Angel Oak Mortgage REIT, Inc. (AOMR) 2024年年度報告「NYSE」.pdf

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1、UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended December 31,2024 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the tr

2、ansition period from _ to _Commission file number 001-40495Angel Oak Mortgage REIT,Inc.(Exact name of registrant as specified in its charter)Maryland37-1892154(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)3344 Peachtree Road Northeast,Suite 1725,Atl

3、anta,Georgia 30326(Address of Principal Executive Offices and Zip Code)404-953-4900Registrants telephone number,including area codeSecurities registered pursuant to Section 12(b)of the Act:Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon stock,$0.01 par valueAOMRNe

4、w York Stock Exchange9.500%Senior Notes due 2029AOMNNew York Stock ExchangeSecurities registered pursuant to Section 12(g)of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes No Indicate by check mark if the registra

5、nt is not required to file reports pursuant to Section 13 or Section 15(d)of the Act.Yes No Indicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter perio

6、dthat the registrant was required to file such reports),and(2)has been subject to such filing requirements for the past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-

7、T(232.405 of this chapter)during thepreceding 12 months(or for such shorter period that the registrant was required to submit such files).Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or an e

8、merging growth company.See the definitions of“largeaccelerated filer,”“accelerated filer,”“smaller reporting company,”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company If an

9、emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards providedpursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant has filed a r

10、eport on and attestation to its managements assessment of the effectiveness of its internal control over financial reporting under Section 404(b)of theSarbanes-Oxley Act(15 U.S.C.7262(b)by the registered public accounting firm that prepared or issued its audit report.If securities are registered pur

11、suant to Section 12(b)of the Act,indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issuedfinancial statements.Indicate by check mark whether any of those error corrections are restatements that required a

12、 recovery analysis of incentive-based compensation received by any of the registrants executive officers during therelevant recovery period pursuant to 240.10D-1(b).Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No As of June 28,202

13、4(the last business day of the registrants most recently completed second fiscal quarter)the aggregate market value of the registrants common stock held by non-affiliates of the registrantwas$172.2 million based on the closing sale price as reported on the New York Stock Exchange.The number of share

14、s of the registrants common stock outstanding on March 24,2025 was 23,500,175.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrants definitive Proxy Statement to be filed with the Securities and Exchange Commission under Regulation 14A within 120 days after the end of registrants fiscal yea

15、r covered by thisAnnual Report are incorporated by reference into Part III.ANGEL OAK MORTGAGE REIT,INC.Form 10-KTable of ContentsSpecial Note Regarding Forward-Looking Statements1Important Information Regarding Our Disclosure to Investors2Glossary3PART IITEM 1.BUSINESS6ITEM 1A.RISK FACTORS10ITEM 1B.

16、UNRESOLVED STAFF COMMENTS51ITEM 1C.CYBERSECURITY51ITEM 2.PROPERTIES52ITEM 3.LEGAL PROCEEDINGS52ITEM 4.MINE SAFETY DISCLOSURES52PART IIITEM 5.MARKET FOR REGISTRANTS COMMON EQUITY,RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES53ITEM 6.RESERVED53ITEM 7.MANAGEMENTS DISCUSSION AND A

17、NALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS53ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK85ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA86ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE118ITEM 9A.CONTROLS AND PROCEDU

18、RES118ITEM 9B.OTHER INFORMATION119ITEM 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS119PART IIIITEM 10.DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE120ITEM 11.EXECUTIVE COMPENSATION120ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED

19、STOCKHOLDER MATTERS120ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,AND DIRECTOR INDEPENDENCE120ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES120PART IVITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES121ITEM 16.FORM 10-K SUMMARY124SIGNATURES125Unless otherwise indicated,the terms“Angel Oa

20、k Mortgage REIT,Inc.,”“we,”“us,”“our,”“our company,”and“the Company”refer to Angel Oak Mortgage REIT,Inc.and itssubsidiaries including Angel Oak Mortgage Operating Partnership,LP(our“operating partnership”),through which we hold substantially all of our assets and conduct our operations.Unless other

21、wise indicated,the term“Angel Oak”refers collectively to Angel Oak Capital Advisors,LLC(“Angel Oak Capital”)and its affiliates,including Falcons I,LLC,our externalmanager(our“Manager”),Angel Oak Companies,LP(“Angel Oak Companies”),and the proprietary mortgage lending platform of affiliates Angel Oak

22、 Mortgage Solutions LLC(together with other non-operational affiliated originators,“Angel Oak Mortgage Lending”).SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K for the year ended December 31,2024(this“Annual Report on Form 10-K”)contains forward-looking statements w

23、ithin the meaning of the safe harborprovisions of the Private Securities Litigation Reform Act of 1995.Forward-looking statements involve numerous risks and uncertainties.Our actual results may differ from our beliefs,expectations,estimates,and projections and,consequently,you should not rely on the

24、se forward-looking statements as predictions of future events.Forward-looking statements are nothistorical in nature and can be identified by words such as“anticipate,”“estimate,”“will,”“should,”“expect,”“believe,”“intend,”“seek,”“plan”and similar expressions or their negativeforms,or by references

25、to strategy,plans,or intentions.These forward-looking statements are subject to risks and uncertainties,including,among other things,those described in Part I,Item 1A,“Risk Factors”of this Annual Report on Form 10-K.Other risks,uncertainties,and factors that could cause actual results to differ mate

26、rially from those projected may bedescribed from time to time in other reports we file with the Securities and Exchange Commission(the“SEC”).We undertake no obligation to update or revise any forward-lookingstatements,whether as a result of new information,future events,or otherwise.Factors that cou

27、ld have a material adverse effect on future results and performance relative to those set forth in or implied by the related forward-looking statements,as well as on ourbusiness,financial condition,liquidity,results of operations and prospects,include,but are not limited to:the effects of adverse co

28、nditions or developments in the financial markets and the economy upon our ability to acquire target assets such as non-qualified residential mortgage(“non-QM”)loans,particularly those sourced from Angel Oaks proprietary mortgage lending platform,Angel Oak Mortgage Lending;the level and volatility o

29、f prevailing interest rates and credit spreads;changes in our industry,inflation,interest rates,business strategies,target assets,the debt or equity markets,the general economy(or in specific regions)or the residential realestate finance and real estate markets specifically;general volatility of the

30、 markets in which we invest;changes in the availability of attractive loans and other investment opportunities,including non-QM loans sourced from Angel Oak Mortgage Lending;the ability of our Manager to locate suitable investments for us,manage our portfolio,and implement our strategy;our ability t

31、o profitably execute securitization transactions;our ability to obtain and maintain financing arrangements on favorable terms,or at all;the adequacy of collateral securing our investments and a decline in the fair value of our investments;the timing of cash flows,if any,from our investments;the oper

32、ating performance,liquidity,and financial condition of borrowers;increased rates of default and/or decreased recovery rates on our investments;changes in prepayment rates on our investments;the departure of any of the members of senior management of our company,our Manager,or Angel Oak;the availabil

33、ity of qualified personnel;conflicts with Angel Oak,including our Manager and its personnel,including our officers,and entities managed by Angel Oak;events,contemplated or otherwise,such as acts of God,including hurricanes,wildfires,earthquakes,and other natural disasters,including those resulting f

34、rom global climatechange,pandemics,acts of war or terrorism,the initiation or escalation of military1conflicts,and others that may cause unanticipated and uninsured performance declines,disruptions in markets,and/or losses to us or the owners and operators of the real estatesecuring our investments;

35、impact of and changes in governmental regulations,tax laws and rates,accounting principles and policies and similar matters;the level of governmental involvement in the U.S.mortgage market;future changes with respect to the Federal National Mortgage Association(“Fannie Mae”)or Federal Home Loan Mort

36、gage Corporation(“Freddie Mac”and together withFannie Mae,the“GSEs”)in the mortgage market and related events,including the lack of certainty as to the future roles of these entities and the U.S.Government in themortgage market and changes to legislation and regulations affecting these entities;effe

37、cts of hedging instruments on our target assets and our returns,and the degree to which our hedging strategies may or may not protect us from interest rate volatility;our ability to make distributions to our stockholders in the future at the level contemplated by our stockholders or the market gener

38、ally,or at all;our ability to continue to qualify as a real estate investment trust(a“REIT”)for U.S.federal income tax purposes;andour ability to maintain our exclusion from regulation as an investment company under the Investment Company Act of 1940,as amended(the“Investment Company Act”).When cons

39、idering forward-looking statements,you should keep in mind the risk factors and other cautionary statements in this Annual Report on Form 10-K and in the other reports wefile with the SEC.Readers are cautioned not to place undue reliance on any of these forward-looking statements,which reflect our m

40、anagements views only as of the date such statementsare made.The risks described in Part I,Item 1A,“Risk Factors”of this Annual Report on Form 10-K could cause actual results and performance to differ materially from those set forth inor implied by our forward-looking statements.New risks and uncert

41、ainties arise over time,and it is not possible for us to predict those events or how they may affect us.IMPORTANT INFORMATION REGARDING OUR DISCLOSURE TO INVESTORSWe may use our website()to communicate with our investors and disclose company information.The information disclosed through our website

42、may beconsidered material,so investors should monitor our website in addition to press releases,SEC filings and public conference calls and webcasts.The contents of our website referencedherein are not incorporated by reference into this Annual Report on Form 10-K.2GLOSSARYThis glossary highlights s

43、ome of the industry and other terms that we use elsewhere in this Annual Report on Form 10-K and is not a complete list of all the defined terms used herein.“ABS”means securities collateralized by a pool of assets,such as loans,credit card debt,royalties or receivables,but typically excluding mortga

44、ges.“Agency”means a U.S.Government agency,such as Ginnie Mae,or a federally chartered corporation,such as Fannie Mae or Freddie Mac,which guarantees payments of principal andinterest on mortgage-backed securities.“Agency RMBS”means residential mortgage-backed securities for which an Agency guarantee

45、s payments of principal and interest on the securities.“Alt-A mortgage loans”mean residential mortgage loans made to borrowers whose qualifying mortgage characteristics do not conform to Agency underwriting guidelines,but whoseborrower characteristics may.Generally,Alt-A mortgage loans allow homeown

46、ers to qualify for a mortgage loan with reduced or alternate forms of documentation.The credit quality of anAlt-A borrower generally exceeds the credit quality of subprime borrowers.“A-Note”means a senior interest in a mortgage loan secured by a first mortgage on a single large commercial property o

47、r group of related commercial properties.A-Notes have a seniorright to receive interest and principal related to the mortgage loan.“ATR rules”means the Ability-to-Repay rules under the Truth-in-Lending Act established by the CFPB pursuant to authority granted under the Dodd-Frank Act,which rule,amon

48、g othermatters,requires lenders to make a reasonable and good faith determination of a borrowers ability to repay when underwriting a new mortgage,including documenting and verifyingincome and assets,as well as other factors.“B-Note”means an interest in a loan secured by a first mortgage on a single

49、 large commercial property or group of related commercial properties and that is subordinated in right ofpayment on an A-Note,which is a senior interest in such loan.“CFPB”means the Consumer Financial Protection Bureau,an agency of the U.S.Government responsible for consumer protection in the financ

50、ial sector.“CMBS”means mortgage-backed securities that are secured by interests in a single commercial mortgage loan or a pool of mortgage loans secured by commercial properties.“Commercial bridge loans”mean,generally,floating rate whole loans secured by first priority mortgage liens on commercial r

51、eal estate made to borrowers seeking short-term capital(typically with terms of up to five years)to be used in the acquisition,construction or redevelopment of commercial properties.This type of bridge financing enables the borrower tosecure short-term financing while improving the commercial proper

52、ty and avoid burdening it with restrictive long-term debt.“Commercial mortgage loans”mean,with respect to our target assets,senior mortgage loans,commercial bridge loans,mezzanine loans,B-Notes,construction loans,and small balancecommercial mortgage loans.“Conforming residential mortgage loans”mean

53、residential mortgage loans that conform to the underwriting guidelines of a GSE.“Construction loans”mean short-term mortgage loans secured by first priority mortgage liens on real estate used to finance the cost of construction or rehabilitation of commercialproperties,and are typically disbursed ov

54、er time as construction progresses.“Consumer loans”mean loans made to individuals for personal,family or household purposes(such as auto loans,credit cards and student loans).“CRT securities”mean risk-sharing instruments issued by GSEs,or similarly structured transactions arranged by third-party mar

55、ket participants,that transfer a portion of the riskassociated with credit losses within pools of conventional residential mortgage loans to investors such as us.Unlike Agency RMBS,full repayment of the original principal balance ofCRT securities is not guaranteed by a GSE;rather,“credit risk transf

56、er”is achieved by writing down the outstanding principal balance of the CRT securities if credit losses on the relatedpool of loans exceed certain thresholds.By reducing the amount that issuers are obligated to repay to holders of CRT securities,the issuers of CRT securities are able to offset credi

57、t losseson the related pool of loans.“Dodd-Frank Act”means the Dodd-Frank Wall Street Reform and Consumer Protection Act.3“DTI”means debt-to-income ratio,which is calculated as a borrowers monthly debt payments,divided by the borrowers monthly gross income.“EU/UK Securitization Rules”means the legis

58、lation in effect in the European Union or,as applicable,in the United Kingdom that,in each case,requires institutional investors,prior toinvesting in a securitization,to verify compliance with certain conditions,including that the originator,the original lender or the sponsor retains,on an ongoing b

59、asis,a material neteconomic interest in the relevant securitization of not less than 5%in the form of the retention of certain specified credit risk tranches or asset exposures.“Ginnie Mae”means the Government National Mortgage Association,a wholly-owned corporate instrumentality of the United State

60、s within the U.S.Department of Housing and UrbanDevelopment.“GSE”means a government-sponsored enterprise.When we refer to a GSE,we mean Fannie Mae or Freddie Mac.“HELOC”means an open or closed end home equity revolving line of credit,secured by a mortgage,deed of trust or other instrument creating a

61、 first or junior lien on a residentialproperty,which liens secures the related line of credit.“Investment property loans”mean mortgage loans made on portfolios of residential rental properties.“Jumbo prime mortgage loans”mean residential mortgage loans that may not conform to GSE underwriting guidel

62、ines for a variety of reasons,such as exceeding GSE loan limits.“LTV means loan-to-value ratio,which is calculated for purposes of this Annual Report on Form 10-K as the outstanding principal amount of a loan plus any financing that is pari passuwith or senior to such loan at the time of acquisition

63、,divided by the applicable real estate value at acquisition of such loan.The real estate value reflects the results of third-party appraisalsobtained by the selling mortgage companies prior to the loan closing.“MBS”means mortgage-backed securities that are secured by interests in a pool of mortgage

64、loans secured by property.“Mezzanine loans”mean loans made to commercial property owners that are secured by pledges of the borrowers ownership interests,in whole or in part,in entities that directly orindirectly own the properties,such loans being subordinate to whole loans secured by first or seco

65、nd mortgage liens on the properties themselves.Mezzanine loans may be structured aspreferred equity investments which provide substantively the same rights for the lender but involve the lender holding actual equity interests with preferential rights over the commonequity.“Mortgage loans”mean loans

66、secured by real estate with a right to receive the payment of principal and interest on the loans(including servicing fees).“MSRs”mean mortgage servicing rights.MSRs represent the right to service mortgage loans,which involves activities such as collecting mortgage payments,escrowing,and paying taxe

67、sand insurance premiums and forwarding principal and interest payments to the mortgage lender.In return for providing these services,the holder of an MSR is entitled to receive aservicing fee,typically specified as a percentage(expressed in basis points)of the serviced loans unpaid principal balance

68、.An MSR is made up of two components:a basic fee and an“excess MSR.”The basic fee is the amount of compensation for the performance of servicing duties(including advance obligations),and the excess MSR is the amount that exceeds thebasic fee.“non-Agency mortgage loans”mean mortgage loans that are no

69、t eligible for sale to a GSE,including investment property loans and jumbo prime mortgage loans.“non-Agency RMBS”means RMBS that are not issued or guaranteed by an Agency or a GSE.“non-QM loans”mean residential mortgage loans that do not satisfy the requirements for QM loans,including“exempt loans,”

70、such as“Investor”loans made to real estate investors thatdo not need to meet the ATR rules.“QM loans”mean residential mortgage loans that comply with the ATR rules and related guidelines of the CFPB.“Residential bridge loans”mean short-term residential mortgage loans secured by a first priority secu

71、rity interest in non-owner occupied single family or multi-family residences,whichloans are typically used in the acquisition and re-development of the residences with a view to the borrowers selling the residences.“Residential mortgage loans”mean,with respect to our target assets,non-QM loans,QM lo

72、ans,conforming residential mortgage loans,non-Agency mortgage loans,second lien mortgageloans,residential bridge loans,investment property loans,jumbo prime mortgage loans,Alt-A mortgage loans,and subprime residential mortgage loans.4“RMBS”means mortgage-backed securities that are secured by interes

73、ts in a pool of mortgage loans secured by residential property.RMBS may be senior,subordinate,interest-only,principal-only,investment-grade,non-investment grade,or unrated.“Second lien mortgage loans”mean residential mortgage loans that are subordinate to the primary or first lien mortgage loans on

74、a residential property.“Senior mortgage loans”mean commercial mortgage loans secured by first mortgage liens on commercial properties,which loans may vary in duration,may bear interest at fixed orfloating rates and may amortize,and typically require balloon payments of principal at maturity.“Small b

75、alance commercial mortgage loans”mean commercial mortgage loans that typically range in original principal amounts of between$250,000 and$15 million.“Subprime residential mortgage loans”mean residential mortgage loans that do not conform to GSE underwriting guidelines.These lower standards permit lo

76、ans to be made to borrowershaving low credit scores and/or imperfect or impaired credit histories(including outstanding judgments or prior bankruptcies),loans with no income disclosure or verification and loanswith high LTVs.“TBAs”mean“To be Announced”forward-settling of MBS trades.The actual MBS th

77、at will be delivered to fulfill a TBA trade is not designated at the time the trade is made.Thesesecurities are announced 48 hours prior to the established trade settlement date.Net settlement typically occurs before settlement and physical delivery of the securities takes place.“U.S.Risk Retention

78、Rules”mean the credit risk retention rules of the SEC that generally require the sponsor of asset-backed securities to retain not less than 5%of the credit risk of theassets collateralizing the issuers securities.“U.S.Treasury Securities”mean a short-term U.S.government debt obligation backed by the

79、 Treasury Department with a maturity of one year or less.“UPB”means unpaid principal balance of a mortgage loan.“VIE”means variable interest entity.“Whole loans”mean direct investments in whole residential mortgage loans,as opposed to investments in other structured products that are backed by such

80、loans.5PART IItem 1.BusinessThe CompanyAngel Oak Mortgage REIT,Inc.is a real estate finance company focused on acquiring and investing in first lien non-QM loans and other mortgage-related assets in the U.S.mortgage market.Our strategy is to make credit-sensitive investments primarily in newly-origi

81、nated first lien non-QM loans that are primarily made to higher-quality non-QM loanborrowers and substantially sourced from Angel Oaks proprietary mortgage lending platform,Angel Oak Mortgage Lending,which currently operates primarily through a wholesalechannel and has a national origination footpri

82、nt.We also may invest in other residential mortgage loans,RMBS,and other mortgage-related assets,which,collectively with non-QM loans,we refer to as our target assets.Further,we also may identify and acquire our target assets through the secondary market when market conditions and asset prices are c

83、onducive to makingattractive purchases.Our objective is to generate attractive risk-adjusted returns for our stockholders,through cash distributions and capital appreciation,across interest rate and creditcycles.We are a Maryland corporation and commenced operations in September 2018.On June 21,2021

84、,we completed an initial public offering(“IPO”)of our common stock on theNew York Stock Exchange(“NYSE”).We are externally managed and advised by our Manager pursuant to a management agreement(the“Management Agreement”).We have elected to be taxed as a REIT for U.S.federal income tax purposes commen

85、cing with our taxable year ended December 31,2019.Commencing with our taxable yearended December 31,2019,we believe that we have been organized and operated,and we intend to continue to operate in conformity with the requirements for qualification and taxation asa REIT under the Internal Revenue Cod

86、e of 1986(the“Code”).Our qualification as a REIT,and maintenance of such qualification,depends on our ability to meet,on a continuing basis,various complex requirements under the Code relating to,among other things,the sources of our gross income,the composition and values of our assets,our distribu

87、tion levels and theconcentration of ownership of our stock.We also intend to operate our business in a manner that will allow us to maintain our exclusion from regulation as an investment company underthe Investment Company Act.Our ManagerWe are externally managed and advised by our Manager,Falcons

88、I,LLC,a registered investment adviser under the Investment Advisers Act of 1940 and an affiliate of AngelOak Capital,a leading alternative credit manager with market leadership in mortgage credit that includes asset management,lending,and capital markets.Angel Oak Mortgage Lending,an affiliated Ange

89、l Oak mortgage origination platform,is a market leader in nonQM loan production.Through our relationship with our Manager,we benefit from Angel Oaks vertically integrated platform and inhouse expertise,providing us with the resources that we believeare necessary to generate attractive riskadjusted r

90、eturns for our stockholders.Angel Oak Mortgage Lending provides us with proprietary access to nonQM loans,as well as transparencyover the underwriting process and the ability to acquire loans with our desired credit and return profile.We believe our ability to identify and acquire target assets thro

91、ugh the secondarymarket is bolstered by Angel Oaks experience in the mortgage industry and expertise in structured credit investments.In addition,we believe we have significant competitive advantagesdue to Angel Oaks analytical investment tools,extensive relationships in the financial community,fina

92、ncing and capital structuring skills,investment surveillance capabilities,andoperational expertise.Our Investment StrategyOur investment strategy is to make credit-sensitive investments primarily in newly-originated first lien non-QM loans that are primarily made to higher-quality non-QM loanborrowe

93、rs and substantially sourced from Angel Oak Mortgage Lending,which primarily operates through a wholesale channel and has a national origination footprint.We also mayinvest in other target assets as described below.Further,we may identify and acquire our target assets through the secondary market wh

94、en market conditions and asset prices are conduciveto making attractive purchases.We often finance these target assets through various financing lines on,primarily,a short-term basis and ultimately seek to secure long-term securitizationfunding for substantially all of our non-QM loans.Our objective

95、 is to generate attractive risk-adjusted returns for our stockholders,through cash distributions and capital appreciation,across interest rate and credit cycles.We expect to derive our returns primarily from the difference between the interest we earn on loans we invest in and our cost of capital,as

96、 well as thereturns from bonds,including risk retention securities,that are retained after securitizing the underlying loan collateral.Subject to maintaining our qualification as a REIT under the Code,and maintaining our exclusion from regulation as an investment company under the Investment Company

97、Act,we also expect to continue to utilize various derivative instruments and other hedging instruments to mitigate interest rate risk,credit risk,and other risks.For example,we may enterinto hedging transactions with respect to interest rate exposure on one or more of our assets or liabilities.Any s

98、uch hedging transactions could take a variety of forms,including the use ofderivative instruments such as interest rate swap contracts,index swap contracts,interest rate cap or floor contracts,futures or forward contracts,and options.6Our Investment GuidelinesOur Board of Directors has approved the

99、following investment guidelines:No investment shall be made that would cause us to fail to qualify as a REIT under the Code;No investment shall be made that would cause us or any of our subsidiaries to be regulated as an investment company under the Investment Company Act;Our investments will be pre

100、dominantly in our target assets;Prior to the deployment of capital into our target assets,our Manager may cause our capital to be invested in any short-term investments in money market funds,bank accounts,overnight repurchase agreements with primary U.S.Federal Reserve Bank dealers collateralized by

101、 direct U.S.Government obligations,and other instruments or investmentsdetermined by our Manager to be of high quality;andThe acquisition of any of our target assets by us or any of our subsidiaries from Angel Oak Mortgage Lending or other affiliate of our Manager shall require the pricing approvalo

102、f our Affiliated Transactions and Risk Committee,which is comprised of three of our independent directors.These investment guidelines may be amended,restated,modified,supplemented,or waived by our Board of Directors(which must include a majority of our independentdirectors)from time to time without

103、the approval of,or prior notice to,our stockholders.Our Target AssetsOur target assets include:7Target assets,investments backed by:Examples:Residential propertiesNon-QM loansNon-Agency mortgage loansNon-Agency RMBSCommercial real estate propertiesSenior mortgage loansCommercial bridge loansSmall ba

104、lance commercial mortgage loansOther investmentsAgency RMBSSecond lien mortgage loansMezzanine loansConstruction loansHELOCsB-NotesQM loansConforming residential mortgage loansResidential bridge loansSubprime residential mortgage loansAlt-A mortgage loansCRT securitiesCMBSMSRs and excess MSRsCertain

105、 non-real estate related assets,including ABS and consumer loansOur strategy is adaptable to changing market environments,subject to our ability to maintain our qualification as a REIT for U.S.federal income tax purposes and to maintainour exclusion from regulation as an investment company under the

106、 Investment Company Act.Our investment and asset management decisions depend on prevailing market conditions.Accordingly,our strategy and target assets may vary over time in response to market conditions.Our Manager is authorized to follow very broad investment guidelines and,as a result,wecannot pr

107、edict our portfolio composition.We may change our strategy and policies without a vote of our stockholders.Our Portfolio and SecuritizationsSince the commencement of our operations in September 2018 through December 31,2024,we have focused on the acquisition of our target assets,including residentia

108、lmortgage loans,a substantial portion of which were sourced by Angel Oak Mortgage Lending.Since the commencement of our operations in September 2018 through December 31,2024,we have participated in seventeen rated securitization transactions.We believe that our portfolio validates our strategy of ma

109、king credit-sensitive investments primarily in newly-originatedfirst lien non-QM loans that are primarily made to higher-quality non-QM loan borrowers.As of December 31,2024,our approximately$2.2 billion portfolio of target assets consisted predominantly of residential mortgage loans owned directly,

110、residential mortgageloans held in securitization trusts,and RMBS.For additional information regarding our portfolio as of December 31,2024,see Part II,Item 7,“Managements Discussion and Analysis ofFinancial Condition and Results of Operations Our Portfolio”.Our Financing Strategy and Use of Leverage

111、We finance our assets with what we believe to be a prudent amount of leverage,which will vary from time to time based upon the particular characteristics of our portfolio,availability of financing and market conditions.We expect to use loan financing lines to finance the acquisition and accumulation

112、 of mortgage loans or other mortgage-related assetspending their eventual securitization.Upon accumulating an8appropriate amount of assets,we expect to finance a substantial portion of our mortgage loans utilizing fixed rate term securitization funding that provides long-term financing for ourmortga

113、ge loans and locks in our cost of funding,regardless of future interest rate movements.In addition to our existing loan financing lines,we employ short-term repurchase facilities to borrow against U.S.Treasury Securities,securities issued by Angel Oak MortgageTrust(“AOMT”),Angel Oaks securitization

114、platform,and other securities we may acquire in accordance with our investment guidelines.Our use of leverage,especially in order to increase the quantity of assets supported by our capital base,may have the effect of increasing losses when these assets underperform.The amount of leverage employed o

115、n our assets will depend on our Managers assessment of the credit,liquidity,price volatility and other risks and availability of particular types offinancing at any given time.Moreover,our charter,fourth amended and restated bylaws(our“bylaws”)and investment guidelines require no minimum or maximum

116、leverage and ourManager will have the discretion,without the need for further approval by our Board of Directors,to change both our overall leverage and the leverage used for individual asset classes.Because our strategy is flexible,dynamic,and opportunistic,our overall leverage and the leverage use

117、d for individual asset classes will vary over time.Competition and Regulatory ConsiderationsWe are engaged in a competitive business.In our investing activities,we compete for opportunities with a variety of institutional investors,including other REITs,specialtyfinance companies,public and private

118、funds(including funds that Angel Oak or its affiliates may sponsor,advise and/or manage),commercial and investment banks,commercial financeand insurance companies,and other financial institutions.Several other REITs have raised,or may raise,significant amounts of capital,and may have investment obje

119、ctives that overlapwith ours,which may create additional competition for investment opportunities.Some competitors may have a lower cost of funds and access to funding sources that are not available tous.Many of our competitors are not subject to the operating constraints associated with REIT compli

120、ance or maintenance of an exclusion from registration under the Investment CompanyAct.In addition,some of our competitors may have higher risk tolerances or different risk assessments,which could allow them to consider a wider variety of loans and investments,offermore attractive pricing or other te

121、rms and establish more relationships than us.Furthermore,competition for originations of and investments in our target asset classes may lead to theyields of such assets decreasing,which may further limit our ability to generate satisfactory returns.In addition,changes in the financial regulatory re

122、gime could decrease the current restrictions on banks and other financial institutions and allow them to compete with us forinvestment opportunities that were previously not available to them.Human Capital ResourcesWe have no employees.All of our executive officers,and our dedicated or partially ded

123、icated personnel,which include our Chief Executive Officer,Chief Financial Officer andTreasurer,accounting staff,in-house legal counsel,and other personnel providing services to us were employees of our Manager or one or more of our Managers affiliates as ofDecember 31,2024.Available InformationOur

124、website address is .We make available on our website under“Investors,”free of charge,this Annual Report on Form 10-K,our quarterly reports onForm 10-Q,our current reports on Form 8-K and any other reports that we file with the SEC as soon as reasonably practicable after we electronically file or fur

125、nish such materials to theSEC.Information on our website,however,is not part of or incorporated by reference into this Annual Report on Form 10-K.In addition,all our filed reports can be obtained at the SECswebsite at www.sec.gov.9Item 1A.Risk FactorsAn investment in our securities involves signific

126、ant risks.Before making a decision to invest in our securities,you should carefully consider the following risks in addition to the otherinformation contained in this Annual Report on Form 10-K.The risks discussed in this Annual Report on Form 10-K can materially adversely affect our business,financ

127、ial condition,liquidity,results of operations and prospects and our ability to make distributions to our stockholders(which we refer to collectively as“materially and adversely affecting us”or having“a material adverse effect on us,”and comparable phrases).This could cause the market price of our se

128、curities to decline significantly,and you could lose all or part of your investmentin our securities.Some statements in this Annual Report on Form 10-K,including statements in the following risk factors,constitute forward-looking statements.Please refer to the sectionentitled“Special Note Regarding

129、Forward-Looking Statements.”Summary Risk FactorsWe are subject to a number of risks that,if realized,could materially and adversely affect our business,financial condition,liquidity,resultsof operations and prospects and our ability to make distributions to our stockholders.Some of our more signific

130、ant challenges and risksinclude,but are not limited to,the following,which are described in greater detail below:We are dependent on our Manager and certain key personnel of Angel Oak who are or may be provided to us through our Manager,and may not find a suitable replacement ifour Manager terminate

131、s the Management Agreement or such key personnel are no longer available to us.There are conflicts of interest in our relationship with Angel Oak,including our Manager,and we may compete with existing and future managed entities of Angel Oak,whichmay present various conflicts of interest that restri

132、ct our ability to pursue certain investment opportunities or take other actions that are beneficial to our business and result indecisions that are not in the best interests of our stockholders.We rely on our Manager to source nonQM loans and other target assets for acquisition by us and Angel Oak M

133、ortgage Lending is under no contractual obligation to sell to usany loans that it originates.Our Managers fee structure may not create proper incentives or may induce our Manager and its affiliates to make certain loans or other investments,including speculativeinvestments,which increase the risk of

134、 our portfolio.The Management Agreement with our Manager was not negotiated on an armslength basis and may not be as favorable to us as if it had been negotiated with an unaffiliatedthird party and may be costly and difficult to terminate.Our Managers liability is limited under the Management Agreem

135、ent,and we have agreed to indemnify our Manageragainst certain liabilities.Our operating results are dependent upon our Managers ability to source a large volume of desirable nonQM loans and other target assets for our investment on attractiveterms.Difficult conditions in the residential mortgage an

136、d residential real estate markets as well as general market concerns,including macroeconomic events,may adversely affect thevalue of residential mortgage loans,including nonQM loans,and other target assets in which we invest.Non-QM loans that are underwritten pursuant to less stringent underwriting

137、guidelines could experience higher rates of delinquencies,defaults and foreclosures than thoseexperienced by loans underwritten to more stringent underwriting guidelines.Angel Oak Mortgage Lending is subject to extensive licensing requirements and regulation,which could materially and adversely affe

138、ct us if Angel Oak Mortgage Lending doesnot comply with these requirements.Currently,we are focused on acquiring and investing in nonQM loans,which may subject us to legal,administrative,regulatory,and other risks,which could materially andadversely affect us.Prepayment rates may adversely affect th

139、e value of our portfolio.Our investment in lower rated nonAgency RMBS resulting from the securitization of our assets or otherwise exposes us to the first loss on the mortgage assets held by thesecuritization vehicle.Additionally,the principal and interest payments on nonAgency RMBS are not guarante

140、ed by any entity,including any government entity or GSE,andtherefore are subject to increased risks,including credit risk.Mortgage loan modification programs and future legislative action may adversely affect the value of,and the returns on,our target assets,which could materially and adverselyaffec

141、t us.10We are highly dependent on information systems,and system failures could significantly disrupt our business,which may,in turn,have a material adverse effect on us.Our industry is highly regulated and we or Angel Oak,including our Manager,may be subject to adverse legislative or regulatory cha

142、nges.Maintenance of our exclusion from regulation as an investment company under the Investment Company Act imposes significant limitations on our operations.Our significant debt subjects us to increased risk of loss,and our charter and bylaws contain no limitation on the amount of debt we may incur

143、.Our access to financing sources,which may not be available on favorable terms,or at all,may be limited,and this may materially and adversely affect us.Market conditions and other factors may affect our ability to securitize assets,which could increase our financing costs and materially and adversel

144、y affect us.We may be unable to profitably execute securitization transactions,which could materially and adversely affect us.Interest rate fluctuations could increase our financing costs,which could materially and adversely affect us.Our significant stockholders and their respective affiliates have

145、 significant influence over us and their actions might not be in your best interest as a stockholder.Legislative or other actions affecting REITs could materially and adversely affect us.Our failure to qualify as a REIT would subject us to U.S.federal income tax and potentially increased state and l

146、ocal taxes,which would reduce the amount of our incomeavailable for distribution to our stockholders.Complying with REIT requirements and avoiding a prohibited transaction tax may force us to hold a significant portion of our assets and conduct a significant portion of ouractivities through a taxabl

147、e REIT subsidiary(“TRS”),and a significant portion of our income may be earned through a TRS.The above list is not exhaustive,and we face additional challenges and risks.Please carefully consider all of the information in this Annual Report on Form 10-K,including thematters set forth below in this P

148、art I,Item 1A,“Risk Factors.”Risk FactorsRisks Related to Our Relationship with Our Manager and its AffiliatesWe are dependent on our Manager and certain key personnel of Angel Oak who are or may be provided to us through our Manager,and may not find a suitable replacement if ourManager terminates t

149、he Management Agreement or such key personnel are no longer available to us.We are externally managed by our Manager,and all of our officers are employees of Angel Oak,including our Manager.We have no separate facilities,and are substantiallyreliant on our Manager,which has significant discretion as

150、 to the implementation of our operating policies and execution of our business strategies and risk management practices.We alsodepend on our Managers access to the professionals and principals of Angel Oak as well as information and loan flow generated by Angel Oak Mortgage Lending.The employees ofA

151、ngel Oak assist in identifying,evaluating,negotiating,structuring,closing,and monitoring our portfolio.The departure of any of the members of the senior management team of ourManager,or of a significant number of investment professionals or principals of Angel Oak,could have a material adverse effec

152、t on us.We can offer no assurance that our Manager willremain our manager or that we will continue to have access to Angel Oaks,including our Managers,senior management.We are subject to the risk that our Manager will terminate theManagement Agreement or that we may deem it necessary to terminate th

153、e Management Agreement or prevent certain individuals from performing services for us and that no suitablereplacement will be found to manage us.Other than our dedicated Chief Financial Officer and Treasurer and other partially dedicated personnel that our Manager provides to us,the Angel Oak person

154、nel provided to us byour Manager pursuant to the Management Agreement are not required to dedicate a specific portion of their time to the management of our business.Other than our dedicated Chief Financial Officer and Treasurer and other partially dedicated personnel that our Manager provides to us

155、,neither our Manager nor Angel Oak isobligated to dedicate any specific personnel exclusively to us,nor is our Manager or its personnel obligated to dedicate any specific portion of their time to the management of ourbusiness.Key personnel provided to us by our Manager may11become unavailable to us

156、as a result of their departure from our Manager or for any other reason.As a result,we cannot provide any assurances regarding the amount of time our Managerwill dedicate to the management of our business,and Angel Oak,including our Manager,may have conflicts in allocating employees time,resources,a

157、nd services among our businessand any other entities they manage,and such conflicts may not be resolved in our favor.Consequently,we may not receive the level of support and assistance that we otherwise mightreceive if we were internally managed.Our Manager and its affiliates are not restricted from

158、 entering into other investment advisory relationships or from engaging in other businessactivities.Our business may be adversely affected if our reputation,the reputation of our Manager or Angel Oak,or the reputation of counterparties with whom we associate is harmed.We may be harmed by reputationa

159、l issues and adverse publicity relating to us,our Manager,or Angel Oak.Reputational risk issuescould include,but are not limited to,real or perceived legal,administrative or regulatory violations,or could be the result of a failure inperformance,risk-management,governance,technology,or operations,or

160、 claims related to employee misconduct,allegations of employeewrongful termination,conflict of interests,ethical issues,cybersecurity events,the failure to protect private information or environmental,social and governance practices,among others.Similarly,market rumors and actual or perceived associ

161、ation with counterparties whose ownreputations may become under question could harm our business.Such reputational issues may depress the market price of our securities,have a negative effect on our ability to conductbusiness with our counterparties,hinder our abilities to attract and/or retainperso

162、nnel,including key personnel,or otherwise materially adversely affect us.There are conflicts of interest in our relationship with Angel Oak,including our Manager,and we may compete with existing and future managed entities of Angel Oak,which maypresent various conflicts of interest that restrict our

163、 ability to pursue certain investment opportunities or take other actions that are beneficial to our business and result in decisionsthat are not in the best interests of our stockholders.We are subject to conflicts of interest arising out of our relationship with Angel Oak,including our Manager.Cur

164、rently,all of our officers,including our dedicated ChiefFinancial Officer and Treasurer and our partially dedicated Chief Executive Officer and President,and one of our directors also serve as employees of Angel Oak including our Manager.As a result,our Manager,our officers and this director may hav

165、e conflicts between their duties to us and their duties to,and interests in,Angel Oak,including our Manager.For example,Mr.Fierman,the Chairman of our Board of Directors,also serves as a Managing Partner and Co-Chief Executive Officer of Angel Oak Companies,and Sreeniwas Prabhu,our ChiefExecutive Of

166、ficer and President,also serves as Managing Partner,Co-Chief Executive Officer,and Group Chief Investment Officer at Angel Oak Capital.Some examples of conflicts of interest that may arise by virtue of our relationship with Angel Oak,including our Manager,include:Loans Originated by Angel Oak Mortga

167、ge Lending.Our strategy is to make credit-sensitive investments primarily in newly-originated first lien non-QM loans that aresubstantially sourced from Angel Oaks proprietary mortgage lending platform,Angel Oak Mortgage Lending.Since our commencement of operations in September 2018through December

168、31,2024,a substantial portion of the target assets in our portfolio have been acquired from Angel Oak Mortgage Lending,and we expect that,in the future,asubstantial portion of our portfolio will continue to consist of target assets acquired from Angel Oak Mortgage Lending.As our Manager directs our

169、investment activities,thereare conflicts of interest related to the fact that Angel Oak Mortgage Lending consists of affiliates of our Manager,including the following:Our Manager has an incentive to favor the acquisition of non-QM loans or other target assets from Angel Oak Mortgage Lending over thi

170、rd-party sellers becausepurchasing non-QM loans or other target assets from Angel Oak Mortgage Lending generates fees for Angel Oak Mortgage Lending(including fees payable by us andorigination fees payable by the borrowers of the loans originated by Angel Oak Mortgage Lending),which benefit Angel Oa

171、k.In addition,our acquisition of non-QMloans or other target assets from Angel Oak Mortgage Lending allows Angel Oak Mortgage Lending to sell such non-QM loans or other target assets and obtainliquidity to make more loans,even where Angel Oak Mortgage Lending would be unable to sell the non-QM loans

172、 or other target assets on favorable terms tounaffiliated third parties in the market due to unfavorable market conditions or other reasons.Our Manager could acquire non-QM loans or other target assets on ourbehalf from Angel Oak Mortgage Lending even if such non-QM loans or other target assets were

173、 unsuitable for us,or we could identify better quality non-QM loans orother target assets,or obtain better pricing,from unaffiliated third parties.Although we utilize third-party pricing vendors to evaluate the fairness of the price for non-QM loans or other target assets we acquire from Angel Oak M

174、ortgage Lending,there can be no assurance that we will purchase such non-QM loans or other targetassets from Angel Oak Mortgage Lending at a fair price.In addition,although our strategy is to make credit-sensitive investments primarily in newly-originated first lien non-QM loans that are substantial

175、ly sourced fromAngel Oak Mortgage Lending,this strategy may need to adapt to changing market conditions or other factors.If investment in non-QM loans falls out of favor orotherwise becomes unattractive because of perceived risks,unfavorable pricing or otherwise,our Manager will have a conflict of i

176、nterest in determining whether ourstrategy should continue to focus on the acquisition of non-QM loans,particularly if the origination of such loans continues to be a focus of Angel Oak MortgageLending.The continued pursuit of our strategy under these12circumstances may result in losses.The signific

177、ant majority of the loans that Angel Oak Mortgage Lending currently originates are non-QM loans.Similarly,failure toadjust our strategy may cause us to forego other attractive investment opportunities outside investments in non-QM loans.Our Manager has a conflict in determiningwhether to adjust our

178、strategy and to pursue investments in other types of target assets that may be more attractive even if Angel Oak Mortgage Lending continues tooriginate non-QM loans.We have purchased RMBS and CMBS,and expect to continue to purchase RMBS that are collateralized by loans originated by Angel Oak Mortga

179、ge Lending,and ourportfolio may consist of a significant amount of such securities.Certain affiliates of our Manager may receive certain benefits for their activities related to the creationof the securitization and the issuance and sale of such securities.We will also bear all or a portion of the e

180、xpense incurred in connection with the securitization vehicleto which we sell the loans we have acquired.Such expenses include,but are not limited to,the costs and expenses related to structuring the securitization vehicle andthe transactions related to the sale of the loans by us to the securitizat

181、ion vehicle.Other Angel Oak Managed Entities.Angel Oak currently advises,and in the future expects to continue to advise,other entities that may have investment objectives andstrategies similar,in whole or in part,to ours and may use the same or similar strategies to those we employ.For example,Ange

182、l Oak has previously formed private REITs aswell as other funds that invest in residential mortgage loans,and may raise additional investment vehicles in the future,including entities formed to make investments that wecould be precluded or materially limited from making because of laws or regulation

183、s applicable to us.Angel Oak is not restricted in any way from sponsoring or acceptingcapital from new entities,even for investing in asset classes or strategies that are similar to,or overlapping with,our asset classes or strategies.The existence of such multiplemanaged entities may create conflict

184、s of interest,including,without limitation,with respect to the allocation of investment opportunities between us and other managed entities.See“Allocation of Investment Opportunities”below.In addition,we may make an investment that may be pari passu,senior,or junior in ranking to an investment made

185、byanother managed entity,and actions taken by such managed entity with respect to such investment may not be in our best interests,and vice versa.Furthermore,such activitiesmay involve substantial time and resources of Angel Oak.Allocation of Investment Opportunities.Although Angel Oak may manage in

186、vestments on behalf of a number of managed entities,including us,investment decisions andallocations will not necessarily be made in parallel among us and these other managed entities.Investments made by us may not,and are not intended in all cases to,replicate theinvestments,or the investment metho

187、ds and strategies,of other entities managed by Angel Oak.Nevertheless,Angel Oak from time to time may elect to apportion major orminor portions of the investments to be made by us among other entities that they manage,and vice versa.When allocating investment opportunities among us and one or moreot

188、her managed entities,Angel Oak Capital allocates such opportunities pursuant to its written investment allocation policy.Accordingly,not all investments which are consistentwith our investment objective and strategies may be presented to us.There is no assurance that any such conflicts arising out o

189、f the foregoing will be resolved in our favor.AngelOak Capital is entitled to amend its investment allocation policy at any time without our consent although it must provide notice to our Affiliated Transactions and RiskCommittee.Service Providers.Our Manager may engage affiliated service providers,

190、that act as the servicer for the loans in our portfolio.Such relationships may influence our Manager indeciding whether to select such service providers.Our Managers affiliates may receive benefits,including compensation,for these activities.Additionally,affiliated serviceproviders will not have the

191、 same independence with respect to the performance of their duties to us as an unaffiliated service provider.The use of affiliated service providers mayimpair our ability to obtain the most favorable terms with respect to such services and transactions,which could materially and adversely affect us.

192、Management.During turbulent conditions in the mortgage industry,distress in the credit markets,or other times when we will need focused support and assistance from AngelOak employees,other entities that Angel Oak manages will likewise require greater focus and attention,placing Angel Oaks resources

193、in high demand.In such situations,wemay not receive the necessary support and assistance we require or would otherwise receive if we were internally managed or if Angel Oak did not act as a manager or advisorfor other entities.Securitizations.There can be no assurance that the valuation of any of th

194、e assets that we have contributed or may contribute to any securitization vehicles were not or will not beunderstated or,that the assets contributed by other Angel Oak-managed entities have not been or will not be overstated,resulting in less cash proceeds or securities issued by thesecuritization v

195、ehicle to us or more cash proceeds or securities issued by the securitization vehicle to such managed entities than would otherwise be the case.Material Non-Public Information.We,directly or through Angel Oak,may obtain material non-public information about the investments in which we have invested

196、or mayinvest.If we do possess material non-public information about such investments,there may be restrictions on our ability to dispose of,increase the amount of,or otherwise takeaction with respect to such investments.Our Managers and Angel Oaks management of other managed entities could create a

197、conflict of interest to the extent our Manager orAngel Oak is aware of material non-public information concerning potential investment decisions.In addition,this conflict may limit the freedom of our Manager to makepotentially profitable investments,which could have an adverse effect on13our operati

198、ons.These limitations imposed by access to material non-public information could therefore materially and adversely affect us.We rely on our Manager to source non-QM loans and other target assets for acquisition by us and Angel Oak Mortgage Lending is under no contractual obligation to sell to us an

199、yloans that it originates.Our operating results are dependent upon our Managers ability to source non-QM loans and other target assets for acquisition by us from Angel Oak Mortgage Lending andother unaffiliated originators.Although we are a party to mortgage loan purchase agreements with Angel Oak M

200、ortgage Lending,and such agreements provide the framework pursuant towhich we have agreed to purchase from Angel Oak Mortgage Lending certain target assets,Angel Oak Mortgage Lending has no obligation to sell non-QM loans or other target assets tous and we may be unable to locate other originators t

201、hat are able or willing to originate non-QM loans and other target assets that meet our standards.If Angel Oak Mortgage Lending isunable to originate non-QM loans due to business,competitive,regulatory or other reasons,or for any other reason is unable or unwilling to provide non-QM loans and other

202、target assetsfor sale to us in sufficient quantity,we may not be able to source acquisitions of non-QM loans and other target assets from other originators,banks and other sellers,on favorable termsand conditions or at all.In this regard,mortgage originators are subject to significant regulation and

203、 oversight and failure by Angel Oak Mortgage Lending to comply with its obligationsunder law may result in an inability to originate non-QM loans or other target assets in certain jurisdictions or at all.Similarly,if Angel Oak Mortgage Lending otherwise separates from itsaffiliation with our Manager

204、,it may determine to sell the non-QM loans or other target assets that it originates to other parties.Angel Oak Mortgage Lending has and may in the futureenter into commitments with third parties to sell them non-QM loans or other assets,which could reduce the quantity of loans that would otherwise

205、be available for purchase by us.If wecannot source an adequate volume of attractive non-QM loans and other target assets from Angel Oak Mortgage Lending on desirable terms,we may not be able to acquire a sufficientamount of attractive non-QM loans or other target assets to make our strategy profitab

206、le,and we may be materially and adversely affected.Our agreements with Angel Oak Mortgage Lending were negotiated between related parties,and their terms might not be as favorable to us as if they had been negotiated withan unaffiliated third party.In addition,conflicts could arise if Angel Oak Mort

207、gage Lending breaches the applicable agreement relating to our acquisition of target assets from Angel OakMortgage Lending,or otherwise fails to perform its obligations under such agreement,resulting in harm or damages to us.Further,Angel Oak Mortgage Lending provides representationsand warranties r

208、egarding the target assets we purchase from them.If Angel Oak Mortgage Lending breaches a representation or warranty relating to one of the target assets we purchasefrom them,our Manager may not seek the same recourse against Angel Oak Mortgage Lending as it would with unaffiliated third parties.Our

209、 Manager could have a potential conflict indetermining what action to take against an affiliate,which could have a material adverse effect on us.Our Managers fee structure may not create proper incentives or may induce our Manager and its affiliates to make certain loans or other investments,includi

210、ng speculativeinvestments,which increase the risk of our portfolio.We pay our Manager base management fees regardless of the performance of our portfolio.Our Managers entitlement to base management fees(which are based on our Equityas defined in the Management Agreement)might reduce its incentive to

211、 devote its time and effort to seeking loans or other investments that provide attractive risk-adjusted returns for ourstockholders and instead may incentivize our Manager to advance strategies that increase our equity.There may be circumstances where increasing our equity will not optimize the retu

212、rnsfor our stockholders,and consequently,we will be required to pay our Manager base management fees in a particular period despite experiencing a net loss or a decline in the value of ourportfolio during that period.In addition,our Manager has the ability to earn incentive fees each quarter based o

213、n our Distributable Earnings as calculated in accordance with the Management Agreement,which may create an incentive for our Manager to invest in assets with higher yield potential,which are generally riskier or more speculative,or sell an asset prematurely for a gain,in aneffort to increase our Dis

214、tributable Earnings and thereby increase the incentive fee to which it is entitled.This could result in increased risk to our portfolio.If our interests and those of ourManager are not aligned,the execution of our strategies could be adversely affected,which could materially and adversely affect us.

215、The Management Agreement with our Manager was not negotiated on an arms-length basis and may not be as favorable to us as if it had been negotiated with an unaffiliated thirdparty and may be costly and difficult to terminate.Our Managers liability is limited under the Management Agreement,and we hav

216、e agreed to indemnify our Manager againstcertain liabilities.The Management Agreement that we and our operating partnership entered into with our Manager was negotiated between related parties,and its terms,including fees payable,may not be as favorable to us as if it had been negotiated with an una

217、ffiliated third party.Various potential and actual conflicts of interest may arise from the activities of Angel Oak byvirtue of the fact that our Manager is controlled by Angel Oak.A termination without“cause”of the Management Agreement,which is defined in the Management Agreement and includes unsat

218、isfactory performance by our Manager that ismaterially detrimental to us,is subject to several conditions which may make such a termination difficult and costly.Termination of the Management Agreement with our Manager mayrequire us to pay our Manager a substantial termination fee,which will increase

219、 the effective cost to us of terminating the Management Agreement,thereby adversely affecting our abilityto terminate our Manager without cause.14Our Manager will not assume any responsibility other than to provide the services specified in the Management Agreement in good faith and will not be resp

220、onsible for anyaction of our Board of Directors in following or declining to follow its advice or recommendations.None of our Manager or its affiliates or their respective managers,officers,directors,trustees,employees or members or any person providing sub-advisory services to our Manager will be l

221、iable to us,any of our subsidiaries,our Board of Directors,our stockholders or anysubsidiarys interest holders for any acts or omissions performed under the Management Agreement,except because of acts constituting bad faith,willful misconduct,gross negligence orreckless disregard of our Managers dut

222、ies under the Management Agreement.We have agreed to indemnify our Manager and its affiliates and their respective managers,officers,directors,trustees,employees and members and any person providing sub-advisory services to our Manager with respect to all expenses,losses,damages,liabilities,demands,

223、charges andclaims of any nature whatsoever(including reasonable attorneys fees)in respect of or arising from such persons acts or omissions performed in good faith under the ManagementAgreement and not constituting bad faith,willful misconduct,gross negligence or reckless disregard of our Managers d

224、uties under the Management Agreement.As a result,we couldexperience poor performance or losses for which our Manager would not be liable.Our Managers failure to identify and acquire assets that meet our target asset criteria or perform its responsibilities under the Management Agreement could materi

225、ally andadversely affect us.Our ability to achieve our objectives depends on our Managers ability to identify and acquire assets that meet our target asset criteria.We are dependent on our Managersrelationship with Angel Oak Mortgage Lending and Angel Oak Capital and our Managers ability to source i

226、nvestment opportunities consistent with our strategy,which is currentlyfocused on the acquisition of non-QM loans from Angel Oak Mortgage Lending.Additionally,accomplishing our objectives is largely a function of our Managers identification of targetassets,access to financing on acceptable terms and

227、 general market conditions.Our stockholders will not have input into our investment decisions.All of these factors increase theuncertainty,and thus the risk,of investing in our securities.The senior management team of our Manager has substantial responsibilities under the Management Agreement.In ord

228、er toimplement certain strategies,our Manager may need to hire,train,supervise,and manage new employees successfully.Any failure to manage our future growth effectively could have amaterial adverse effect on us.We do not own the Angel Oak brand or trademark,but may use the brand and trademark pursua

229、nt to the terms of a trademark license agreement with Angel Oak.We do not own the brand,trademark,or logo that we may use in our business and may be unable to protect this intellectual property against infringement from third parties.Weare party to a trademark license agreement(the“trademark license

230、 agreement”)with an affiliate of our Manager(the“licensor”)pursuant to which the licensor granted us a non-exclusive,non-transferable,non-sublicensable,royalty-free license to use the name“Angel Oak Mortgage REIT,Inc.”for so long as our Manager(or another Angel Oak affiliate that serves as ourmanage

231、r)remains an affiliate of the licensor.The trademark license agreement is subject to automatic termination if our Manager or another affiliate of Angel Oak is no longer acting asour manager under the Management Agreement.The trademark license agreement may be terminated by the licensor without cause

232、 and in its sole judgment after 30 days written notice tous or immediately if the licensor believes that we are using the licensed marks improperly.Pursuant to the trademark license agreement,the licensor retains the right to continue using the“Angel Oak”name and the licensor is not precluded from l

233、icensing or transferring the ownership of the“Angel Oak”name to third parties,some of whom may compete against us.Consequently,we may be unable to prevent any damage to goodwill that may occur as a result of the activities of the licensor,Angel Oak or others.Furthermore,in the event that thetrademar

234、k license agreement is terminated,we will be required to,among other things,change our name and NYSE ticker symbol.Any of these events could disrupt our recognition in themarketplace,damage any goodwill we may have generated,and otherwise have a material adverse effect on us.Under the Management Agr

235、eement,our Manager has a contractually defined duty to us rather than a fiduciary duty.Under the Management Agreement,our Manager maintains a contractual as opposed to a fiduciary relationship with us whichlimits our Managers obligations to us to those specifically set forth in the Management Agreem

236、ent.The right of our Manager or itspersonnel and its officers to engage in other business activities may reduce the time our Manager spends managing us.In addition,unlike fordirectors,there is no statutory standard of conduct under the Maryland General Corporation Law(“MGCL”)for officers of a Maryla

237、ndcorporation.Our Manager manages our portfolio pursuant to very broad investment guidelines,which may result in us making riskier investments,and our Manager may change its investmentprocess,or elect not to follow it,without stockholder consent at any time,which may materially and adversely affect

238、us.Our Manager is authorized to follow very broad investment guidelines and our Manager may change its investment process without stockholder consent at any time.In addition,in conducting periodic reviews,our Board of Directors relies primarily on information provided to them by our Manager.Furtherm

239、ore,our Manager may arrange for us to use complexstrategies or to enter into complex transactions before they are reviewed by our Board of Directors.Our Manager has great latitude within our broad investment guidelines to determine thetypes of assets it may decide are proper for purchase by us,which

240、 could result in investment returns that are substantially below expectations or that result in losses,which wouldmaterially and adversely affect us.15In addition,there can be no assurance that our Manager will follow its investment process in relation to the identification and underwriting of prosp

241、ective investments.Changesin our Managers investment process may result in inferior due diligence and underwriting standards,which may materially and adversely affect us.Risks Related to Our Investment ActivitiesOur operating results are dependent upon our Managers ability to source a large volume o

242、f desirable non-QM loans and other target assets for our investment on attractive terms.Our operating results are dependent upon our Managers ability to source a large volume of desirable non-QM loans and other target assets for our investment on attractiveterms,and our Manager may be unable to do s

243、o for many reasons.Neither Angel Oak Mortgage Lending nor any other unaffiliated originator has any obligation to sell non-QM loans andother target assets to us,and our Manager may be unable to identify other originators that are able or willing to originate non-QM loans and other target assets that

244、 meet our standards onfavorable terms or at all.General economic factors,such as recession,declining home values,unemployment,and high interest rates,may limit the supply of available non-QM loans andother target assets.Moreover,competition for non-QM loans and other target assets may drive down sup

245、ply or drive up prices,making it uneconomical to purchase such loans or othertarget assets.For instance,in acquiring non-QM loans and other target assets from unaffiliated parties,we compete with a broad spectrum of institutional investors.Increased competitionfor,or a reduction in the available sup

246、ply of,qualifying investments could result in higher prices for(and thus lower yields on)such investments,which could narrow the yield spread overborrowing costs.Competition may also reduce the number of investment opportunities available to us and may adversely affect the terms upon which investmen

247、ts can be made.We mayincur due diligence or other costs on investments which may not be successful or may not be completed at all.As a result,we may incur additional costs to acquire a sufficient volume ofnon-QM loans and other target assets or be unable to acquire such loans and other target assets

248、 at reasonable prices or at all.There can be no assurance that attractive investments will beavailable for us or that available investments will meet our strategies.If we cannot source an adequate volume of desirable non-QM loans and other target assets on attractive terms or atall,we may be materia

249、lly and adversely affected.Difficult conditions in the residential mortgage and residential real estate markets as well as general market concerns,including macroeconomic events,may adversely affect thevalue of residential mortgage loans,including non-QM loans,and other target assets in which we inv

250、est.Our business is materially affected by conditions in the residential mortgage market,the residential real estate market,the financial markets,and the economy,includingincreasing inflation,energy costs,unemployment,geopolitical issues,pandemics,endemics,concerns over the creditworthiness of gover

251、nments worldwide and the stability of the globalbanking system.In particular,the residential mortgage market in the United States has experienced,in the past,a variety of difficulties and challenging economic conditions,includingdefaults,credit losses,and liquidity concerns.Certain commercial banks,

252、investment banks,insurance companies,and mortgage-related investment vehicles(including publicly tradedmortgage REITs)have incurred extensive losses from exposure to the residential mortgage market as a result of these difficulties and conditions.Continuing concerns over these factorshave contribute

253、d to increased volatility and unclear expectations for the economy and markets going forward and continue to impact investor perception of the risks associated with theresidential real estate market,residential mortgage loans and various other target assets in which we may invest.As a result,values

254、for residential mortgage loans,including non-QMloans,and various other target assets in which we invest have also experienced,and may continue to experience,significant volatility.Any deterioration of the residential mortgage marketand investor perception of the risks associated with residential mor

255、tgage loans,including non-QM loans,and various other of our target assets could have a material adverse effect on us.Non-QM loans that are underwritten pursuant to less stringent underwriting guidelines could experience higher rates of delinquencies,defaults and foreclosures than thoseexperienced by

256、 loans underwritten to more stringent underwriting guidelines.Non-QM loans have flexibility in underwriting guidelines and are subject to credit risk.The underwriting guidelines for non-QM loans may be permissive as to the borrowersDTI,credit history,and/or income documentation.Loans that are underw

257、ritten pursuant to less stringent underwriting guidelines could experience substantially higher rates ofdelinquencies,defaults and foreclosures than those experienced by loans underwritten to more stringent underwriting guidelines.If our non-QM loans are underwritten to more flexibleguidelines which

258、 have increased risk and may cause higher delinquency,default,or foreclosure rates given economic stress,the performance of our investments in non-QM loan portfoliocould be correspondingly adversely affected,which could materially and adversely affect us.Angel Oak Mortgage Lending is subject to exte

259、nsive licensing requirements and regulation,which could materially and adversely affect us if Angel Oak Mortgage Lending does notcomply with these requirements.As of December 31,2024,Angel Oak Mortgage Lending was licensed to originate loans in 46 states and in the District of Columbia,and is curren

260、tly subject to significantregulation by both U.S.federal and state regulators,including the CFPB and various state offices of financial regulation.Over the years,regulators have vigilantly enforced the regulationof loan originators and have penalized or,in some cases,even suspended non-compliant ori

261、ginators ability to originate loans in their jurisdictions for their failure to comply withregulatory requirements.16Our strategy is to acquire credit-sensitive investments primarily in newly-originated first lien non-QM loans that are primarily made to non-QM loan borrowers and substantiallysourced

262、 from Angel Oak Mortgage Lending and a substantial portion of our portfolio may consist of non-QM loans and other assets acquired from Angel Oak Mortgage Lending.If AngelOak Mortgage Lending is unable to originate loans in one or more jurisdictions as a result of regulatory issues or otherwise,it ma

263、y result in fewer investment opportunities for us or inopportunities that are less geographically diversified.Further,any such regulatory issues for Angel Oak Mortgage Lending could result in damage to the reputation of Angel Oak in themarket and impact Angel Oak Mortgage Lendings ability to continu

264、e to source a significant volume of non-QM loan originations.If Angel Oak Mortgage Lending is unable to originatethe volume of loans anticipated,we may also be unable to identify other sources of non-QM loans for acquisition to satisfy our strategy and we may need to alter such strategy to seekother

265、 investments.Currently,we are focused on acquiring and investing in non-QM loans,which may subject us to legal,administrative,regulatory,and other risks,which could materially andadversely affect us.Currently,we are focused on acquiring and investing in non-QM loans that may not have the benefit of

266、enhanced legal protections otherwise available in connection with theorigination of QM loans.The ownership of non-QM loans could subject us to legal,administrative,regulatory,and other risks,including those arising under U.S.federal consumerprotection laws and regulations designed to regulate reside

267、ntial mortgage loan underwriting and originators lending processes,standards and disclosures to borrowers.These laws and regulations include the CFPBs“Know Before You Owe”mortgage disclosure rule,the ATR rules under the Truth-in-Lending Act,and QM loan regulations,inaddition to various U.S.federal,s

268、tate,and local laws and regulations intended to discourage predatory lending practices by residential mortgage loan originators.Application of certain standards set forth in the ATR rules is highly subjective and subject to interpretive uncertainties.As a result,a court may determine that a resident

269、ial mortgageloan did not meet the standard or test even if the originator reasonably believed such standard or test had been satisfied.Failure of residential mortgage loan originators or servicers tocomply with these laws and regulations could subject us,as a purchaser or an assignee of these loans(

270、or as an investor in securities backed by these loans),to monetary penalties assessedby the CFPB through its administrative enforcement authority and by mortgagors through a private right of action against lenders or as a defense to foreclosure,including by recoupmentor setoff of finance charges and

271、 fees collected,and could result in rescission of the affected residential mortgage loans,which could materially and adversely affect us.Such risks may behigher in connection with the acquisition of non-QM loans,which is currently the focus of our strategy.Borrowers under non-QM loans may be more li

272、kely to challenge the analysisconducted under the ATR rules by lenders.Even if a borrower does not succeed in the challenge,additional costs may be incurred in connection with challenging and defending suchclaims,which may be more costly in judicial foreclosure jurisdictions than in non-judicial for

273、eclosure jurisdictions,and there may be more of a likelihood such claims are made since theborrower is already exposed to the judicial system to process the foreclosureThe non-QM loans in which we invest are subject to increased risks.The non-QM loans in which we invest are subject to increased risk

274、 of loss compared to investments in certain of our other target assets,such as Agency RMBS.A non-QM loanis directly exposed to losses resulting from default.Therefore,the value of the underlying property,the creditworthiness and financial position of the borrower,and the priority andenforceability o

275、f the lien will significantly impact the value of any such non-QM loan.In the event of a foreclosure,we may assume direct ownership of the underlying real estate.Theliquidation proceeds upon the sale of such real estate may not be sufficient to recover our cost basis in the non-QM loan,and any costs

276、 or delays involved in the foreclosure or liquidationprocess may increase losses.The value of non-QM loans is also subject to property damage caused by hazards,such as earthquakes,wildfires,or environmental hazards,not covered bystandard property insurance policies and to a reduction in a borrowers

277、mortgage debt by a bankruptcy court.In addition,claims may be assessed against us because of our position as amortgage holder or property owner,including assignee liability,environmental hazards and other liabilities.In some cases,these claims may lead to losses exceeding the purchase price ofthe re

278、lated non-QM loan or property.Unlike Agency RMBS,non-QM loans are not guaranteed by the U.S.Government or any GSE.Additionally,by directly acquiring non-QM loans,wedo not receive the structural credit enhancements that benefit senior tranches of RMBS.The occurrence of any of these risks could have a

279、 material adverse effect on us.Our portfolio is concentrated,and may continue to be concentrated,by asset type and by region,increasing our risk of loss if there are adverse developments or greater risks affectingthe particular concentration,including due to natural disasters,terrorist events,climat

280、e change,or any other adverse event specific to those regions.Our investment guidelines do not require us to observe specific diversification criteria.Currently,we are focused on acquiring and investing in first lien non-QM loans in theU.S.mortgage market.As of December 31,2024,substantially all of

281、the loans underlying our portfolio of RMBS and residential loans held in securitization trusts consisted of non-QMloans.In addition,as of December 31,2024,more than 5%of the unpaid principal balance of the loans underlying our portfolio of RMBS from the AOMT securitizations in which weparticipated a

282、nd/or were the primary beneficiary were secured by properties located in each of California,Florida,Texas,and Georgia.As a result,our portfolio is concentrated,and maycontinue to be concentrated,by asset type and geographic region,increasing our risk of loss if there are adverse developments or grea

283、ter risks affecting the particular concentration.Accordingly,downturns relating generally to non-QM loans may result in defaults on a number of our non-QM loans within a short time period,and adverse conditions in the areas wherethe properties securing or otherwise underlying our investments are con

284、centrated(including unemployment rates,changing demographics and17other factors)and local real estate conditions(such as oversupply or reduced demand)may have an adverse effect on the value of our investments,any of which may materially andadversely affect us.The occurrence of a natural disaster(suc

285、h as an earthquake,tornado,hurricane,flood,landslide,or wildfire),or the effects of climate change(including flooding,drought,andsevere weather),may cause decreases in the value of real estate(including sudden or abrupt changes)and would likely reduce the value of the properties underlying our portf

286、olio ofRMBS,residential mortgage loans held in securitization trusts and residential mortgage loans that we own directly.For example,in recent years,hurricanes have caused widespreadflooding in Florida and Texas and wildfires and mudslides in California have destroyed or damaged thousands of homes,i

287、ncluding during the wildfires experienced in southern Californiain January 2025.Since certain natural disasters may not typically be covered by the standard insurance policies maintained by borrowers,or borrowers may not be able to purchaseinsurance against certain hazards at all,the borrowers thems

288、elves may have to pay for repairs due to the disasters.Borrowers may not repair their property or may stop paying theirmortgage loans under those circumstances,especially if the property is damaged.This would likely cause foreclosures to increase and lead to higher credit losses on our loans or othe

289、rinvestments or on the pool of mortgage loans underlying securities we own.The non-QM loans and other residential mortgage loans in which we invest are subject to a risk of default,among other risks.Our strategy is to make credit-sensitive investments primarily in newly-originated first lien non-QM

290、loans,which include investment property loans.We also may invest in othertarget assets.Further,we may identify and acquire our target assets through the secondary market when market conditions and asset prices are conducive to making attractive purchases.Such acquisitions and investments will subjec

291、t us to risks which include,among others:declines in the value of residential or commercial real estate;risks related to benchmark rates such as the Secured Overnight Financing Rate(“SOFR”)as reference rates for loans,borrowings and securities;risks related to general and local economic conditions,i

292、ncluding unemployment rates;lack of available mortgage funding for borrowers to refinance or sell their homes or other properties;overbuilding and/or housing availability;increases in property taxes;changes in U.S.federal and state lending laws;changes in zoning laws;costs resulting from the clean-u

293、p of,and liability to third parties for damages resulting from,environmental problems,such as indoor mold;casualty or condemnation losses;acts of God,terrorism,social unrest,and civil disturbances;uninsured damages from floods,earthquakes,wildfires,or other natural disasters,including those resultin

294、g from global climate change;limitations on and variations in rents;fluctuations in interest rates;undetected or unknown fraudulent activity by borrowers,originators,sellers of mortgage loans and/or other third party service providers;undetected deficiencies and/or inaccuracies in underlying mortgag

295、e loan documentation and calculations;andfailure of the borrower to adequately maintain the property.To the extent that assets underlying our investments are concentrated geographically,by property type or in certain other respects,we may be subject to certain of the foregoingrisks to a greater exte

296、nt.Additionally,we may be required to foreclose on a mortgage loan and18such actions would subject us to greater concentration of the risks of the real estate markets and risks related to the ownership and management of real property.We may need to foreclose on certain of the residential mortgage lo

297、ans we acquire,which could result in losses that materially and adversely affect us.We may find it necessary or desirable to foreclose on certain of the residential mortgage loans,including non-QM loans,we acquire,and the foreclosure process may be lengthyand expensive.There are a variety of factors

298、 that may inhibit the ability to foreclose upon a residential mortgage loan and liquidate real property.These factors include,without limitation:(1)extended foreclosure timelines in states that require judicial foreclosure,including states where we may hold high concentrations of residential mortgag

299、e loans;(2)significant collateraldocumentation deficiencies;(3)U.S.federal,state or local laws that are borrower friendly,including legislative action or initiatives designed to provide homeowners with assistance inavoiding residential mortgage loan foreclosures and that serve to delay the foreclosu

300、re process;(4)programs that require specific procedures to be followed to explore the refinancing of aresidential mortgage loan prior to the commencement of a foreclosure proceeding;and(5)declines in real estate values and sustained high levels of unemployment that increase thenumber of foreclosures

301、 and place additional pressure on the judicial and administrative systems.In periods following home price declines,“strategic defaults”(decisions by borrowers todefault on their mortgage loans despite having the ability to pay)also may become more prevalent.Even if we are successful in foreclosing o

302、n a residential mortgage loan,the liquidationproceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the loan,resulting in a loss to us.We will bear a risk of loss of principal to the extent ofany deficiency between the value of the collateral and the prin

303、cipal and accrued interest of the residential mortgage loan.Furthermore,any costs or delays involved in the foreclosure ofthe loan or a liquidation of the underlying property will further reduce the net proceeds and,thus,increase the loss.The incurrence of any such losses could materially and advers

304、ely affectus.Additionally,in the event of the bankruptcy of a residential mortgage loan borrower,the residential mortgage loan to such borrower will be deemed to be secured only to theextent of the value of the underlying collateral at the time of bankruptcy(as determined by the bankruptcy court),an

305、d the lien securing the residential mortgage loan will be subject to theavoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.If borrowers default on their residential mortgage loans and weare unable to recover any resulting loss t

306、hrough the foreclosure process,we could be materially and adversely affected.Increases in interest rates could adversely affect the value of our assets,cause our interest expense to increase,increase the risk of default on our assets and cause a decrease in thevolume of certain of our target assets,

307、which could materially and adversely affect us.Our operating results depend in large part on the difference between the income from our assets,net of credit losses,and financing costs.We anticipate that,in many cases,theincome from our assets will respond more slowly to interest rate fluctuations th

308、an the cost of our borrowings.Consequently,changes in interest rates,particularly short-term interest rates,to the extent not offset by our interest rate hedges,may significantly influence our financial results.Interest rates are highly sensitive to many factors,including governmental monetary and t

309、ax policies,domestic and international economic and political considerations,and otherfactors beyond our control.Increases in interest rates and inflation have led,and may continue to lead,to economic volatility,increased borrowing costs,price increases and risks ofrecession.Fixed income assets typi

310、cally decline in value if interest rates increase.If long-term interest rates were to increase significantly,not only would the market value of these assetsbe expected to decline,but these assets could lengthen in duration because,for example,borrowers would be less likely to prepay their mortgages.

311、Further,an increase in short-terminterest rates would increase the rate of interest payable on any short-term borrowings used to finance these assets.Subject to maintaining our qualification as a REIT and maintaining ourexclusion from regulation as an investment company under the Investment Company

312、Act,we expect to continue to utilize various derivative instruments and other hedging instruments tomitigate interest rate risk,but there can be no assurances that our hedges will be successful,or that we will be able to enter into or maintain such hedges.As a result,interest ratefluctuations can ca

313、use significant losses,reductions in income,and could materially and adversely affect us.In addition,rising or elevated interest rates generally reduce the demand for mortgage loans due to the higher cost of borrowing.A reduction in the volume of mortgage loansoriginated may affect the volume of tar

314、get assets available to us,which could adversely affect our ability to acquire assets that may satisfy our investment objectives.If rising or elevatedinterest rates cause us to be unable to acquire a sufficient volume of our target assets with a yield that is above our borrowing cost,it could materi

315、ally and adversely affect us.An increase in interest rates could also cause financial strain on borrowers with adjustable rate mortgages,who might then be more likely to default.In addition,we cannotensure that our access to capital and other sources of funding will not become constrained,which coul

316、d adversely affect the availability and terms of future borrowings,renewals orrefinancings.Such future constraints could increase our borrowing costs,which would make it more difficult or expensive to obtain additional financing or refinance existing obligationsand commitments,which could slow or de

317、ter future growth.Changes in the fair values of our assets,liabilities,and derivatives can have a material adverse effect on us,including reduced earnings,increased earnings volatility,and volatility inour book value.19Fair values for our assets and liabilities,including derivatives,can be volatile

318、and our revenue and income can be impacted by changes in fair values.Fair values can changerapidly and significantly,and changes can result from changes in interest rates,perceived risk,supply,demand,and actual and projected cash flows,prepayments,and credit performance.A decrease in fair value may

319、not necessarily be the result of or an expectation for deterioration in future cash flows.Fair values for illiquid assets can be difficult to estimate,which maylead to volatility and uncertainty of earnings and book value.For example,real estate-related investments in our target asset portfolio may

320、be subject to changes in credit spreads.Credit spreads measure the yield demanded on securities bythe market based on their credit relative to a specific benchmark and are a measure of the perceived risk of the investment.Fixed rate securities are valued based on a market credit spreadover the rate

321、payable on fixed rate swaps or fixed rate U.S.Treasuries of similar maturities.Floating rate securities are typically valued based on a market credit spread over a floating rateindex such as SOFR and are affected similarly by changes in index spreads.Excessive supply of these securities or reduced d

322、emand may cause the market to require a higher yield onthese securities,resulting in the use of a higher,or“wider,”spread over the benchmark rate to value such securities.Under such conditions,the value of our securities portfolios wouldtend to decline.Conversely,if the spread used to value such sec

323、urities were to decrease,or“tighten,”the value of our real estate and other securities portfolio would tend to increase.Suchchanges in the market value of our real estate-related securities portfolio may affect our net equity,net income,comprehensive income,or cash flow directly through their impact

324、 onunrealized gains or losses or other comprehensive income(loss),and therefore our ability to realize gains on such assets,or indirectly through their impact on our ability to borrow andaccess capital.Widening credit spreads could cause net unrealized gains to decrease or net unrealized losses to i

325、ncrease,and result in overall net losses and/or comprehensive net losses.For purposes of generally accepted accounting principles in the United States of America(“GAAP”),we mark to market most of the assets and some of the liabilities on ourconsolidated balance sheet.In addition,valuation adjustment

326、s on certain consolidated assets and many of our derivatives are reflected in our consolidated statement of income.Assets thatare funded with certain liabilities and hedges may have differing mark-to-market treatment than the liability or hedge.If we sell an asset at a lower price than has been refl

327、ected in thatassets most recent mark to market value,our reported earnings will be reduced.SOFR has replaced U.S.dollar LIBOR as a reference rate of interest,which subjects us to various risks.U.S.dollar LIBOR(London Interbank Offered Rate)has been replaced by rates based on SOFR.SOFR has a limited

328、history,having been first published in April 2018.Thefuture performance of SOFR,and SOFR-based reference rates,cannot be predicted based on SOFRs history or otherwise.Future levels of SOFR may bear little or no relation to historicallevels of SOFR,LIBOR or other rates.Because SOFR is a financing rat

329、e based on overnight secured funding transactions,it differs fundamentally from LIBOR.LIBOR was intended tobe an unsecured rate that represented interbank funding costs for different short-term tenors;and was a forward-looking rate reflecting expectations regarding interest rates for thosetenors.Thu

330、s,LIBOR was intended to be sensitive to bank credit risk and to short-term interest rate risk.In contrast,SOFR is a secured overnight rate reflecting the credit of U.S.Treasurysecurities as collateral.Thus,it is intended to be insensitive to credit risk and to risks related to interest rates other t

331、han overnight rates.SOFR has been more volatile than other benchmarkor market rates during certain periods.Like LIBOR,some SOFR-based rates are forward-looking term rates;other SOFR-based rates are intended to resemble rates for term structures through their use of averagingmechanisms applied to rat

332、es from overnight transactions,as in the case of“simple average”or“compounded average”SOFR.Different kinds of SOFR-based rates result in differentinterest rates.Mismatches between SOFR-based rates,and between SOFR-based rates and other rates,may cause economic inefficiencies,particularly if market p

333、articipants seek to hedgeone kind of SOFR-based rate by entering into hedge transactions based on another SOFR-based rate or another rate.For these reasons,among others,there is no assurance that SOFR,orrates derived from SOFR,will perform in the same or a similar way as U.S.dollar LIBOR would have performed at any time,and there is no assurance that SOFR-based rates are suitablesubstitutes for U.