
$ —
$ —
$ 211,174
—
—
$ 199,205
Total $ 14,578,467
$ 1,553,040
$ 467
$ (272,246 ) $ 1,281,261
0.55 % 5.34 % $ 713,364


⁽¹⁾(1)Our weighted average coupon was calculated by dividing our annualized coupon income by our weighted average current par value for the respective periods.	~~Our weighted average coupon was calculated by dividing our annualized coupon income by our weighted average current par value for the respective periods.~~


⁽²⁾	~~Our weighted average yield was calculated by dividing our annualized interest income by our weighted average amortized cost for the respective periods.~~

(2)Our weighted average yield was calculated by dividing our annualized interest income by our weighted average amortized cost for the respective periods.

Table of Contents


	December 31, 2019
					Unrealized						Weighted Average
Investment Securities	Current Par Value		Amortized Cost		Gains		Losses		Fair Value		Coupon (1)		Yield (2)		Outstanding Repurchase Agreements
Available for Sale (“AFS”)
Agency RMBS
Agency Fixed-Rate	$	836,223	$	867,236	$	7,397	$	(6,162)	$	868,471	3.38	%	2.61	%	$	746,834
Agency ARMs	53,038		55,740		13		(1,347)		54,406		3.21	%	1.68	%	41,765
Total Agency RMBS	889,261		922,976		7,410		(7,509)		922,877		3.37	%	2.55	%	788,599
Agency CMBS
Senior	51,184		51,334		19		(395)		50,958		2.45	%	2.41	%	48,640
Total Agency CMBS	51,184		51,334		19		(395)		50,958		2.45	%	2.41	%	48,640
Total Agency	940,445		974,310		7,429		(7,904)		973,835		3.36	%	2.55	%	837,239
Non-Agency RMBS
Senior	260,604		260,741		1,971		(13)		262,699		4.65	%	4.66	%	194,024
Mezzanine	285,760		281,743		8,713		—		290,456		5.24	%	5.59	%	179,424
Subordinated	150,961		150,888		2,518		(2)		153,404		5.64	%	5.66	%	70,390
IO	842,577		8,211		1,790		(1,246)		8,755		0.42	%	5.93	%	—
Total Non-Agency RMBS	1,539,902		701,583		14,992		(1,261)		715,314		2.68	%	5.26	%	443,838
CMBS
Mezzanine	261,287		254,620		13,300		(143)		267,777		5.00	%	5.37	%	142,230
Total CMBS	261,287		254,620		13,300		(143)		267,777		5.00	%	5.37	%	142,230
ABS
Residuals	113		49,902		—		(688)		49,214		—		10.70	%	—
Total ABS	113		49,902		—		(688)		49,214		—		10.70	%	—
Total - AFS	$	2,741,747	$	1,980,415	$	35,721	$	(9,996)	$	2,006,140	3.25	%	3.71	%	$	1,423,307
Consolidated K-Series
Agency CMBS
Senior	$	86,355	$	88,784	$	—	$	(425)	$	88,359	2.74	%	2.34	%	$	84,544
Total Agency CMBS	86,355		88,784		—		(425)		88,359		2.74	%	2.34	%	84,544
CMBS
Mezzanine	92,926		83,264		12,271		—		95,535		4.21	%	5.70	%	59,579
PO	1,375,874		654,849		169,678		—		824,527		—		13.98	%	571,403
IO	12,364,412		83,960		138		(224)		83,874		0.10	%	4.66	%	38,678
Total CMBS	13,833,212		822,073		182,087		(224)		1,003,936		0.13	%	12.10	%	669,660
Total - Consolidated K-Series	$	13,919,567	$	910,857	$	182,087	$	(649)	$	1,092,295	0.13	%	11.92	%	$	754,204
Consolidated SLST
Agency RMBS
Senior	$	25,902	$	26,227	$	11	$	—	$	26,238	2.83	%	2.53	%	$	24,143

December 31, 2019
Unrealized Weighted Average
Investment Securities Current Par Value Amortized Cost Gains Losses Fair Value
Coupon ⁽¹⁾

Yield ⁽²⁾
Outstanding Repurchase Agreements
Available for Sale (“AFS”)
Agency RMBS

Agency Fixed-Rate $ 836,223
$ 867,236
$ 7,397
$ (6,162 ) $ 868,471
3.38 % 2.61 % $ 746,834
Agency ARMs 53,038
55,740
13
(1,347 ) 54,406
3.21 % 1.68 % 41,765
Total Agency RMBS 889,261
922,976
7,410
(7,509 ) 922,877
3.37 % 2.55 % 788,599
Agency CMBS
Senior 51,184
51,334
19
(395 ) 50,958
2.45 % 2.41 % 48,640
Total Agency CMBS 51,184
51,334
19
(395 ) 50,958
2.45 % 2.41 % 48,640
Total Agency 940,445
974,310
7,429
(7,904 ) 973,835
3.36 % 2.55 % 837,239
Non-Agency RMBS
Senior 260,604
260,741
1,971
(13 ) 262,699
4.65 % 4.66 % 194,024
Mezzanine 285,760
281,743
8,713
—
290,456
5.24 % 5.59 % 179,424
Subordinated 150,961
150,888
2,518
(2 ) 153,404
5.64 % 5.66 % 70,390
IO 842,577
8,211
1,790
(1,246 ) 8,755
0.42 % 5.93 % —
Total Non-Agency RMBS 1,539,902
701,583
14,992
(1,261 ) 715,314
2.68 % 5.26 % 443,838
CMBS
Mezzanine 261,287
254,620
13,300
(143 ) 267,777
5.00 % 5.37 % 142,230
Total CMBS 261,287
254,620
13,300
(143 ) 267,777
5.00 % 5.37 % 142,230
ABS
Residuals 113
49,902
—
(688 ) 49,214
—
10.70 % —
Total ABS 113
49,902
—
(688 ) 49,214
—
10.70 % —
Total - AFS $ 2,741,747
$ 1,980,415
$ 35,721
$ (9,996 ) $ 2,006,140
3.25 % 3.71 % $ 1,423,307
Consolidated K-Series
Agency CMBS
Senior $ 86,355
$ 88,784
$ —
$ (425 ) $ 88,359
2.74 %
2.34 % $ 84,544
Total Agency CMBS 86,355
88,784
—
(425 ) 88,359
2.74 % 2.34 % 84,544
CMBS
Mezzanine 92,926
83,264
12,271
—
95,535
4.21 % 5.70 % 59,579
PO 1,375,874
654,849
169,678
—
824,527
—
13.98 % 571,403
IO 12,364,412
83,960
138
(224 ) 83,874
0.10 % 4.66 % 38,678
Total CMBS 13,833,212
822,073
182,087
(224 ) 1,003,936
0.13 % 12.10 % 669,660
Total - Consolidated K-Series $ 13,919,567
$ 910,857
$ 182,087
$ (649 ) $ 1,092,295
0.13 % 11.92 % $ 754,204
Consolidated SLST
Agency RMBS
Senior $ 25,902
$ 26,227
$ 11
$ —
$ 26,238
2.83 % 2.53 % $ 24,143
Total Agency RMBS 25,902
26,227
11
—
26,238
2.83 % 2.53 % 24,143
Non-Agency RMBS
Subordinated 256,093
215,034
—
(275 ) 214,759
5.62 % 7.23 % 150,448
IO 228,437
35,592
181
—
35,773
3.60 % 8.58 % —
Total Non-Agency RMBS 484,530
250,626
181
(275 ) 250,532
4.67 % 7.42 % 150,448
Total - Consolidated SLST $ 510,432
$ 276,853
$ 192
$ (275 ) $ 276,770
4.58 % 6.96 % $ 174,591
Total Investment Securities $ 17,171,746
$ 3,168,125
$ 218,000
$ (10,920 ) $ 3,375,205
0.69 % 6.02 % $ 2,352,102

Table of Contents


⁽¹⁾	~~Our weighted average coupon was calculated by dividing our annualized coupon income by our weighted average current par value for the respective periods.~~


⁽²⁾	~~Our weighted average yield was calculated by dividing our annualized interest income by our weighted average amortized cost for the respective periods.~~


Total Agency RMBS	25,902		26,227		11		—		26,238		2.83	%	2.53	%	24,143
Non-Agency RMBS
Subordinated	256,093		215,034		—		(275)		214,759		5.62	%	7.23	%	150,448
IO	228,437		35,592		181		—		35,773		3.60	%	8.58	%	—
Total Non-Agency RMBS	484,530		250,626		181		(275)		250,532		4.67	%	7.42	%	150,448
Total - Consolidated SLST	$	510,432	$	276,853	$	192	$	(275)	$	276,770	4.58	%	6.96	%	$	174,591
Total Investment Securities	$	17,171,746	$	3,168,125	$	218,000	$	(10,920)	$	3,375,205	0.69	%	6.02	%	$	2,352,102

(1)Our weighted average coupon was calculated by dividing our annualized coupon income by our weighted average current par value for the respective periods.

(2)Our weighted average yield was calculated by dividing our annualized interest income by our weighted average amortized cost for the respective periods.

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Consolidated SLST and Consolidated K-Series

Consolidated SLST

The Company owns first loss subordinated securities and certain IOs issued by a Freddie Mac-sponsored residential loan securitization. In accordance with GAAP, the Company has consolidated the underlying seasoned re-performing and non-performing residential loans of the securitization and the SLST CDOs issued to permanently finance these residential loans, representing Consolidated SLST.

We do not have any claims to the assets or obligations for the liabilities of Consolidated SLST (other than those securities owned by the Company). Our investment in Consolidated SLST as of ~~March 31,~~September 30, 2020 iswas limited to the RMBS comprised of first loss subordinated securities and IOs issued by the securitization with an aggregate net carrying value of ~~$182.8~~$210.9 million. In March 2020, we sold our entire investment in the senior securities issued by Consolidated SLST. As of December 31, 2019, our investment in Consolidated SLST was limited to the RMBS comprised of first loss subordinated securities, IOs and senior securities with an aggregate carrying value of $276.8 million.

The following table details the loan characteristics of the underlying residential loans that back our first loss subordinated securities of Consolidated SLST as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands, except as noted):


	September 30, 2020			December 31, 2019
Current balance of loans	$	1,259,063		$	1,322,131
Number of loans	7,797			8,103
Current average loan size	$	161,480		$	162,804
Weighted average original loan term (in months)	351			351
Weighted average LTV at purchase	67.0		%	66.2		%
Weighted average credit score at purchase	710			711

Current Coupon:
3.00% or less	3.2		%	3.8		%
3.01% – 4.00%	36.3		%	35.2		%
4.01% – 5.00%	40.0		%	40.2		%
5.01% – 6.00%	12.3		%	12.4		%
6.01% and over	8.2		%	8.4		%

Delinquency Status:
Current	64.0		%	47.6		%
31 - 60	13.6		%	35.5		%
61 - 90	8.6		%	13.1		%
90+	13.8		%	3.8		%

Origination Year:
2005 or earlier	31.0		%	30.9		%
2006	15.3		%	15.4		%
2007	20.9		%	20.7		%
2008 or later	32.8		%	33.0		%

Geographic state concentration (greater than 5.0%):
California	10.9		%	11.0		%
Florida	10.5		%	10.6		%
New York	9.2		%	9.1		%
New Jersey	7.0		%	6.9		%
Illinois	6.7		%	6.6		%

March 31, 2020 December 31, 2019
Current balance of loans $ 1,300,630
$ 1,322,131
Number of loans 8,013
8,103
Current average loan size $ 160,156
$ 162,804
Weighted average original loan term (in months) 351
351
Weighted average LTV at purchase 66.4 % 66.2 %
Weighted average credit score at purchase 711
711

Current Coupon:
3.00% or less 3.4 % 3.8 %
3.01% – 4.00% 35.7 % 35.2 %
4.01% – 5.00% 40.2 % 40.2 %
5.01% – 6.00% 12.3 % 12.4 %
6.01% and over 8.4 % 8.4 %

Delinquency Status:
Current 61.1 % 47.6 %
31 - 60 21.4 % 35.5 %
61 - 90 9.8 % 13.1 %
90+ 7.7 % 3.8 %

Origination Year:
2005 or earlier 30.9 % 30.9 %
2006 15.4 % 15.4 %
2007 20.7 % 20.7 %
2008 or later 33.0 % 33.0 %

Geographic state concentration (greater than 5.0%):
California 11.1 % 11.0 %
Florida 10.6 % 10.6 %
New York 9.1 % 9.1 %
New Jersey 6.9 % 6.9 %
Illinois 6.6 % 6.6 %

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Consolidated K-Series

~~During~~In March 2020, in response to the market turmoil related to the COVID-19 pandemic, the Company elected to sell its entire portfolio of first loss POs and certain mezzanine securities issued by the Consolidated K-Series. The Consolidated K-Series were comprised of multi-family mortgage loans held in, and related debt issued by, Freddie Mac-sponsored multi-family loan K-Series securitizations of which we, or one of our SPEs, owned the first loss POs and, in certain cases, IOs and/or senior or mezzanine securities issued by these securitizations. We determined that the securitizations comprising the Consolidated K-Series were VIEs and that we were the primary beneficiary of these securitizations. Accordingly, we were required to consolidate the Consolidated K-Series’ underlying multi-family loans and related debt, income and expense in our condensed consolidated financial statements. The sales of the first loss POs and certain mezzanine securities issued by the Consolidated K-Series, for total proceeds of approximately $555.2 million, resulted in the de-consolidation of each Consolidated K-Series as of the sale date of each first loss PO, a realized net loss on de-consolidation of multi-family loans held in securitization trusts and multi-family collateralized debt obligations of $54.1 million and reversal of previously recognized net unrealized gains of $168.5 million. The sales also resulted in the de-consolidation of $17.4 billion in multi-family loans held in securitization trusts and $16.6 billion in multi-family collateralized debt obligations. ~~The~~Also in March 2020, the Company transferred its remaining IOs and mezzanine and senior securities owned in the Consolidated K-Series with a fair value of approximately $237.3 million to investment securities available for sale.

As of December 31, 2019, we owned 100% of the first loss POs of the Consolidated K-Series. We did not have any claims to the assets (other than those securities owned by the Company) or obligations for the liabilities of the Consolidated K-Series. Our investment in the Consolidated K-Series was limited to the multi-family CMBS comprised of first loss POs, and, in certain cases, IOs, senior or mezzanine securities, issued by these K-Series securitizations with an aggregate net carrying value of $1.1 billion as of December 31, 2019.

Multi-family CMBS - Consolidated K-Series Loan Characteristics:

The following table details the loan characteristics of the underlying multi-family mortgage loans that backed our multi-family CMBS first loss POs as of December 31, 2019 (dollar amounts in thousands, except as noted):


	December 31, 2019
Current balance of loans	$	16,759,382
Number of loans	828
Weighted average original LTV	68.2		%
Weighted average underwritten debt service coverage ratio	1.48x
Current average loan size	$	20,241
Weighted average original loan term (in months)	125
Weighted average current remaining term (in months)	84
Weighted average loan rate	4.12		%
First mortgages	100		%
Geographic state concentration (greater than 5.0%):
California	15.9		%
Texas	12.4		%
Florida	6.2		%
Maryland	5.8		%

December 31, 2019
Current balance of loans $ 16,759,382
Number of loans 828
Weighted average original LTV 68.2 %
Weighted average underwritten debt service coverage ratio 1.48x
Current average loan size $ 20,241
Weighted average original loan term (in months) 125
Weighted average current remaining term (in months) 84
Weighted average loan rate 4.12 %
First mortgages 100 %
Geographic state concentration (greater than 5.0%):
California 15.9 %
Texas 12.4 %
Florida 6.2 %
Maryland 5.8 %

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Investment Securities Financing

Repurchase Agreements

In March 2020, in reaction to the market turmoil related to the COVID-19 pandemic, our repurchase agreement providers dramatically changed their risk tolerances, including reducing or eliminating availability to add or roll maturing repurchase agreements, increased haircuts and ~~reducing~~reduced security valuations. In turn, this led to significant disruptions in our financing markets, negatively impacting the Company as well as the entire mortgage REIT industry. In response, the Company ~~significantly reduced~~has completely eliminated its securities repurchase agreement exposure ~~during the month, lowering its outstanding repurchase agreements by $1.6 billion from year-end levels and further reducing it by another $562.9 million in the first week of April.~~since mid-March. The Company will continue to evaluate the securities repurchase agreement market ~~going forward~~ before ~~significantly~~ increasing its ~~exposure.~~exposure in the future.

The Company has historically financed its investment securities primarily through repurchase agreements with third-party financial institutions. These repurchase agreements are short-term financings that bear interest rates typically based on a spread to LIBOR and are secured by the investment securities which they finance. Upon entering into a financing transaction, our counterparties negotiate a “haircut”, which is the difference expressed in percentage terms between the fair value of the collateral and the amount the counterparty will advance to us. The size of the haircut represents the counterparty’s perceived risk associated with holding the investment securities as collateral. The haircut provides counterparties with a cushion for daily market value movements that reduce the need for margin calls or margins to be returned as normal daily changes in investment security market values occur. ~~The Company expects to roll outstanding amounts under its repurchase agreements into new repurchase agreements or other financings, or to repay outstanding amounts, prior to or at maturity.~~

The following table details the quarterly average balance, ending balance and maximum balance at any month-end during each quarter in 2020, 2019 and 2018 for our repurchase agreements secured by investment securities (dollar amounts in thousands):


Quarter Ended	Quarterly Average Balance		End of Quarter Balance		Maximum Balance at any Month-End
September 30, 2020	$	29,190	$	—	$	87,571
June 30, 2020	108,529		87,571		150,445
March 31, 2020	1,694,933		713,364		2,237,399

December 31, 2019	2,212,335		2,352,102		2,352,102
September 30, 2019	1,776,741		1,823,910		1,823,910
June 30, 2019	1,749,293		1,843,815		1,843,815
March 31, 2019	1,604,421		1,654,439		1,654,439

December 31, 2018	1,372,459		1,543,577		1,543,577
September 30, 2018	1,144,080		1,130,659		1,163,683
June 30, 2018	1,230,648		1,179,961		1,279,121
March 31, 2018	1,287,939		1,287,314		1,297,949

Securitized Debt

In June 2020, the Company completed a re-securitization of certain non-Agency RMBS primarily for the purpose of obtaining non-recourse, longer-term financing on a portion of its non-Agency RMBS portfolio. The Company received net cash proceeds of approximately $109.0 million after deducting expenses associated with the re-securitization transaction. The Company had a net investment in the re-securitization of $93.3 million as of September 30, 2020.

The following table summarizes the Company’s securitized debt collateralized by non-Agency RMBS as of September 30, 2020 (dollar amounts in thousands):


	Principal Amount		Carrying Value (1)		Pass-through Rate of Notes Issued (2)
Non-Agency RMBS re-securitization	$	89,916	$	88,791	One-month LIBOR plus 5.25%

Quarter Ended
Quarterly Average
Balance

End of Quarter
Balance

Maximum Balance
at any Month-End
March 31, 2020 $ 1,694,933
$ 713,364
$ 2,237,399

December 31, 2019 2,212,335
2,352,102
2,352,102
September 30, 2019 1,776,741
1,823,910
1,823,910
June 30, 2019 1,749,293
1,843,815
1,843,815
March 31, 2019 1,604,421
1,654,439
1,654,439

December 31, 2018 1,372,459
1,543,577
1,543,577
September 30, 2018 1,144,080
1,130,659
1,163,683
June 30, 2018 1,230,648
1,179,961
1,279,121
March 31, 2018 1,287,939
1,287,314
1,297,949

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(2)Represents the pass-through rate through the payment date in December 2021. Pass-through rate increases to one-month LIBOR plus 7.75% for payment dates in or after January 2022.

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Residential Loans

As of ~~March 31,~~September 30, 2020, all of Company’s acquired residential loans, including distressed residential loans, non-QM loans, second mortgages and residential bridge loans, are presented at fair value on its condensed consolidated balance sheets. Subsequent changes in fair value are reported in current period earnings and presented in unrealized gains (losses), net on the Company’s condensed consolidated statements of operations.

The following table details our distressed residential and other residential loans at ~~March 31,~~September 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):


	September 30, 2020					December 31, 2019
	Number of Loans	Unpaid Principal		Carrying Value		Number of Loans	Unpaid Principal		Carrying Value
Distressed Residential Loans (1)	6,632	$	981,025	$	954,725	7,713	$	1,131,855	$	1,098,867
Other Residential Loans (2)	2,873	$	598,192	$	578,059	2,700	$	547,379	$	533,643

March 31, 2020 December 31, 2019
Number of Loans Unpaid Principal Carrying Value Number of Loans Unpaid Principal Carrying Value
Distressed Residential Loans ⁽¹⁾
6,900
$ 1,030,294
$ 950,831
7,713
$ 1,131,855
$ 1,098,867
Other Residential Loans ⁽²⁾
3,153
$ 650,014
$ 607,500
2,700
$ 547,379
$ 533,643

(1)As of December 31, 2019, the Company had 5,696 distressed residential loans with aggregate unpaid principal of $964.8 million and an aggregate carrying value of $940.1 million accounted for at fair value. The Company also had 2,017 distressed residential loans with aggregate unpaid principal of $167.0 million and an aggregate carrying value of $158.7 million accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality as of December 31, 2019.

(2)As of December 31, 2019, the Company had 2,534 other residential loans with an aggregate unpaid principal balance of $500.1 million and an aggregate carrying value of $489.6 million accounted for at fair value. The Company also had 166 residential loans held in securitization trusts with an aggregate unpaid principal balance of $47.2 million and an aggregate carrying value of $44.0 million accounted for at amortized cost as of December 31, 2019.

⁽¹⁾

As of December 31, 2019, the Company had 5,696 distressed residential loans with aggregate unpaid principal of $964.8 million and an aggregate carrying value of $940.1 million accounted for at fair value. The Company also had 2,017 distressed residential loans with aggregate unpaid principal of $167.0 million and an aggregate carrying value of $158.7 million accounted for under ASC 310-30, ~~Loans and Debt Securities Acquired with Deteriorated Credit Quality~~.

⁽²⁾

As of December 31, 2019, the Company had 2,534 other residential loans with an aggregate unpaid principal balance of $500.1 million and an aggregate carrying value of $489.6 million accounted for at fair value. The Company also had 166 residential ARM loans held in securitization trusts with an aggregate unpaid principal balance of $47.2 million and an aggregate carrying value of $44.0 million accounted for at amortized cost.

Characteristics of Our Residential Loans:


Loan to Value at Purchase (1)	September 30, 2020		December 31, 2019
50.00% or less	14.7	%	15.4	%
50.01% - 60.00%	12.0	%	12.6	%
60.01% - 70.00%	19.9	%	17.9	%
70.01% - 80.00%	19.9	%	18.5	%
80.01% - 90.00%	13.6	%	14.5	%
90.01% - 100.00%	9.8	%	10.0	%
100.01% and over	10.1	%	11.1	%
Total	100.0	%	100.0	%

(1)For second mortgages, the Company calculates the combined loan to value. For residential bridge loans, the Company calculates as the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “after repaired” value of the collateral securing the related loan.


FICO Scores at Purchase	September 30, 2020		December 31, 2019
550 or less	21.9	%	22.1	%
551 to 600	19.5	%	20.4	%
601 to 650	16.9	%	17.1	%
651 to 700	14.8	%	14.2	%
701 to 750	12.1	%	12.1	%
751 to 800	10.9	%	10.4	%
801 and over	3.9	%	3.7	%
Total	100.0	%	100.0	%

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Loan to Value at Purchase ⁽¹⁾
March 31, 2020 December 31, 2019
50.00% or less 15.6 % 15.4 %
50.01% - 60.00% 12.9 % 12.6 %
60.01% - 70.00% 17.7 % 17.9 %
70.01% - 80.00% 19.9 % 18.5 %
80.01% - 90.00% 14.0 % 14.5 %
90.01% - 100.00% 9.8 % 10.0 %
100.01% and over 10.1 % 11.1 %
Total 100.0 % 100.0 %


⁽¹⁾	For second mortgages, the Company calculates the combined loan to value. For residential bridge loans, the Company calculates as the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “after repaired” value of the collateral securing the related loan.

FICO Scores at Purchase March 31, 2020 December 31, 2019
550 or less 21.4 % 22.1 %
551 to 600 19.1 % 20.4 %
601 to 650 16.6 % 17.1 %
651 to 700 14.6 % 14.2 %
701 to 750 12.5 % 12.1 %
751 to 800 10.9 % 10.4 %
801 and over 4.9 % 3.7 %
Total 100.0 % 100.0 %

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Current Coupon	September 30, 2020		December 31, 2019
3.00% or less	5.5	%	5.1	%
3.01% - 4.00%	21.4	%	17.1	%
4.01% - 5.00%	35.4	%	38.4	%
5.01% – 6.00%	14.0	%	18.1	%
6.01% and over	23.7	%	21.3	%
Total	100.0	%	100.0	%


Delinquency Status	September 30, 2020		December 31, 2019
Current	83.6	%	80.8	%
31 – 60 days	4.3	%	6.4	%
61 – 90 days	2.2	%	2.6	%
90+ days	9.9	%	10.2	%
Total	100.0	%	100.0	%


Origination Year	September 30, 2020		December 31, 2019
2007 or earlier	55.5	%	59.3	%
2008 - 2016	10.8	%	13.8	%
2017	4.8	%	6.1	%
2018	9.8	%	11.0	%
2019	15.1	%	9.8	%
2020	4.0	%	—
Total	100.0	%	100.0	%

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Current Coupon March 31, 2020 December 31, 2019
3.00% or less 4.8 % 5.1 %
3.01% - 4.00% 17.7 % 17.1 %
4.01% - 5.00% 38.9 % 38.4 %
5.01% – 6.00% 16.7 % 18.1 %
6.01% and over 21.9 % 21.3 %
Total 100.0 % 100.0 %

Delinquency Status March 31, 2020 December 31, 2019
Current 82.5 % 80.8 %
31 – 60 days 5.8 % 6.4 %
61 – 90 days 1.7 % 2.6 %
90+ days 10.0 % 10.2 %
Total 100.0 % 100.0 %

Origination Year March 31, 2020 December 31, 2019
2007 or earlier 55.0 % 59.3 %
2008 - 2016 12.5 % 13.8 %
2017 5.6 % 6.1 %
2018 10.9 % 11.0 %
2019 15.8 % 9.8 %
2020 0.2 % —
Total 100.0 % 100.0 %

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Residential Loan Financing

Repurchase Agreements

~~The~~As of September 30, 2020, the Company has repurchase agreements with ~~two~~three third-party financial institutions to fund the purchase of residential loans, including both first and second mortgages. The following table presents detailed information about ~~the Company’s borrowings under~~these repurchase agreements and associated assets pledged as collateral at ~~March 31,~~September 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):


	Maximum Aggregate Uncommitted Principal Amount		Outstanding Repurchase Agreements		Carrying Value of Loans Pledged (1)		Weighted Average Rate		Weighted Average Months to Maturity (2)
September 30, 2020	$	1,247,483	$	673,787	$	938,572	2.46	%	2.96
December 31, 2019	$	1,200,000	$	754,132	$	961,749	3.67	%	11.20


⁽¹⁾(1)Includes residential loans, at fair value of $938.6 million and $881.2 million at September 30, 2020 and December 31, 2019, respectively, and residential loans, net of $80.6 million at December 31, 2019.	Includes residential loans, at fair value of $918.4 million and $881.2 million at March 31, 2020 and December 31, 2019, respectively, and residential loans, net of $80.6 million at December 31, 2019.

(2)The Company expects to roll outstanding amounts under its repurchase agreements into new repurchase agreements or other financings, or to repay outstanding amounts, prior to or at maturity.

The following table details the quarterly average balance, ending balance and maximum balance at any month-end during each quarter in 2020, 2019 and 2018 for our repurchase agreements secured by residential loans, including both first and second mortgages (dollar amounts in thousands):


Quarter Ended	Quarterly Average Balance		End of Quarter Balance		Maximum Balance at any Month-End
September 30, 2020	$	651,384	$	673,787	$	673,787
June 30, 2020	892,422		876,923		905,776
March 31, 2020	731,245		715,436		744,522

December 31, 2019	764,511		754,132		774,666
September 30, 2019	745,972		736,348		755,299
June 30, 2019	705,817		761,361		761,361
March 31, 2019	595,897		619,605		619,605

December 31, 2018	301,956		589,148		589,148
September 30, 2018	179,241		177,378		181,574
June 30, 2018	176,951		192,553		197,263
March 31, 2018	150,537		149,535		153,236

Quarter Ended
Quarterly Average
Balance

End of Quarter
Balance

Maximum Balance
at any Month-End
March 31, 2020 $ 731,245
$ 715,436
$ 744,522

December 31, 2019 764,511
754,132
774,666
September 30, 2019 745,972
736,348
755,299
June 30, 2019 705,817
761,361
761,361
March 31, 2019 595,897
619,605
619,605

December 31, 2018 301,956
589,148
589,148
September 30, 2018 179,241
177,378
181,574
June 30, 2018 176,951
192,553
197,263
March 31, 2018 150,537
149,535
153,236

Residential Collateralized Debt Obligations

Included in our portfolio are residential ARM loans that we originated or purchased in bulk from third parties that met our investment criteria and portfolio requirements and that we subsequently securitized in 2005. All of the Company’s residential loans held in securitization trusts that are pledged as collateral for the Residential CDOs issued by the Company. ~~The Company retained the owner trust certificates, or residual interest, in three securitization trusts.~~ As of ~~March 31,~~September 30, 2020 and December 31, 2019, we had Residential CDOs outstanding of ~~$39.0~~$268.8 million and $40.4 million, respectively. The Company’s net investment in the residential securitization trusts, which is the maximum amount of the Company’s investment that is at risk to loss and represents the difference between (i) the carrying amount of the residential loans, real estate owned and receivables held in residential securitization trusts and (ii) the amount of Residential CDOs outstanding, was ~~$7.4~~$98.0 million and $4.9 million as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively. As of ~~March 31,~~September 30, 2020 and December 31, 2019, the weighted average interest rate of these Residential CDOs was ~~1.56%~~3.57% and 2.41%, respectively.

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Multi-Family Preferred Equity and Mezzanine Loan Investments

The Company invests in preferred equity in, and mezzanine loans to, entities that have significant multi-family real estate assets (referred to in this section as “Preferred Equity and Mezzanine Loans”). A preferred equity investment is an equity investment in the entity that owns the underlying property and mezzanine loans are secured by a pledge of the borrower’s equity ownership in the property. We evaluate our Preferred Equity and Mezzanine Loans for accounting treatment as loans versus equity investments. Preferred Equity and Mezzanine Loans, for which the characteristics, facts and circumstances indicate that loan accounting treatment is appropriate are included in preferred equity and mezzanine loan investments on our condensed consolidated balance sheets. Preferred Equity and Mezzanine Loans where the risks and payment characteristics are equivalent to an equity investment are accounted for using the equity method of accounting and are included in investments in unconsolidated entities on our condensed consolidated balance sheets.

As of ~~March 31,~~September 30, 2020, ~~all~~one preferred equity investment representing 1% of the total fair value of our Preferred Equity and Mezzanine Loans ~~were paying in accordance with their contractual terms.~~was greater than 90 days delinquent.

As of January 1, 2020, the Company has elected to account for its Preferred Equity and Mezzanine Loans using the fair value option. Accordingly, balances presented below as of ~~March 31,~~September 30, 2020 are stated at fair value. The following tables summarize our Preferred Equity and Mezzanine Loans as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):


	September 30, 2020
	Count	Fair Value (1) (2)		Investment Amount (2)		Weighted Average Interest or Preferred Return Rate (3)		Weighted Average Remaining Life (Years)
Preferred equity investments	47	$	323,536	$	332,556	11.45	%	6.8
Mezzanine loans	2	4,868		5,176		11.58	%	30.4
Total	49	$	328,404	$	337,732	11.45	%	7.1


	March 31, 2020									December 31, 2019
	Count	Fair Value ^{(1) (2)}		Investment Amount ⁽²⁾		Weighted Average Interest or Preferred Return Rate ⁽³⁾		Weighted Average Remaining Life (Years)		Count	Carrying Amount (1) (2)		Investment Amount (2)		Weighted Average Interest or Preferred Return Rate (3)		Weighted Average Remaining Life (Years)
Preferred equity investments	46	$	300,728	$	308,872	11.42	%	7.4	Preferred equity investments	42	$	279,908	$	282,064	11.39	%	7.8
Mezzanine loans	3	5,429		5,735		11.80	%	27.8	Mezzanine loans	3	6,220		6,235		11.95	%	25.8
Total	49	$	306,157	$	314,607	11.43	%	7.8	Total	45	$	286,128	$	288,299	11.40	%	8.2

(1)Preferred equity and mezzanine loan investments in the amounts of $183.2 million and $180.0 million are included in preferred equity and mezzanine loan investments on the accompanying condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, respectively. Preferred equity investments in the amounts of $145.3 million and $106.1 million are included in investments in unconsolidated entities on the accompanying condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, respectively.

(2)The difference between the fair value and investment amount as of September 30, 2020 consists of any unamortized premium or discount, deferred fees or deferred expenses, and any unrealized gain or loss. The difference between the carrying amount and the investment amount as of December 31, 2019 consists of any unamortized premium or discount, deferred fees or deferred expenses.

(3)Based upon investment amount and contractual interest or preferred return rate.

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December 31, 2019
Count
Carrying Amount ^{(1) (2)}

Investment Amount ⁽²⁾

Weighted Average Interest or Preferred Return Rate ⁽³⁾
Weighted Average Remaining Life (Years)
Preferred equity investments 42
$ 279,908
$ 282,064
11.39 % 7.8
Mezzanine loans 3
6,220
6,235
11.95 % 25.8
Total 45
$ 286,128
$ 288,299
11.40 % 8.2

⁽¹⁾

Preferred equity and mezzanine loan investments in the amounts of $179.3 million and $180.0 million are included in preferred equity and mezzanine loan investments on the accompanying condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively. Preferred equity investments in the amounts of $126.9 million and $106.1 million are included in investments in unconsolidated entities on the accompanying condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively.


⁽²⁾	The difference between the fair value and investment amount as of March 31, 2020 consists of any unamortized premium or discount, deferred fees or deferred expenses, and any unrealized gain or loss. The difference between the carrying amount and the investment amount as of December 31, 2019 consists of any unamortized premium or discount, deferred fees or deferred expenses.


⁽³⁾	~~Based upon investment amount and contractual interest or preferred return rate.~~

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Preferred Equity and Mezzanine Loans Characteristics:


Combined Loan to Value at Investment	September 30, 2020		December 31, 2019
60.01% - 70.00%	9.6	%	—
70.01% - 80.00%	19.6	%	23.4	%
80.01% - 90.00%	69.1	%	76.6	%
90.01% - 100.00%	1.7	%	—
Total	100.0	%	100.0	%

105

Combined Loan to Value at Investment March 31, 2020 December 31, 2019
60.01% - 70.00% 5.4 % —
70.01% - 80.00% 21.5 % 23.4 %
80.01% - 90.00% 73.1 % 76.6 %
Total 100.0 % 100.0 %

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Equity Investments in Multi-Family and Residential Entities

Multi-Family Joint Venture Equity Investments

The ~~Company has invested in a~~Company's joint venture equity investment in an entity that ~~owns~~owned a multi-family real estate ~~asset.~~asset was redeemed during the three months ended September 30, 2020. We ~~receive~~received variable distributions from this investment on a pari passu basis based upon property performance and ~~record~~recorded our position at fair value. The following table summarizes our multi-family joint venture equity investment as of ~~March 31, 2020 and~~ December 31, 2019 ~~respectively~~ (dollar amounts in thousands):

December 31, 2019

Property Location

Ownership Interest

Fair Value

The Preserve at Port Royal Venture, LLC (1)

Port Royal, SC

77%

18,310

March 31, 2020 December 31, 2019
Property Location Ownership Interest Fair Value Ownership Interest Fair Value
The Preserve at Port Royal Venture, LLC Port Royal, SC 77% $ 18,310
77% $ 18,310
(1)The Company's joint venture equity investment was redeemed during the three months ended September 30, 2020.

Equity Investments in Entities that Invest in Residential Properties and Loans

The Company has ownership interests in entities that invest in residential properties and loans. We may receive variable distributions from these investments based upon underlying asset performance and record our positions at fair value. The following table summarizes our ownership interests in entities that invest in residential properties and loans as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):


		September 30, 2020			December 31, 2019
	Strategy	Ownership Interest	Fair Value		Ownership Interest	Fair Value
Morrocroft Neighborhood Stabilization Fund II, LP	Single-Family Rental Properties	11%	$	12,602	11%	$	11,796
Headlands Asset Management Fund III (Cayman), LP (Headlands Flagship Opportunity Fund Series I)	Residential Loans	49%	60,854		49%	53,776
Total			$	73,456		$	65,572

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March 31, 2020 December 31, 2019
Strategy Ownership Interest Fair Value Ownership Interest Fair Value
Morrocroft Neighborhood Stabilization Fund II, LP Single-Family Rental Properties 11% $ 12,014
11% $ 11,796
Headlands Asset Management Fund III (Cayman), LP (Headlands Flagship Opportunity Fund Series I) Residential Loans 49% 54,776
49% 53,776
Total $ 66,790
$ 65,572

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Derivative Assets and Liabilities

The Company enters into derivative instruments in connection with its risk management activities. These derivative instruments may include interest rate swaps, swaptions, futures, options on futures and mortgage derivatives such as forward-settling purchases and sales of Agency RMBS where the underlying pools of mortgage loans are "To-Be-Announced," or TBAs.

Our derivative instruments were comprised of interest rate swaps that we used to hedge variable cash flows associated with our variable rate borrowings. We typically paid a fixed rate and received a floating rate based on one- or three- month LIBOR, on the notional amount of the interest rate swaps. The floating rate we received under our swap agreements had the effect of offsetting the repricing characteristics and cash flows of our financing arrangements.

~~During the three months ended~~In March ~~31,~~ 2020, in response to the turmoil in the financial markets, ~~in March,~~ we terminated our interest rate swaps, recognizing a realized loss of $73.1 million which was partially offset by a reversal of $29.0 million in unrealized losses, resulting in a total net loss of $44.1 ~~million.~~ million for the nine months ended September 30, 2020. We did not recognize any realized gains or losses and unrealized gains and losses during the three months ended September 30, 2020.

We did not recognize any realized gains or losses during the three and nine months ended ~~March 31,~~September 30, 2019. ~~For the three months ended March 31, 2019, we~~We recognized unrealized losses of $12.6 million and $42.2 million on our interest rate swaps ~~of $14.6 million.~~for the three and nine months ended September 30, 2019, respectively. Unrealized gains and losses include the change in market value, period over period, generally as a result of changes in interest rates and reversals of previously recognized unrealized gains or losses upon termination.

Derivative financial instruments may contain credit risk to the extent that the institutional counterparties may be unable to meet the terms of the agreements. All of the Company's interest rate swaps were cleared through CME Group Inc. ("CME Clearing") which is the parent company of the Chicago Mercantile Exchange Inc. CME Clearing serves as the counterparty to every cleared transaction, becoming the buyer to each seller and the seller to each buyer, limiting the credit risk by guaranteeing the financial performance of both parties and netting down exposures.

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Debt

The Company's debt as of ~~March 31,~~September 30, 2020 included Convertible Notes and ~~Subordinated Debentures.~~subordinated debentures.

Convertible Notes

Subordinated Debentures

As of ~~March 31,~~September 30, 2020, certain of our wholly-owned subsidiaries had trust preferred securities outstanding of $45.0 million with a weighted average interest rate of ~~5.39%~~4.08% which are due in 2035. The securities are fully guaranteed by us with respect to distributions and amounts payable upon liquidation, redemption or repayment. These securities are classified as subordinated debentures in the liability section of our condensed consolidated balance sheets.

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Balance Sheet Analysis - Company's Stockholders’ Equity

The Company's stockholders' equity at ~~March 31,~~September 30, 2020 was ~~$2.0~~$2.3 billion and included ~~$117.0~~$11.9 million of accumulated other comprehensive loss. The accumulated other comprehensive loss at ~~March 31,~~September 30, 2020 consisted primarily of ~~$14.3 million in net unrealized losses related to our CMBS and $102.7~~$12.6 million in net unrealized losses related to our non-Agency ~~RMBS.~~RMBS and $0.6 million in net unrealized gains related to our CMBS. The Company's stockholders’ equity at December 31, 2019 was $2.2 billion and included $25.1 million of accumulated other comprehensive income. The accumulated other comprehensive income at December 31, 2019 consisted primarily of $12.6 million in net unrealized gains related to our CMBS and $12.5 million in net unrealized gains related to our non-Agency RMBS.

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Liquidity and Capital Resources

General

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, comply with margin requirements, fund our operations, pay dividends to our stockholders and other general business needs. Generally, our investments and assets generate liquidity on an ongoing basis through principal and interest payments, prepayments, net earnings retained prior to payment of dividends and distributions from unconsolidated investments. In addition, we may generate liquidity through the sale of assets from our investment portfolio.

As discussed throughout this Quarterly Report on Form 10-Q, the COVID-19 pandemic driven disruptions in the real estate, mortgage and financial markets have negatively affected and ~~are expected to continue to~~may negatively affect our ~~liquidity. During~~liquidity in the ~~three months ended~~future. In March ~~31,~~ 2020, we observed a mark-down of a portion of our assets by the counterparties to our repurchase agreements, resulting in us having to pay cash or additional securities to counterparties to satisfy margin calls that were well beyond historical norms. 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 23, 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 response to these conditions, we have focused on improving liquidity and long-term capital preservation by taking the actions described below. Starting on March 23, 2020 and through the period ended ~~March 31,~~June 30, 2020, we sold a total of ~~$2.0~~$2.1 billion in assets, including the sale of 100% of our Agency securities portfolio, all of our first loss multi-family POs and ~~portions~~a portion of our non-Agency RMBS, CMBS and ~~CMBS~~residential loan portfolios for proceeds of $1.1 billion, $555.2 million, ~~$130.9~~$168.8 million, $138.1 million and ~~$114.0~~$93.8 million, respectively. ~~In turn,~~By April 7, 2020, we ~~used~~were again current with our repurchase payment obligations and no longer in a ~~portion~~position to need forbearance agreements from our repurchase agreement counterparties. During the third quarter of ~~these~~2020, we selectively disposed of non-Agency RMBS and CMBS for proceeds of $370.2 million. Moreover, during the second and third quarters of 2020, we completed two securitization transactions generating proceeds to ~~reduce~~us of $350.1 million. We used the proceeds from these sales and securitization transactions to pay down our ~~outstanding securities~~ repurchase agreement financing, ~~by $1.6 billion from year-end levels.~~reducing our portfolio leverage to 0.3 times as of September 30, 2020. At ~~March 31,~~September 30, 2020, we had ~~$172.5~~$649.8 million of cash and cash equivalents, ~~$527.3~~$682.8 million of unencumbered securities ~~and $597.0~~(including Consolidated SLST), $238.7 million of unencumbered residential ~~loans. In addition, in early April 2020, we settled on pending trades totaling $213.6 million~~loans and ~~accessed an additional $248.8~~$328.4 million of funding under our residential loan repurchase agreements. In turn, these two transactions, combined with $137.2 million of restricted cash previously pledged as margin for repurchase agreements, allowed us to pay down an additional $562.9 million in financing under our securities repurchase agreements. As of April 7, 2020, we had approximately $200 million in cash, a net outstanding repurchase agreement financing with one counterparty with respect to the financing of non-Agency RBMS totaling $118.2 million, $962.2 million of outstanding repurchase agreement financing for our residential loans and announced that we were current on all of our repurchase agreement payment obligations and no longer needed to enter into forbearance agreements with our financing counterparties. After giving effect to these early April 2020 events, our portfolio leverage ratio is 0.6 times and our unencumbered ~~investment portfolio totals $1.5 billion, including $914.7 million of MBS, $265.9 million of residential loans and $306.2 million of~~ preferred equity investments in and mezzanine loans to owners of multi-family properties.

Both of our residential and multi-family asset management teams have been active in responding to the government assistance programs instituted in response to the impacts of the COVID-19 pandemic providing relief to residential and multi-family loan borrowers. At this time, we are endeavoring to work with any ~~individual~~of our borrowers or ~~entity~~operating partners that ~~needs~~require relief because of the pandemic. As of ~~April~~September 30, 2020, ~~17.2%~~approximately 2% of our residential loan ~~borrowers had requested some form of assistance; however, over half of these borrowers were already delinquent for more than 30 days.~~portfolio has an active COVID-19 assistance plan. We have a long history of dealing with distressed borrowers and currently do not expect these levels of forbearance to have a material impact on our liquidity. In our multi-family portfolio, ~~none of our borrowers or operating partners had asked for a deferral of its payment obligations to us as of March 31, 2020 and as of April 30, 2020,~~ only one operating partner, ~~with an outstanding loan balance~~ representing ~~1.1%~~1% of our total preferred equity and mezzanine loan investment portfolio, ~~had requested some form of deferral or modification of~~is delinquent in making its ~~obligations~~distribution to us. WeAlthough we did not see an increase in forbearance and delinquency rates in our portfolio during the quarter ended September 30, 2020, we expect delinquencies, defaults and requests for forbearance arrangements to rise as savings, incomes and revenues of borrowers, operating partners and other businesses become increasingly constrained from the slow-down in economic activity caused by the COVID-19 pandemic and/or the reduction or elimination of current unemployment benefits or other policies intended to help keep borrowers and werenters in their residence. We cannot assure you that any increase in or prolonged period of payment deferrals, forbearance, delinquencies, defaults, foreclosures or losses will not adversely affect our net interest income, the fair value of our assets or our liquidity.

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We historically have endeavored to fund our investments and operations through a balanced and diverse funding mix, including proceeds from the issuance of common and preferred equity and debt securities, short-term and longer-term repurchase ~~agreement borrowings,~~agreements, CDOs, securitized debt and trust preferred debentures. The type and terms of financing used by us depends on the asset being financed and the financing available at the time of the financing. As discussed above, as a result of the severe market dislocations related to the COVID-19 pandemic and, more specifically, the unprecedented illiquidity in our repurchase agreement financing and MBS markets, looking forward, we expect to place a greater emphasis on procuring stable, longer-termed financing, such as securitizations and other term financings, that provide less or no exposure to fluctuations in the collateral repricing determinations of financing counterparties or rapid liquidity reductions in repurchase agreement financing markets.

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~~Table~~ Consistent with our stated intent to procure this type of ~~Contents~~

stable longer-term financing, and as noted above, we completed a non-mark-to-market re-securitization backed by non-Agency RMBS that has an expected redemption date of June 3, 2022. Moreover, in July 2020 and subsequent to September 30, 2020, we closed on two non-mark-to-market securitizations backed by residential loans that are expected to be redeemed in June 2023 and October 2023, respectively.

Based on current market conditions, our current investment portfolio, new investment initiatives, leverage ratio and available and future possible financing arrangements, we believe our existing cash balances, funds available under our various financing arrangements and cash flows from operations will meet our liquidity requirements for at least the next 12 months. 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, additional issuances of our equity and 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.

Cash Flows and Liquidity for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2020

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, net cash, cash equivalents and restricted cash increased by ~~$224.5~~$583.0 million.

Cash Flows from Operating Activities

We generated net cash flows from operating activities of ~~$20.2~~$76.6 million during the ~~three~~nine months ended~~March 31, 2020~~. September 30, 2020. Our cash flow provided by operating activities differs from our net income due to these primary factors: (i) differences between (a) accretion, amortization and recognition of income and losses recorded with respect to our investments and (b) the cash received therefrom and (ii) unrealized gains and losses on our investments and derivatives.

Cash Flows from Investing Activities

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, our net cash flows provided by investing activities was ~~$1.6~~$2.4 billion, primarily as a result of sales of Agency RMBS and Agency CMBS, including securities issued by Consolidated SLST and the Consolidated K-Series, sales of non-Agency RMBS and CMBS, sales of first loss POs and certain mezzanine securities issued by the Consolidated K-Series and sales of residential loans compounded by principal repayments and refinancing of residential loans and principal paydowns or repayments of investment securities and preferred equity and mezzanine loan investments. These sales and repayments were partially offset by purchases of residential loans, RMBS, CMBS, and funding of preferred equity investments during the period, reflecting our continued focus on single-family residential and multi-family investment strategies.

Although we generally intend to hold our assets as long-term investments, we may sell certain of these assets in order to manage our interest rate risk and liquidity needs, to meet other operating objectives or to adapt to market conditions, as was the case in March 2020. We cannot predict the timing and impact of future sales of assets, if any.

Because a portion of our assets are financed through repurchase agreements, CDOs or securitized debt, a portion of the proceeds from any sales of or principal repayments on our assets may be used to repay balances under these financing sources. ~~Similarly,~~Accordingly, all or a significant portion of cash flows from principal repayments received on multi-family loans held in securitization trusts, ~~and~~ principal repayments received from residential loans ~~would generally be~~and proceeds from sales or principal paydowns received from investment securities available for sale were used to repay CDOs or securitized debt issued by the respective Consolidated VIEs or repurchase agreements (included as cash used in financing activities).

As presented in the “Supplemental Disclosure - Non-Cash Investment Activities” subsection of our condensed consolidated statements of cash flows, during the ~~three~~nine months ended ~~March 31,~~September 30, 2020, we de-consolidated certain multi-family securitization trusts which represent significant non-cash transactions that were not included in cash flows provided by investing activities.

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Cash Flows from Financing Activities

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, our net cash flows used in financing activities was ~~$1.4~~$1.9 billion. The main uses of cash flows from financing activities were primarily payments made on repurchase agreements ~~for our investment securities~~ partially offset by net proceeds from various issuances of our common ~~stock.~~stock, securitized debt and CDOs.

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Liquidity – Financing Arrangements

As of ~~March 31,~~September 30, 2020, we have no amounts outstanding under short-term repurchase agreements ~~a form of collateralized short-term financing, with six different financial institutions.~~on our investment securities. These repurchase agreements are typically secured by certain of our investment securities and bear interest rates that have historically moved in close relationship to LIBOR. ~~Our~~Any financings under these repurchase agreements are based on the fair value of the assets that serve as collateral under these agreements. Interest rate changes and increased prepayment activity can have a negative impact on the valuation of these securities, reducing the amount we can borrow under these agreements. Moreover, our repurchase agreements allow the counterparties to determine a new market value of the collateral to reflect current market conditions and because these lines of financing are not committed, the counterparty can effectively call the loan at any time. Market value of the collateral represents the price of such collateral obtained from generally recognized sources or most recent closing bid quotation from such source plus accrued income. If a counterparty determines that the value of the collateral has decreased, the counterparty may initiate a margin call and require us to either post additional collateral to cover such decrease or repay a portion of the outstanding amount financed in cash, on minimal notice, and repurchase may be accelerated upon an event of default under the repurchase agreements. Moreover, in the event an existing counterparty elected to not renew the outstanding balance at its maturity into a new repurchase agreement, we would be required to repay the outstanding balance with cash or proceeds received from a new counterparty or to surrender the securities that serve as collateral for the outstanding balance, or any combination thereof. If we are unable to secure financing from a new counterparty and had to surrender the collateral, we would expect to incur a loss. In addition, in the event one of our repurchase agreement counterparties defaults on its obligation to “re-sell” or return to us the assets that are securing the financing at the end of the term of the repurchase agreement, we would incur a loss on the transaction equal to the amount of “haircut” associated with the short-term repurchase agreement, which we sometimes refer to as the “amount at risk.” ~~As of March 31,~~

At September 30, 2020, we had an aggregate amount at risk under our securities repurchase agreements of approximately $210.1 million, with no more than approximately $70.3 million at risk with any single counterparty. At March 31, 2020, the Company had short-term repurchase agreements outstanding of $713.4 million as compared to $2.4 billion as of December 31, 2019. Significant margin calls have had, and could in the future have a material adverse effect on our results of operations, financial condition, business, liquidity and ability to make distributions to our stockholders. See “Liquidity and Capital Resources –~~General” above.~~

As of March 31, 2020, we had assets available to be posted as margin under securities repurchase agreements, which included liquid assets, such as unrestricted cash and cash equivalents, and unencumbered securities that could be monetized to pay down or collateralize a liability immediately. We had $172.5 million in cash and cash equivalents and $527.3 million in unencumbered investment securities to meet additional haircuts or market valuation requirements, which collectively represent 98.1% of our outstanding repurchase agreements. The unencumbered securities that we believe may be monetized to pay, or posted as, margin under securities repurchase agreements as of March 31, 2020 included $82.4 million of CMBS, $402.6 million of non-Agency RMBS and $42.3 million of ABS.

~~At March 31, 2020, we also~~ had longer-term repurchase agreements with terms of up to one year with ~~certain~~three third-party financial institutions that are secured by certain of our residential ~~loans.~~loans and that function similar to our short-term repurchase agreements. The financings under two of these repurchase agreements are subject to margin calls to the extent the market value of the residential loans falls below specified levels and repurchase may be accelerated upon an event of default under the repurchase agreements. In September 2020, we entered into a repurchase agreement with a new counterparty with a term of one year that is secured by certain of our residential loans and is not subject to margin calls in the event the market value of the collateral declines. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Balance Sheet Analysis—Residential Loan Financing—Repurchase Agreements" for further information. During the terms of the repurchase agreements secured by residential loans, proceeds from the residential loans will be applied to pay any price differential, if applicable, and to reduce the aggregate repurchase price of the collateral. The financings under the repurchase agreements are subject to margin calls to the extent the market value of the residential loans falls below specified levels and repurchase may be accelerated upon an event of default under the repurchase agreements. The repurchase agreements secured by residential loans contain various covenants, including among other things, the maintenance of certain amounts of liquidity and total stockholders' equity. As of ~~March 31,~~September 30, 2020, we had an aggregate ~~loans~~amount at risk under our residential loan repurchase agreements of approximately ~~$202.9~~$264.8 million, ~~with no more than approximately $141.5 million at risk with any single counterparty.~~which represents the difference between the carrying value of the loans pledged and the outstanding balance of our repurchase agreements. Significant margin calls have had, and could in the future have, a material adverse effect on our results of operations, financial condition, business, liquidity and ability to make distributions to our stockholders. See “Liquidity and Capital Resources –General” above.

At ~~March 31,~~September 30, 2020, the Company had $138.0 million aggregate principal amount of Convertible Notes outstanding. The Convertible Notes were issued at 96% of the principal amount, bear interest at a rate equal to 6.25% per year, payable semi-annually in arrears on January 15 and July 15 of each year, and are expected to mature on January 15, 2022, unless earlier converted or repurchased. The Company does not have the right to redeem the Convertible Notes prior to maturity and no sinking fund is provided for the Convertible Notes. Holders of the Convertible Notes are permitted to convert their Convertible Notes into shares of the Company's common stock at any time prior to the close of business on the business day immediately preceding January 15, 2022. The conversion rate for the Convertible Notes, which is subject to adjustment upon the occurrence of certain specified events, initially equals 142.7144 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes, which is equivalent to a conversion price of approximately $7.01 per share of the Company’s common stock, based on a $1,000 principal amount of the Convertible Notes.

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At ~~March 31,~~September 30, 2020, we also had other consolidated longer-term debt, including SLST CDOs outstanding of ~~$1.0~~$1.1 billion (which represent obligations of Consolidated SLST), securitized debt outstanding of $88.8 million, Residential CDOs outstanding of ~~$39.0~~$268.8 million and subordinated debt outstanding of $45.0 million. The CDOs are collateralized by residential loans held in securitization ~~trusts.~~trusts and the securitized debt is collateralized by non-Agency RMBS.

As of ~~March 31,~~September 30, 2020, our overall leverage ratio, which represents our total outstanding repurchase agreement financing, subordinated debentures and Convertible Notes divided by our total stockholders' equity, was approximately ~~0.8~~0.4 to 1. Our overall leverage ratio does not include debt associated with SLST CDOs, securitized debt, the Residential CDOs or other non-recourse debt ~~for which we have no obligation.~~to the Company. As of ~~March 31,~~September 30, 2020, our leverage ratio on our ~~short term~~shorter-term financings, which represents our outstanding repurchase agreement financing divided by our total stockholders' equity, was approximately ~~0.7~~0.3 to 1. We monitor all at risk or ~~short-term~~shorter-term financings to enable us to respond to market disruptions as they arise.

Liquidity – Hedging and Other Factors

Certain of our hedging instruments may also impact our liquidity. We may use interest rate swaps, swaptions, TBAs or other futures contracts to hedge interest rate and market value risk associated with our investments in Agency RMBS.

With respect to interest rate swaps, futures contracts and TBAs, initial margin deposits, which can be comprised of either cash or securities, will be made upon entering into these contracts. During the period these contracts are open, changes in the value of the contract are recognized as unrealized gains or losses by marking to market on a daily basis to reflect the market value of these contracts at the end of each day’s trading. We may be required to satisfy variable margin payments periodically, depending upon whether unrealized gains or losses are incurred. In addition, because delivery of TBAs extend beyond the typical settlement dates for most non-derivative investments, these transactions are more prone to market fluctuations between the trade date and the ultimate settlement date, and thereby are more vulnerable to increasing amounts at risk with the applicable counterparties. ~~During the three months ended~~In March ~~31,~~ 2020, in response to the turmoil in the financial markets, we terminated our interest rate ~~swaps.~~swaps and currently do not have any hedges in place.

For additional information regarding the Company’s derivative instruments and hedging activities for the periods covered by this report, including the fair values and notional amounts of these instruments and realized and unrealized gains and losses relating to these instruments, please see Note 10 to our condensed consolidated financial statements included in this report. Also, please see Item 3. Quantitative and Qualitative Disclosures about Market Risk, under the caption, “Fair Value Risk”, for a tabular presentation of the sensitivity of the fair value and net duration changes of the Company’s portfolio across various changes in interest rates, which takes into account the Company’s hedging activities.

Liquidity — Securities Offerings

In addition to the financing arrangements described above under the caption “Liquidity—Financing Arrangements,” we also rely on follow-on equity offerings of common and preferred stock, and may utilize from time to time debt securities offerings, as a source of both short-term and long-term liquidity. We also may generate liquidity through the sale of shares of our common stock or preferred stock in “at-the-market” equity offering programs pursuant to equity distribution agreements, as well as through the sale of shares of our common stock pursuant to our Dividend Reinvestment Plan (“DRIP”). Our DRIP provides for the issuance of up to $20,000,000 of shares of our common stock.

The following table details the Company's public offerings of common stock during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 (dollar amounts in thousands):


Offering Type	Shares Issued	Net Proceeds (1)
Public offerings of common stock	85,100,000	$	511,924

(1)Proceeds are net of underwriting discounts and commissions and offering expenses, as applicable.

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Dividends

On September 14, 2020, our Board of Directors declared the following quarterly cash dividends:

⁽¹⁾Class of Stock

~~Proceeds are net of underwriting discounts and commissions and offering expenses, as applicable.~~

Dividend Amount Per Share

Record Date

Payment Date

Common Stock

0.075

September 24, 2020

October 26, 2020

Fixed Rate Preferred Stock

7.75% Series B Cumulative Redeemable Preferred Stock

0.484

October 1, 2020

October 15, 2020

7.875% Series C Cumulative Redeemable Preferred Stock

0.492

October 1, 2020

October 15, 2020

Fixed-to-Floating Rate Preferred Stock

8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock

0.500

October 1, 2020

October 15, 2020

7.875% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock

0.492

October 1, 2020

October 15, 2020

~~Dividends~~

On March 23, 2020, we elected to temporarily suspended quarterly dividends on both our common stock and each series of our preferred stock to preserve liquidity until we have better clarity into the future impacts of the COVID-19 pandemic on business and economic conditions.

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~~The following table presents the accumulated dividend on each series of preferred stock for the period January 15, 2020 to April 14, 2020:~~

Class of Preferred Stock Accumulated Dividends Per Share Total Accumulated Dividends
Fixed Rate
7.75% Series B Cumulative Redeemable Preferred Stock $ 0.4843750
$ 1,529
7.875% Series C Cumulative Redeemable Preferred Stock 0.4921875
2,058
Fixed-to-Floating Rate
8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock 0.5000000
3,062
7.875% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock 0.4921875
3,648
Total $ 10,297

Our Board of Directors will continue to evaluate our dividend policy each quarter and will make adjustments as necessary, based on a variety of factors, including, among other things, the need to maintain our REIT status, our financial condition, liquidity, earnings projections, business prospects and current and anticipated future market conditions. Our dividend policy does not constitute an obligation to pay dividends.

We intend to make distributions to our stockholders to comply with the various requirements to maintain our REIT status and to minimize or avoid corporate income tax and the nondeductible excise tax. However, differences in timing between the recognition of REIT taxable income and the actual receipt of cash could require us to sell assets or to borrow funds on a short-term basis to meet the REIT distribution requirements and to minimize or avoid corporate income tax and the nondeductible excise tax.

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Inflation

Substantially all our assets and liabilities are financial in nature and are sensitive to interest rate and other related factors to a greater degree than inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our condensed consolidated financial statements and corresponding notes thereto have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering inflation.

Off-Balance Sheet Arrangements

We did not maintain any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

This section should be read in conjunction with “Item 1A. Risk ~~Factors,”~~Factors” in our Annual Report on Form 10-K, "Part ~~II.~~II, Item 1A. Risk Factors" in ~~this report~~our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and the other disclosures made throughout this report and our Annual Report on Form 10-K.

We seek to manage risks that we believe will impact our business including interest rates, liquidity, prepayments, credit quality and market value. Many of these risks have become particularly heightened due to the COVID-19 pandemic and related economic and market conditions. When managing these risks we consider the impact on our assets, liabilities and derivative positions. While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience. We seek to actively manage that risk, to generate risk-adjusted total returns that we believe compensate us appropriately for those risks and to maintain capital levels consistent with the risks we take.

The following analysis includes forward-looking statements that assume that certain market conditions occur. Actual results may differ materially from these projections due to changes in our portfolio assets and borrowings mix and due to developments in the domestic and global financial, mortgage and real estate markets. Developments in the financial markets include the likelihood of changing interest rates and the relationship of various interest rates and their impact on our portfolio yield, cost of funds and cash flows. The analytical methods that we use to assess and mitigate these market risks should not be considered projections of future events or operating performance.

Interest Rate Risk

Interest rates are sensitive to many factors, including governmental, monetary or tax policies, domestic and international economic conditions, and political or regulatory matters beyond our control. Changes in interest rates affect the value of the assets we manage and hold in our investment portfolio and the variable-rate borrowings we use to finance our portfolio. Changes in interest rates also affect the interest rate swaps and caps, TBAs and other securities or instruments we may use to hedge our portfolio. As a result, our net interest income is particularly affected by changes in interest rates.

For example, we hold RMBS and loans, some of which may have fixed rates or interest rates that adjust on various dates that are not synchronized to the adjustment dates on our repurchase agreements. In general, the re-pricing of our repurchase agreements occurs more quickly than the re-pricing of our variable-interest rate assets. Thus, it is likely that our floating rate financing, such as our repurchase agreements, may react to interest rates before our RMBS or loans because the weighted average next re-pricing dates on the related financing may have shorter time periods than that of the ~~RMBS.~~RMBS or loan. Moreover, changes in interest rates can directly impact prepayment speeds, thereby affecting our net return on RMBS. During a declining interest rate environment, the prepayment of RMBS may accelerate (as borrowers may opt to refinance at a lower interest rate) causing the amount of liabilities that have been extended by the use of interest rate swaps to increase relative to the amount of RMBS, possibly resulting in a decline in our net return on RMBS, as replacement RMBS may have a lower yield than those being prepaid. Conversely, during an increasing interest rate environment, RMBS may prepay more slowly than expected, requiring us to finance a higher amount of RMBS than originally forecast and at a time when interest rates may be higher, resulting in a decline in our net return on RMBS. Accordingly, each of these scenarios can negatively impact our net interest income.

We seek to manage interest rate risk in our portfolio by utilizing interest rate swaps, swaptions, interest rate caps, futures, options on futures and U.S. Treasury securities with the goal of optimizing the earnings potential while seeking to maintain long term stable portfolio values. Given current market volatility and historically low interest rates, we do not currently have any hedges in place to mitigate the risk of rising interest rates.

We utilize a model-based risk analysis system to assist in projecting portfolio performances over a scenario of different interest rates. The model incorporates shifts in interest rates, changes in prepayments and other factors impacting the valuations of our financial securities and derivative hedging instruments.

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Based on the results of the model, the instantaneous changes in interest rates specified below would have had the following effect on our net interest income for the next 12 months based on our assets and liabilities as of ~~March 31,~~September 30, 2020 (dollar amounts in thousands):


Changes in Net Interest Income
Changes in Interest Rates (basis points)			Changes in Net Interest Income
+200			$(10,868)
+100			$(960)
-100			$(760)

Changes in Net Interest Income
Changes in Interest Rates (basis points)
Changes in Net Interest
Income
+200 $(35,094)
+100 $(13,358)
-100 $7,567

Interest rate changes may also impact our net book value as our assets and related hedge derivatives, if any are marked-to-market each quarter. Generally, as interest rates increase, the value of our mortgage assets decreases, and conversely, as interest rates decrease, the value of such investments will increase. In general, we expect that, over time, decreases in the value of our portfolio attributable to interest rate changes will be offset, to the degree we are hedged, by increases in the value of our interest rate swaps or other financial instruments used for hedging purposes, and vice versa. However, the relationship between spreads on our assets and spreads on our hedging instruments may vary from time to time, resulting in a net aggregate book value increase or decline.

~~In March,~~The interest rates for certain of our investments and a majority of our financing transactions are either explicitly or indirectly based on LIBOR. On July 27, 2017, the ~~Federal Reserve lowered~~United Kingdom Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. At this time, it is not possible to predict the ~~target range for~~effect of such change, including the ~~federal funds rate to a range from 0 to 0.25 percent, citing concerns about~~establishment of potential alternative reference rates, on the economy or markets we are active in either currently or in the future, or on any of our assets or liabilities whose interest rates are based on LIBOR. We are in the process of evaluating the potential impact of a discontinuation of LIBOR after 2021 on our portfolio, as well as the ~~COVID-19 pandemic on markets~~related accounting impact. However, we expect that throughout 2020, we will work closely with the entities that are involved in calculating the interest rates for our RMBS and ~~stress~~securitized debt, our loan servicers for our floating rate loans, and with the various counterparties to our financing transactions in ~~the energy sector.~~ order to determine what changes, if any, are required to be made to existing agreements for these transactions.

Our net interest income, the fair value of our assets and our financing activities could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates could cause a loss of future net interest income and a decrease in current fair market values of our assets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all or substantially all of our interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

Liquidity Risk

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay dividends to our stockholders and other general business needs. The primary liquidity risk we face arises from financing long-maturity assets with shorter-term ~~financings, primarily in the form of repurchase agreements.~~financings. We recognize the need to have funds available to operate our business. We manage and forecast our liquidity needs and sources daily to ensure that we have adequate liquidity at all times. We plan to meet liquidity through normal operations with the goal of avoiding unplanned sales of assets or emergency borrowing of funds.

We are subject to “margin call” risk under nearly all of our repurchase agreements. In the event the value of our assets pledged as collateral suddenly decreases, margin calls relating to our repurchase agreements could increase, causing an adverse change in our liquidity position. Additionally, if one or more of our repurchase agreement counterparties chooses not to provide ongoing funding, we may be unable to replace the financing through other lenders on favorable terms or at all.

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As discussed throughout this Quarterly Report on Form 10-Q, ~~during the three months ended~~in March ~~31,~~ 2020, we observed unprecedented illiquidity in repurchase agreement financing and MBS markets which resulted in our receiving margin calls under our repurchase agreements that were well beyond historical norms. We took a number of decisive actions in response to these conditions, including the sale of assets and termination of our interest rate swaps. ~~Due~~Because of this, we intend to ~~the disruption, we believe~~place a ~~number of financial institutions are limiting their access~~greater emphasis on procuring stable, longer-termed financings, such as securitizations and other term financings, which may involve greater expense relative to repurchase agreement ~~and other financing, or temporarily or permanently exiting the MBS repurchase agreement financing space. As such, we~~funding. We provide no assurance that we will be able in the future to access sources of capital that are attractive to us, that we will be able to roll over or replace our repurchase agreements, securitized debt or other financing instruments as they mature from time to time in the future or that we otherwise will not need to resort to unplanned sales of assets to provide liquidity in the future. See Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and the other information in this Quarterly Report on Form 10-Q for further information about our liquidity and capital resource management.

Derivative financial instruments are also subject to “margin call” risk. For example, under the interest rate swaps we have utilized, typically we would pay a fixed rate to the counterparties while they would pay us a floating rate. If interest rates drop below the fixed rate we pay on an interest rate swap, we may be required to post cash margin. Given current market volatility and historically low interest rates, we do not currently have any interest rate swaps in place.

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Prepayment Risk

When borrowers repay the principal on their residential loans before maturity or faster than their scheduled amortization, the effect is to shorten the period over which interest is earned, and therefore, reduce the yield for residential mortgage assets purchased at a premium to their then current ~~balance, as is the case with Agency RMBS.~~balance. Conversely, residential mortgage assets purchased for less than their then current balance, such as many of our residential loans, exhibit higher yields due to faster prepayments. Furthermore, actual prepayment speeds may differ from our modeled prepayment speed projections impacting the effectiveness of any hedges we may have in place to mitigate financing and/or fair value risk. Generally, when market interest rates decline, borrowers have a tendency to refinance their mortgages, thereby increasing prepayments.

Our modeled prepayments will help determine the amount of hedging we use to off-set changes in interest rates. If actual prepayment rates are higher than modeled, the yield will be less than modeled in cases where we paid a premium for the particular residential mortgage asset. Conversely, when we have paid a premium, if actual prepayment rates experienced are slower than modeled, we would amortize the premium over a longer time period, resulting in a higher yield to maturity.

In an environment of increasing prepayment speeds, the timing difference between the actual cash receipt of principal paydowns and the announcement of the principal paydowns may result in additional margin requirements from our repurchase agreement counterparties.

We mitigate prepayment risk by constantly evaluating our residential mortgage assets relative to prepayment speeds observed for assets with similar structures, quantities and characteristics. Furthermore, we stress-test the portfolio as to prepayment speeds and interest rate risk in order to further develop or make modifications to our hedge balances. Historically, we have not hedged 100% of our liability costs due to prepayment risk. Given the combination of low interest rates, government stimulus, ~~and~~ high unemployment and other disruptions related to COVID-19, it has become more difficult to predict prepayment levels for the securities in our portfolio.

Credit Risk

Credit risk is the risk that we will not fully collect the principal we have invested in our credit sensitive assets, including residential loans, non-Agency RMBS, ABS, multi-family CMBS, preferred equity and mezzanine loan and joint venture equity investments, due to borrower defaults or defaults by our operating partners in their payment obligations to us. In selecting the credit sensitive assets in our portfolio, we seek to identify and invest in assets with characteristics that we believe offset or limit our exposure to defaults.

We seek to manage credit risk through our pre-acquisition or pre-funding due diligence process, and by factoring projected credit losses into the purchase price we pay or loan terms we negotiate for all of our credit sensitive assets. In general, we evaluate relative valuation, supply and demand trends, prepayment rates, delinquency and default rates, vintage of collateral and macroeconomic factors as part of this process. Nevertheless, these procedures doprovide no assurance that we will not ~~guarantee~~experience unanticipated credit losses which would materially affect our operating results.

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Concern surrounding the ongoing COVID-19 pandemic and certain of the actions taken to reduce its spread has caused and ~~is likely to~~may continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and multi-family property vacancy and lease default rates, reduced profitability and ability for property owners to make loan, mortgage and other payments, and overall economic and financial market instability, all of which may cause an increase in the credit risk of our credit sensitive assets. WeAlthough we did not see an increase in forbearance and delinquency rates in our portfolio during the quarter ended September 30, 2020, we expect delinquencies, defaults and requests for forbearance arrangements to rise as savings, incomes and revenues of borrowers, operating partners and other businesses become increasingly constrained from the resulting slow-down in economic ~~activity.~~activity and/or the reduction or elimination of current unemployment benefits or other policies intended to help keep borrowers and renters in their residences. Any future period of payment deferrals, forbearance, delinquencies, defaults, foreclosures or losses will likely adversely affect our net interest income from preferred equity investments, residential loans, mezzanine loans and our RMBS, CMBS and ABS investments, the fair value of these assets, our ability to liquidate the collateral that may underlie these investments and obtain additional financing and the future profitability of our investments. Further, in the event of delinquencies, defaults and foreclosure, regulatory changes and policies designed to protect borrowers and renters may slow or prevent us from taking remediation actions. See “Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital ~~Resources,” and “Part II – Item 1A. Risk Factors”~~Resources” in this Quarterly Report on Form 10-Q and "Part II - Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 for more information on how COVID-19 may impact the credit quality of our credit sensitive assets and the credit quality of the underlying borrowers or operating partners.

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With respect to our residential loans, we purchased the majority of these mortgage loans at a discount to par reflecting their distressed state or perceived higher risk of default. In connection with our loan acquisitions, we or a third-party due diligence firm perform an independent review of the mortgage file to assess the state of mortgage loan files, the servicing of the mortgage loan, compliance with existing guidelines, as well as our ability to enforce the contractual rights in the mortgage. We also obtain certain representations and warranties from each seller with respect to the mortgage loans, as well as the enforceability of the lien on the mortgaged property. A seller who breaches these representations and warranties may be obligated to repurchase the loan from us. In addition, as part of our process, we focus on selecting a servicer with the appropriate expertise to mitigate losses and maximize our overall return on these residential loans. This involves, among other things, performing due diligence on the servicer prior to their engagement, assigning the appropriate servicer on each loan based on certain characteristics and monitoring each servicer's performance on an ongoing basis.

We are exposed to credit risk in our investments in CMBS, non-Agency RMBS and ABS. ~~Our~~These investments ~~in non-Agency RMBS and ABS~~ typically consist of either the senior, mezzanine or subordinate tranches in securitizations. The underlying collateral of these securitizations may be exposed to various macroeconomic and asset-specific credit risks. These securities have varying levels of credit enhancement which provide some structural protection from losses within the portfolio. We undertake an in-depth assessment of the underlying collateral and securitization structure when investing in these assets, which may include modeling defaults, prepayments and loss across different scenarios. In addition, we are exposed to credit risk in our preferred equity, mezzanine loan and equity investments in owners of residential and multi-family properties. The performance and value of these investments depend upon the applicable operating partner’s or borrower’s ability to effectively operate the multi-family and residential properties, that serve as the underlying collateral, to produce cash flows adequate to pay distributions, interest or principal due to us. The Company monitors the performance and credit quality of the underlying assets that serve as collateral for its investments. In connection with these types of investments by us in multi-family properties, the procedures for ongoing monitoring include financial statement analysis and regularly scheduled site inspections of portfolio properties to assess property physical condition, performance of on-site staff and competitive activity in the sub-market. We also formulate annual budgets and performance goals alongside our operating partners for use in measuring the ongoing investment performance and credit quality of our investments. Additionally, the Company's preferred equity and equity investments typically provide us with various rights and remedies to protect our investment.

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Fair Value Risk

Changes in interest rates, market liquidity, credit quality and other factors also expose us to market value (fair value) fluctuation on our assets, liabilities and hedges. For certain of our credit sensitive assets, fair values may only be derived or estimated for these investments using various valuation techniques, such as computing the present value of estimated future cash flows using discount rates commensurate with the risks involved. However, the determination of estimated future cash flows is inherently subjective and imprecise. Moreover, the uncertainty over the ultimate impact 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. The uncertainties stemming from the pandemic ~~have~~ created unprecedented illiquidity and volatility in the financial markets. As a result, our market value (fair value) risk has significantly increased. Minor changes in assumptions or estimation methodologies can have a material effect on these derived or estimated fair values. Our fair value estimates and assumptions are indicative of the interest rate and business environments as of ~~March 31,~~September 30, 2020 and do not take into consideration the effects of subsequent changes.

The following describes the methods and assumptions we use in estimating fair values of our financial instruments:

Fair value estimates are made as of a specific point in time based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and the judgments made regarding risk characteristics of various financial instruments, discount rates, estimate of future cash flows, future expected loss experience and other factors.

Changes in assumptions could significantly affect these estimates and the resulting fair values. Derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in an immediate sale of the instrument. Also, because of differences in methodologies and assumptions used to estimate fair values, the fair values used by us should not be compared to those of other companies.

The table below presents the sensitivity of the fair value and net duration changes of our portfolio as of ~~March 31,~~September 30, 2020, using a discounted cash flow simulation model assuming an instantaneous interest rate shift. Application of this method results in an estimation of the fair market value change of our assets, liabilities and hedging instruments per 100 basis point shift in interest rates.

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The use of hedging instruments has historically been a critical part of our interest rate risk management strategies. This analysis also takes into consideration the value of options embedded in our mortgage assets including constraints on the re-pricing of the interest rate of assets resulting from periodic and lifetime cap features, as well as prepayment options. Assets and liabilities that are not interest rate-sensitive such as cash, payment receivables, prepaid expenses, payables and accrued expenses are excluded.

Changes in assumptions including, but not limited to, volatility, mortgage and financing spreads, prepayment behavior, credit conditions, defaults, as well as the timing and level of interest rate changes will affect the results of the model. Therefore, actual results are likely to vary from modeled results.


Fair Value Changes
Changes in Interest Rates	Changes in Fair Value	Net Duration
(basis points)	(dollar amounts in thousands)
+200	$(118,890)	2.1
+100	$(60,480)	1.5
Base		2.6
-100	$54,018	2.6

Fair Value Changes
Changes in Interest Rates Changes in Fair Value Net Duration
(basis points) (dollar amounts in thousands)
+200 $(291,320) 5.8
+100 $(137,375) 5.7
Base
4.2
-100 $84,520 2.3

It should be noted that the model is used as a tool to identify potential risk in a changing interest rate environment but does not include any changes in portfolio composition, financing strategies, market spreads or changes in overall market liquidity.

Although market value sensitivity analysis is widely accepted in identifying interest rate risk, it does not take into consideration changes that may occur such as, but not limited to, changes in investment and financing strategies, changes in market spreads and changes in business volumes. Accordingly, we make extensive use of an earnings simulation model to further analyze our level of interest rate risk.

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Capital Market Risk

We are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our common stock, preferred stock or other equity instruments. We are also exposed to risks related to the debt capital markets, and our related ability to finance our business through credit facilities or other debt instruments. As a REIT, we are required to distribute a significant portion of our taxable income annually, which constrains our ability to accumulate operating cash flow and therefore may require us to utilize debt or equity capital to finance our business. We seek to mitigate these risks by monitoring the debt and equity capital markets to inform our decisions on the amount, timing, and terms of capital we raise. The ongoing COVID-19 pandemic has resulted in volatility that has been extreme ~~volatility~~at times in a variety of global markets, including the U.S. financial, mortgage and real estate markets. ~~U.S. financial markets, in particular, are experiencing limited liquidity and a high level of volatility.~~ In reaction to these tumultuous market conditions, various banks and other financing participants ~~have generally~~ restricted or limited lending activity and requested margin posting or repayments where applicable. WeAlthough these conditions have subsided somewhat during the quarter ended September 30, 2020, we expect these conditions to ~~persist~~remain volatile and uncertain at varying levels for the near future and this may adversely affect our ability to access capital to fund our operations, meet our obligations and make distributions to our stockholders.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosures. An evaluation was performed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of ~~March 31,~~September 30, 2020. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of ~~March 31,~~September 30, 2020.

Changes in Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting during the quarter ended ~~March 31,~~September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1A. Risk Factors

~~We are supplementing the~~For a discussion of our risk factors, ~~described under “Item~~see Part I, Item 1A. ~~Risk Factors”~~"Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019 (“("Form ~~10-K”) with the additional risk factors set forth below. These supplemental risk factors should be read in conjunction with the other risk factors described in the Form 10-K.~~

~~The market and economic disruptions caused by COVID-19 have negatively impacted our business and may continue to do so.~~

The novel coronavirus (“COVID-19”) pandemic is causing significant disruptions to the U.S. and global economies and has caused significant volatility, illiquidity and dislocations in the financial markets. The COVID-19 outbreak has led governments and other authorities around the world to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. Moreover, the COVID-19 outbreak 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. The market and economic disruptions caused by COVID-19 have materially adversely impacted our business.

~~Since mid-March, markets for mortgage-backed securities (“MBS”~~10-K") and other credit-related assets have experienced significant volatility, widening credit spreads and sharp declines in liquidity, which have materially adversely impacted our investment portfolio. A significant portion of our investment securities portfolio and residential loan portfolio was pledged as collateral under daily mark-to-market repurchase agreements. Fluctuations in the value of our portfolio of MBS and whole loans, including as a result of changes in credit spreads, resultedPart II, Item 1A. "Risk Factors" in our being required to post additional collateral with our counterparties under these repurchase agreements. These fluctuations and requirements to post additional collateral were material. In an effort to mitigate the impact to our business from these developments and improve our liquidity, we sold a substantial portion of our MBS portfolio in March,Quarterly Report on Form 10-Q for which we recorded significant realized losses during the quarter ended March 31, 2020. Although these losses will be available to offset certain capital gains that we may have now or in the future, these losses will not reduce the amount that we will be required to distribute under the requirement that we distribute to our stockholders at least 90% of our REIT taxable income (computed without regard to the deduction for dividends paid and excluding net capital gain) each year in order to continue to qualify as a REIT.

~~In addition, as a result of the disruptions in the financial markets caused by the ongoing COVID-19 pandemic, we recorded a significant amount of unrealized losses during~~ the quarter ended March 31, 2020 ~~due to declines~~(the "First Quarter Form 10-Q"). The information included in the ~~fair value of many of our assets. In light~~"Risk Factors" section of the ~~continued deterioration of~~First Quarter Form 10-Q is incorporated by reference herein. However, the ~~economic environment related~~risks and uncertainties that we face are not limited to the COVID-19 outbreak, the market for mortgage-related, residential housing-related and credit-related assets may continue to experience significant volatility, illiquidity and dislocations that may result in our recording additional realized and unrealized losses and/or experiencing additional margin callsthose set forth in the ~~future, which may adversely affect our result of operations, financial condition, liquidity~~Form 10-K, as supplemented and ~~ability to make distributions to our stockholders.~~

~~Our inability to access funding or~~updated in the ~~terms on which funding is available could have a material adverse effect on our results of operations~~First Quarter Form 10-Q. Additional risks and ~~financial condition, particularly in light of ongoing market dislocations resulting from the COVID-19 pandemic.~~

Our ability to fund our operations, meet financial obligations and finance asset acquisitions may be impacted by an inability to secure and maintain our repurchase agreements with our counterparties. Because repurchase agreements are short-term commitments of capital, repurchase agreement counterparties may respond to market conditions in a manner that makes it more difficult for us to renew or replace on a continuous basis our maturing short-term financings and have and may continue to impose more onerous conditions when rolling such financings. If we areuncertainties not ~~able to renew or roll our existing repurchase agreements or arrange for new financing on terms acceptable~~presently known to us or if we default on our financial covenants, are otherwise unable to access funds under our financing arrangements, or if we are required to post more collateral or face larger haircuts on our financings, we may have to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses, and may also force us to curtail our asset acquisition activities. If we are faced with a larger haircut in order to roll a financing with a particular counterparty, or in order to move a financing from one counterparty to another, then we would need to make up the difference between the two haircuts in the form of cash, which could similarly require us to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses.

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Issues related to financing are exacerbated in times of significant dislocation in the financial markets, such as those being experienced now in connection with the COVID-19 pandemic. It is possible that our financing counterparties will become unwilling or unable to provide us with financing, and we could be forced to sell our assets at an inopportune time when prices are depressed or markets are illiquid, which could cause significant losses. In addition, if the regulatory capital requirements imposed on our financing counterparties change, they may be required to significantly increase the cost of the financing that they provide to us, or to increase the amounts of collateral they require as a condition to providing us with financing. Our financing counterparties also have revised, and may continue to revise, their eligibility requirements for the types of assets that they are willing to finance or the terms of such financings, including increased haircuts and requiring additional cash collateral, based on, among other factors, the regulatory environment and their management of actual and perceived risk, particularly with respect to assignee liability. Moreover, the amount of financing that we ~~receive under our repurchase agreements will~~currently believe to be directly related to our counterparties’ valuation of our assets that collateralize the outstanding repurchase agreement financing. Typically, repurchase agreements grant the repurchase agreement counterparty the absolute right to reevaluate the fair market value of the assets that cover the amount financed under the repurchase agreement at any time. If a repurchase agreement counterparty determines in its sole discretion that the value of the assets subject to the repurchase agreement financing has decreased, it has the right to initiate a margin call. These valuationsimmaterial may be different than the values that we ascribe to these assets and may be influenced by recent asset sales at distressed levels by forced sellers. A margin call requires us to transfer additional assets to a repurchase agreement counterparty without any advance of funds from the counterparty for such transfer or to repay a portion of the outstanding repurchase agreement financing. We would also be required to post additional collateral if haircuts increase under a repurchase agreement. In these situations, we could be forced to sell assets at significantly depressed prices to meet such margin calls and to maintain adequate liquidity, which could cause significant losses.

Significant margin calls could have a material adverse effect on our results of operations, financial condition, business, liquidity, and ability to make distributions to our stockholders, and could cause the value of our capital stock to decline. As a result of the COVID-19 outbreak, late in the first quarter of 2020, we observed a mark-down of a portion of our assets by our repurchase agreement counterparties, resulting in us having to pay cash or additional securities to satisfy margin calls that were well beyond historical norms. These trends, if continued, could have a material adverse impact on our liquidity and could lead to significant losses.

We expect that the economic and market disruptions caused by COVID-19 will adversely impact the financial condition of our operating partners and the borrowers of our loans and the loans that underlie our investment securities and limit our ability to grow our business.

We are subject to risks related to residential mortgage loans, commercial mortgage loans, preferred equity investments in and mezzanine loans to owners of multi-family properties and certain consumer loans that back our asset-backed securities (“ABS”). Over the near and long term, we expect that the economic and market disruptions caused by COVID-19 will adversely impact the financial condition of our operating partners in which we have made a preferred equity investment or to whom we have provided a mezzanine loan, and the borrowers of our residential mortgage loans and the loans that underlie our residential MBS (“RMBS”), commercial MBS (“CMBS”) and ABS investments. As a result, we anticipate that the number of operating partners and borrowers who become delinquent or default on their financial obligations may increase significantly, and we have been contacted by certain of our operating partners and borrowers who are seeking to defer the payment of principal and/or interest or other payments on certain of our loans and preferred equity investments. When a residential mortgage loan is delinquent, or in default, forbearance or foreclosure, we may be required to advance payments for taxes and insurance associated with the underlying property to protect our interest in the loan collateral when we might otherwise use the cash to invest in our targeted assets or reduce our financings. Such increased levels of payment delinquencies, defaults, foreclosures, forbearance arrangements or losses would adversely affect our business ~~financial condition, results of operations~~ and our ability to make distributions to our stockholders, and any such impact may be material. Moreover, a number of states are considering or have already implemented temporary moratoriums on the ability of lenders to initiate foreclosures, which could further limit our ability to foreclose and recover against our collateral, or pursue recourse claims (should they exist) against a borrower or operating partner in the event of a default or failure to meet its financial obligations to us.

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We expect delinquencies, defaults and requests for forbearance arrangements to rise as savings, incomes and revenues of borrowers, operating partners and other businesses become increasingly constrained from the slow-down in economic activity caused by the COVID-19 pandemic. Any future period of payment deferrals, forbearance, delinquencies, defaults, foreclosures or losses will likely adversely affect our net interest income from preferred equity investments, residential mortgage loans, mezzanine loans and our RMBS, CMBS and ABS investments, the fair value of these assets and our ability to originate and acquire our targeted assets, which would materially and adversely affect us. In addition, to the extent current conditions persist or worsen, we expect that real estate values may decline, which will likely reduce the fair value of our assets and may also reduce the level of new mortgage and other residential real estate-related investment opportunities available to us, which would adversely affect our ability to grow our business and fully execute our investment strategy, could decrease our earnings and liquidity, and may expose us to further margin calls.

Market disruptions caused by COVID-19 may make it more difficult for the loan servicers we rely on to perform a variety of services for us, which may adversely impact our business and financial results.

In connection with our business of acquiring and holding residential mortgage loans and investing in CMBS, non-Agency RMBS and ABS, we rely on third-party service providers, principally loan servicers, to perform a variety of services, comply with applicable laws and regulations, and carry out contractual covenants and terms. For example, we rely on the mortgage servicers who service the mortgage loans we purchase as well as the loans underlying our CMBS, non-Agency RMBS and ABS to, among other things, collect principal and interest payments on such loans and perform loss mitigation services, such as forbearance, workouts, modifications, foreclosures, short sales and sales of foreclosed property. Over the near and long term, we expect that the economic and market disruptions caused by COVID-19 will adversely impact the financial condition of the borrowers of our residential mortgage loans and the loans that underlie our RMBS, CMBS and ABS investments. As a result, we anticipate that the number of borrowers who request a payment deferral or forbearance arrangement or become delinquent or default on their financial obligations may increase significantly, and such increase may place greater stress on the servicers’ finances and human capital, which may make it more difficult for these servicers to successfully service these loans. In addition, many loan servicing activities are not permitted to be done through a remote work setting. To the extent that shelter-in-place orders and remote work arrangements for non-essential businesses continue in the future, loan servicers may be materially adversely impacted. As a result, we could be materially and adversely affected if a mortgage servicer is unable to adequately or successfully service our residential mortgage loans and the loans that underlie our RMBS, CMBS and ABS or if any such servicer experiences financial distress.

~~Our ability to make distributions to our stockholders has been and may continue to be adversely affected by COVID-19.~~

We are generally required to distribute to our stockholders at least 90% of our REIT taxable income (excluding net capital gain and without regard to the deduction for dividends paid) each year for us to qualify as a REIT under the Internal Revenue Code, which requirement we have historically satisfied through quarterly distributions of all or substantially all of our REIT taxable income in such year, subject to certain adjustments. However, in light of the negative impact on our liquidity caused by the recent economic and market turmoil resulting from COVID-19, we announced on March 23, 2020 that our board of directors elected to suspend the payment of quarterly dividends on our common stock and our 7.75% Series B Cumulative Redeemable Preferred Stock, 7.875% Series C Cumulative Redeemable Preferred Stock, 8.000% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock and 7.875% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock. As of the date of this report, we have not yet reinstated quarterly dividends on any of our capital stock. No assurance can be given that we will be able to reinstate quarterly dividends on our common stock and/or preferred stock or make any other distributions to our stockholders at any time in the future or that the level of any distributions we do make to our stockholders will achieve a market yield or increase or even be maintained over time.

Additionally, in 2017, the Internal Revenue Service issued a revenue procedure permitting “publicly offered” REITs (i.e., REITs required to file annual and periodic reports with the SEC under the Exchange Act) to make elective cash/stock dividends (i.e., dividends paid in a mixture of stock and cash), with at least 20% of the total distribution being paid in cash, to satisfy their REIT distribution requirements. Pursuant to this revenue procedure, we may elect to make future distributions of our taxable income to common stockholders in a mixture of our common stock and cash. Taxable stockholders receiving such distributions will be required to include the full amount of the distribution as ordinary income to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, common stockholders may be required to pay income taxes with respect to such dividends in excess of cash received. If a U.S. stockholder sells the common stock that it receives as a dividend in order to pay this tax, the sale proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we or the applicable withholding agent may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our ~~common stock.~~

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~~Market disruptions caused by COVID-19 have made it more difficult for us to determine the fair value of our investments.~~

~~As discussed~~securities, particularly in Note 15 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019, market-based inputs are generally the preferred source of values for purposes of measuring the fair value of many of our assets under U.S. GAAP. The markets for our investments have experienced, and continue to experience, extreme volatility, reduced transaction volume and liquidity, and disruption as a resultlight of the ~~ongoing COVID-19 pandemic, which has made it more difficult for us, and for the providers~~fast-changing nature of third-party valuations that we use, to rely on market-based inputs in connection with the valuation of many of our assets under U.S. GAAP. In the absence of market inputs, U.S. GAAP permits the use of management assumptions to measure fair value. However, the considerable market volatility and disruption caused by COVID-19 and the considerable uncertainty regarding the ultimate impact and duration of the pandemic have made it more difficult for our management to formulate assumptions to measure the fair value of certain of our assets.

As a result of these developments, measuring the fair value of many of our assets has become much more difficult. The fair value of certain of our investments may fluctuate over short periods of time, and our determinations of fair value may differ materially from the values that would have been used if a ready market for these investments existed. The value of our common stock, preferred stock and other securities could be adversely affected if our determinations regarding the fair value of these investments were materially higher than the values that we ultimately realize upon their disposal.

~~We have experienced, and may experience in the future, a decline in the fair value of our investments as a result of COVID-19, which could materially and adversely affect us.~~

During the quarter ended March 31, 2020, we experienced a significant amount of realized and unrealized losses on our assets. A future decline in the fair value of our investments as a result of COVID-19 may require us to recognize an impairment under U.S. GAAP if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets to maturity or for a period of time sufficient to allow for recovery to the original acquisition cost of such assets. If such a determination were to be made, we would recognize unrealized losses through earnings and write down the amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be impaired. Such impairment charges reflect non-cash losses at the time of recognition. The subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale. If we experience a decline in the fair value of our investments, it could materially and adversely affect our business, results of operations, financial condition and ability to make distributions to our stockholders.

~~Negative impacts on our business caused by COVID-19 may cause us to default on certain financial covenants contained in our financing arrangements.~~

The repurchase agreements that finance a portion of our investment portfolio, and repurchase agreements we enter into in the future, may contain financial covenants. The negative impacts on our business caused by COVID-19 have and may make it more difficult to meet or satisfy these covenants, and we cannot assure you that we will remain in compliance with these covenants in the future.

If we fail to meet or satisfy any of these covenants, we would be in default under these agreements, which could result in a cross-default or cross-acceleration under other financing arrangements, and the financing counterparties could elect to declare the repurchase price due and payable (or such amounts may automatically become due and payable), terminate their commitments, require the posting of additional collateral and enforce their respective interests against existing collateral. A default also could significantly limit our financing alternatives, which could cause us to curtail our investment activities or dispose of assets when we otherwise would not choose to do so. As a result, a default on any of our financing agreements could materially and adversely affect our business, results of operations, financial condition and ability to make distributions to our stockholders.

~~Measures intended to prevent the spread of COVID-19 have disrupted our ability to operate our business.~~

In response to the outbreak of COVID-19 and the federal and state mandates implemented to control its spread, all of our employees are working remotely. If our employees are unable to work effectively as a result of COVID-19, including because of illness, quarantines, office closures, ineffective remote work arrangements or technology failures or limitations, our operations would be adversely impacted. Further, remote work arrangements may increase the risk of cyber-security incidents and cyber-attacks, which could have a material adverse effect on our business and results of operations, due to, among other things, the loss of investor or proprietary data, interruptions or delays in the operation of our business and damage to our reputation.

~~121~~

~~Table of Contents~~

~~We cannot predict the effect that government policies, laws, and plans adopted in response to~~ the COVID-19 pandemic, ~~or other~~containment measures, the potential for future waves of outbreaks ~~involving highly infectious or contagious diseases~~ and ~~resulting recessionary economic conditions will have on us.~~

~~Governments have adopted, and we expect will continue~~the related impacts to adopt, policies, laws, and plans intended to address the COVID-19 pandemic and adverse developments in the credit, financial, and mortgage markets that it has caused. We cannot assure you that these programs will be effective, sufficient, or otherwise have a positive impact on our business.

~~We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks, extreme weather events or other natural disasters.~~

The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic, such as COVID-19, or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks, extreme terrestrial or solar weather events or other natural disasters, could create economic and financial disruptions, and could lead to materially adverse declines in the market values of our assets, illiquidity in our investment and financing markets and our ability to effectively conduct our business.

operating conditions.

~~122~~

123

Table of Contents

Item 6. Exhibits

EXHIBIT INDEX



Exhibit						Description

3.1						Articles of Amendment and Restatement of the Company, as amended (Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2020).

3.2						Second Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 23, 2020).

3.3						Articles Supplementary designating the Company’s 7.75% Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”) (Incorporated by reference to Exhibit 3.3 of the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on May 31, 2013).

3.4						Articles Supplementary classifying and designating 2,550,000 additional shares of the Series B Preferred Stock (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 20, 2015).

3.5						Articles Supplementary classifying and designating the Company's 7.875% Series C Cumulative Redeemable Preferred Stock (the “Series C Preferred Stock”) (Incorporated by reference to Exhibit 3.5 of the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on April 21, 2015).

3.6						Articles Supplementary classifying and designating the Company's 8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the “Series D Preferred Stock”) (Incorporated by reference to Exhibit 3.6 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on October 10, 2017).

3.7						Articles Supplementary classifying and designating 2,460,000 additional shares of the Series C Preferred Stock (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2019).

3.8						Articles Supplementary classifying and designating 2,650,000 additional shares of the Series D Preferred Stock (Incorporated by reference to Exhibit 3.3 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2019).

3.9						Articles Supplementary classifying and designating the Company's 7.875% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the “Series E Preferred Stock”) (Incorporated by reference to Exhibit 3.9 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on October 15, 2019).

3.10						Articles Supplementary classifying and designating 3,000,000 additional shares of the Series E Preferred Stock (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 27, 2019).

4.1						Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-11 (Registration No. 333-111668) filed with the Securities and Exchange Commission on June 18, 2004).

4.2						Form of Certificate representing the Series B Preferred Stock Certificate (Incorporated by reference to Exhibit 3.4 of the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on May 31, 2013).

4.3						Form of Certificate representing the Series C Preferred Stock (Incorporated by reference to Exhibit 3.6 of the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on April 21, 2015).

4.4						Form of Certificate representing the Series D Preferred Stock (Incorporated by reference to Exhibit 3.7 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on October 10, 2017).

~~123~~124

Table of Contents



4.5						Form of Certificate representing the Series E Preferred Stock (Incorporated by reference to Exhibit 3.10 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on October 15, 2019).

4.6						Indenture, dated January 23, 2017, between the Company and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 23, 2017).

4.7						First Supplemental Indenture, dated January 23, 2017, between the Company and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 23, 2017).

4.8						Form of 6.25% Senior Convertible Note Due 2022 of the Company (Incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 23, 2017).

						Certain instruments defining the rights of holders of long-term debt securities of the Company and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company hereby undertakes to furnish to the Securities and Exchange Commission, upon request, copies of any such instruments.





31.1						Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*31.2						Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*						Certification Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH**						Taxonomy Extension Schema Document

101.CAL**						Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL**						Taxonomy Extension Definition Linkbase Document

101.LAB**						Taxonomy Extension Label Linkbase Document

101.PRE**						Taxonomy Extension Presentation Linkbase Document

104						The cover page for the Registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~September 30, 2020 (formatted in Inline XBRL and contained in Exhibit 101).


*	~~Furnished herewith. Such certification shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended.~~

Submitted electronically herewith. Attached as Exhibit 101 to this report are the following documents formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2019; (ii) Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019; (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019; (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2020 and 2019; (v) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019; and (vi) Notes to Condensed Consolidated Financial Statements.

*Furnished herewith. Such certification shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

**Submitted electronically herewith. Attached as Exhibit 101 to this report are the following documents formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019; (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019; (iii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019; (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019; (v) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019; and (vi) Notes to Condensed Consolidated Financial Statements.

~~124~~

125

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned. thereunto duly authorized.


				NEW YORK MORTGAGE TRUST, INC.

Date:			November 6, 2020	~~NEW YORK MORTGAGE TRUST, INC.~~
By:
~~Date:~~	~~May 26, 2020~~	~~By:~~	/s/ Steven R. Mumma
					Steven R. Mumma
					Chairman of the Board and Chief Executive Officer
					(Principal Executive Officer)

Date:			November 6, 2020	By:	/s/ Kristine R. Nario-Eng
					Kristine R. Nario-Eng
					Chief Financial Officer
					(Principal Financial ~~Officer~~ and ~~Principal~~ Accounting Officer)

~~125~~

126



Maryland			47-0934168
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)



PART I. Financial Information
	Item 1. Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets as of ~~March 31,~~September 30, 2020 (Unaudited) and December 31, 2019	4
	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended ~~March 31,~~September 30, 2020 and 2019	5
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Ni ne Months Ended ~~March 31,~~Sept ember 30, 2020 and 2019	6
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended ~~March 31,~~September 30, 2020 and 2019	7
	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2020 and 2019	9
	Unaudited Notes to the Condensed Consolidated Financial Statements	11
	Note 1. Organization	11
	Note 2. Summary of Significant Accounting Policies	12
	Note 3. Investment Securities Available For Sale, at Fair Value	19
	Note 4. Residential Loans, at Fair Value	2223
	Note 5. Residential Loans, Net	2527
	Note 6. Consolidated K-Series	2830
	Note 7. Investments in Unconsolidated Entities	3032
	Note 8. Preferred Equity and Mezzanine Loan Investments	3335
	Note 9. Use of Special Purpose Entities (SPE) and Variable Interest Entities (VIE)	3436
	Note 10. Derivative Instruments and Hedging Activities	3840
	Note 11. Repurchase Agreements	4042
	Note 12. Debt	4344
	Note 13. Commitments and Contingencies	4546
	Note 14. Fair Value of Financial Instruments	4647
	Note 15. Stockholders' Equity	5557
	Note 16. Earnings (Loss) ~~Earnings~~ Per Common Share	5961
	Note 17. Stock Based Compensation	6063
	Note 18. Income Taxes	6467
	Note 19. Subsequent Events	6669
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	6770
	Item 3. Quantitative and Qualitative Disclosures about Market Risk	~~112~~116
	Item 4. Controls and Procedures	~~117~~122
PART II. OTHER INFORMATION
	Item 1A. Risk Factors	~~118~~123
	Item 6. Exhibits	~~123~~124

SIGNATURES		~~125~~126


	For the Nine Months Ended September 30,
	2020		2019
Cash Flows from Operating Activities:
Net (loss) income	$	(368,225)	$	107,609
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net amortization (accretion)	3,675		(35,948)
Realized losses (gains), net	149,919		(32,556)
Realized loss on de-consolidation of multi-family loans held in securitization trusts and multi-family collateralized debt obligations, net	54,118		0
Unrealized losses (gains), net	212,711		(13,898)
Impairment of goodwill	25,222		0
Gain on sale of real estate held for sale in consolidated variable interest entities	0		(1,580)
Impairment of real estate under development in consolidated variable interest entities	1,754		1,660
Loss on extinguishment of debt	0		2,857



Recovery of loan losses	0		(2,605)
Income from unconsolidated entity, preferred equity and mezzanine loan investments	(30,963)		(31,670)
Distributions of income from unconsolidated entity, preferred equity and mezzanine loan investments	17,285		18,861
Stock based compensation expense, net	7,567		4,079
Changes in operating assets and liabilities:
Receivables and other assets	70,863		(21,393)
Accrued expenses and other liabilities	(67,334)		30,962
Net cash provided by operating activities	76,592		26,378

Cash Flows from Investing Activities:


Proceeds from sales of investment securities	1,815,369		97,951
Principal paydowns on investment securities available for sale	162,277		135,956
Purchases of investment securities	(448,093)		(563,441)
Principal repayments and refinancing of residential loans	307,522		119,325
Proceeds from sales of residential loans	93,755		71,969
Purchases of residential loans	(249,312)		(460,167)
Principal repayments received on preferred equity and mezzanine loan investments	11,243		37,885
Return of capital from unconsolidated entity investments	17,432		13,378
Funding of preferred equity, equity and mezzanine loan investments	(49,663)		(147,383)
Proceeds from sales resulting in de-consolidation of multi-family loans held in securitization trusts and multi-family collateralized debt obligations, net	555,218		0
Principal repayments received on multi-family loans held in securitization trusts	239,796		368,811
Purchases of investments held in multi-family securitization trusts	0		(162,081)
Net payments made on other derivative instruments settled during the period	(28,233)		(52,598)
Proceeds from sale of real estate owned	3,791		2,035
Net proceeds from sale of real estate held for sale in consolidated variable interest entities	0		3,587
Capital expenditures on real estate held for sale in consolidated variable interest entities	0		(128)
Purchases of other assets	(431)		(939)




Deposit for investment in a residential securitization	0		(66,000)
Net cash provided by (used in) investing activities	2,430,671		(601,840)

Cash Flows from Financing Activities:
Net (payments made on) proceeds from repurchase agreements	(2,434,447)		427,077

Proceeds from issuance of securitized debt, net	108,980		0
Proceeds from issuance of collateralized debt obligations, net	241,072		0

Common stock issuance, net	511,924		632,248
Preferred stock issuance, net	0		30,490
Dividends paid on common stock	(77,161)		(110,839)
Dividends paid on preferred stock	(30,768)		(18,107)
Payments made on mortgages and notes payable in consolidated variable interest entities	0		(3,087)

Payments made on residential collateralized debt obligations	(76,030)		(10,963)
Payments made on multi-family collateralized debt obligations	(147,376)		(368,107)
Payments made on and extinguishment of securitized debt	(20,445)		(45,557)

Net cash (used in) provided by financing activities	(1,924,251)		533,155



	For the Three Months Ended March 31,
	2020			2019
Cash Flows from Operating Activities:
Net (loss) income	$	(588,567	)	$	44,350
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net accretion	(14,500		)	(10,463		)
Realized losses (gains), net	147,918			(22,006		)
Realized loss on de-consolidation of multi-family loans held in securitization trusts and multi-family collateralized debt obligations, net	54,118			—
Unrealized losses (gains), net	396,780			(2,708		)
Impairment of goodwill	25,222			—
Gain on sale of real estate held for sale in consolidated variable interest entities	—			(1,580		)
Impairment of real estate under development in consolidated variable interest entities	145			936
Loss on extinguishment of debt	—			2,857
Recovery of loan losses	—			(1,065		)
Income from unconsolidated entity, preferred equity and mezzanine loan investments	(5,920		)	(13,108		)
Distributions of income from unconsolidated entity, preferred equity and mezzanine loan investments	5,686			7,010
Amortization of stock based compensation, net	1,963			993
Changes in operating assets and liabilities:
Receivables and other assets	68,894			(15,499		)
Accrued expenses and other liabilities	(71,572		)	18,476
Net cash provided by operating activities	20,167			8,193

Cash Flows from Investing Activities:
Proceeds from sales of investment securities	1,380,980			56,769
Principal paydowns on investment securities available for sale	142,808			37,642
Purchases of investment securities	(448,093		)	(136,265		)
Principal repayments and refinancing of residential loans	102,696			27,052
Proceeds from sales of residential loans	49,960			23,244
Purchases of residential loans	(153,821		)	(159,658		)
Principal repayments received on preferred equity and mezzanine loan investments	7,555			12,316
Return of capital from unconsolidated entity investments	157			311
Funding of preferred equity, equity and mezzanine loan investments	(30,546		)	(35,021		)
Proceeds from sales resulting in de-consolidation of multi-family loans held in securitization trusts and multi-family collateralized debt obligations, net	344,044			—
Principal repayments received on multi-family loans held in securitization trusts	239,796			37,485
Purchases of investments held in multi-family securitization trusts	—			(101,570		)
Net payments made on other derivative instruments settled during the period	(28,233		)	(19,197		)
Proceeds from sale of real estate owned	1,151			650
Net proceeds from sale of real estate held for sale in consolidated variable interest entities	—			3,587
Capital expenditures on real estate held for sale in consolidated variable interest entities	—			(128		)
Purchases of other assets	(36		)	(600		)
Net cash provided by (used in) investing activities	1,608,418			(253,383		)

Cash Flows from Financing Activities:
Net (payments made on) proceeds from repurchase agreements	(1,677,506		)	141,153
Common stock issuance, net	511,924			185,027
Dividends paid on common stock	(58,274		)	(31,118		)
Dividends paid on preferred stock	(10,175		)	(5,925		)
Payments made on mortgages and notes payable in consolidated variable interest entities	—			(36		)
Payments made on residential collateralized debt obligations	(22,683		)	(3,808		)
Payments made on multi-family collateralized debt obligations	(147,376		)	(37,481		)
Extinguishment of and payments made on securitized debt	—			(45,557		)
Net cash (used in) provided by financing activities	(1,404,090		)	202,255

Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	224,495			(42,935		)
Cash, Cash Equivalents and Restricted Cash - Beginning of Period	121,612			109,145
Cash, Cash Equivalents and Restricted Cash - End of Period	$	346,107		$	66,210



Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	583,012		(42,307)
Cash, Cash Equivalents and Restricted Cash - Beginning of Period	121,612		109,145
Cash, Cash Equivalents and Restricted Cash - End of Period	$	704,624	$	66,838


Supplemental Disclosure:
Cash paid for interest	$	277,087	$	456,242
Cash paid for income taxes	$	1,521	$	21

Non-Cash Investment Activities:


De-consolidation of multi-family loans held in securitization trusts	$	17,381,483	$	0
De-consolidation of multi-family collateralized debt obligations	$	16,612,093	$	0
Consolidation of multi-family loans held in securitization trusts	$	0	$	3,795,606
Consolidation of multi-family collateralized debt obligations	$	0	$	3,633,525
Transfer from residential loans to real estate owned	$	6,558	$	4,529

Non-Cash Financing Activities:
Dividends declared on common stock to be paid in subsequent period	$	28,331	$	52,524
Dividends declared on preferred stock to be paid in subsequent period	$	10,297	$	6,544
Mortgages and notes payable assumed by purchaser of real estate held for sale in consolidated variable entities	$	0	$	27,260

Cash, Cash Equivalents and Restricted Cash Reconciliation:
Cash and cash equivalents	$	649,822	$	65,906
Restricted cash included in receivables and other assets	54,802		932
Total cash, cash equivalents, and restricted cash	$	704,624	$	66,838


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
INTEREST INCOME:
Investment securities and other interest earning assets	$	9,354	$	17,503	$	41,801	$	48,173
Residential loans	30,704		16,776		94,424		46,266
Preferred equity and mezzanine loan investments	5,300		5,505		15,875		15,660
Multi-family loans held in securitization trusts	0		139,818		151,841		384,743
Total interest income	45,358		179,602		303,941		494,842

INTEREST EXPENSE:
Repurchase agreements and other interest bearing liabilities	5,341		23,540		34,321		66,749

Residential collateralized debt obligations	9,722		338		26,782		1,162
Multi-family collateralized debt obligations	0		120,329		129,762		332,041
Convertible notes	2,759		2,713		8,234		8,097
Subordinated debentures	483		711		1,714		2,185
Securitized debt	1,524		0		1,994		742
Total interest expense	19,829		147,631		202,807		410,976

NET INTEREST INCOME	25,529		31,971		101,134		83,866

NON-INTEREST INCOME (LOSS):
Recovery of loan losses	0		244		0		2,605
Realized (losses) gains, net	(1,067)		6,102		(149,919)		32,556
Realized loss on de-consolidation of multi-family loans held in securitization trusts and multi-family collateralized debt obligations, net	0		0		(54,118)		0
Unrealized gains (losses), net	81,198		11,112		(212,711)		13,898
Impairment of goodwill	0		0		(25,222)		0
Loss on extinguishment of debt	0		0		0		(2,857)

Other income	10,397		3,938		14,910		14,620
Total non-interest income (loss)	90,528		21,396		(427,060)		60,822

GENERAL, ADMINISTRATIVE AND OPERATING EXPENSES:
General and administrative expenses	10,529		8,314		33,157		27,039



Operating expenses	2,895		3,974		8,225		10,287
Total general, administrative and operating expenses	13,424		12,288		41,382		37,326

INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES	102,633		41,079		(367,308)		107,362
Income tax (benefit) expense	(772)		(187)		917		(247)

NET INCOME (LOSS)	103,405		41,266		(368,225)		107,609
Net (income) loss attributable to non-controlling interest in consolidated variable interest entities	(1,764)		113		(704)		645
NET INCOME (LOSS) ATTRIBUTABLE TO COMPANY	101,641		41,379		(368,929)		108,254
Preferred stock dividends	(10,297)		(6,544)		(30,890)		(18,726)
NET INCOME (LOSS) ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS	$	91,344	$	34,835	$	(399,819)	$	89,528

Basic earnings (loss) per common share	$	0.24	$	0.15	$	(1.08)	$	0.44
Diluted earnings (loss) per common share	$	0.23	$	0.15	$	(1.08)	$	0.43
Weighted average shares outstanding-basic	377,744		234,043		368,740		203,270
Weighted average shares outstanding-diluted	399,709		255,537		368,740		224,745


For the Three Months Ended
	Common Stock		Preferred Stock		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income		Total Company Stockholders' Equity		Non-Controlling Interest in Consolidated VIE		Total
Balance, June 30, 2020	$	3,775	$	504,765	$	2,337,222	$	(646,629)	$	(34,428)	$	2,164,705	$	(1,764)	$	2,162,941
Net income	—		—		—		101,641		—		101,641		1,764		103,405


Stock based compensation expense, net	2		—		3,173		—		—		3,175		—		3,175
Dividends declared on common stock	—		—		—		(28,331)		—		(28,331)		—		(28,331)
Dividends declared on preferred stock	—		—		—		(10,297)		—		(10,297)		—		(10,297)
Reclassification adjustment for net loss included in net income	—		—		—		—		9,845		9,845		—		9,845
Increase in fair value of available for sale securities	—		—		—		—		12,645		12,645		—		12,645

Balance, September 30, 2020	$	3,777	$	504,765	$	2,340,395	$	(583,616)	$	(11,938)	$	2,253,383	$	0	$	2,253,383




Balance, June 30, 2019	$	2,109	$	305,842	$	1,337,330	$	(128,207)	$	11,004	$	1,528,078	$	(396)	$	1,527,682
Net income (loss)	—		—		—		41,379		—		41,379		(113)		41,266
Common stock issuance, net	517		—		310,043		—		—		310,560		—		310,560
Preferred stock issuance, net	—		14,359		—		—		—		14,359		—		14,359
Stock based compensation expense, net	—		—		1,288		—		—		1,288		—		1,288
Dividends declared on common stock	—		—		—		(52,524)		—		(52,524)		—		(52,524)
Dividends declared on preferred stock	—		—		—		(6,544)		—		(6,544)		—		(6,544)
Reclassification adjustment for net gain included in net income	—		—		—		—		(4,444)		(4,444)		—		(4,444)
Increase in fair value of available for sale securities	—		—		—		—		15,356		15,356		—		15,356

Balance, September 30, 2019	$	2,626	$	320,201	$	1,648,661	$	(145,896)	$	21,916	$	1,847,508	$	(509)	$	1,846,999


For the Nine Months Ended
	Common Stock		Preferred Stock		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Company Stockholders' Equity		Non-Controlling Interest in Consolidated VIE		Total
Balance, December 31, 2019	$	2,914	$	504,765	$	1,821,785	$	(148,863)	$	25,132	$	2,205,733	$	(704)	$	2,205,029
Cumulative-effect adjustment for implementation of fair value option	—		—		—		12,284		—		12,284		—		12,284
Net (loss) income	—		—		—		(368,929)		—		(368,929)		704		(368,225)
Common stock issuance, net	851		—		511,055		—		—		511,906		—		511,906

Stock based compensation expense, net	12		—		7,555		—		—		7,567		—		7,567
Dividends declared on common stock	—		—		—		(47,218)		—		(47,218)		—		(47,218)
Dividends declared on preferred stock	—		—		—		(30,890)		—		(30,890)		—		(30,890)
Reclassification adjustment for net loss included in net loss	—		—		—		—		7,338		7,338		—		7,338
Decrease in fair value of available for sale securities	—		—		—		—		(44,408)		(44,408)		—		(44,408)

Balance, September 30, 2020	$	3,777	$	504,765	$	2,340,395	$	(583,616)	$	(11,938)	$	2,253,383	$	0	$	2,253,383




Supplemental Disclosure:
Cash paid for interest	$	239,091	$	132,888
Cash paid for income taxes	$	1	$	7

Non-Cash Investment Activities:
Sales of investment securities not yet settled	$	213,585	$	—
De-consolidation of multi-family loans held in securitization trusts	$	17,381,483	$	—
De-consolidation of multi-family collateralized debt obligations	$	16,612,093	$	—
Consolidation of multi-family loans held in securitization trusts	$	—	$	2,426,210
Consolidation of multi-family collateralized debt obligations	$	—	$	2,324,639
Transfer from residential loans to real estate owned	$	3,515	$	1,841

Non-Cash Financing Activities:
Dividends declared on common stock to be paid in subsequent period	$	—	$	37,566
Dividends declared on preferred stock to be paid in subsequent period	$	—	$	5,925
Mortgages and notes payable assumed by purchaser of real estate held for sale in consolidated variable entities	$	—	$	27,260

Cash, Cash Equivalents and Restricted Cash Reconciliation:
Cash and cash equivalents	$	172,513	$	65,359
Restricted cash included in receivables and other assets	173,594		851
Total cash, cash equivalents, and restricted cash	$	346,107	$	66,210


3.	~~Investment Securities Available for Sale, at Fair Value~~


⁽¹⁾	~~For the Company's Agency ARMs with stated reset periods, the weighted average reset period was 26 months as of December 31, 2019.~~


	Three Months Ended September 30, 2020
	Sales Proceeds		Realized Gains		Realized Losses		Net Realized Gains (Losses)
Non-Agency RMBS (1)	$	259,493	$	141	$	(8,860)	$	(8,719)
CMBS	110,680		6,849		(705)		6,144
Total	$	370,173	$	6,990	$	(9,565)	$	(2,575)



	Three Months Ended March 31, 2020
	Sales Proceeds		Realized Gains		Realized Losses			Net Realized Gains/Losses
Agency RMBS:
Agency ARMs	$	49,893	$	44	$	(4,157	)	$	(4,113	)
Agency Fixed-Rate ⁽¹⁾	943,100		5,348		(11,713		)	(6,365		)
Total Agency RMBS	992,993		5,392		(15,870		)	(10,478		)
Agency CMBS ⁽²⁾	145,411		5,666		(209		)	5,457
Total Agency	1,138,404		11,058		(16,079		)	(5,021		)
Non-Agency RMBS	130,948		—		(24,132		)	(24,132		)
CMBS	114,038		—		(29,584		)	(29,584		)
Total	$	1,383,390	$	11,058	$	(69,795	)	$	(58,737	)


⁽¹⁾	~~Includes Agency RMBS securities issued by Consolidated SLST (see Note 4~~).


1.	~~Organization~~


⁽²⁾	~~Includes Agency CMBS securities transferred from the Consolidated K-Series (see Note 6~~).



	Three Months Ended March 31, 2019
	Sales Proceeds		Realized Gains		Realized Losses			Net Realized Gains/Losses
CMBS	$	56,769	$	16,957	$	(156	)	$	16,801
Total	$	56,769	$	16,957	$	(156	)	$	16,801


Weighted Average Life	September 30, 2020		December 31, 2019
0 to 5 years	$	343,573	$	1,359,894
Over 5 to 10 years	183,910		521,517
10+ years	76,214		124,729
Total	$	603,697	$	2,006,140


September 30, 2020	Less than 12 months				Greater than 12 months				Total
	Carrying Value		Gross Unrealized Losses		Carrying Value		Gross Unrealized Losses		Carrying Value		Gross Unrealized Losses

Non-Agency RMBS	$	235,449	$	(11,651)	$	16,966	$	(1,337)	$	252,415	$	(12,988)
CMBS	33,903		(636)		0		0		33,903		(636)
Total	$	269,352	$	(12,287)	$	16,966	$	(1,337)	$	286,318	$	(13,624)



	Three Months Ended
	March 31, 2020									March 31, 2019
	Residential loans			Consolidated SLST			Residential loans held in securitization trusts			Residential loans
Unrealized (losses) gains, net	$	(81,680	)	$	(88,100	)	$	(1,730	)	$	7,883


	Nine Months Ended
	September 30, 2020						September 30, 2019
	Residential loans		Consolidated SLST (1)		Residential loans held in securitization trusts		Residential loans
Unrealized (losses) gains, net	$	(17,899)	$	28,014	$	8,418	$	34,580



	Greater than 90 days past due				Less than 90 days past due
	Fair Value		Unpaid Principal Balance		Fair Value		Unpaid Principal Balance
March 31, 2020	$	138,120	$	167,957	$	13,269	$	15,111
December 31, 2019	106,199		122,918		9,291		10,705


Balance Sheet	September 30, 2020		December 31, 2019
Assets
Residential loans, at fair value	$	1,290,005	$	1,328,886
Receivables (1)	4,162		5,244
Total Assets	$	1,294,167	$	1,334,130
Liabilities and Equity
Residential collateralized debt obligations, at fair value	$	1,077,980	$	1,052,829
Accrued expenses and other liabilities (2)	3,664		2,643
Total Liabilities	1,081,644		1,055,472
Equity	212,523		278,658
Total Liabilities and Equity	$	1,294,167	$	1,334,130


Statement of Operations	Three Months Ended March 31, 2020
Statements of Operations				Statements of Operations	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Interest income ⁽¹⁾	$	12,123		Interest income (1)	$	10,896	$	34,542
Interest expense ⁽²⁾	8,535			Interest expense (2)	7,562		24,255
Net interest income	3,588			Net interest income	3,334		10,287
Unrealized losses, net ⁽³⁾	(66,134		)
Net loss	$	(62,546	)
Unrealized gains (losses), net (3)				Unrealized gains (losses), net (3)	27,145		(34,893)
Net income (loss)				Net income (loss)	$	30,479	$	(24,606)


⁽³⁾	Includes $88.1 million of unrealized losses on residential loans held in Consolidated SLST and $22.0 million of unrealized gains on SLST CDOs presented in unrealized gains (losses), net on the Company’s condensed consolidated statements of operations.



	March 31, 2019
Balance at beginning of period	$	195,559
Additions	587
Disposals	(15,080		)
Accretion	(1,825		)
Balance at end of period ⁽¹⁾	$	179,241


	September 30, 2019
Balance at beginning of period	$	195,560
Additions	1,813
Disposals	(48,383)
Accretion	(4,672)
^{Balance at end of period}(1)	Accretable yield is the excess of the distressed residential loans’ cash flows expected to be collected over the purchase price. The cash flows expected to be collected represented the Company’s estimate of the amount and timing of undiscounted principal and interest cash flows. Additions included reclassification to accretable yield from nonaccretable yield. Disposals included distressed residential loan dispositions, which included refinancing, sale and foreclosure of the underlying collateral and resulting removal of the distressed residential loans from the accretable yield, and reclassifications from accretable to nonaccretable yield. The reclassifications between accretable and nonaccretable yield and the accretion of interest income were based on various estimates regarding loan performance and the value of the underlying real estate securing the loans. As the Company continued to update its estimates regarding the loans and the underlying collateral, the accretable yield was subject to change. Therefore, the amount of accretable income recorded in the three month period ended March 31, 2019 was not necessarily indicative of future results.$	144,318



	December 31, 2019
North Carolina	10.5	%
Florida	10.1	%
Georgia	7.0	%
South Carolina	5.8	%
Texas	5.6	%
New York	5.5	%
Ohio	5.2	%
Virginia	5.2	%


	December 31, 2019
Unpaid principal balance	$	47,237
Deferred origination costs – net	301
Allowance for loan losses	(3,508)
Total	$	44,030


	September 30, 2019
Balance at beginning of period	$	3,759
Provision for loan losses	25
Transfer to real estate owned	(167)
Charge-offs	(109)
Balance at the end of period	$	3,508


Days Late	Number of Delinquent Loans	Total Unpaid Principal		% of Loan Portfolio
30 - 60	2	$	211	0.44	%


90 +	16	$	10,010	21.05	%
Real estate owned through foreclosure	1	$	360	0.76	%



	December 31, 2019
New York	36.1	%
Massachusetts	17.2	%
New Jersey	12.8	%
Florida	12.1	%
Maryland	5.5	%



	December 31, 2019
California	~~15.9~~		15.9	%
Texas	~~12.4~~		12.4	%
Florida	~~6.2~~		6.2	%
~~Maryland~~	~~5.8~~	%



	March 31, 2020			December 31, 2019
Investment Name	Ownership Interest	Fair Value		Ownership Interest	Carrying Amount
BBA-EP320 II, L.L.C., BBA-Ten10 II, L.L.C., and Lexington on the Green Apartments, L.L.C. (collectively)	45%	$	10,491	45%	$	10,108
Somerset Deerfield Investor, LLC	45%	17,385		45%	17,417
RS SWD Owner, LLC, RS SWD Mitchell Owner, LLC, RS SWD IF Owner, LLC, RS SWD Mullis Owner, LLC, RS SWD JH Mullis Owner, LLC and RS SWD Saltzman Owner, LLC (collectively)	43%	4,804		43%	4,878
Audubon Mezzanine Holdings, L.L.C. (Series A)	57%	10,764		57%	10,998
EP 320 Growth Fund, L.L.C. (Series A) and Turnbury Park Apartments - BC, L.L.C. (Series A) (collectively)	46%	6,693		46%	6,847
Walnut Creek Properties Holdings, L.L.C.	36%	8,200		36%	8,288
Towers Property Holdings, LLC	37%	11,174		37%	11,278
Mansions Property Holdings, LLC	34%	10,767		34%	10,867
Sabina Montgomery Holdings, LLC - Series B and Oakley Shoals Apartments, LLC - Series A (collectively)	43%	4,023		43%	4,062
Gen1814, LLC - Series A, Highlands - Mtg. Holdings, LLC - Series A, and Polos at Hudson Investments, LLC - Series A (collectively)	37%	9,278		37%	9,396
Axis Apartments Holdings, LLC, Arbor-Stratford Holdings II, LLC - Series B, Highlands - Mtg. Holdings, LLC - Series B, Oakley Shoals Apartments, LLC - Series C, and Woodland Park Apartments II, LLC (collectively)	53%	11,505		53%	11,944
DCP Gold Creek, LLC	44%	5,806		—	—
1122 Chicago DE, LLC	53%	6,633		—	—
Rigsbee Ave Holdings, LLC	56%	9,342		—	—
Total - Preferred Equity Ownership Interests		$	126,865		$	106,083


⁽¹⁾	~~The Company's equity investment was redeemed during the year ended~~ ~~December 31, 2019~~.