10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q 

ý  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 For the quarterly period ended September 30, 2023

OR

☐   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _____ to _____.     

 Commission File Number:  001-35543

 Western Asset Mortgage Capital Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware	27-0298092
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

Western Asset Mortgage Capital Corporation

385 East Colorado Boulevard,

Pasadena, California 91101

(Address of Registrant’s principal executive offices)

(626) 844-9400

(Registrant’s telephone number, including area code)

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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes ý No o 

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 emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 

Large accelerated filer	o	Accelerated filer	ý
Non-accelerated filer	o	Smaller reporting company	ý
		Emerging growth company	o

If an 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 provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 under the Securities Exchange Act of 1934).Yes ☐ No ý

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	WMC	New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

As of November 8, 2023 there were 6,049,559 shares, par value $0.01, of the registrant’s common stock outstanding.

TABLE OF CONTENTS

 

		Page
	PART I — FINANCIAL INFORMATION
ITEM 1.	Financial Statements	2
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	86
ITEM 4.	Controls and Procedures	92
	PART II — OTHER INFORMATION	93
ITEM 1.	Legal Proceedings	93
ITEM 1A.	Risk Factors	93
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	95
ITEM 3.	Defaults Upon Senior Securities	95
ITEM 4.	Mine Safety Disclosures	95
ITEM 5.	Other Information	95
ITEM 6.	Exhibits	96
Signatures		99

Part I

ITEM I. FINANCIAL STATEMENTS

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Balance Sheets

(in thousands—except share and per share data)

(Unaudited)

	September 30, 2023		December 31, 2022
Assets:
Cash and cash equivalents	$	24,608	$	18,011
Restricted cash	—		248
Agency mortgage-backed securities, at fair value ($297 and $249 pledged as collateral, at fair value, respectively)	895		767
Non-Agency mortgage-backed securities, at fair value ($69,164 and $100,115 pledged as collateral, at fair value, respectively)	87,327		109,122
Other securities, at fair value ($15,645 and $27,262 pledged as collateral, at fair value, respectively)	16,867		27,262
Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively)	986,978		1,091,145
Residential Bridge Loans, at fair value ($2,782 and none pledged as collateral, at fair value, respectively)	2,782		2,849
Securitized Commercial Loan, at fair value	1,012,650		1,085,103
Commercial Loans, at fair value ($66,202 and $66,864 pledged as collateral, at fair value, respectively)	78,701		90,002
Investment related receivable	8,648		5,960
Interest receivable	10,913		11,330
Due from counterparties	1,262		6,574
Derivative assets, at fair value	—		1
Other assets	4,145		4,860
Total Assets (1)	$	2,235,776	$	2,453,234
Liabilities and Equity:
Liabilities:
Repurchase agreements, net	$	169,910	$	193,117
Convertible senior unsecured notes, net	84,750		83,522
Securitized debt, net ($1,582,278 and $1,719,865 at fair value and $110,081 and $128,217 held by affiliates, respectively)	1,884,375		2,058,684
Interest payable (includes $615 and $655 on securitized debt held by affiliates, respectively)	8,638		12,794
Due to counterparties	103		300
Derivative liability, at fair value	845		61
Accounts payable and accrued expenses	6,021		3,201
Payable to affiliate	1,002		4,028
Dividend payable	2,117		2,415
Other liabilities	25		300
Total Liabilities(2)	2,157,786		2,358,422
Commitments and contingencies (Note 15)
Stockholders’ Equity:
Common stock, $0.01 par value, 50,000,000 shares authorized, 6,049,559 and 6,038,012 outstanding, respectively	60		60
Preferred stock, $0.01 par value, 10,000,000 shares authorized and no shares outstanding	—		—
Treasury stock, at cost, 57,981 and 57,981 shares held, respectively	(1,665)		(1,665)
Additional paid-in capital	919,646		919,238
Retained earnings (accumulated deficit)	(840,055)		(822,829)
Total Stockholders’ Equity	77,986		94,804
Non-controlling interest	4		8
Total Equity	77,990		94,812
Total Liabilities and Equity	$	2,235,776	$	2,453,234

 See notes to unaudited consolidated financial statements.

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Balance Sheets (Continued)

(in thousands — except share and per share data)

(Unaudited)

	September 30, 2023		December 31, 2022
(1) Assets of consolidated VIEs included in the total assets above:
Restricted cash	$	—	$	248
Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively)	986,978		1,091,145
Residential Bridge Loans, at fair value ($2,782 and none pledged as collateral, at fair value, respectively)	2,782		2,849
Securitized Commercial Loan, at fair value	1,012,650		1,085,103
Commercial Loans, at fair value	12,499		14,362
Investment related receivable	8,602		5,914
Interest receivable	9,731		10,182
Other assets	—		509
Total assets of consolidated VIEs	$	2,033,242	$	2,210,312
(2) Liabilities of consolidated VIEs included in the total liabilities above:
Securitized debt, net ($1,582,278 and $1,719,865 at fair value and $110,081 and $128,217 held by affiliates, respectively)	$	1,884,375	$	2,058,684
Interest payable (includes $615 and $655 on securitized debt held by affiliates, respectively)	7,887		8,303
Accounts payable and accrued expenses	21		43
Other liabilities	—		248
Total liabilities of consolidated VIEs	$	1,892,283	$	2,067,278

See notes to unaudited consolidated financial statements.

2

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Statements of Operations

(in thousands—except share and per share data)

(Unaudited)

 

	For the three months ended September 30, 2023		For the three months ended September 30, 2022		For the nine months ended September 30, 2023		For the nine months ended September 30, 2022
Net Interest Income
Interest income	$	40,138	$	41,406	$	121,217	$	116,625
Interest expense (includes $3,265, $3,493, $9,848, and $10,412 on securitized debt held by affiliates, respectively)	36,976		35,707		109,690		100,408
Net Interest Income	3,162		5,699		11,527		16,217
Other Income (Loss)
Realized loss, net	(29)		(35)		(83,946)		(33,551)
Unrealized gain (loss), net	(7,362)		(43,582)		76,100		(66,300)
Gain on derivative instruments, net	1,157		4,882		1,221		16,599
Merger termination reimbursement	3,000		—		3,000		—
Other, net	181		(61)		424		(252)
Other Income	(3,053)		(38,796)		(3,201)		(83,504)
Expenses
Management fee to affiliate	974		850		2,908		2,952
Other operating expenses	353		343		932		901
Transaction costs	3,034		2,635		5,666		5,590
General and administrative expenses:
Compensation expense	607		515		1,622		1,143
Professional fees	344		1,626		3,309		4,434
Merger termination expense	3,000		—		3,000		—
Other general and administrative expenses	504		676		1,658		2,049
Total general and administrative expenses	4,455		2,817		9,589		7,626
Total Expenses	8,816		6,645		19,095		17,069
Loss before income taxes	(8,707)		(39,742)		(10,769)		(84,356)
Income tax provision	—		266		—		276
Net loss	(8,707)		(40,008)		(10,769)		(84,632)
Net income (loss) attributable to non-controlling interest	(2)		2		2		3,618
Net loss attributable to common stockholders and participating securities	$	(8,705)	$	(40,010)	$	(10,771)	$	(88,250)
Net loss per Common Share — Basic	$	(1.45)	$	(6.63)	$	(1.80)	$	(14.63)
Net loss per Common Share — Diluted	$	(1.45)	$	(6.63)	$	(1.80)	$	(14.63)

See notes to unaudited consolidated financial statements.

3

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Equity

(in thousands—except shares and share data)

(Unaudited)

 

	Three Months Ended September 30, 2023
	Common Stock Outstanding			Additional  Paid-In Capital		Retained  Earnings  (Accumulated Deficit)		Treasury Stock		Total Stockholders' Equity		Non-Controlling Interest		Total Equity
	Shares	Par
Balance at June 30, 2023	6,038,012	$	60	$	919,511	$	(829,193)	$	(1,665)	$	88,713	$	8	$	88,721
Exchange of phantom stock to common stock	11,547	—		—		—		—		—		—		—
Vesting of restricted stock	—	—		100		—		—		100		—		100
Net loss	—	—		—		(8,705)		—		(8,705)		(2)		(8,707)
Dividends declared on non-controlling interest	—	—		—		—		—		—		(2)		(2)
Dividends declared on common stock	—	—		35		(2,157)		—		(2,122)		—		(2,122)
Balance at September 30, 2023	6,049,559	$	60	$	919,646	$	(840,055)	$	(1,665)	$	77,986	$	4	$	77,990

	Three Months Ended September 30, 2022
	Common Stock Outstanding			Additional  Paid-In Capital		Retained  Earnings  (Accumulated Deficit)		Treasury Stock		Total Stockholders' Equity		Non-Controlling Interest		Total Equity
	Shares	Par
Balance at June 30, 2022	6,038,012	$	60	$	918,974	$	(777,095)	$	(1,665)	$	140,274	$	64	$	140,338
Equity distribution	—	—		—		—		—		—		(49)		(49)
Vesting of restricted stock	—	—		100		—		—		100		—		100
Net income (loss)	—	—		—		(40,010)		—		(40,010)		2		(40,008)
Dividends declared on non-controlling interest	—	—		—		—		—		—		(2)		(2)
Dividends declared on common stock		—		32		(2,448)		—		(2,416)		—		(2,416)
Balance at September 30, 2022	6,038,012	60		$	919,106	$	(819,553)	$	(1,665)	$	97,948	$	15	$	97,963

See notes to unaudited consolidated financial statements.

4

	Nine Months Ended September 30, 2023
	Common Stock Outstanding			Additional  Paid-In Capital		Retained  Earnings  (Accumulated Deficit)		Treasury Stock		Total Stockholders' Equity		Non-Controlling Interest
	Shares	Par												Total Equity
Balance at December 31, 2022	6,038,012	$	60	$	919,238	$	(822,829)	$	(1,665)	$	94,804	$	8	$	94,812
Exchange of phantom stock to common stock	11,547	—		—		—		—		—		—		—
Vesting of restricted stock	—	—		301		—		—		301		—		301
Net income (loss)	—	—		—		(10,771)		—		(10,771)		2		(10,769)
Dividends declared on non-controlling interest	—	—		—		—		—		—		(6)		(6)
Dividends declared on common stock	—	—		107		(6,455)		—		(6,348)		—		(6,348)
Balance at September 30, 2023	6,049,559	$	60	$	919,646	$	(840,055)	$	(1,665)	$	77,986	$	4	$	77,990

	Nine Months Ended September 30, 2022
	Common Stock Outstanding			Additional  Paid-In Capital		Retained  Earnings  (Accumulated Deficit)		Treasury Stock		Total Stockholders' Equity		Non-Controlling Interest
	Shares	Par												Total Equity
Balance at December 31, 2021	6,038,012	$	60	$	918,695	$	(723,981)	$	(1,665)	$	193,109	$	11,220	$	204,329
Equity distribution	—	—		—		—		—		—		(14,817)		(14,817)
Vesting of restricted stock	—	—		335		—		—		335		—		335
Net income (loss)	—	—		—		(88,250)		—		(88,250)		3,618		(84,632)
Dividends declared on non-controlling interest	—	—		—		—		—		—		(6)		(6)
Dividends declared on common stock	—	—		76		(7,322)		—		(7,246)		—		(7,246)
Balance at September 30, 2022	6,038,012	$	60	$	919,106	$	(819,553)	$	(1,665)	$	97,948	$	15	$	97,963

5

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Statements of Cash Flows (in thousands)

(Unaudited)

	For the nine months ended September 30, 2023		For the nine months ended September 30, 2022
Cash flows from operating activities:
Net loss	$	(10,769)	$	(84,632)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Premium amortization and (discount accretion), net	1,253		2,492
Interest income earned added to principal of investments	(129)		(79)
Amortization of deferred financing costs	1,842		1,938
Amortization of discount on convertible senior unsecured notes	515		648
Restricted stock amortization	301		335
Premium on purchase of Residential Whole Loans	—		(6,619)
Unrealized (gain) loss, net	(76,100)		66,300
Realized loss on extinguishment of convertible senior notes	—		134
Realized gain on sale of real estate owned ("REO")	—		(12,198)
Unrealized loss (gain) on derivative instruments, net	650		(3,793)
Realized loss on investments, net	83,918		45,615
Loss on derivatives, net	—		1,762
Loss on foreign currency transactions, net	—		1
Changes in operating assets and liabilities:
Interest receivable	417		499
Other assets	715		—
Interest payable	(4,156)		188
Accounts payable and accrued expenses	2,820		(953)
Payable to affiliate	(3,026)		1,428
Other liabilities	(29)		7
Net cash (used in) provided by operating activities	(1,778)		13,073
Cash flows from investing activities:
Purchase of securities	(15,714)		(39,952)
Proceeds from sale of securities	15,324		42,287
Proceeds from sale of REO	—		54,681
Principal repayments and basis recovered on securities	21,121		6,704
Purchase of Residential Whole Loans	—		(405,298)
Proceeds from sale of Residential Whole Loans	—		11,735
Principal repayments on Residential Whole Loans	83,413		206,660
Proceeds from sale of Commercial Loans	8,776		—
Principal repayments on Commercial Loans	1,962		20,593
Principal repayments on Residential Bridge Loans	1,369		366
Premium for credit default swaps, net	—		(347)
Net settlements of TBAs	—		2,051
Proceeds from sale of interest rate swaptions, net	—		312
Due from counterparties	—		460
Premium for interest rate swaptions, net	—		(473)
Net cash provided by (used in) investing activities	116,251		(100,221)
Cash flows from financing activities:
Payment of offering costs	—		(2)
Payments on extinguishment of convertible senior unsecured notes	—		(11,690)
Proceeds from repurchase agreement borrowings	1,287,837		3,164,451
Repayments of repurchase agreement borrowings	(1,310,136)		(3,562,699)
Proceeds from securitized debt	—		742,432
Repayments of securitized debt	(83,042)		(207,799)

6

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Continued) (in thousands)

(Unaudited)

	For the nine months ended September 30, 2023		For the nine months ended September 30, 2022
Payments made for deferred financing costs	(1,000)		—
Due from counterparties, net	5,312		890
Due to counterparties, net	(197)		—
Decrease in other liabilities	(248)		(9)
Equity distributions to non-controlling interest	—		(14,817)
Dividends paid on common stock	(6,646)		(8,454)
Dividends paid to non-controlling interest	(4)		(4)
Net cash (used in) provided by financing activities	(108,124)		102,299
Effect of exchange rate changes on cash and cash equivalents	—		(1)
Net increase in cash, cash equivalents and restricted cash	6,349		15,150
Cash, cash equivalents and restricted cash, beginning of period	18,259		40,453
Cash, cash equivalents and restricted cash, end of period	$	24,608	$	55,603
Supplemental disclosure of operating cash flow information:
Interest paid	$	90,765	$	79,700
Income taxes paid	$	24	$	50
Supplemental disclosure of non-cash financing/investing activities:
Dividends and distributions declared, not paid	$	2,117	$	2,415
Dividends to non-controlling interest, not paid	$	2	$	2
Principal payments of Residential Whole Loans, not settled	$	8,602	$	8,674
Principal payments of Residential Bridge Loans, not settled	$	—	$	46
Reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Balance Sheets:
Cash and cash equivalents	$	24,608	$	55,352
Restricted cash	—		251
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows	$	24,608	$	55,603

See notes to unaudited consolidated financial statements.

7

Western Asset Mortgage Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

(in thousands- except share and per share data)

The following defines certain of the commonly used terms in these Notes to Consolidated Financial Statements: “Agency” or “Agencies” refer to a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac” or “FHLMC”), or an agency of the U.S. Government, such as the Government National Mortgage Association (“Ginnie Mae” or “GNMA”); references to “MBS” refer to mortgage backed securities, including residential mortgage-backed securities or “RMBS,” commercial mortgage-backed securities or “CMBS,” and “Interest-Only Strips” (as defined herein); “Agency MBS” refer to RMBS, CMBS and Interest-Only Strips issued or guaranteed by the Agencies while “Non-Agency MBS” refer to RMBS, CMBS and Interest-Only Strips that are not issued or guaranteed by the Agencies; references to “ARMs” refers to adjustable rate mortgages; references to “Interest-Only Strips” refer to interest-only (“IO”) and inverse interest-only (“IIO”) securities issued as part of or collateralized with MBS; references to “TBA” refer to To-Be-Announced Securities; and references to “Residential Whole Loans,” “Residential Bridge Loans” and “Commercial Loans” (collectively “Whole Loans”) refer to individual mortgage loans secured by single family, multifamily and commercial properties.

Note 1 — Organization

Western Asset Mortgage Capital Corporation, a Delaware corporation, and its subsidiaries (the “Company”), commenced operations in May 2012. The Company invests in, finances and manages a portfolio of real estate related securities, Whole Loans and other financial assets. The Company’s current portfolio is comprised of Non-Qualified ("Non-QM") Residential Whole Loans, Non-Agency RMBS, Commercial Loans, Non-Agency CMBS and to a lesser extent Agency RMBS, GSE Risk Transfer Securities, Residential Bridge Loans, and asset-backed securities (“ABS”) secured by a portfolio of private student loans. The Company’s investment strategy is based on Western Asset Management Company, LLC’s (the “Manager”) perspective of which mix of portfolio assets it believes provides the Company with the best risk-reward opportunities at any given time. The Company's current investment strategy will focus on residential real estate related investments, including but not limited to non-qualified mortgage loans, Non-Agency RMBS, and other related investments. The Manager will vary the allocation among these asset classes subject to maintaining the Company’s qualification as a REIT and maintaining its exemption from the Investment Company Act of 1940, as amended (the “1940 Act”). These restrictions limit the Company’s ability to invest in non-qualified MBS, non-real estate assets and/or assets which are not secured by real estate. Accordingly, the Company’s portfolio will continue to be principally invested in qualifying MBS, Whole Loans, and other real estate related assets. The Company is externally managed by the Manager, an investment advisor registered with the Securities and Exchange Commission (“SEC”). The Manager is a wholly-owned subsidiary of Franklin Resources, Inc. (“Franklin”). The Company operates and has elected to be taxed as a real estate investment trust or “REIT” commencing with its taxable year ended December 31, 2012.

On June 28, 2023, the Company announced that Terra Property Trust, Inc. (“TPT”), an externally managed real estate investment trust (“REIT”) that originates, invests in, and manages loans and assets secured by commercial real estate (“CRE”), and the Company entered into a definitive merger agreement (the “TPT Merger Agreement”) under which TPT and WMC agreed to combine.

On August 8, 2023, the Company terminated the TPT Merger Agreement, and concurrently entered into an Agreement and Plan of Merger (the “MITT Merger Agreement”), dated August 8, 2023, by and among AG Mortgage Investment Trust, Inc., a Maryland corporation (“MITT”), AGMIT Merger Sub, LLC, a Delaware limited liability company (“Merger Sub”), the Company, and, solely for the purposes of Section 3.3(a), Section 3.3(i), Article V, Section 6.13, Section 7.2, Section 7.3 and Article IX therein, AG REIT Management, LLC, a Delaware limited liability company (“MITT Manager”), pursuant to which the Company will merge with and into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary of MITT (the “Merger”).

Due to the termination of the TPT Merger Agreement, the Company was obligated to pay or cause to be paid to TPT a termination fee of $3 million. Concurrently with the execution of the MITT Merger Agreement, MITT paid the $3 million termination fee directly to TPT on behalf of the Company on August 8, 2023.

8

Pursuant to, and subject to the terms and conditions set forth in, the MITT Merger Agreement, each outstanding share of the Company’s common stock would be converted into the right to receive (i) 1.498 shares of MITT common stock and (ii) the per share portion of a cash payment from the MITT Manager equal to the lesser of $7 million or approximately 9.9% of the aggregate per share merger consideration (any difference between $7 million and such lower amount would be used to benefit the combined company post closing by offsetting reimbursable expenses that would otherwise be payable to the MITT Manager). Additionally, the MITT Manager, which would be the manager of the combined company, would waive $2.4 million of management fees in the first year post-closing. Cash will be paid in lieu of fractional shares of MITT common stock that would have been received as a result of the Merger.

On November 7, 2023, the Company adjourned its special meeting of stockholders until December 5, 2023, at 9:00 a.m. Pacific Time, due to a lack of quorum and to allow further solicitation of proxies from the Company’s common stockholders for the approval of the merger at the special meeting.

At a special meeting of MITT stockholders held on November 7, 2023, MITT stockholders approved the issuance of

MITT’s common stock to be issued in connection with the proposed Merger.

The transaction has been approved by the Board of Directors of the Company and is subject to customary closing conditions. The transaction is expected to close during the fourth quarter of 2023.

Note 2 — Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. For all periods presented, all per share amounts and common shares outstanding have been adjusted on a retroactive basis to reflect the Company's one-for-ten reverse stock split, which was effected on July 11, 2022. The results of operations for the period ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year or any future period. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 13, 2023.

The consolidated financial statements include the accounts of the Company, its wholly-owned and majority-owned subsidiaries, and variable interest entities (“VIEs”) in which it is considered the primary beneficiary. All intercompany amounts between the Company and its subsidiaries and consolidated VIEs have been eliminated in consolidation.

Reverse Stock Split

Our amended and restated certificate of incorporation as of June 30, 2022, authorized the Company to issue a total of 600,000,000 shares of capital stock, consisting of 500,000,000 shares of common stock, par value $0.01 per share, and 100,000,000 shares of preferred stock, par value $0.01 per share.

Following approval by the Company’s stockholders of a reverse stock split between a range of one-for-five and one-for-ten of currently outstanding shares of the Company’s common stock, on June 30, 2022, the Company's Board of Directors selected a one-for-ten reverse stock split ratio. The one-for-ten reverse stock split was effected on July 11, 2022, which reduced the total number of authorized shares of common stock from 500,000,000 to 50,000,000 and also reduced the total number of authorized shares of preferred stock from 100,000,000 to 10,000,000. The total number of issued and outstanding shares from 60,380,105 to 6,038,012. The par value per share of our common stock remained unchanged at $0.01. All per share amounts and common shares outstanding have been adjusted on a retroactive basis to reflect the Company's one-for-ten reverse stock split.

Our stockholders' equity, in the aggregate, remained unchanged. Per share net income or loss increased because there are fewer shares of common stock outstanding. The common stock held in treasury was reduced in proportion to the reverse stock split ratio. There were no other accounting consequences, including changes to the amount of stock-based compensation expense to be recognized in any period, that arose as a result of the reverse stock split. No fractional shares were issued in

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connection with the reverse stock split. Instead, each stockholder holding fractional shares was entitled to receive, in lieu of such fractional shares, cash in an amount determined based on the closing price of the Company's common stock the business day prior to the effective date. The reverse stock split applied to all of the Company's outstanding shares of common stock and did not affect any stockholder’s ownership percentage of shares of the Company's common stock, except for immaterial changes resulting from the payment of cash for fractional shares.

Variable Interest Entities

VIEs are defined as entities, that by design, either lack sufficient equity for the entity to finance its activities without additional subordinated financial support, or are unable to direct the entity’s activities, or are not exposed to the entity’s losses or entitled to its residual returns. The Company evaluates all of its interests in VIEs for consolidation. When the interests are determined to be variable interests, the Company assesses whether it is deemed the primary beneficiary. The primary beneficiary of a VIE is determined to be the party that has both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.

To assess whether the Company has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, it considers all facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes: first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE or have the right to unilaterally remove those decision makers are deemed to have the power to direct the activities of a VIE.

To assess whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, it considers all of its economic interests. This assessment requires the Company to apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing significance include; the design of the VIE, including its capitalization structure, subordination of interests, payment priority, relative share of interests held across various classes within the VIE’s capital structure, and the reasons why the interests are held by the Company.

In instances where the Company and its related parties have variable interests in a VIE, the Company considers whether there is a single party in the related party group that meets both the power and losses or benefits criteria on its own as though no related party relationship existed. If one party within the related party group meets both these criteria, such reporting entity is the primary beneficiary of the VIE and no further analysis is needed. If no party within the related party group on its own meets both the power and losses or benefits criteria, but the related party group as a whole meets these two criteria, the determination of primary beneficiary within the related party group requires significant judgment. The analysis is based upon qualitative as well as quantitative factors, such as the relationship of the VIE to each of the members of the related-party group, as well as the significance of the VIE's activities to those members, with the objective of determining which party is most closely associated with the VIE.

Ongoing assessments of whether an enterprise is the primary beneficiary of a VIE are required.

Use of Estimates

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Significant Accounting Policies

    There have been no significant changes to our accounting policies included in Note 2 to the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2022.

Recently Issued Accounting Pronouncements

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Description	Effective Date	Effect on Financial Statements
In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40).” The amendments in this Update affect entities that issue convertible instruments and/or contracts in an entity’s own equity. For convertible instruments, the instruments primarily affected are those issued with beneficial conversion features or cash conversion features because the accounting models for those specific features are removed.	January 1, 2024	The Company evaluated the impact this standard may have on its consolidated financial statements and does not believe it will have a material impact on its financial statements and disclosures due to the limited nature of such transactions.
In March 2021, the FCA announced that the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of USD LIBOR would be June 30, 2023, which is beyond the current sunset date of Topic 848. Accordingly, during December 2022, the FASB issued ASU 2022-06 to defer the sunset date of ASC Topic 848, Reference Rate Reform, which provides temporary optional relief in accounting for the impact of reference rate reform from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of rate reform.	December 31, 2024	With additional time granted to apply the relief in Topic 848 extended through December 31, 2024, Management monitored if any legacy LIBOR reference rate contracts remained outstanding as of September 30, 2023 in the investment portfolio, as either they they terminated prior to the June 30, 2023 LIBOR cessation date, or the Company elected to use the practical expedients per Topic 848 to account for modifications to contracts prospectively within the scope of Topics 310, Receivables, and 470, Debt, as a continuation of the existing contracts. The Company adjusted the effective interest rate of all contracts, hedging relationships, and other transactions that reference LIBOR to revised reference rates and spreads as they occured. The variable-rate and floating-rate note sectors have primarily transitioned away from LIBOR as the market has already adapted to the secured overnight financing rate (SOFR), as the primary index used by issuers. As of September 30, 2023, the Company has fully transitioned away from any contracts, hedging relationships, or other transactions that reference LIBOR, which did not have a material impact on its financial statements and disclosures.

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Note 3 — Fair Value of Financial Instruments

The following tables present the Company’s financial instruments carried at fair value as of September 30, 2023 and December 31, 2022, based upon the valuation hierarchy (dollars in thousands):

 

	September 30, 2023
	Fair Value
	Level I		Level II		Level III		Total
Assets
Agency RMBS Interest-only strips	$	—	$	—	$	61	$	61
Agency RMBS Interest-only strips accounted for as derivatives, included in MBS	—		—		834		834
Subtotal Agency MBS	—		—		895		895
Non-Agency CMBS	—		54,206		—		54,206
Non-Agency RMBS	—		31,872		—		31,872
Non-Agency RMBS Interest-only strips	—		—		1,249		1,249
Subtotal Non-Agency MBS	—		86,078		1,249		87,327
Other securities	—		16,867		—		16,867
Total mortgage-backed securities and other securities	—		102,945		2,144		105,089
Residential Whole Loans	—		—		986,978		986,978
Residential Bridge Loans	—		—		2,782		2,782
Securitized Commercial Loans	—		—		1,012,650		1,012,650
Commercial Loans	—		—		78,701		78,701
Total Assets	$	—	$	102,945	$	2,083,255	$	2,186,200
Liabilities
Derivative liabilities	$	—	$	845	$	—	$	845
Securitized debt	—		1,576,499		5,779		1,582,278
Total Liabilities	$	—	$	1,577,344	$	5,779	$	1,583,123

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	December 31, 2022
	Fair Value
	Level I		Level II		Level III		Total
Assets
Agency RMBS Interest-only strips	$	—	$	—	$	53	$	53
Agency RMBS Interest-only strips accounted for as derivatives, included in MBS	—		—		714		714
Subtotal Agency MBS	—		—		767		767
Non-Agency CMBS	—		85,435		—		85,435
Non-Agency RMBS	—		22,483		—		22,483
Non-Agency RMBS Interest-only strips	—		—		1,204		1,204
Subtotal Non-Agency MBS	—		107,918		1,204		109,122
Other securities	—		27,262		—		27,262
Total mortgage-backed securities and other securities	—		135,180		1,971		137,151
Residential Whole Loans	—		—		1,091,145		1,091,145
Residential Bridge Loans	—		—		2,849		2,849
Securitized Commercial Loan	—		—		1,085,103		1,085,103
Commercial Loans	—		—		90,002		90,002
Derivative assets	—		1		—		1
Total Assets	$	—	$	135,181	$	2,271,070	$	2,406,251
Liabilities
Derivative liabilities	$	—	$	61	$	—	$	61
Securitized debt	—		1,710,938		8,927		1,719,865
Total Liabilities	$	—	$	1,710,999	$	8,927	$	1,719,926

When available, the Company uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Company will use independent pricing services and if the independent pricing service cannot price a particular asset or liability, the Company will obtain third-party broker quotes. The Manager's pricing group, which functions independently from its portfolio management personnel, reviews the third-party broker quotes by comparing the broker quotes for reasonableness to the alternate sources when available. If independent pricing services or third-party broker quotes are not available, the Company determines the fair value of the securities using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as interest rates and, when applicable, estimates of prepayments and credit losses.

In instances when the Company is required to consolidate a VIE that is determined to be a qualifying collateralized financing entity ("CFE") under GAAP, and if the Company has elected the fair value option for the securitized debt, the Company will measure both the financial assets and financial liabilities of the VIE using the fair value of either the VIE’s financial assets or financial liabilities, whichever is more observable.

Mortgage-backed Securities and Other Securities

In determining the proper fair value hierarchy or level, the Company considers the amount of available observable market data for each security. For Agency IOs, Non-Agency RMBS, CMBS and other securities, to determine whether a security should be a Level II, the securities are grouped by security type and the Manager reviews the internal trade history, for

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the quarter, for each security type. If there is sufficient trade data above a predetermined threshold of a security type, the Manager determines it has sufficient observable market data and the security will be categorized as a Level II; otherwise, the

security is classified as a Level III.

Values for the Company’s securities are based upon prices obtained from independent third party pricing services. The valuation methodology of the third party pricing services incorporates market information and commonly used market pricing methods, which include actual trades and quoted prices for similar or identical instruments, and are designed to produce a pricing process that is responsive to market conditions. Depending on the type of asset and the underlying collateral, the primary inputs to the model include; yields for TBAs, Agency RMBS, the U.S. Treasury market and floating rate indices such as LIBOR and SOFR, the Constant Maturity Treasury rate, and the prime rate as a benchmark yield. In addition, the model may incorporate the current weighted average maturity and additional pool level information such as prepayment speeds, default frequencies and default severities, if applicable. When the third party pricing service cannot adequately price a particular security, the Company utilizes a broker’s quote which is reviewed for reasonableness by the Manager’s pricing group.

Residential Whole Loans and Residential Bridge Loans

Values for the Company's Residential Whole Loans and Residential Bridge Loans are based upon prices obtained from an independent third-party pricing service that specializes in loan valuation, utilizing a discounted cash flow valuation model that is calibrated to recent loan trade execution. Their valuation methodology incorporates commonly used market pricing methods, which include the inputs considered most significant to the determination of fair value of the Company's Residential Whole Loans and Residential Bridge Loans. The key loan inputs include loan balance, interest rate, loan to value, delinquencies and fair value of the collateral for collateral dependent loans. The assumptions made by the independent third-party pricing service includes the market discount rate, default assumptions, and loss severity. Other inputs and assumptions relevant to the pricing of Residential Whole Loans include FICO scores and prepayment speeds.

The independent third-party pricing service used a combination of recent loan trades and recent Residential Whole Loans and Residential Bridge Loans securitization transactions adjusted for deal cost and liquidity premium, to form their opinion on the appropriate discount rate.

The Company reviews the analysis provided by the pricing service, as well as the key assumptions made available to the Company. Due to the inherent uncertainty of such valuation, the fair values established for Residential Whole Loans and Residential Bridge Loans held by the Company may differ from the fair values that would have been established if a readily available market existed for these loans. In addition, the fair values for the Company's Non-QM Residential Whole Loans held in Arroyo Trust 2022-1 and Arroyo Trust 2022-2 are measured using the fair value of the securitized debt based on the CFE valuation methodology. See Note 5, "Residential Whole Loans and Residential Bridge Loans" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional details. Accordingly, the Company classifies its Residential Whole Loans and Residential Bridge Loans as Level III.

Commercial Loans

    Values for the Company's Commercial Loans are based upon prices obtained from an independent third-party pricing service that specializes in loan valuation, utilizing a valuation model that is calibrated to recent loan trade execution. Their valuation methodology incorporates commonly used market pricing methods, which include the inputs considered most significant to the determination of fair value of the Company's Commercial Loans. The assumptions made by the independent third-party pricing vendor include a market discount rate, default assumption, loss severity, cash flows and probability weighted loss scenarios. The Company reviews the analysis provided by the pricing service as well as the key assumptions. Due to the inherent uncertainty of such valuation, the fair values established for Commercial Loans held by the Company may differ from the fair values that would have been established if a readily available market existed for these loans. Accordingly, the Company's Commercial Loans are classified as Level III.

Securitized Commercial Loans

Values for the Company’s Securitized Commercial Loans are based on the collateralized financing entity ("CFE") valuation methodology. Since there is an extremely limited market for the Securitized Commercial Loans, the Company determined the securitized debt is more actively traded and therefore was more observable. Due to the inherent uncertainty of the Securitized Commercial Loans' valuation, the Company classifies its Securitized Commercial Loans as Level III.

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Securitized Debt

Values for the Company's securitized debt that the Company elected the fair value option are based upon prices obtained from independent third party pricing services. The valuation methodology of the third-party pricing services incorporates market information and commonly used market pricing methods, which include actual trades and quoted prices for similar or identical instruments. In determining the proper fair value hierarchy or level, the Company considers the amount of available observable market data for each security. Since the securitized debt represents traded debt securities, the Manager's pricing team reviews the trade activity during the quarter for each security to determine the appropriate level within the fair value hierarchy. If there is sufficient trade data above a predetermined volume threshold, the Manager determines it has sufficient observable market data and the debt security will be categorized as a Level II. If there is not sufficient observable market data the debt security will be categorized as a Level III.

Derivatives

Values for the Company's derivatives are based upon prices from third party pricing services, whose pricing is subject to review by the Manager’s pricing committee. In valuing its over-the-counter interest rate derivatives, such as swaps and swaptions, its currency derivatives, such as swaps, forwards, and credit derivatives such as total return swaps, the Company considers the creditworthiness of both the Company and its counterparties, along with collateral provisions contained in each derivative agreement, from the perspective of both the Company and its counterparties. No credit valuation adjustment was made in determining the fair value of interest rate derivatives and/or futures contracts for the periods ended September 30, 2023 and December 31, 2022. See Note 8, "Derivative Instruments" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

Third Party Pricing Data Review

The Company performs quarterly reviews of the independent third party pricing data. These reviews may include a review of the valuation methodology used by third party valuation specialists and review of the daily change in the prices provided by the independent pricing vendor which exceed established tolerances or comparisons to executed transaction prices, utilizing the Manager’s pricing group. The Manager’s pricing group, which functions independently from its portfolio management personnel, reviews the price differences or changes in price by comparing the vendor price to alternate sources including other independent pricing services or broker quotations. If the price change or difference cannot be corroborated, the Manager’s pricing group consults with the portfolio management team for market color in reviewing such pricing data as warranted.  To the extent that the Manager has information, typically in the form of broker quotations that would indicate that a price received from the independent pricing service is outside of a tolerance range, the Manager generally challenges the independent pricing service price.

The following tables present a summary of the available quantitative information about the significant unobservable inputs used in the fair value measurement of financial instruments for which the Company has utilized Level III inputs to determine fair value as of September 30, 2023 and December 31, 2022 (dollars in thousands):

	Fair Value at				Range
	September 30, 2023		Valuation Technique	Unobservable Input	Minimum		Maximum		Weighted Average
Residential Whole Loans	$	986,978	Discounted Cash Flow	Market Discount Rate	6.4	%	8.4	%	6.8	%
				Weighted Average Life	1.4		10.5		6.4
Residential Bridge Loans	$	2,782	Discounted Cash Flow	Market Discount Rate	12.2	%	20.0	%	15.1	%
				Weighted Average Life	1.3		5.2		3.4
Securitized Commercial Loan	$	1,012,650	Market Comparables, Vendor Pricing	Weighted Average Life	2		2		2
Commercial Loans	$	78,701	Discounted Cash Flow	Market Discount Rate	9.2	%	11.5	%	10.5	%
				Weighted Average Life	0		1.6		1.37

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	Fair Value at				Range
	December 31, 2022		Valuation Technique	Unobservable Input	Minimum		Maximum			Weighted Average
Residential Whole Loans	$	1,091,145	Discounted Cash Flow	Market Discount Rate	6.0	%	8.4	%		6.8	%
				Weighted Average Life	1.4		10.4			5.4
Residential Bridge Loans	$	2,849	Discounted Cash Flow	Market Discount Rate	12.9	%	35.7	%	(1)	22.4	%
				Weighted Average Life	0.4		4.1			2.0
Securitized Commercial Loan	$	1,085,103	Market Comparables, Vendor Pricing	Weighted Average Life	2.7		2.7			2.7
Commercial Loans	$	90,002	Discounted Cash Flow	Market Discount Rate	8.4	%	9.6	%		9.2	%
				Weighted Average Life	0.3		2.4			1.2

The following tables present additional information about the Company’s financial instruments which are measured at fair value on a recurring basis for which the Company has utilized Level III inputs to determine fair value:

	Three months ended September 30, 2023
$ in thousands	Agency MBS		Non-Agency MBS		Residential  Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized  Commercial  Loan		Securitized debt
Beginning balance	$	838	$	1,608	$	1,037,381	$	2,782	$	78,806	$	1,025,321	$	6,932
Transfers into Level III from Level II	—		—		—		—		—		—		—
Transfers from Level III into Level II	—		—		—		—		—		—		—
Loan modifications / capitalized interest	—		—		87		—		—		—		—
Principal repayments	—		—		(28,604)		—		(281)		—		—
Total net gains / losses included in net income
Realized gains/(losses), net on assets	—		—		(29)		—		—		—		—
Unrealized gains/(losses), net on assets(1)	67		(251)		(21,131)		—		143		(19,735)		—
Unrealized (gains)/losses, net on liabilities(2)	—		—		—		—		—		—		66
Premium and discount amortization, net	(10)		(108)		(726)		—		33		7,064		(1,219)
Ending balance	$	895	$	1,249	$	986,978	$	2,782	$	78,701	$	1,012,650	$	5,779
Unrealized gains/(losses), net on assets held at the end of the period(1)	$	67	$	(251)	$	(22,085)	$	—	$	143	$	(19,735)	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	(66)

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	Three months ended September 30, 2022
$ in thousands	Agency MBS		Non-Agency MBS		Residential  Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized  Commercial  Loan		Securitized debt
Beginning balance	$	785	$	1,181	$	1,195,853	$	5,095	$	128,421	$	1,243,371	$	14,919
Transfers into Level III from Level II	—		—		—		—		—		—		—
Transfers from Level III into Level II	—		—		—		—		—		—		—
Sales and settlements	—		—		(11,735)		—		—		—		—
Loan modifications / capitalized interest	—		—		4		—		—		—		—
Principal repayments	—		—		(37,036)		—		(20,588)		—		—
Total net gains / losses included in net income
Realized gains/(losses), net on assets	—		—		(33)		—		—		—		—
Unrealized gains/(losses), net on assets(1)	(63)		88		(46,545)		25		(17,730)		(78,046)		—
Unrealized (gains)/losses, net on liabilities(2)	—		—		—		—		—		—		(3,863)
Premium and discount amortization, net	(2)		(96)		(883)		—		—		6,589		(1,170)
Ending balance	$	720	$	1,173	$	1,099,625	$	5,120	$	90,103	$	1,171,914	$	9,886
Unrealized gains/(losses), net on assets held at the end of the period(1)	$	(63)	$	88	$	(35,855)	$	25	$	(17,730)	$	(78,046)	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	3,863

	Nine months ended September 30, 2023
$ in thousands	Agency MBS		Non-Agency MBS		Residential  Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized  commercial  loan		Securitized debt
Beginning balance	$	767	$	1,204	$	1,091,145	$	2,849	$	90,002	$	1,085,103	$	8,927
Transfers into Level III from Level II	—		—		—		—		—		—		—
Transfers from Level III into Level II	—		—		—		—		—		—		—
Sales and settlements	—		—		—		—		(8,776)		—		—
Loan modifications / capitalized interest	—		—		129		—		—		—		—
Principal repayments	—		—		(87,397)		(74)		(1,961)		—		—
Total net gains / losses included in net income
Realized gains/(losses), net on assets	—		—		(29)		—		(81,223)		—		—
Unrealized gains/(losses), net on assets(1)	134		361		(14,593)		7		80,560		(93,785)		—
Unrealized (gains)/losses, net on liabilities(2)	—		—		—		—		—		—		(35)
Premium and discount amortization, net	(6)		(316)		(2,277)		—		99		21,332		(3,113)
Ending balance	$	895	$	1,249	$	986,978	$	2,782	$	78,701	$	1,012,650	$	5,779
Unrealized gains/(losses), net on assets held at the end of the period(1)	$	134	$	361	$	(18,171)	$	—	$	(662)	$	(93,785)	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	35

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	Nine months ended September 30, 2022
$ in thousands	Agency MBS		Non-Agency MBS		Residential  Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized  commercial  loan		Securitized debt
Beginning balance	$	1,172	$	7,845	$	1,023,502	$	5,428	$	130,572	$	1,355,808	$	14,919
Transfers into Level III from Level II	—		—		—		—		—		—		—
Transfers from Level III into Level II	—		(5,437)		—		—		—		—		—
Purchases	—		—		402,650		—		—		—		—
Sales and settlements	—		—		(11,362)		—		—		—		—
Loan modifications / capitalized interest	—		—		79		—		—		—		—
Principal repayments	—		—		(184,683)		(250)		(20,593)		—		—
Total net gains / losses included in net income
Realized gains/(losses), net on assets	—		—		(32)		—		—		—		—
Unrealized gains/(losses), net on assets(1)	(329)		(998)		(125,943)		(58)		(19,876)		(203,828)		—
Unrealized (gains)/losses, net on liabilities(2)	—		—		—		—		—		—		(2,064)
Premium and discount amortization, net	(123)		(237)		(4,586)		—		—		19,934		(2,969)
Ending balance	$	720	$	1,173	$	1,099,625	$	5,120	$	90,103	$	1,171,914	$	9,886
Unrealized gains/(losses), net on assets held at the end of the period(1)	$	(329)	$	(644)	$	(107,944)	$	17	$	(19,884)	$	(203,828)	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	2,064

(1)Gains and losses are included in "Unrealized gain (loss), net" in the Consolidated Statements of Operations.

(2)Gains and losses on securitized debt are included in "Unrealized gain (loss), net" in the Consolidated Statements of Operations.

Transfers into the Level III category of the fair value hierarchy occur due to the above segmented classes of investments exhibiting indications of reduced levels of market transparency, including changes in observable transactions or executable quotes involving these investments or similar classes of investments. Changes in these indications could impact price transparency, and thereby cause a change in level designations. The Company did not have transfers between either Level I and Level II or Level I and Level III for the three and nine months ended September 30, 2023 and September 30, 2022.

Other Fair Value Disclosures

The Company's repurchase agreement borrowings, convertible senior unsecured notes, and securitized debt from the Arroyo 2019-2 and Arroyo 2020-1 trusts are not carried at fair value in the consolidated financial statements.

Borrowings Under Repurchase Agreements

The fair values of the Company's repurchase agreements approximates the carrying value due to the floating interest rates that are based on an index plus a spread, which is typically consistent with those demanded in the market and the short-term maturities of generally one year or less. The Company's repurchase agreements are classified as Level II.

Convertible Senior Unsecured Notes

The fair values of the convertible senior unsecured notes are based on quoted market prices. Accordingly, the Company's convertible senior unsecured notes were classified as Level I.

The following table presents the carrying value and estimated fair value of the Company’s convertible senior unsecured notes and securitized debt that are not carried at fair value as of September 30, 2023 and December 31, 2022 in the consolidated financial statements (dollars in thousands):

18

	September 30, 2023				December 31, 2022
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Convertible senior unsecured notes	$	84,750	$	83,367	$	83,522	$	74,712
Securitized debt(1)	305,205		273,799		342,965		309,474
Total	$	389,955	$	357,166	$	426,487	$	384,186

(1) Carrying value excludes $3.1 million and $4.1 million of deferred financing costs as of September 30, 2023 and December 31, 2022, respectively.

"Due from counterparties" and "Due to counterparties" in the Company’s Consolidated Balance Sheets are reflected at cost which approximates fair value.

Note 4 – Mortgage-Backed Securities and Other Securities

The following tables present certain information about the Company’s investment portfolio at September 30, 2023 and December 31, 2022 (dollars in thousands):

	September 30, 2023
	Principal Balance		Unamortized Premium (Discount), net		Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value		Net Weighted Average Coupon
Agency RMBS Interest-Only Strips(1)(2)	N/A		N/A		$	68	$	—	$	(7)	$	61	—	%
Agency RMBS Interest-Only Strips, accounted for as derivatives(1)(2)	N/A		N/A		N/A		N/A		N/A		834		1.3	%
Total Agency MBS	—		—		68		—		(7)		895		1.1	%
Non-Agency RMBS	50,507		(14,670)		35,837		572		(4,537)		31,872		4.9	%
Non-Agency RMBS Interest- Only Strips(1)	N/A		N/A		4,888		—		(3,639)		1,249		0.3	%
Subtotal Non-Agency RMBS	50,507		(14,670)		40,725		572		(8,176)		33,121		1.6	%
Non-Agency CMBS	88,559		(1,746)		86,813		65		(32,672)		54,206		8.0	%
Total Non-Agency MBS	139,066		(16,416)		127,538		637		(40,848)		87,327		3.7	%
Other securities(3)	25,613		(7,941)		18,740		813		(2,686)		16,867		7.1	%
Total	$	164,679	$	(24,357)	$	146,346	$	1,450	$	(43,541)	$	105,089	3.8	%

	December 31, 2022
	Principal Balance		Unamortized Premium (Discount), net		Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value		Net Weighted Average Coupon(4)
Agency RMBS Interest-Only Strips(1)	N/A		N/A		$	58	$	—	$	(5)	$	53	—	%
Agency RMBS Interest-Only Strips, accounted for as derivatives(1)(2)	N/A		N/A		N/A		N/A		N/A		714		0.1	%
Total Agency MBS	—		—		58		—		(5)		767		0.1	%
Non-Agency RMBS	39,873		(14,423)		25,450		928		(3,895)		22,483		4.2	%
Non-Agency RMBS Interest-Only Strips(1)	N/A		N/A		5,204		—		(4,000)		1,204		0.3	%
Subtotal Non-Agency RMBS	39,873		(14,423)		30,654		928		(7,895)		23,687		1.1	%
Non-Agency CMBS	109,266		(2,763)		106,503		636		(21,704)		85,435		8.1	%
Total Non-Agency MBS	149,139		(17,186)		137,157		1,564		(29,599)		109,122		3.8	%
Other securities(3)	34,691		(8,581)		31,112		543		(4,393)		27,262		7.2	%
Total	$	183,830	$	(25,767)	$	168,327	$	2,107	$	(33,997)	$	137,151	3.9	%

19

(1)    IOs and IIOs have no principal balances and bear interest based on a notional balance. The notional balance is used solely to determine interest distributions on interest-only class of securities. At September 30, 2023, the notional balance for Agency RMBS IOs and IIOs, Non-Agency RMBS IOs, and IIO and Agency RMBS IOs and IIOs, accounted for as derivatives was $2.2 million, $132.0 million, and $12.2 million, respectively. At December 31, 2022, the notional balance for Agency RMBS IOs and IIOs, Non-Agency RMBS IOs and IIOs, and Agency RMBS IOs and IIOs, accounted for as derivatives was $2.4 million, $143.2 million, and $13.1 million, respectively.

(2)     Interest on these securities is reported as a component of "Gain on derivative instruments, net" in the Consolidated Statements of Operations.

(3)     Other securities include residual interests in ABS which have no principal balance and an amortized cost of approximately $1.1 million and $5.0 million, as of September 30, 2023 and December 31, 2022, respectively.

(4)     The calculation of the weighted average coupon rate includes the weighted average coupon rates of IOs and IIOs accounted for as derivatives using their notional amounts.

As of September 30, 2023 and December 31, 2022, the weighted average expected remaining term of the MBS and other securities investment portfolio was 7.8 years and 6.7 years, respectively.

The following tables present the fair value and contractual maturities of the Company’s investment securities at September 30, 2023 and December 31, 2022 (dollars in thousands):

 

	September 30, 2023
	< or equal to 10 years		> 10 years and < or equal to 20 years		> 20 years and < or equal to 30 years		> 30 years		Total
Agency RMBS Interest-Only Strips	$	—	$	61	$	—	$	—	$	61
Agency RMBS Interest-Only Strips accounted for as derivatives	—		834		—		—		834
Subtotal Agency	—		895		—		—		895
Non-Agency CMBS	37,134		7,418		9,654		—		54,206
Non-Agency RMBS	—		—		7,912		23,960		31,872
Non-Agency RMBS Interest-Only Strips	—		—		188		1,061		1,249
Subtotal Non-Agency	37,134		7,418		17,754		25,021		87,327
Other securities	3,006		—		7,117		6,744		16,867
Total	$	40,140	$	8,313	$	24,871	$	31,765	$	105,089

	December 31, 2022
	< or equal to 10  years		> 10 years and < or  equal to 20 years		> 20 years and < or  equal to 30 years		> 30 years		Total
Agency RMBS Interest-Only Strips	$	—	$	53	$	—	$	—	$	53
Agency RMBS Interest-Only Strips accounted for as derivatives	—		714		—		—		714
Subtotal Agency	—		767		—		—		767
Non-Agency CMBS	64,484		10,469		10,482		—		85,435
Non-Agency RMBS	—		—		8,667		13,816		22,483
Non-Agency RMBS Interest-Only Strips	—		—		230		974		1,204
Subtotal Non-Agency	64,484		10,469		19,379		14,790		109,122
Other securities	6,735		—		13,020		7,507		27,262
Total	$	71,219	$	11,236	$	32,399	$	22,297	$	137,151

20

The following tables present the gross unrealized losses and estimated fair value of the Company’s MBS and other securities by length of time that such securities have been in a continuous unrealized loss position at September 30, 2023 and December 31, 2022 (dollars in thousands):

	September 30, 2023
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses		Number  of Securities	Fair Value		Unrealized Losses		Number  of Securities	Fair Value		Unrealized Losses		Number  of Securities
Agency RMBS Interest-Only Strips	$	61	$	(7)	1	$	—	$	—	—	$	61	$	(7)	1
Subtotal Agency	61		(7)		1	—		—		—	61		(7)		1
Non-Agency CMBS	7,188		(1,898)		1	46,953		(30,774)		9	54,141		(32,672)		10
Non-Agency RMBS	15,661		(519)		2	9,706		(4,018)		6	25,367		(4,537)		8
Non-Agency RMBS Interest-Only Strips	—		—		—	1,249		(3,639)		4	1,249		(3,639)		4
Subtotal Non-Agency	22,849		(2,417)		3	57,908		(38,431)		19	80,757		(40,848)		22
Other securities	—		—		—	5,521		(2,686)		1	5,521		(2,686)		1
Total	$	22,910	$	(2,424)	4	$	63,429	$	(41,117)	20	$	86,339	$	(43,541)	24

 

	December 31, 2022
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses		Number  of Securities	Fair Value		Unrealized Losses		Number  of Securities	Fair Value		Unrealized Losses		Number  of Securities
Agency RMBS Interest-Only Strips	$	52	$	(5)	1	$	—	$	—	—	$	52	$	(5)	1
Subtotal Agency	52		(5)		1	—		—		—	52		(5)		1
Non-Agency CMBS	—		—		—	76,365		(21,704)		11	76,365		(21,704)		11
Non-Agency RMBS	19,054		(2,794)		5	1,557		(1,101)		2	20,611		(3,895)		7
Non-Agency RMBS Interest-Only Strips	—		—		—	1,203		(4,000)		4	1,203		(4,000)		4
Subtotal Non-Agency	19,054		(2,794)		5	79,125		(26,805)		17	98,179		(29,599)		22
Other securities	12,483		(2,425)		3	9,468		(1,968)		2	21,951		(4,393)		5
Total	$	31,589	$	(5,224)	9	$	88,593	$	(28,773)	19	$	120,182	$	(33,997)	28

The following tables present components of interest income on the Company’s MBS and other securities for the three and nine months ended September 30, 2023 and September 30, 2022, respectively (dollars in thousands):

21

	Three months ended September 30, 2023						Three months ended September 30, 2022
	Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Accretion		Interest Income		Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Accretion		Interest Income
Agency RMBS	$	—	$	4	$	4	$	—	$	2	$	2
Non-Agency CMBS	1,657		351		2,008		1,949		387		2,336
Non-Agency RMBS	756		(306)		450		446		26		472
Other securities	583		(144)		439		860		185		1,045
Total	$	2,996	$	(95)	$	2,901	$	3,255	$	600	$	3,855

	Nine months ended September 30, 2023						Nine months ended September 30, 2022
	Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Accretion		Interest Income		Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Accretion		Interest Income
Agency RMBS	$	—	$	10	$	10	$	13	$	(4)	$	9
Non-Agency CMBS	5,234		1,006		6,240		7,050		386		7,436
Non-Agency RMBS	1,960		(651)		1,309		1,804		(141)		1,663
Other securities	2,079		(345)		1,734		2,515		223		2,738
Total	$	9,273	$	20	$	9,293	$	11,382	$	464	$	11,846

There were no sales nor realized gain (loss) related to the Company's MBS and Other Securities for the three months ended September 30, 2023 and September 30, 2022. The following table presents the sales and realized gain (loss) of the Company’s MBS and other securities for the nine months ended September 30, 2023 and September 30, 2022, respectively (dollars in thousands):

	Nine months ended September 30, 2023								Nine months ended September 30, 2022
	Proceeds		Gross Gains		Gross Losses		Net Gain  (Loss)		Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)
Non-Agency CMBS	$	—	$	—	$	(1,239)	$	(1,239)	$	10,152	$	—	$	(43,934)	$	(43,934)
Non-Agency RMBS	—		—		(48)		(48)		27,729		255		(1,425)		(1,170)
Other securities	15,324		649		(2,028)		(1,379)		4,406		—		(478)		(478)
Total	$	15,324	$	649	$	(3,315)	$	(2,666)	$	42,287	$	255	$	(45,837)	$	(45,582)

Unconsolidated CMBS VIEs

The Company’s economic interests held in unconsolidated CMBS VIEs are limited in nature to those of a passive holder of CMBS issued by securitization trusts. The Company was not involved in the design or creation of the securitization trusts. The Company evaluates its CMBS holdings, for potential consolidation of the securitized trust, in which it owns the most subordinate tranche or a portion of the controlling class. As of September 30, 2023 and December 31, 2022, the Company held two and two variable interests in unconsolidated CMBS VIEs, respectively, in which it either owned the most subordinate class or a portion of the controlling class. The Company determined it was not the primary beneficiary and accordingly, the CMBS VIEs were not consolidated in the Company’s consolidated financial statements. As of September 30, 2023 and December 31, 2022, the Company’s maximum exposure to loss from these variable interests did not exceed the carrying value of these investments of $15.1 million and $15.5 million, respectively. These investments are classified in "Non-Agency mortgage-backed securities, at fair value" in the Company’s Consolidated Balance Sheets. Further, as of September 30, 2023 and December 31, 2022, the Company did not guarantee any obligations of unconsolidated entities or enter into any commitment or intent to provide funding to any such entities.

22

Note 5 — Residential Whole Loans and Bridge Loans

Residential Whole Loan Trusts

Revolving Mortgage Investment Trust 2015-1QR2

Revolving Mortgage Investment Trust 2015-1QR2 ("RMI 2015 Trust") was formed to acquire Non-QM Residential Whole Loans. The RMI 2015 Trust issued a trust certificate which is wholly-owned by the Company and represents the entire beneficial interest in pools of Non-QM Residential Whole Loans held by the trust. The Company consolidates the trust since it met the definition of a VIE and the Company determined that it was the primary beneficiary. The Company classifies the underlying Non-QM Residential Whole Loans owned by the trust in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets and has eliminated the intercompany trust certificate in consolidation.

During the three months ended September 30, 2023, all loans formerly held at Revolving Mortgage Investment Trust 2017-BRQ1 ("RMI 2017 Trust") were transferred to the RMI 2015 Trust in order to consolidate costs.

As of September 30, 2023, the RMI 2015 Trust owned nine Non-QM Residential Whole Loans with a fair value of $4.3 million, three of which are investor fixed rate residential mortgages previously held by RMI 2017 Trust with a fair value of $991.7 thousand. As of December 31, 2022, RMI 2015 Trust owned six Non-QM Residential Whole Loans with a fair value of $3.2 million, and RMI 2017 Trust owned three investor fixed rate mortgages with a fair value of $1.2 million. The loans are financed under the Company's residential whole loan facility, and the Company holds the financing liability outside the RMI 2015 Trust. See Note 7, "Financings" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional details.

As of September 30, 2023, the RMI 2015 Trust owned four Residential Bridge Loans with a fair value of $2.8 million. As of December 31, 2022, the RMI 2017 Trust owned five Residential Bridge Loans with a fair value of $2.8 million. The Company is no longer allocating capital to Residential Bridge Loans.

Arroyo Mortgage Trust 2019-2

In May 2019, the Company formed Arroyo Mortgage Trust 2019-2 ("Arroyo Trust 2019"), a wholly-owned subsidiary of the Company, to complete its first residential mortgage-backed securitization comprised of $945.5 million of Non-QM Residential Whole Loans. The Arroyo Trust 2019 issued $919.0 million of mortgage-backed notes and retained all the subordinate and residual debt securities ("Owner Certificates"), which includes the required 5% eligible risk retention. Refer to Note 7, "Financings" for details. The Company consolidates the trust since it met the definition of a VIE and the Company determined that it was the primary beneficiary. The Company classifies the underlying Non-QM Residential Whole Loans in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets and eliminated the intercompany Owner Certificates in consolidation.

As of September 30, 2023 and December 31, 2022, the Arroyo Trust 2019 owned 684 and 766 Non-QM Residential Whole Loans with a fair value of $214.0 million and $237.6 million, respectively.

Arroyo Mortgage Trust 2020-1

In June 2020, the Company formed Arroyo Mortgage Trust 2020-1 ("Arroyo Trust 2020"), a wholly-owned subsidiary of the Company, to complete its second residential mortgage-backed securitization comprised of $355.8 million of Non-QM Residential Whole Loans. The Arroyo Trust 2020 issued $341.7 million of mortgage-backed notes and retained all the subordinate and residual debt securities, which includes the required 5% eligible risk retention. See Note 7, "Financings" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional details. The Company consolidates the trust since it met the definition of a VIE and the Company determined that it was the primary beneficiary. The Company classifies the underlying Non-QM Residential Whole Loans in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets and eliminated the intercompany Owner Certificates.

As of September 30, 2023 and December 31, 2022, the Arroyo Trust 2020 owned 406 and 432 Non-QM Residential Whole Loans with a fair value of $127.7 million and $135.1 million, respectively.

23

Arroyo Mortgage Trust 2022-1

In February 2022, the Company formed Arroyo Mortgage Trust 2022-1 ("Arroyo Trust 2022-1"), a wholly-owned subsidiary of the Company, to complete its third residential mortgage-backed securitization comprised of $432.0 million of Non-QM Residential Whole Loans. The Arroyo Trust 2022-1 issued $398.9 million of mortgage-backed notes and retained all the subordinate and residual debt securities, which includes the required 5% eligible risk retention. See Note 7, "Financings" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional details. The Company consolidates the trust since it met the definition of a VIE and the Company determined that it was the primary beneficiary. The Company classifies the underlying Non-QM Residential Whole Loans in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets and eliminated the intercompany Owners Certificates.

As of September 30, 2023 and December 31, 2022, the Arroyo Trust 2022-1 owned 682 and 705 Non-QM Residential Whole Loans with a fair value of $324.6 million and $350.7 million, respectively. The Company has elected the fair value option for the securitized debt. The fair values for the Company’s Non-QM loans held in the Arroyo Trust 2022-1 are measured using the fair value of the securitized debt based on the CFE valuation methodology. The Company determined that the securitized debt is more actively traded and, therefore, more observable.

Arroyo Mortgage Trust 2022-2

In July 2022, the Company formed Arroyo Mortgage Trust 2022-2 ("Arroyo Trust 2022-2"), a wholly-owned subsidiary of the Company, to complete its fourth residential mortgage-backed securitization comprised of $402.2 million of Non-QM Residential Whole Loans. The Arroyo Trust 2022-2 issued $351.9 million of mortgage-backed notes and retained all the subordinate and residual debt securities, which includes the required 5% eligible risk retention. See Note 7, "Financings" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional details. The Company consolidates the trust since it met the definition of a VIE and the Company determined that it was the primary beneficiary. The Company classifies the underlying Non-QM Residential Whole Loans in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets and eliminated the intercompany Owners Certificates.

As of September 30, 2023 and December 31, 2022, the Arroyo Trust 2022-2 owned 980 and 1,029 Non-QM Residential Whole Loans with a fair value of $316.3 million and $363.3 million, respectively. The Company has elected the fair value option for the securitized debt. The fair values for the Company’s Non-QM loans held in the Arroyo Trust 2022-2 are measured using the fair value of the securitized debt based on the CFE valuation methodology. The Company determined that the securitized debt is more actively traded and, therefore, more observable.

Residential Bridge Loan Trust

    In February 2017, the Company formed Revolving Mortgage Investment Trust 2017-BRQ1 ("RMI 2017 Trust") to acquire Residential Bridge Loans. RMI 2017 Trust issued a trust certificate that is wholly-owned by the Company and represents the entire beneficial interest in pools of Residential Bridge Loans and certain Residential Whole Loans held by the trust. Residential Bridge Loans are mortgage loans secured by residences, typically short-term. The Company consolidates the trust since it met the definition of a VIE and the Company determined that it was the primary beneficiary. The Company has eliminated the intercompany trust certificate in consolidation.

During the three months ended September 30, 2023, the four remaining Residential Bridge Loans with a fair value of $2.8 million in the RMI 2017 Trust were transferred to the RMI 2015 Trust to consolidate costs. The Company is no longer allocating capital to Residential Bridge Loans.

Consolidated Residential Whole Loan and Residential Bridge Loan Trusts

The following table presents a summary of the assets and liabilities of the consolidated residential whole loan trusts and residential bridge loan trust included in the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (dollars in thousands):

24

 

	September 30, 2023		December 31, 2022
Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively)	$	986,978	$	1,091,145
Residential Bridge Loans, at fair value ($2,782 and none pledged as collateral, at fair value, respectively)	2,782		2,849
Investment related receivable	8,602		5,914
Interest receivable	4,580		4,871
Other assets	—		509
Total assets	$	1,002,942	$	1,105,288
Securitized debt, net	$	877,745	$	981,073
Interest payable	2,892		3,139
Accounts payable and accrued expenses	12		34
Total liabilities	$	880,649	$	984,246

The Residential Whole Loans held by the consolidated Arroyo Trust 2019, Arroyo Trust 2020, Arroyo Trust 2022-1, and Arroyo Trust 2022-2 are held solely to satisfy the liabilities of each respective trust, and has no recourse to the general credit of the Company. The Company is not contractually required and has not provided any additional financial support to the trusts for the periods ended September 30, 2023 and December 31, 2022.

The following table presents the components of the fair value of Residential Whole Loans and Residential Bridge Loans as of September 30, 2023 and December 31, 2022 (dollars in thousands):

 

	Residential Whole Loans, at Fair Value				Residential Bridge Loans, at Fair Value
	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Principal balance	$	1,078,005	$	1,165,301	$	3,091	$	3,166
Unamortized premium	28,530		30,961		—		—
Unamortized discount	(1,394)		(1,536)		—		—
Amortized cost	1,105,141		1,194,726		3,091		3,166
Gross unrealized gains	5,371		2,038		—		—
Gross unrealized losses	(123,534)		(105,619)		(309)		(317)
Fair value	$	986,978	$	1,091,145	$	2,782	$	2,849

Residential Whole Loans

The Residential Whole Loans have low LTV's and are comprised of 2,761 adjustable and fixed rate Non-QM and investor mortgages. The following tables present certain information about the Company’s residential whole loan investment portfolio at September 30, 2023 and December 31, 2022 (dollars in thousands):

25

 

September 30, 2023
				Weighted Average
Current Coupon Rate	Number of  Loans	Principal  Balance		Original LTV		Original  FICO Score(1)	Expected  Life (years)	Contractual  Maturity  (years)	Coupon  Rate
2.01% – 3.00%	39	$	21,880	66.3	%	758	9.1	27.6	2.9	%
3.01% – 4.00%	361	196,884		67.0	%	760	8.2	28.0	3.7	%
4.01% – 5.00%	1,134	384,437		64.8	%	750	6.8	25.5	4.5	%
5.01% – 6.00%	813	322,376		66.0	%	743	6.1	26.2	5.5	%
6.01% – 7.00%	321	120,933		67.2	%	743	4.8	26.9	6.5	%
7.01% - 8.00%	69	23,865		60.6	%	734	4.1	23.1	7.4	%
8.01% - 9.00%	24	7,630		55.5	%	744	4.3	24.0	8.6	%
Total	2,761	$	1,078,005	65.7	%	749	6.6	26.3	4.9	%

(1)The original FICO score is not available for 210 loans with a principal balance of approximately $64.6 million at September 30, 2023. The Company has excluded these loans from the weighted average computations.

 

December 31, 2022
				Weighted Average
Current Coupon Rate	Number of  Loans	Principal  Balance		Original LTV		Original  FICO Score(1)	Expected  Life (years)	Contractual  Maturity  (years)	Coupon  Rate
2.01% – 3.00%	39	$	22,277	66.3	%	758	8.9	28.3	2.9	%
3.01% – 4.00%	402	214,402		66.3	%	759	7.3	28.5	3.7	%
4.01% – 5.00%	1,337	453,811		64.1	%	749	5.5	26.0	4.6	%
5.01% – 6.00%	901	363,197		65.6	%	742	4.7	26.7	5.4	%
6.01% – 7.00%	249	105,933		69.9	%	742	3.6	28.4	6.4	%
7.01% - 8.00%	15	5,681		75.2	%	730	3.0	29.2	7.4	%
Total	2,943	$	1,165,301	65.6	%	748	5.5	27.0	4.8	%

(1)The original FICO score is not available for 231 loans with a principal balance of approximately $76.6 million at December 31, 2022. The Company has excluded these loans from the weighted average computations.

The following table presents geographic concentrations by U.S. state in which the collateral securing the Company’s Residential Whole Loans are located as of September 30, 2023 and December 31, 2022 (dollars in thousands):

September 30, 2023					December 31, 2022
State	State Concentration		Principal Balance		State	State Concentration		Principal Balance
California	67.8	%	$	731,058	California	66.8	%	$	778,732
New York	9.0	%	96,757		New York	9.3	%	108,108
Texas	4.8	%	51,407		Texas	4.8	%	56,126
Florida	3.9	%	42,157		Florida	4.1	%	47,681
Georgia	3.3	%	35,297		Georgia	3.5	%	40,845
Other	11.2	%	121,329		Other	11.5	%	133,809
Total	100.0	%	$	1,078,005	Total	100.0	%	$	1,165,301

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Residential Bridge Loans

The Company is no longer allocating capital to Residential Bridge Loans. The following tables present certain information about the remaining Residential Bridge Loans which are non-performing in the Company's investment portfolio at September 30, 2023 and December 31, 2022 (dollars in thousands):

 

September 30, 2023
				Weighted Average
Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Contractual Maturity  (months)(1)	Coupon Rate
7.01% – 9.00%	2	$	1,822	67.5	%	0.0	8.7	%
9.01% – 11.00%	1	849		90.5	%	0.0	10.0	%
11.01% – 13.00%	1	420		70.0	%	0.0	11.3	%
Total	4	$	3,091	74.2	%	0.0	9.4	%

December 31, 2022
				Weighted Average
Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Contractual Maturity  (months)(1)	Coupon Rate
7.01% – 9.00%	2	$	1,822	67.5	%	0.0	8.7	%
9.01% – 11.00%	1	849		90.5	%	0.0	10.0	%
11.01% – 13.00%	2	495		69.7	%	0.0	11.4	%
Total	5	$	3,166	74.0	%	0.0	9.5	%

(1) Non-performing loans that are past their maturity date are excluded from the calculation of the weighted average contractual maturity. The weighted average contractual maturity for these loans is zero.

The following table presents geographic concentrations by U.S. state in which the collateral securing the Company’s Residential Bridge Loans are located as of September 30, 2023 and December 31, 2022 (dollars in thousands):

  

September 30, 2023					December 31, 2022
State	Concentration		Principal Balance		State	Concentration		Principal Balance
California	56.7	%	$	1,754	California	55.4	%	$	1,754
New York	43.3	%	1,337		New York	42.2	%	1,337
Total	100.0	%	$	3,091	New Jersey	2.4	%	75
					Total	100.0	%	$	3,166

Loan Aging

The following table presents the aging of the Residential Whole Loans and Residential Bridge Loans as of September 30, 2023 (dollars in thousands):

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	Residential Whole Loans (1)					Residential Bridge Loans (1)
	No of Loans	Principal		Fair Value		No of Loans	Principal		Fair Value
Current	2,707	$	1,048,261	$	959,343	—	$	—	$	—
1-30 days	23	10,407		9,617		—	—		—
31-60 days	—	—		—		—	—		—
61-90 days	11	8,155		7,696		—	—		—
90+ days	20	11,182		10,322		4	3,091		2,782
Total	2,761	$	1,078,005	$	986,978	4	$	3,091	$	2,782

(1) As of September 30, 2023, there were no loans in forbearance.

Residential Whole Loans

As of September 30, 2023, there were 20 Residential Whole Loans carried at fair value in non-accrual status with an unpaid principal balance of approximately $11.2 million and a fair value of $10.3 million. These non-performing loans represent approximately 1.0% of the total outstanding principal balance. These loans are collateral dependent with a weighted average original LTV of 61.6%.

As of December 31, 2022, there were 13 Residential Whole Loans carried at fair value in non-accrual status with an unpaid principal balance of approximately $8.7 million and a fair value of approximately $8.0 million. These non-performing loans represent approximately 0.8% of the total outstanding principal balance. These loans are collateral dependent with a weighted average original LTV of 60.0%.

These loans are carried at fair value, and accordingly no allowance for credit losses or credit loss expense was recorded, since the adjustment for credit losses, if any, would be reflected in the fair value of these loans as a component of "Unrealized gain (loss), net" in the Consolidated Statements of Operations contained in this Quarterly Report on Form 10-Q. The Company stopped accruing interest income for these loans when they became contractually 90 days delinquent.

Residential Bridge Loans

    As of September 30, 2023, the Company had four remaining Residential Bridge Loans in the portfolio. Of these, four were in non-accrual status with an unpaid principal balance of approximately $3.1 million and a fair value of $2.8 million.

As of December 31, 2022, the Company had five remaining Residential Bridge Loans in the portfolio. Of these, five were in non-accrual status with an unpaid principal balance of approximately $3.2 million and a fair value of $2.8 million. These loans are collateral dependent.

The Residential Bridge Loans were carried at fair value. No allowance for credit losses was recorded because the valuation adjustments as of September 30, 2023 and December 31, 2022, if any, would be reflected in the fair value of these loans. The Company stopped accruing interest income for these loans when they became contractually 90 days delinquent.

Residential Real Estate Owned

As of September 30, 2023 and December 31, 2022, the Company had one residential REO property with a carrying value of $2.3 million, respectively, related to a foreclosed Residential Whole Loan. The REO property held by the Company as of September 30, 2023 and December 31, 2022 was transferred to REO in December 2022. The residential REO properties are held for sale and accordingly carried at the lower of cost or fair value less cost to sell. The residential REO properties are classified in "Other assets" in the Consolidated Balance Sheets contained in this Quarterly Report on Form 10-Q.

Note 6 — Commercial Loans

Commercial Loans

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    In January 2019, WMC CRE LLC ("CRE LLC"), a wholly-owned subsidiary of the Company was formed for the purpose of acquiring Commercial Loans. The Commercial Loans owned by CRE LLC are financed under the Commercial Whole Loan Facility. See Note 7, "Financing" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

The following table presents information about the Commercial Loans owned by CRE LLC as of September 30, 2023 (dollars in thousands):

Loan	Acquisition Date	Loan Type	Principal Balance		Fair Value		Original LTV	Interest Rate	Maturity Date	Extension Option	Collateral
CRE 4	September 2019	Interest-Only First Mortgage	$	22,204	$	22,071	63%	1-Month SOFR plus 3.38%	8/6/2025(1)	None	Retail
CRE 5	December 2019	Interest-Only First Mortgage	24,535		24,061		62%	1-Month SOFR plus 4.20%	5/6/2025(2)	None	Hotel
CRE 6	December 2019	Interest-Only First Mortgage	13,207		12,952		62%	1-Month SOFR plus 4.20%	5/6/2025(2)	None	Hotel
CRE 7	December 2019	Interest-Only First Mortgage	7,259		7,118		62%	1-Month SOFR plus 4.20%	5/6/2025(2)	None	Hotel
			$	67,205	$	66,202

(1) In August 2022, CRE 4 was extended three-years through August 6, 2025, with a principal paydown of $16.2 million.

(2) In November 2023, CRE 5, 6, and 7 were each extended through May 6, 2025.

Commercial Loan Sale

On February 3, 2023, the CRE 3 loan was sold to an unaffiliated third party for its recorded fair value as of December 31, 2022 of $8.8 million. At the time of sale, the Company recognized a realized loss of $81.2 million and a related reversal of unrealized loss of the same amount.

Commercial Loan Trust

In March 2018, the Company formed the Revolving Small Balance Commercial Trust 2018-1 ("RSBC Trust") to acquire commercial real estate mortgage loans. The Company consolidates the trust because it determined that the wholly-owned RSBC Trust was a VIE and that the Company was the primary beneficiary. As of September 30, 2023, there was one loan remaining in the trust.

The following table presents information on the commercial real estate mortgage loan held by RSBC Trust as of September 30, 2023 (dollars in thousands):

Loan	Acquisition Date	Loan Type	Principal Balance		Fair Value		LTV	Interest Rate(1)	Maturity Date(1)	Extension Option	Collateral
SBC 3	January 2019	Interest-Only First Mortgage	$	12,500	$	12,499	49%	1-Month SOFR plus 5.50%	10/4/2023	None	Nursing Facilities
			$	12,500	$	12,499

(1) In January 2023, the SBC 3 loan was partially paid down by $862 thousand to bring the unpaid principal balance to $13.5 million, the maturity date was extended through May 5, 2023 for a 50 bps extension fee and the margin was increased from 4.47% to 5.00%. In May 2023, the SBC 3 loan was partially paid down by $750 thousand to bring the unpaid principal to $12.8 million, the maturity date was extended through August 4, 2023, and the margin was increased from 5.00% to 5.50%. In July 2023, the SBC 3 loan was partially paid down by $250 thousand to bring the unpaid principal balance to $12.5 million, and the maturity date was extended to October 4, 2023 for a 25 bps extension fee. In October 2023, the SBC 3 loan was partially paid down by $250 thousand to bring the unpaid principal to $12.3 million and the maturity date was extended to December 31, 2023 for a 25 bps extension fee.

Securitized Commercial Loans

    Securitized Commercial Loans are comprised of Commercial Loans from consolidated third party sponsored CMBS VIE's. At September 30, 2023, the Company had a variable interest in one third party sponsored CMBS VIE, CSMC Trust 2014-USA, that it determined it was the primary beneficiary and was required to consolidate. The Commercial Loan that serves as collateral for the securitized debt issued by this VIE can only be used to settle the securitized debt. See Note 7, "Financings"

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to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for details on the associated securitized debt. The Company assesses modifications to VIEs on an ongoing basis to determine if a significant reconsideration event has occurred that would change the Company’s initial consolidation assessment.

CSMC Trust 2014-USA

The Company together with other related party entities own more than 50% of the controlling class of CSMC Trust 2014-USA ("CSMC USA"). As of September 30, 2023, the Company held an 8.8% interest in the trust certificates issued by CSMC USA (F Class) with an outstanding principal balance of $14.9 million. The Company performs ongoing reassessment of its CMBS VIE holdings for potential consolidation of the securitized trust in which it owns a portion of the controlling class. Since the ownership of the controlling financial interest is held within a related party group, the Company must determine whether it is the primary beneficiary under the related party tie-breaker rule. As a result of the Company's evaluation, it was determined that the Company is the primary beneficiary of CSMC USA, and effective on August 1, 2020, consolidated CSMC USA. The Company’s investment in the trust certificate of CSMC USA (F Class) was eliminated in the consolidation. The CSMC USA holds a commercial loan secured by a first mortgage lien on the borrowers’ fee and leasehold interests in a portion of a super-regional mall. The outstanding principal balance on this commercial loan is $1.4 billion as of September 30, 2023. The loan has a stated maturity date of September 11, 2025 and bears a fixed interest rate of 4.38%. The Company elected the fair value option for the commercial loan as well as the associated securitized debt.

In December 2020, the commercial loan held by CSMC USA was amended to an interest only payment through maturity. As part of the modification, a Cash Management Forbearance Agreement was entered into by the special servicer and the borrower, which required both increased reporting requirements and monthly net cash remittance.

Consolidated Securitized Commercial Loan Trust and Commercial Loan Trust

The two commercial consolidated trusts, CSMC USA and RSBC Trust, collectively held two Commercial Loans as of September 30, 2023. The following table presents a summary of the assets and liabilities of the two consolidated trusts included in the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (dollars in thousands):

 

	September 30, 2023		December 31, 2022
Restricted cash	$	—	$	248
Securitized Commercial Loan, at fair value	1,012,650		1,085,103
Commercial Loans, at fair value	12,499		14,362
Interest receivable	5,151		5,311
Total assets	$	1,030,300	$	1,105,024
Securitized debt, at fair value	$	1,006,630	$	1,077,611
Interest payable	4,995		5,164
Accounts payable and accrued expenses	9		9
Other liabilities	—		248
Total liabilities	$	1,011,634	$	1,083,032

The Company’s risk with respect to its investment in the securitized commercial loan trust is limited to its direct ownership in the trust. The Commercial Loan held by the consolidated securitized commercial loan trust is held solely to satisfy the liabilities of the trust, and creditors of the trust have no recourse to the general credit of the Company. The Securitized Commercial Loan of the trust can only be used to satisfy the obligations of the trust. The Company is not contractually required to provide, and has not provided any additional financial support to the securitized commercial loan trust for the three and nine months ended September 30, 2023 and September 30, 2022. 

The following table presents the components of the fair value of the Securitized Commercial Loan and Commercial Loans as of September 30, 2023 and December 31, 2022 (dollars in thousands):

30

	CSMC USA Trust Securitized Commercial Loan, at Fair Value				RSBC Trust Commercial Loans, at Fair Value				Commercial Loans, at Fair Value
	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Principal balance	$	1,385,591	$	1,385,591	$	12,500	$	14,362	$	67,205	$	157,205
Unamortized discount	(62,799)		(84,132)		—		—		—		—
Amortized cost	1,322,792		1,301,459		12,500		14,362		67,205		157,205
Gross unrealized gains	—		—		—		—		—		—
Gross unrealized losses	(310,142)		(216,356)		(1)		—		(1,003)		(81,565)
Fair value	$	1,012,650	$	1,085,103	$	12,499	$	14,362	$	66,202	$	75,640

Non-Performing Commercial Loans

As of September 30, 2023, there are no Commercial Loans that are non-performing.

Note 7 — Financings

Repurchase Agreements

The Company has primarily financed its investment acquisitions with repurchase agreements. The repurchase agreements bear interest at a contractually agreed-upon rate and historically had terms ranging from one month to 12 months.  The Company’s repurchase agreement borrowings are accounted for as secured borrowings when the Company maintains effective control of the financed assets. Under these repurchase agreements, the respective counterparties retain the right to determine the fair value of the underlying collateral. A reduction in the value of pledged assets normally requires the Company to post additional securities as collateral, pay down borrowings, or establish cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements, which is referred to as a margin call. The inability of the Company to post adequate collateral for a margin call by a counterparty, in a time frame as short as the close of the same business day, could result in a condition of default under the Company’s repurchase agreements, thereby enabling the counterparty to liquidate the collateral pledged by the Company, which may have a material adverse effect on the Company’s financial position, results of operations, and cash flows. 

Residential Whole Loan Facility

The facility was extended on October 12, 2023 and matures on March 29, 2024. It bears interest at a rate of 1-Month Term SOFR plus 2.25%, with a floor of 0.25%.

The Company finances its non-securitized Non-QM residential whole loans under this facility. As of September 30, 2023, the Company had outstanding borrowings of $4.2 million under the facility. The borrowing is secured by Non-QM residential whole loans with a fair value of $4.3 million, Residential Bridge Loans with a fair value of $2.8 million and one REO property with a carrying value of $2.3 million as of September 30, 2023.

Non-Agency CMBS and Non-Agency RMBS facility

The facility was paid off in full in May 2023 and replaced with a facility from a different counterparty which matures in May 2024. It bears a current weighted average interest rate of 1-Month Term SOFR plus 2.50%. As of September 30, 2023, the outstanding balance under this facility was $54.9 million. The borrowing is secured by investments with a fair market value of $90.8 million as of September 30, 2023.

Commercial Whole Loan Facility

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The facility was extended on October 12, 2023 and matures on March 29, 2024. It bears interest at a rate of 1-Month Term SOFR plus 2.25%. As of September 30, 2023, the outstanding balance under this facility was $48.0 million. The borrowing is secured by the performing commercial loans with an estimated fair market value of $66.2 million as of September 30, 2023.

Fixed Rate Term Financing Facility

On July 25th, the Company replaced an existing short-term repurchase financing facility with Credit Suisse AG (UBS) with a new two-year term, $65 million fixed rate, non-mark-to-market, syndicated repurchase agreement, in a securitized form. As a result, the Company no longer has any financing arrangements with Credit Suisse AG (UBS) as a counterparty. As of September 30, 2023, the outstanding balance under this facility was $62.4 million, net of deferred financing costs, and is collateralized by our retained Arroyo bonds with an estimated fair market value of $134.7 million which are eliminated in consolidation as of September 30, 2023.

Financial Metrics

Certain of the Company’s financing arrangements provide the counterparty with the right to terminate the agreement and accelerate amounts due under the associated agreement if the Company does not maintain financial metrics. Although specific to each financing arrangement, typical financial metrics include minimum equity, liquidity requirements, leverage ratios, and performance triggers. In addition, some of the financing arrangements contain cross-default features, whereby default under an agreement with one lender simultaneously causes default under agreements with other lenders. The Company was in compliance with the terms of such financial tests as of September 30, 2023.

As of September 30, 2023, the Company had borrowings under four of its master repurchase agreements. The following table summarizes certain characteristics of the Company’s repurchase agreements at September 30, 2023 and December 31, 2022 (dollars in thousands):

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	September 30, 2023					December 31, 2022
Securities Pledged	Repurchase Agreement Borrowings		Weighted Average Interest Rate on Borrowings Outstanding at end of period		Weighted Average Remaining Maturity (days)	Repurchase Agreement Borrowings		Weighted Average Interest Rate on Borrowings Outstanding at end of period		Weighted Average Remaining Maturity (days)
Short-term borrowings:
Agency RMBS	$	351	5.98	%	2	$	293	4.78	%	32
Non-Agency RMBS(1)	—		—	%	0	48,237		7.50	%	26
Other securities	—		—	%	0	1,776		7.09	%	17
Total short-term borrowings	351		5.98	%	2	50,306		7.47	%	26
Long-term borrowings:
Non-Agency CMBS and Non-Agency RMBS Facility
Non-Agency CMBS(1)	31,621		7.79	%	215	55,154		6.30	%	122
Non-Agency RMBS	77,751		10.80	%	585	19,129		6.30	%	122
Other securities	8,860		8.09	%	215	16,863		6.30	%	122
Subtotal	118,232		9.79	%	458	91,146		6.30	%	122
Residential Whole Loan Facility
Residential Whole Loans(2)	2,562		7.56	%	25	3,633		6.66	%	298
Residential Bridge Loans(2)	1,641		7.56	%	25	—		—	%	0
Commercial Whole Loan Facility
Commercial Loans	48,032		7.56	%	34	48,032		6.13	%	307
Total long-term borrowings	170,467		9.11	%	328	142,811		6.25	%	189
Repurchase agreements borrowings	$	170,818	9.10	%	327	$	193,117	6.57	%	146
Less unamortized debt issuance costs	908		N/A		N/A	—		N/A		N/A
Repurchase agreements borrowings, net	$	169,910	9.10	%	327	$	193,117	6.57	%	146

(1)Includes repurchase agreement borrowings on securities eliminated upon VIE consolidation.

(2)Repurchase agreement borrowings on loans owned are through trust certificates. The trust certificates are eliminated in consolidation.

At September 30, 2023 and December 31, 2022, repurchase agreements collateralized by investments had the following remaining maturities:

 

(dollars in thousands)	September 30, 2023		December 31, 2022
1 to 29 days	$	4,554	$	50,013
30 to 59 days	48,032		293
60 to 89 days	—		—
Greater than or equal to 90 days	118,232		142,811
Total	$	170,818	$	193,117

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At September 30, 2023, the following table reflects amounts of collateral at risk under its repurchase agreements greater than 10% of the Company's equity with any counterparty (dollars in thousands):

	September 30, 2023
Counterparty	Amount of  Collateral at Risk, at fair value		Weighted Average Remaining Maturity (days)	Percentage of  Stockholders’  Equity
Goldman Sachs Bank USA	$	36,387	214	46.7	%
Atlas Securitized Products Investments 2, L.P.	18,461		34	23.7	%

Collateral For Borrowings Under Repurchase Agreements

The following table summarizes the Company’s collateral positions, with respect to its borrowings under repurchase agreements at September 30, 2023 and December 31, 2022 (dollars in thousands):

 

	September 30, 2023						December 31, 2022
	Assets Pledged		Accrued Interest		Assets Pledged and Accrued Interest		Assets Pledged		Accrued Interest		Assets Pledged and Accrued Interest
Assets pledged for borrowings under repurchase agreements:
Agency RMBS, at fair value	$	297	$	3	$	300	$	249	$	—	$	249
Non-Agency CMBS, at fair value(1)	53,038		386		53,424		83,925		483		84,408
Non-Agency RMBS, at fair value	83,029		456		83,485		104,487		533		105,020
Residential Whole Loans, at fair value(2)	4,343		11		4,354		3,229		3		3,232
Residential Bridge Loans(2)	2,782		32		2,814		—		—		—
Commercial Loans, at fair value(2)	66,202		424		66,626		66,864		362		67,226
REO, at carrying value	2,255		—		2,255		2,255		—		2,255
Other securities, at fair value	15,645		67		15,712		27,262		78		27,340
Cash(3)	241		—		241		3,410		—		3,410
Total	$	227,832	$	1,379	$	229,211	$	291,681	$	1,459	$	293,140

(1)Includes securities eliminated upon VIE consolidation.

(2)Loans owned through trust certificates are pledged as collateral. The trust certificates are eliminated upon consolidation.

(3)Cash posted as collateral is included in "Due from counterparties" in the Company’s Consolidated Balance Sheets.

A reduction in the value of pledged assets typically results in the repurchase agreement counterparties initiating a margin call. At September 30, 2023 and December 31, 2022, investments held by counterparties as security for repurchase agreements totaled approximately $227.6 million and $288.3 million, respectively. Cash collateral held by counterparties at September 30, 2023 and December 31, 2022 was approximately $241 thousand and $3.4 million, respectively. Cash posted by repurchase agreement counterparties at both September 30, 2023 and December 31, 2022 was $103 thousand and $300 thousand, respectively.

Convertible Senior Unsecured Notes

6.75% Convertible Senior Unsecured Notes due 2024 (the "2024 Notes")

In September 2021, the Company issued $86.3 million aggregate principal amount of the 2024 Notes for net proceeds of $83.3 million. Interest on the 2024 Notes is paid semiannually. The 2024 Notes are convertible into, at the Company's election, cash, shares of the Company's common stock, or a combination of both, subject to the satisfaction of certain conditions and during specified periods. The conversion rate is subject to adjustment upon the occurrence of certain specified events and the holders may require the Company to repurchase all or any portion of their notes for cash equal to 100% of the principal amount of the 2024 Notes, plus accrued and unpaid interest, if the Company undergoes a fundamental change as specified in the supplemental indenture for the 2024 Notes. The post reverse stock split conversion rate is 33.7952 shares of common stock per

34

$1,000 principal amount of notes and represented a conversion price of $29.59 per share of common stock. The 2024 Notes mature on September 15, 2024, unless earlier converted, redeemed, or repurchased by the holders pursuant to their terms, and are not redeemable by the Company except during the final three months prior to maturity.

Securitized Debt

Arroyo Trust 2019-2

In May 2019, the Company completed a residential mortgage-backed securitization comprised of $945.5 million of Non-QM Residential Whole Loans, issuing $919.0 million of mortgage-backed notes. The Company did not elect the fair value option for these notes, so they are recorded at their principal balance less unamortized deferred financing cost and classified in "Securitized debt, net" in the Consolidated Balance Sheets. The following table summarizes the issued Arroyo Trust 2019-2's residential mortgage pass-through certificates at September 30, 2023 (dollars in thousands):

 

Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity
Offered Notes:
Class A-1	$	142,973	3.3%	$	142,973	4/25/2049
Class A-2	7,668		3.5%	7,668		4/25/2049
Class A-3	12,148		3.8%	12,148		4/25/2049
Class M-1	25,055		4.8%	25,055		4/25/2049
Subtotal	$	187,844		$	187,844
Less: Unamortized Deferred Financing Costs	N/A			1,932
Total	$	187,844		$	185,912

The Company retained the non-offered securities in the securitization, which include the class B, Class A-IO-S and Class XS certificates. These non-offered securities were eliminated in consolidation. The securitized debt of the Arroyo Trust 2019-2 can only be settled with the residential loans that serve as collateral for the securitized debt and is non-recourse to the Company. At September 30, 2023, Residential Whole Loans, with an outstanding principal balance of approximately $212.3 million, serve as collateral for the Arroyo Trust 2019-2's securitized debt. The Company may redeem the offered notes on or after the earlier of (i) the three-year anniversary of the closing date or (ii) the date on which the aggregate collateral balance is 20% of the original principal balance. The notes are redeemable at their face value plus accrued interest.

Arroyo Trust 2020-1

In June 2020, the Company completed a residential mortgage-backed securitization comprised of $355.8 million of Non-QM Residential Whole Loans, issuing $341.7 million of mortgage-backed notes. The Company did not elect the fair value option for these notes, so they are recorded at their principal balance less unamortized deferred financing cost and classified in "Securitized debt, net" in the Consolidated Balance Sheets. The following table summarizes the issued Arroyo Trust 2020-1's residential mortgage pass-through certificates at September 30, 2023 (dollars in thousands):

 

Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity
Offered Notes:
Class A-1A	$	66,276	1.7%	$	66,276	3/25/2055
Class A-1B	7,865		2.1%	7,865		3/25/2055
Class A-2	13,518		2.9%	13,518		3/25/2055
Class A-3	17,963		3.3%	17,963		3/25/2055
Class M-1	11,739		4.3%	11,739		3/25/2055
Subtotal	$	117,361		$	117,361
Less: Unamortized Deferred Financing Costs	N/A			1,176
Total	$	117,361		$	116,185

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The Company retained the non-offered securities in the securitization, which include the Class B, Class A-IO-S, and Class XS certificates. These non-offered securities were eliminated in consolidation. The securitized debt of the Arroyo Trust 2020-1 can only be settled with the residential loans that serve as collateral for the securitized debt and is non-recourse to the Company. At September 30, 2023, Residential Whole Loans with an outstanding principal balance of approximately $130.4 million serve as collateral for the Arroyo Trust 2020-1's securitized debt. The Company may redeem the offered notes on or after the earlier of (i) the three-year anniversary of the closing date or (ii) the date on which the aggregate collateral balance is equal to or less than 30% of the original principal balance. The notes are redeemable at their face value plus accrued interest.

Arroyo Trust 2022-1

In February 2022, the Company completed a residential-mortgage backed securitization comprised of $432.0 million of Non-QM Residential Whole Loans, issuing $398.9 million of mortgage-backed notes. The Company has chosen to make the fair value election pursuant to ASC 825 for the debt and accordingly the bonds are recorded at fair value in the Consolidated Balance Sheets with the periodic changes in fair value are recorded in current period earnings in the Consolidated Statements of Operations as a component of "Unrealized gain (loss), net."

The following table summarizes the issued Arroyo Trust 2022-1's residential mortgage pass-through certificates at September 30, 2023 (dollars in thousands):

Classes	Principal Balance		Coupon	Fair Value		Contractual Maturity
Offered Notes:
Class A-1A	$	196,149	2.5%	$	174,066	12/25/2056
Class A-1B	82,942		3.3%	68,578		12/25/2056
Class A-2	21,168		3.6%	15,527		12/25/2056
Class A-3	28,079		3.7%	19,864		12/25/2056
Class M-1	17,928		3.7%	11,374		12/25/2056
Total	$	346,266		$	289,409

The Company retained the non-offered securities in the securitization, which include the Class B, Class A-IO-S, and Class XS certificates. These non-offered securities were eliminated in consolidation. The securitized debt of the Arroyo Trust 2022-1 can only be settled with the residential loans that serve as collateral for the securitized debt and is non-recourse to the Company. At September 30, 2023, Residential Whole Loans with an outstanding principal balance of approximately $378.0 million serve as collateral for the Arroyo Trust 2022-1's securitized debt. The Company may redeem the offered notes on or after the earlier of (i) the three-year anniversary of the closing date or (ii) the date on which the aggregate collateral balance is equal to or less than 30% of the original principal balance. The notes are redeemable at their fair value plus accrued interest.

Arroyo Trust 2022-2

In July 2022, the Company completed a residential-mortgage backed securitization comprised of $402.2 million of Non-QM Residential Whole Loans, issuing $351.9 million of mortgage-backed notes. The Company has chosen to make the fair value election pursuant to ASC 825 for the debt and accordingly the bonds are recorded at fair value in the Consolidated Balance Sheets with the periodic changes in fair value are recorded in current period earnings in the Consolidated Statements of Operations as a component of "Unrealized gain (loss), net."

The following table summarizes the issued Arroyo Trust 2022-2's residential mortgage pass-through certificates at September 30, 2023 (dollars in thousands):

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Classes	Principal Balance		Coupon	Fair Value		Contractual Maturity
Offered Notes:
Class A-1	$	243,033	5.0%	$	230,646	7/25/2057
Class A-2	20,687		5.0%	19,097		7/25/2057
Class A-3	25,208		5.0%	23,219		7/25/2057
Class M-1	17,694		5.0%	13,277		7/25/2057
Total	$	306,622		$	286,239

The Company retained the non-offered securities in the securitization, which include the Class B-1, Class B-2, Class B-3, Class A-IO-S, and Class XS certificates. These non-offered securities were eliminated in consolidation. The securitized debt of the Arroyo Trust 2022-2 can only be settled with the residential loans that serve as collateral for the securitized debt and is non-recourse to the Company. At September 30, 2023, Residential Whole Loans with an outstanding principal balance of approximately $353.1 million serve as collateral for the Arroyo Trust 2022-2's securitized debt. The Company may redeem the offered notes on or after the earlier of (i) the three-year anniversary of the closing date or (ii) the date on which the aggregate collateral balance is equal to or less than 30% of the original principal balance. The notes are redeemable at their fair value plus accrued interest.

Commercial Mortgage-Backed Notes

CSMC 2014 USA

The following table summarizes CSMC 2014 USA's commercial mortgage pass-through certificates at September 30, 2023 (dollars in thousands):

 

Classes	Principal Balance		Coupon		Fair Value		Contractual Maturity
Class A-1	$	120,391	3.3	%	$	100,388	9/11/2025
Class A-2	531,700		4.0	%	453,714		9/11/2025
Class B	136,400		4.2	%	107,723		9/11/2025
Class C	94,500		4.3	%	71,132		9/11/2025
Class D	153,950		4.4	%	109,772		9/11/2025
Class E	180,150		4.4	%	96,059		9/11/2025
Class F	153,600		4.4	%	62,063		9/11/2025
Class X-1(1)	n/a		0.5	%	4,785		9/11/2025
Class X-2(1)	n/a		—	%	994		9/11/2025
	$	1,370,691			$	1,006,630

(1) Class X-1 and X-2 are interest-only classes with notional balances of $652.1 million and $733.5 million as of September 30, 2023, respectively.

At September 30, 2023, the Company owned a portion of the class F certificates with an outstanding principal balance of $14.9 million, which is eliminated in consolidation. The remaining CSMC USA debt that we elected the fair value option had a fair value of $1.0 billion at September 30, 2023, and is recorded in "Securitized debt, net" in the Consolidated Balance Sheets. Of the remaining outstanding principal balance of $1.4 billion, $174.7 million is owned by related parties and $1.2 billion is owned by third parties. The securitized debt of the CSMC USA can only be settled with the Commercial Loan with an outstanding principal balance of approximately $1.4 billion at September 30, 2023, that serves as collateral for the securitized debt and is non-recourse to the Company. The Company has chosen to make the fair value election pursuant to ASC 825 for the debt and accordingly the periodic changes in fair value are recorded in current period earnings in the Consolidated Statements of Operations as a component of "Unrealized gain (loss), net."

Note 8 — Derivative Instruments

The Company’s derivatives may include interest rate swaps, swaptions, options, futures contracts, TBAs, Agency, Non-Agency Interest-Only Strips that are classified as derivatives, credit default swaps, and total return swaps.

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The following table summarizes the Company’s derivative instruments at September 30, 2023 and December 31, 2022 (dollars in thousands):

			September 30, 2023				December 31, 2022
Derivative Instrument	Accounting Designation	Consolidated Balance Sheets Location	Notional Amount		Fair Value		Notional Amount		Fair Value
Interest rate swaps, asset	Non-Hedge	Derivative assets, at fair value	$	—	$	—	$	60,000	$	1
Total derivative instruments, assets					—				1
Interest rate swaps, liability	Non-Hedge	Derivative liability, at fair value	82,000		(845)		98,000		(61)
Total derivative instruments, liabilities					(845)				(61)
Total derivative instruments, net					$	(845)			$	(60)

The following tables summarize the effects of the Company’s derivative positions, including Interest-Only Strips characterized as derivatives and TBAs, which are reported in "Gain on derivative instruments, net" in the Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and September 30, 2022 (dollars in thousands):

 

	Realized Gain (Loss), net
Description	Other Settlements/ Expirations		Variation Margin Settlement		Return (Recovery) of Basis		Mark-to-Market		Contractual interest income (expense), net(1)		Total
Three months ended September 30, 2023
Interest rate swaps	$	—	$	1,008	$	—	$	(777)	$	846	$	1,077
Interest-Only Strips— accounted for as derivatives	—		—		(14)		70		24		80
Total	$	—	$	1,008	$	(14)	$	(707)	$	870	$	1,157
Three months ended September 30, 2022
Interest rate swaps	$	(3,371)	$	3,423	$	—	$	4,790	$	298	$	5,140
Interest rate swaptions	$	(161)	$	—	$	—	$	—	$	—	$	(161)
Interest-Only Strips— accounted for as derivatives	—		—		(5)		(54)		16		(43)
Credit default swaps	(273)		—		—		283		—		10
TBAs	1,319		—		—		(1,383)		—		(64)
Total	$	(2,486)	$	3,423	$	(5)	$	3,636	$	314	$	4,882

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	Realized Gain (Loss), net
Description	Other Settlements/ Expirations		Variation Margin Settlement		Return (Recovery) of Basis		Mark-to-Market		Contractual interest income (expense), net(1)		Total
Nine months ended September 30, 2023
Interest rate swaps	$	—	$	(992)	$	—	$	(785)	$	2,832	$	1,055
Interest-Only Strips— accounted for as derivatives	—		—		(16)		135		47		166
Total	$	—	$	(992)	$	(16)	$	(650)	$	2,879	$	1,221
Nine months ended September 30, 2022
Interest rate swaps	$	(3,371)	$	14,744	$	—	$	3,670	$	(255)	$	14,788
Interest rate swaptions	(161)		—		—		—		—		(161)
Interest-Only Strips— accounted for as derivatives	—		—		(120)		(270)		160		(230)
Credit default swaps	(242)		—		—		393		—		151
TBAs	2,051		—		—		—		—		2,051
Total	$	(1,723)	$	14,744	$	(120)	$	3,793	$	(95)	$	16,599

At September 30, 2023 and December 31, 2022, the Company had cash pledged as collateral for derivatives of approximately $1.0 million and $3.2 million, respectively, which is reported in "Due from counterparties" in the Consolidated Balance Sheets.

Interest Rate Swaps

The Company uses interest rate swaps to mitigate its exposure to higher short-term interest rates in connection with its repurchase agreements. Interest rate swaps generally involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the interest rate swap without exchange of the underlying notional amount.  Notwithstanding the foregoing, in order to manage its hedge position with regard to its liabilities, the Company on occasion will enter into interest rate swaps which involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the interest rate swap without exchange of the underlying notional amount. The Company also enters into forward starting swaps to help mitigate the effects of changes in interest rates on a portion of its borrowings under repurchase agreements. The Company generally enters into MAC (Market Agreed Coupon) interest rate swaps in which it may receive or make a payment at the time of entering such interest rate swap to compensate for the out of the market nature of such interest rate swap. Similar to all other interest rate swaps, these interest rate swaps are also subject to margin requirements.

The Company has not elected to account for its interest rate swaps as “hedges” under GAAP, accordingly the change in fair value of the interest rate swaps not designated in hedging relationships are recorded together with periodic net interest settlement amounts in "Gain on derivatives instruments, net" in the Consolidated Statements of Operations.

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The following tables provide additional information on the Company's fixed-pay interest rate swaps as of September 30, 2023 and December 31, 2022 (dollars in thousands):

	September 30, 2023
Fixed Pay Interest Rate Swap Remaining Term	Notional Amount		Average  Fixed Pay Rate		Average Variable Receive Rate		Average Maturity (Years)
1 year or less	$	60,000	1.4	%	5.1	%	0.5
Greater than 5 years	22,000		1.2	%	5.3	%	8.0
Total	$	82,000	1.3	%	5.2	%	2.5

	December 31, 2022
Fixed Pay Interest Rate Swap Remaining Term	Notional Amount		Average  Fixed Pay Rate		Average Variable Receive Rate		Average Maturity (Years)
Greater than 1 year and less than 3 years	$	60,000	1.4	%	2.0	%	1.3
Greater than 3 years and less than 5 years	70,000		1.4	%	1.8	%	4.1
Greater than 5 years	$	28,000	1.7	%	3.6	%	9.0
Total	$	158,000	1.4	%	2.2	%	3.9

Interest-Only Strips

The Company also invests in Interest-Only strips. In determining the classification of its holdings of Interest-Only strips, the Company evaluates the securities to determine if the nature of the cash flows has been altered from that of the underlying mortgage collateral. Generally, Interest-Only strips for which the security represents a strip off of a mortgage pass through security will be considered a hybrid instrument classified as an MBS investment in the Consolidated Balance Sheets utilizing the fair value option. Alternatively, those Interest-Only strips, for which the underlying mortgage collateral has been included into a structured security that alters the cash flows from the underlying mortgage collateral, are accounted for as derivatives at fair value with changes recognized in "Gain on derivative instruments, net" in the Consolidated Statements of Operations, along with any interest received. The carrying value of these Interest-Only Strips is included in "Agency mortgage-backed securities, at fair value" in the Consolidated Balance Sheets.

Credit Default Swaps

    The Company currently has no outstanding credit default swaps. Under these instruments, the buyer makes a monthly premium payment over the term of the contract in exchange for the seller making a payment for losses of the reference securities, upon the occurrence of a specified credit event.

Note 9 — Offsetting Assets and Liabilities

The following tables present information about certain assets and liabilities that are subject to master netting agreements (or similar agreements) and can potentially be offset in the Company’s Consolidated Balance Sheets at September 30, 2023 and December 31, 2022 (dollars in thousands):

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	September 30, 2023
	Gross  Amounts		Gross  Amounts  Offset in the Consolidated Balance  Sheets		Net Amounts of Assets  presented in  the Consolidated Balance  Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets				Net Amount
Description							Financial  Instruments(1)		Cash  Collateral (1)
Derivative Assets
Agency and Non-Agency Interest-Only Strips, accounted for as derivatives included in MBS	$	834	$	—	$	834	$	(236)	$	—	$	598
Total assets	$	834	$	—	$	834	$	(236)	$	—	$	598
Derivative Liabilities and Repurchase Agreements
Derivative liability, at fair value(2)(3)	$	845	$	—	$	845	$	—	$	(845)	$	—
Repurchase Agreements(4)	169,910		—		169,910		(167,509)		—		2,401
Total liability	$	170,755	$	—	$	170,755	$	(167,509)	$	(845)	$	2,401

(1)Amounts disclosed in the financial instruments column of the tables above represent securities, whole loans, securitized commercial loan collateral pledged, and derivative assets that are available to be offset against liability balances associated with repurchase agreement and derivative liabilities. Amounts disclosed in the cash collateral column of the tables above represents amounts pledged or received as collateral against derivative transactions.

(2)Derivative asset, at fair value, includes interest rate swaps.

(3)Cash collateral pledged against the Company’s derivative counterparties was approximately $1.0 million as of September 30, 2023.

(4)The carrying value of investments pledged against the Company’s repurchase agreements was approximately $227.6 million as of September 30, 2023.

 

	December 31, 2022
	Gross  Amounts		Gross  Amounts  Offset in the Consolidated Balance  Sheets		Net Amounts of Assets  presented in  the Consolidated Balance  Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets				Net Amount
Description							Financial  Instruments(1)		Cash  Collateral (1)
Derivative Assets
Agency and Non-Agency Interest-Only Strips, accounted for as derivatives included in MBS	$	714	$	—	$	714	$	(196)	$	—	$	518
Derivative asset, at fair value(2)	1		—		1		(1)		—		—
Total assets	$	715	$	—	$	715	$	(197)	$	—	$	518
Derivative Liabilities and Repurchase Agreements
Derivative liability, at fair value(2)(3)	$	61	$	—	$	61	$	(1)	$	(60)	$	—
Repurchase Agreements(4)	193,117		—		193,117		(193,073)		(44)		—
Total liability	$	193,178	$	—	$	193,178	$	(193,074)	$	(104)	$	—

(1)Amounts disclosed in the financial instruments column of the tables above represent securities, whole loans, securitized commercial loan collateral pledged, and derivative assets that are available to be offset against liability balances associated with repurchase agreement and derivative liabilities. Amounts disclosed in the cash collateral column of the tables above represents amounts pledged or received as collateral against derivative transactions.

(2)Derivative asset, at fair value and Derivative liability, at fair value includes interest rate swaps and credit default swaps.

(3)Cash collateral pledged against the Company’s derivative counterparties was approximately $3.2 million as of December 31, 2022.

(4)The carrying value of investments pledged against the Company’s repurchase agreements was approximately $288.3 million as of December 31, 2022.

Certain of the Company’s repurchase agreement and derivative transactions are governed by underlying agreements that generally provide for a right of set-off in the event of default or in the event of a bankruptcy of either party to the transaction.

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Note 10 — Related Party Transactions

Management Agreement

In connection with the Company’s initial public offering ("IPO") in May 2012, the Company entered into a management agreement (the “Management Agreement”) with the Manager, which describes the services to be provided by the Manager and compensation for such services. The Manager is responsible for managing the Company’s operations, including;(i) performing all of its day-to-day functions, (ii) determining investment criteria in conjunction with the Board of Directors, (iii) sourcing, analyzing and executing investments, asset sales and financings, (iv) performing asset management duties, and (v) performing financial and accounting management, subject to the direction and oversight of the Company’s Board of Directors. Pursuant to the terms of the Management Agreement, the Manager is paid a management fee equal to 1.50% per annum of the Company’s stockholders’ equity (as defined in the Management Agreement), calculated and payable (in cash) quarterly in arrears. For purposes of calculating the management fee, “stockholders’ equity” means the sum of the net proceeds from any issuances of the Company’s equity securities since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus retained earnings, calculated in accordance with GAAP, at the end of the most recently completed fiscal quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less any amount paid for repurchases of the Company’s shares of common stock, excluding any unrealized gains or losses on our investments and derivatives and other non-cash items (excluding other than temporary impairment) that have impacted stockholders' equity as reported in the Company’s consolidated financial statements prepared in accordance with GAAP, regardless of whether such items are included in other comprehensive income or loss, or in net income, and excluding one-time events pursuant to changes in GAAP and certain other non-cash charges after discussions between the Manager and the Company’s independent directors and after approval by a majority of the Company’s independent directors. However, if the Company’s stockholders’ equity for any given quarter is negative based on the calculation described above, the Manager will not be entitled to receive any management fee for that quarter.

In addition, the Company may be required to reimburse the Manager for certain expenses as described below, and shall reimburse the Manager for the compensation paid to the Company’s controller. Expense reimbursements to the Manager are made in cash on a regular basis. The Company’s reimbursement obligation is not subject to any dollar limitation. Because the Manager’s personnel perform certain legal, accounting, due diligence tasks and other services that outside professionals or outside consultants otherwise would perform, the Manager may be paid or reimbursed for the documented cost of performing such tasks, provided that such costs and reimbursements are in amounts which are no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s-length basis.

The Management Agreement may be amended, supplemented or modified by agreement between the Company and the Manager. The Management Agreement expires on May 15, 2024. It is automatically renewed for one-year terms on each May 15th unless previously terminated as described below. The Company’s independent directors review the Manager’s performance and any fees payable to the Manager annually and, the Management Agreement may be terminated annually upon the affirmative vote of at least two-thirds (2/3) of the Company’s independent directors, based upon: (i) the Manager’s unsatisfactory performance that is materially detrimental to the Company; or (ii) the Company’s determination that any fees payable to the Manager are not fair, subject to the Manager’s right to prevent such termination due to unfair fees by accepting a reduction of management fees agreed to by at least two-thirds (2/3) of the Company’s independent directors. The Company will provide the Manager 180 days prior notice of any such termination. Unless terminated for cause, the Company will pay the Manager a termination fee equal to three times the average annual management fee earned by the Manager during the prior 24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination.

The Company may also terminate the Management Agreement at any time, without the payment of any termination fee, with 30 days prior written notice from the Company’s Board of Directors for cause, which will be determined by at least two-thirds (2/3) of the Company’s independent directors, which is defined as: (i) the Manager’s continued material breach of any provision of the Management Agreement (including the Manager’s failure to comply with the Company’s investment guidelines); (ii) the Manager’s fraud, misappropriation of funds, or embezzlement against the Company; (iii) the Manager’s gross negligence in the performance of its duties under the Management Agreement; (iv) the occurrence of certain events with respect to the bankruptcy or insolvency of the Manager, including an order for relief in an involuntary bankruptcy case or the

42

Manager authorizing or filing a voluntary bankruptcy petition; (v) the Manager is convicted (including a plea of nolo contendere) of a felony; or (vi) the dissolution of the Manager.

In December 2021, the Manager agreed to voluntarily waive 25% of its management fee solely for the duration of calendar year 2022 in order to support the earnings potential of the Company and its transition to a residential focused investment portfolio. Future waivers, if any, will be at the Manager's discretion.

     For the three months ended September 30, 2023 and September 30, 2022, the Company incurred approximately $974 thousand and approximately $850 thousand in management fees, respectively. For the nine months ended September 30, 2023 and September 30, 2022, the Company incurred approximately $2.9 million and approximately $3.0 million in management fees, respectively.

In addition to the management fee, the Company is also responsible for reimbursing the Manager for certain expenses paid by the Manager on behalf of the Company as defined in the Management Agreement. For the three months ended September 30, 2023 and September 30, 2022, the Company recorded expenses included in general and administrative expenses totaling approximately $67 thousand and approximately $64 thousand, respectively, related to reimbursable employee costs. For the nine months ended September 30, 2023 and September 30, 2022, the Company recorded expenses included in general and administrative expenses totaling approximately $217 thousand and approximately $511 thousand, respectively, related to reimbursable employee costs. Any such expenses incurred by the Manager and reimbursed by the Company, including the employee compensation expense, are typically included in the Company’s general and administrative expense in the Consolidated Statements of Operations. At September 30, 2023 and December 31, 2022, approximately $1.0 million and approximately $3.9 million, respectively, for management fees incurred but not yet paid was included in "Payable to affiliate" in the Consolidated Balance Sheets. In addition, at September 30, 2023 and December 31, 2022, approximately $49 thousand and approximately $86 thousand, respectively, of reimbursable costs incurred but not yet paid was included in "Payable to affiliate" in the Consolidated Balance Sheets. 

Note 11 — Share-Based Payments

The Company's ability to grant equity-based awards under the Company's previous equity incentive plans expired on May 9, 2022. At the Annual Meeting of Stockholders held on June 24, 2022, the Company's stockholders approved the Western Asset Mortgage Capital Corporation 2022 Omnibus Incentive Plan and the Western Asset Mortgage Capital Corporation 2022 Manager Omnibus Incentive Plan (collectively, the “2022 Plans”). The 2022 Plans provide for the issuance of options (including non-statutory stock options and incentive stock options), stock appreciation rights (referred to as SARs), restricted stock, restricted stock units (referred to as RSUs), stock bonuses, other stock based awards and cash awards.

The aggregate maximum number of shares of our common stock available for future issuances under the 2022 Plans is 1,000,000 shares, which was reduced to 100,000 shares following the completion of the reverse stock split. The Manager and the officers, employees, non-employee directors, independent contractors, and consultants of the Company or any affiliate of the Company, including any individuals who are employees of the Manager or one of the Manager’s affiliates, are eligible to participate in the 2022 Plans, provided that they have been selected by the Plan Administrator.

On June 23, 2023, the Company granted a total of 31,184 restricted stock units (7,796 per each independent director), to each of the Company's four independent directors. These restricted stock units will vest in full on June 23, 2024, the first anniversary of the grant date, and will be settled in shares of the Company’s common stock upon each of the independent director’s separation from service with the Company.

On June 24, 2022, the Company granted 21,704 restricted stock units (5,426 per each independent director) on a post reverse stock split basis, to each of the Company's 4 independent directors. These restricted stock units and associated dividend equivalent units vested in full on June 24, 2023, the one year anniversary of the grant date, and will be settled in shares of the Company's common stock upon each of the independent director's separation from service with the Company.

On June 30, 2022, the Company granted 20,000 restricted stock units on a post reverse-stock-split basis under the Western Asset Mortgage Capital Corporation 2022 Omnibus Incentive Plan to the Company’s Chief Financial Officer. These restricted stock units and associated dividend equivalent units vest in equal installments on the first and second anniversary of the grant date. On June 30, 2023, 10,000 restricted stock units and 1,547 dividend equivalent units vested which were settled by the issuance of 11,547 shares of the Company's common stock during Q3 2023.

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During the nine months ended September 30, 2023 and September 30, 2022, 31,704 and 11,716 restricted stock units vested, respectively. The Company recognized stock-based compensation expense of approximately $101 thousand and approximately $100 thousand for the three months ended September 30, 2023 and September 30, 2022, respectively. The Company recognized stock-based compensation expense of approximately $301 thousand and approximately $335 thousand for the nine months ended September 30, 2023 and September 30, 2022, respectively. In addition, the Company had unamortized compensation expense of $277 thousand and $298 thousand for equity awards at September 30, 2023 and December 31, 2022, respectively.

Holders of restricted stock units are entitled to receive dividends (or dividend equivalent units) and distributions that become payable on the restricted stock units during the restricted period. Dividend equivalent units allocable to restricted stock units are deemed to purchase additional phantom shares of the Company's common stock that are credited to each participant's deferral account. The award agreements include restrictions whereby the restricted stock units cannot be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of prior to the lapse of restrictions under the respective award agreement. The restrictions lapse on the unvested restricted stock units awarded when vested, subject to the grantee's continuing to provide services to the Company as of the vesting date. Unvested restricted stock units and rights to dividends thereon are forfeited upon termination of the grantee.    

The following is a summary of restricted equity awards vesting dates as of September 30, 2023 and December 31, 2022: 

	September 30, 2023	December 31, 2022
Vesting Date	Shares Vesting	Shares Vesting
June 2023	—	31,704
June 2024	43,151	10,000
Total	43,151	41,704

The following table presents information with respect to shares issued under the Company’s Equity Incentive Plans for the nine months ended September 30, 2023 and September 30, 2022:

 

	September 30, 2023			September 30, 2022
	Restricted Stock Units	Weighted Average  Grant Date Fair  Value(1)		Restricted Stock Units	Weighted Average  Grant Date Fair  Value(1)
Outstanding at beginning of period	81,914	$	31.21	114,825	$	131.85
Granted(2)	41,559	9.15		45,954	12.75
Issuance of common shares	(11,547)	11.89		—	—
Outstanding at end of period	111,926	25.01		160,779	97.81
Unvested at end of period	43,151	$	9.58	41,704	$	12.52

(1)The grant date fair value of the awards is based on the closing market price of the Company’s common stock at the grant date.

(2)Includes 10,375 and 4,250 shares attributed to dividends on restricted stock under the Director Deferred Fee Plan for the nine months ended September 30, 2023 and September 30, 2022, respectively.

Note 12 — Stockholders’ Equity

Reverse Stock Split

On June 30, 2022, the Company announced that its Board of Directors approved a one-for-ten reverse stock split of the Company's outstanding shares of common stock. The one-for-ten reverse stock split was effected on July 11, 2022, which reduced the total number of authorized shares of common stock from 500,000,000 to 50,000,000 and also reduced the total number of authorized shares of preferred stock from 100,000,000 to 10,000,000. The number of common shares outstanding reducing from 60,380,105 to 6,038,012. The par value per share of our common stock remained unchanged at $0.01. All per

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share amounts and common shares outstanding have been adjusted on a retroactive basis to reflect the Company's one-for-ten reverse stock split.

The Company's stockholders' equity, in the aggregate, remains unchanged. Per share net income or loss increased because there are fewer shares of common stock outstanding. The common stock held in treasury was reduced in proportion to the Reverse Stock Split Ratio. There were no other accounting consequences, including changes to the amount of stock-based compensation expense to be recognized in any period, that arose as a result of the reverse stock split. No fractional shares were issued in connection with the reverse stock split. Instead, each stockholder holding fractional shares was entitled to receive, in lieu of such fractional shares, cash in an amount determined based on the closing price of the Company's common stock the business day prior to the Effective Date. The reverse stock split applied to all of the Company's outstanding shares of common stock and did not affect any stockholder’s ownership percentage of shares of the Company's common stock, except for immaterial changes resulting from the payment of cash for fractional shares.

At-The-Market Program

    In March 2017, the Company entered into an equity distribution agreement with JMP Securities LLC, which was amended on June 5, 2020, under which the Company may offer and sell up to $100 million worth of shares of common stock in an At-The-Market equity offering. During the nine months ended September 30, 2023, the Company did not sell any shares under the amended agreement.

Stock Repurchase Program 

In December 2021, the Company extended its stock repurchase program as authorized by its Board of Directors. Under the extended program, the Company is permitted to repurchase up to 300,000 shares of its common stock, adjusted on a retroactive basis to reflect the Company's one-for-ten reverse stock split, through December 31, 2023. The previous authorization expired December 31, 2021. Any purchases made pursuant to the program will be made in the open market, in privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rules 10b5-1 and 10b-18 of the Securities and Exchange Commission Act of 1934, as amended. The authorization does not obligate the Company to acquire any particular amount of common shares, or any shares at all, and the program may be suspended or discontinued at the Company's discretion without prior notice.

During the nine months ended September 30, 2023, the Company did not repurchase any shares under the stock repurchase program.

Dividends

The following table presents cash dividends declared and paid by the Company on its common stock, not adjusted on a retroactive basis to reflect the Company's one-for-ten reverse stock split to align with 1099-DIV per share amounts as reported.

 

Declaration Date	Record Date	Payment Date	Amount per Share		Tax Characterization
2023
September 21, 2023	October 2, 2023	October 26, 2023	$	0.35	Not yet determined
June 21, 2023	July 3, 2023	July 26, 2023	$	0.35	Not yet determined
March 22, 2023	April 3, 2023	April 26, 2023	$	0.35	Not yet determined
2022
December 21, 2022	January 3, 2023	January 26, 2023	$	0.40	Not yet determined(1)
September 22, 2022	October 3, 2022	October 26, 2022	$	0.40	Ordinary income
June 21, 2022	July 1, 2022	July 25, 2022	$	0.04	Ordinary income
March 23, 2022	April 4, 2022	April 26, 2022	$	0.04	Ordinary income

(1)The cash distributions made on January 26, 2023, with a record date of January 3, 2023, are treated as received by stockholders on January 26, 2023 and taxable in calendar year 2023.

Note 13 — Net Loss per Common Share

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The table below presents basic and diluted net loss per share of common stock using the two-class method for the three and nine months ended September 30, 2023 and September 30, 2022 (dollars, other than shares and per share amounts, in thousands), adjusted on a retroactive basis to reflect the Company's one-for-ten reverse stock split.

 

	For the three months ended September 30, 2023		For the three months ended September 30, 2022		For the nine months ended September 30, 2023		For the nine months ended September 30, 2022
Numerator:
Net loss attributable to common stockholders and participating securities for basic and diluted earnings per share	$	(8,705)	$	(40,010)	$	(10,771)	$	(88,250)
Less:
Dividends and undistributed earnings allocated to participating securities	39		32		101		62
Net loss allocable to common stockholders — basic and diluted	$	(8,744)	$	(40,042)	$	(10,872)	$	(88,312)
Denominator:
Weighted average common shares outstanding for basic earnings per share	6,049,559		6,038,012		6,041,946		6,036,876
Weighted average common shares outstanding for diluted earnings per share	6,049,559		6,038,012		6,041,946		6,036,876
Basic loss per common share	$	(1.45)	$	(6.63)	$	(1.80)	$	(14.63)
Diluted loss per common share	$	(1.45)	$	(6.63)	$	(1.80)	$	(14.63)

For the three and nine months ended September 30, 2023 and September 30, 2022, the Company excluded the effects of the convertible senior unsecured notes from the computation of diluted earnings per share since the average market value per share of the Company’s common stock was below the exercise price of the convertible senior unsecured notes.

Note 14 — Income Taxes

As a REIT, the Company is not subject to federal income tax to the extent that it makes qualifying distributions to its stockholders and satisfies on a continuing basis, through actual investment and operating results, the REIT requirements including certain asset, income and stock ownership tests.

Based on the Company’s analysis of any potential uncertain income tax positions, the Company concluded that it does not have any uncertain tax positions that meet the recognition or measurement criteria as of September 30, 2023. The Company files U.S. federal and state income tax returns.  As of September 30, 2023, U.S. federal tax returns filed by the Company for 2021, 2020, and 2019 and state tax returns filed for 2021, 2020, 2019, 2018 and 2017 are open for examination pursuant to relevant statutes of limitation. In the event that the Company incurs income tax related interest and penalties, the Company’s policy is to classify them as a component of its provision for income taxes.

Income Tax Provision

Subject to the limitation under the REIT asset test rules, the Company is permitted to own up to 100% of the stock of one or more taxable REIT subsidiaries ("TRS"). Currently, the Company owns one TRS that is taxable as a corporation and is subject to federal, state and local income tax on its net income at the applicable corporate rates. The TRS, which was formed in Delaware on July 28, 2014, is a limited liability company and a wholly-owned subsidiary of the Company. During the three months ended September 30, 2023 and September 30, 2022, the Company recorded a federal and state tax benefit of zero and a tax provision of $266 thousand, respectively, which is recorded in "Income tax provision" in the Consolidated Statements of Operations. During the nine months ended September 30, 2023 and September 30, 2022, the Company recorded a federal and state tax provision of zero and a tax provision of $276 thousand respectively.

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Deferred Tax Asset

As of September 30, 2023 and December 31, 2022, the Company recorded a deferred tax asset of approximately $13.8 million and $13.5 million, respectively, relating to capital loss carryforward and temporary differences as a result of the timing of income recognition of certain investments held in the TRS. The capital loss carryforwards may only be recognized to the extent of capital gains. There is uncertainty as to the TRS ability to recognize capital gains in the future. As a result, the Company has concluded it is more likely than not the deferred tax asset will not be realized and has recorded a full valuation allowance.

In addition, the REIT generated net operating losses ("NOLs") during the year ended December 31, 2021 related to ordinary losses on its MBS portfolio and it generated NOLs for the years ended December 31, 2020 and December 31, 2017, related to its interest rate swap terminations, and for its California return a portion of the NOLs is apportioned to the TRS. The Company recorded a deferred tax asset relating to the NOLs of $14.6 million and $14.5 million in the REIT and $1.7 million and $1.6 million in the TRS as of September 30, 2023 and December 31, 2022, respectively. The TRS can carryback the NOLs generated during the years ended December 31, 2020 and December 31, 2017 to each of the two preceding years to request a refund for taxes paid. As of September 30, 2023 and December 31, 2022, the Company has concluded it is more likely than not the deferred tax asset relating to the NOLs will not be realized and it has recorded a combined valuation allowance of $16.3 million and $16.1 million, respectively.

Effective Tax Rate

The Company's effective tax rate differs from its combined federal and state income tax rate primarily due to its valuation allowance and the deduction of dividends distributions to be paid under Code Section 857(a).

Note 15 — Commitments and Contingencies

From time to time, the Company may become involved in various claims and legal actions arising in the ordinary course of business. Management is not aware of any material commitments nor contingencies at September 30, 2023.

Note 16 — Subsequent Events

On October 26, 2023, the Company announced that its Board of Directors declared an interim fourth quarter dividend of $0.14 per share of the Company’s common stock. The dividend is payable on November 8, 2023 to stockholders of record as of November 3, 2023. The interim fourth quarter dividend was made pursuant to the terms of the MITT Merger Agreement.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING INFORMATION

The Company makes forward-looking statements herein and will make forward-looking statements in future filings with the Securities and Exchange Commission (the “SEC”), press releases or other written or oral communications within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For these statements, the Company claims the protections of the safe harbor for forward-looking statements contained in such sections. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company’s control.

These forward-looking statements include information about possible or assumed future results of the Company’s business, financial condition, liquidity, results of operations, plans and objectives. When the Company uses the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or similar expressions, the Company intends to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: market trends in the Company’s industry, interest rates, real estate values, the debt securities markets, the U.S. housing and the U.S. and foreign commercial real estate markets or the general economy or the market for residential and/or commercial mortgage loans; the Company’s business and investment strategy; the Company’s projected operating results; changes in interest rates and the market value of the Company’s target assets; credit risks; servicing-related risks, including those associated with foreclosure and liquidation; the state of the U.S. and to a lesser extent, international economy generally or in specific geographic regions; economic trends and economic recoveries; the Company’s ability to obtain and maintain financing arrangements, including under the Company’s repurchase agreements, a form of secured financing, and securitizations; the current potential return dynamics available in residential mortgage-backed securities (“RMBS”), and commercial mortgage-backed securities (“CMBS” and collectively with RMBS, “MBS”); the level of government involvement in the U.S. mortgage market; the anticipated default rates on CMBS and Commercial Loans; the loss severity on Non-Agency MBS; the general volatility of the securities markets in which the Company participates; changes in the value of the Company’s assets; the Company’s expected portfolio of assets; the Company’s expected investment and underwriting process; interest rate mismatches between the Company’s target assets and any borrowings used to fund such assets; changes in prepayment rates on the Company’s target assets; effects of hedging instruments on the Company’s target assets; rates of default or decreased recovery rates on the Company’s target assets; the degree to which the Company’s hedging strategies may or may not protect the Company from interest rate volatility; the impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters; the Company’s ability to maintain the Company’s qualification as a real estate investment trust for U.S. federal income tax purposes; the Company’s ability to maintain its exemption from registration under the Investment Company Act of 1940, as amended (the “1940 Act”); the availability of opportunities to acquire Agency RMBS, Non-Agency RMBS, CMBS, Residential and Commercial Whole Loans, and other mortgage assets; the availability of qualified personnel; estimates relating to the Company’s ability to make distributions to its stockholders in the future; the Company’s understanding of its competition; the result of Company's recently announced definitive merger agreement where MITT and the Company have agreed to combine and form a REIT; and the uncertainty and economic impact of pandemics, epidemics, or other public health emergencies, such as the lingering effects of the COVID-19 pandemic.

The forward-looking statements are based on the Company’s beliefs, assumptions and expectations of its future performance, taking into account all information currently available to it. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to the Company. Some of these factors, are described in Item 1A - “Risk Factors” and Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 13, 2023. These and other risks, uncertainties and factors, including those described in the annual, quarterly and current reports that the Company files with the SEC, could cause its actual results to differ materially from those included in any forward-looking statements the Company makes. All forward-looking statements speak only as of the date they are made. New risks and uncertainties arise over time and it is not possible to predict those events or how they may affect the Company. Except as required by law, the Company is not obligated to, and does not intend to, update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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Overview

Western Asset Mortgage Capital Corporation, a Delaware corporation, and its subsidiaries (the “Company” unless otherwise indicated or except where the context otherwise requires “we,” “us” or “our”) commenced operations in May 2012, focused on investing in, financing and managing a portfolio of real estate related securities, Whole Loans and other financial assets, which we collectively refer to as our target assets. We are externally managed by Western Asset Management Company, LLC (our “Manager”) pursuant to the terms of a management agreement. We conduct our operations to qualify and be taxed as a real estate investment trust, or REIT, for U.S. federal income tax purposes. Accordingly, we generally will not be subject to U.S. federal income taxes on our taxable income that we distribute currently to our stockholders as long as we maintain our intended qualification as a REIT. However, certain activities that we may perform may cause us to earn income which will not be qualifying income for REIT purposes. We have designated a subsidiary as a taxable REIT subsidiary, or TRS, to engage in such activities. We also intend to operate our business in a manner that permits us to maintain our exemption from registration under the 1940 Act. Our common stock is traded on the New York Stock Exchange, or the NYSE, under the symbol "WMC."

Our objective is to provide attractive risk adjusted returns to our stockholders primarily through an attractive dividend, which we intend to support with sustainable distributable earnings (which we previously referred to as core earnings), as well as the potential for higher returns through capital appreciation. Our investment strategy is based on our Manager's perspective of which mix of our target assets it believes provides us with the best risk-reward opportunities at any given time. We also deploy leverage as part of our investment strategy to increase potential returns.

Our Investment Strategy

Our Manager’s investment philosophy, which developed from a singular focus in fixed-income asset management over a variety of credit cycles and conditions, is to provide clients with a long-term value-oriented portfolio. We benefit from the breadth and depth of our Manager’s overall investment philosophy, which focuses on a macroeconomic analysis as well as an in-depth analysis of individual assets and their relative value. In making investment decisions on our behalf, our Manager seeks to identify assets across the broad mortgage universe with attractive risk adjusted returns, which incorporates its view on the outlook for the mortgage markets, including relative valuation, supply and demand trends, the level of interest rates, the shape of the yield curve, prepayment rates, financing and liquidity, residential real estate prices, delinquencies, default rates, recovery of various segments of the economy and vintage of collateral, subject to maintaining our REIT qualification and our exemption from registration under the 1940 Act.

In December 2021, we announced that our investment strategy will focus on residential real estate-related investments, including but not limited to non-qualified mortgage loans, Non-Agency RMBS, and other related investments. We believe this focus allows us to address attractive market opportunities while maintaining alignment with our Manager’s core competencies. We are continuing to transition out of the commercial investments in our portfolio, though we may from time to time make commercial investments on an opportunistic basis.

Our Target Assets

 Residential Whole Loans — Residential Whole Loans are mortgages secured by single family residences held directly by us or through consolidated trusts with us holding the beneficial interest in the trusts. Our Residential Whole Loans are mainly adjustable rate mortgages that do not qualify for the Consumer Finance Protection Bureau’s (or CFPB) safe harbor provision for “qualified mortgages” ("Non-QM mortgages"). Our Manager’s review, relating to Non-QM mortgages, includes an analysis of the loan originator’s procedures and documentation for compliance with Ability to Repay requirements. As discussed in Note 7 - "Financing" to the financial statements contained in this Quarterly Report on Form 10-Q, we have and may continue to securitize Whole Loan interests, selling more senior interests in the pool of loans and retaining residual portions. The characteristics of our Residential Whole Loans may vary going forward.

Non-Agency RMBS — Non-RMBS that are not guaranteed by a U.S. Government agency or U.S. Government-sponsored entity. The mortgage loan collateral for Non-Agency RMBS consists of residential mortgage loans that do not generally conform to underwriting guidelines issued by a U.S. Government agency or U.S. Government-sponsored entity due to certain factors, including mortgage balances in excess of Agency underwriting guidelines, borrower characteristics, loan characteristics and/or level of documentation, and therefore are not issued or guaranteed by a U.S. Government agency or U.S. Government-sponsored entity. The mortgage loan collateral may be classified as subprime, Alternative-A or prime depending on the borrower’s credit rating and the underlying level of documentation. Non-Agency RMBS collateral may also include re-

49

performing loans, which are conventional mortgage loans that were current at the time of the securitization, but had been delinquent in the past. Non-Agency RMBS may be secured by fixed-rate mortgages, adjustable-rate mortgages or hybrid adjustable-rate mortgages.

Agency RMBS — Agency RMBS, which are RMBS for which the principal and interest payments are guaranteed by a U.S. Government agency, such as the Government National Mortgage Association (“GNMA” or “Ginnie Mae”), or a U.S. Government-sponsored entity ("GSE"), such as the Federal National Mortgage Association (“FNMA” or “Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”).  The Agency RMBS we acquire can be secured by fixed-rate mortgages, adjustable-rate mortgages or hybrid adjustable-rate mortgages. Fixed-rate mortgages have interest rates that are fixed for the term of the loan and do not adjust. The interest rates on adjustable-rate mortgages generally adjust annually (although some may adjust more frequently) to an increment over a specified interest rate index. Hybrid adjustable-rate mortgages have interest rates that are fixed for a specified period of time (typically three, five, seven or ten years) and, thereafter, adjust to an increment over a specified interest rate index. Adjustable-rate mortgages and hybrid adjustable-rate mortgages generally have periodic and lifetime constraints on the amount by which the loan interest rate can change on any predetermined interest rate reset date. These investments can be in the form of pools, TBA and CMO (including interest only, principal only or other structures).

GSE Risk Sharing Securities Issued by Fannie Mae and Freddie Mac — From time to time we have and may in the future continue to invest in risk sharing securities issued by Fannie Mae and Freddie Mac. Principal and interest payments on these securities are based on the performance of a specified pool of Agency residential mortgages. The payments due on these securities, however, are not secured by the referenced mortgages. The payments due are full faith and credit obligations of Fannie Mae or Freddie Mac respectively, but neither agency guarantees full payment of the underlying mortgages.  Investments in these securities generally are not qualifying assets for purposes of the 75% real estate asset test applicable to REITs and generally do not generate qualifying income for purposes of the 75% real estate income test applicable to REITs. As a result, we may be limited in our ability to invest in such assets.

Other investments — In addition to Residential Whole Loans and Non-Agency RMBS, our current target investments, we may also make investments in Commercial Loans and Non-Agency CMBS and other securities on an opportunistic basis, which our Manager believes will assist us in meeting our investment objective and are consistent with our overall investment policies.  These investments will normally be limited by the REIT requirements that 75% our assets be real estate assets and that 75% of our income be generated from real estate, thereby limiting our ability to invest in such assets.

Our Investment Portfolio

Our investment strategy will focus on residential real estate related investments, including but not limited to non-qualified mortgage loans, Non-Agency RMBS, and other related investments. We are continuing to transition out of our commercial loan investments.

Our investment portfolio composition at September 30, 2023 is as follows:    

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Our Financing Strategy

The Company has worked to diversify our financing sources to provide an alternative to short-term repurchase agreements. We expect to continue to seek financing arrangements with longer terms and less onerous margin requirements, including but not limited to longer-term repurchase agreements, term financing, securitizations, and convertible senior unsecured notes, as the market permits. We believe the amount of leverage we use is consistent with our intention of keeping total borrowings within a prudent range, as determined by our Manager, taking into account a variety of factors such as general economic, political and financial market conditions, the anticipated liquidity and price volatility of our assets, the availability and cost of financing the assets, the creditworthiness of financing counterparties, and the health of the U.S. residential and commercial mortgage markets. We expect to maintain a debt-to-equity ratio of two to four and a half times the amount of our stockholders' equity, depending on our investment composition. We seek to enhance equity returns by effectively utilizing leverage and seeking to limit our exposure to interest rate volatility and daily margin calls. The following table presents our debt-to-equity ratio on September 30, 2023 and December 31, 2022:

(dollars in thousands)	September 30, 2023		December 31, 2022
Total debt(1)	$	254,660	$	276,639
Total equity	$	77,986	$	94,804
Debt-to-equity ratio	3.3		2.9

(1) Total debt excludes the securitized debt which is non-recourse to the Company.

Our Hedging and Risk Management Strategy

Our overall portfolio strategy is designed to generate attractive returns to our investors through various economic cycles. In connection with our risk management activities, we may enter into a variety of derivative and non-derivative instruments. When purchased, our primary objective for acquiring these derivatives and non-derivative instruments is to mitigate our exposure to future events that are outside our control. Our derivative instruments are designed to mitigate the effects of market risk and cash flow volatility associated with interest rate risk, including prepayment risk. As part of our hedging strategy, we may enter into interest rate swaps, including forward starting swaps, interest rate swaptions, U.S. Treasury

51

options, future contracts, TBAs, credit default swaps, forwards and other similar instruments. There can be no assurance that appropriate hedging strategies will be available or that if implemented they will be successful.

Critical Accounting Policies

The consolidated financial statements include our accounts, those of our wholly-owned subsidiaries and certain VIEs in which we are the primary beneficiary. All intercompany amounts have been eliminated in consolidation. In accordance with GAAP, our consolidated financial statements require the use of estimates and assumptions that involve the exercise of judgment and use of assumptions as to future uncertainties. Our most critical accounting policies will involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses. We believe that all of the decisions and assessments upon which our consolidated financial statements have been based were reasonable at the time made and based upon information available to us at that time. There have been no significant changes to our critical accounting policies that are disclosed in our most recent Annual Report on Form 10-K for the year ended December 31, 2022.

2023 Activity

Investment Activity

We continually evaluate potential investments and our investment selection is based on supply and demand of our target assets, costs of financing, and the expected future interest rate volatility costs of hedging. During the nine months ended September 30, 2023, we sold the CRE 3 loan to an unaffiliated third party for its recorded fair value as of December 31, 2022 of $8.8 million.

The following table presents our investing activity for the nine months ended September 30, 2023 (dollars in thousands):

	Balance at				Loan Modification/Capitalized Interest		Principal  Payments and Basis Recovery		Proceeds  from Sales		Transfers to REO		Realized Gain/(Loss)		Unrealized Gain/(Loss)		Premium and discount amortization, net		Balance at
Investment Type	December 31, 2022		Purchases																September 30, 2023
Agency RMBS and Agency RMBS IOs	$	767	$	—	N/A		$	(6)	$	—	N/A		$	—	$	134	$	—	$	895
Non-Agency RMBS	23,687		11,000		N/A		(431)		—		N/A		(48)		(750)		(337)		33,121
Non-Agency CMBS	85,435		—		N/A		(20,684)		—		N/A		(1,239)		(10,314)		1,008		54,206
Other securities(1)	27,262		4,714		N/A		—		(15,324)		N/A		(1,379)		1,939		(345)		16,867
Total MBS and other securities	137,151		15,714		N/A		(21,121)		(15,324)		N/A		(2,666)		(8,991)		326		105,089
Residential Whole Loans	1,091,145		—		129		(87,397)		—		—		(29)		(14,582)		(2,288)		986,978
Residential Bridge Loans	2,849		—		—		(74)		—		—		—		7		—		2,782
Commercial Loans	90,002		—		—		(1,961)		(8,776)		—		(81,223)		80,560		99		78,701
Securitized Commercial Loans	1,085,103		—		—		—		—		—		—		(93,785)		21,332		1,012,650
REO	2,255		—		N/A		—		28		—		(28)		—		N/A		2,255
Total Investments	$	2,408,505	$	15,714	$	129	$	(110,553)	$	(24,072)	$	—	$	(83,946)	$	(36,791)	$	19,469	$	2,188,455

(1) Other securities include $15.6 million of GSE CRTs and $1.2 million of ABS at September 30, 2023.

Portfolio Characteristics

Residential Whole Loans

The Residential Whole Loans have low LTV's and are comprised of 2,761 adjustable and fixed-rate Non-QM and investor mortgages. The following table presents certain information about our Residential Whole Loans investment portfolio at September 30, 2023 (dollars in thousands): 

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				Weighted Average
Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Original FICO Score(1)	Expected Life (years)	Contractual Maturity (years)	Coupon Rate
2.01% – 3.00%	39	$	21,880	66.3	%	758	9.1	27.6	2.9	%
3.01% – 4.00%	361	196,884		67.0	%	760	8.2	28.0	3.7	%
4.01% – 5.00%	1,134	384,437		64.8	%	750	6.8	25.5	4.5	%
5.01% – 6.00%	813	322,376		66.0	%	743	6.1	26.2	5.5	%
6.01% – 7.00%	321	120,933		67.2	%	743	4.8	26.9	6.5	%
7.01% - 8.00%	69	23,865		60.6	%	734	4.1	23.1	7.4	%
8.01% - 9.00%	24	7,630		55.5	%	744	4.3	24.0	8.6	%
Total	2,761	$	1,078,005	65.7	%	749	6.6	26.3	4.9	%

(1)The original FICO score is not available for 210 loans with a principal balance of approximately $64.6 million at September 30, 2023. We have excluded these loans from the weighted average computations.

Residential Bridge Loans

    We are no longer allocating capital to Residential Bridge Loans. The following table presents certain information about the remaining four Residential Bridge Loans left in the portfolio at September 30, 2023 (dollars in thousands):

				Weighted Average
Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Contractual Maturity (months)(1)	Coupon Rate
7.01% – 9.00%	2	$	1,822	67.5	%	0.0	8.7	%
9.01% – 11.00%	1	849		90.5	%	0.0	10.0	%
11.01% – 13.00%	1	420		70.0	%	0.0	11.3	%
Total	4	$	3,091	74.2	%	0.0	9.4	%

(1) Non-performing loans that are past their maturity date are excluded from the calculation of the weighted average contractual maturity. The weighted average contractual maturity for these loans is zero.

Non-Performing Residential Loans

The following table presents the aging of the Residential Whole Loans and Bridge Loans as of September 30, 2023 (dollars in thousands):

	Residential Whole Loans					Bridge Loans
	No of Loans	Principal		Fair Value		No of Loans	Principal		Fair Value
Current	2,707	$	1,048,261	$	959,343	—	$	—	$	—
1-30 days	23	10,407		9,617		—	—		—
31-60 days	—	—		—		—	—		—
61-90 days	11	8,155		7,696		—	—		—
90+ days	20	11,182		10,322		4	3,091		2,782
Total	2,761	$	1,078,005	$	986,978	4	$	3,091	$	2,782

Residential Whole Loans in Non-Accrual Status

As of September 30, 2023, there were twenty Non-QM loans carried at fair value in non-accrual status with an unpaid principal balance of approximately $11.2 million and a fair value of $10.3 million. These non-performing loans represent approximately 1.0% of the total outstanding principal balance. No allowance or provision for credit losses was recorded as of and for the three and nine months ended September 30, 2023, since the valuation adjustment, if any, would be reflected in the

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fair value of these loans. We stopped accruing interest income for these loans when they became contractually 90 days delinquent.     

    As of September 30, 2023, there were four Residential Bridge Loans carried at fair value in non-accrual status with an unpaid principal balance of approximately $3.1 million and a fair value of $2.8 million. No allowance and provision for credit losses was recorded for loans carried at fair value as of and for the three and nine months ended September 30, 2023, since valuation adjustments, if any, would be reflected in the fair value of these loans. We stopped accruing interest income for these loans when they became contractually 90 days delinquent.

    As of September 30, 2023, the Company had one real estate owned ("REO") property with an aggregate carrying value of $2.3 million related to a foreclosed Residential Whole Loan. The REO properties are held for sale and accordingly carried at the lower of cost or fair value less cost to sell. The REO properties are classified in "Other assets" in the Consolidated Balance Sheets.

Non-Agency RMBS

The following table presents the fair value and weighted average purchase price for each of our Non-Agency RMBS categories, including IOs accounted for as derivatives, together with certain of their respective underlying loan collateral attributes and current performance metrics as of September 30, 2023 (fair value dollars in thousands):

 

			Weighted Average
Category	Fair Value		Purchase Price		Life (Years)	Original  LTV1		Original FICO1	60+ Day Delinquent		CPR
Prime	$	22,222	$	90.81	8.5	69.3	%	732	0.5	%	14.6	%
Alt-A	10,899		49.55		18.6	81.3	%	661	17.5	%	6.0	%
Total	$	33,121	$	77.23	11.8	73.3	%	708	6.1	%	11.8	%

(1) For any Non-Agency RMBS security for which the original LTV and original FICO score was not available, the minimum FICO score and maximum LTV allowed as disclosed per offering documents was substituted in the above calculation.

Agency RMBS Portfolio

The following table summarizes our Agency portfolio by investment category as of September 30, 2023 (dollars in thousands):

	Principal Balance		Amortized Cost		Fair Value		Net Weighted Average Coupon
Agency RMBS IOs and IIOs(1)	N/A		$	68	$	61	—	%
Agency RMBS IOs and IIOs accounted for as derivatives(1)	N/A		N/A		834		1.3	%
Total	$	—	$	68	$	895	1.1	%

(1)IOs and IIOs have no principal balances and bear interest based on a notional balance. The notional balance is used solely to determine interest distributions on the interest-only class of securities.

Non-Agency CMBS

The following table presents certain characteristics of our Non-Agency CMBS portfolio as of September 30, 2023 (dollars in thousands):

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		Principal				Weighted Average
Type	Vintage	Balance		Fair Value		Life (Years)	Original LTV
Conduit:
	2006-2009	$	68	$	65	1.0	88.7	%
	2010-2020	14,982		9,589		4.9	62.4	%
		15,050		9,654		4.9	62.5	%
Single Asset:
	2010-2020	73,509		44,552		2.4	66.1	%
Total		$	88,559	$	54,206	2.9	65.4	%

Commercial Real Estate Investments

We are continuing to transition out of our commercial loan investments. The following table presents our commercial loan investments as of September 30, 2023 (dollars in thousands):

Loan	Loan Type	Principal Balance		Fair Value		Original LTV	Interest Rate	Maturity Date	Extension Option	Collateral	Geographic Location
CRE 4	Interest-Only First Mortgage	22,204		22,071		63%	1-Month SOFR plus 3.38%	8/6/2025(1)	None	Retail	CT
CRE 5	Interest-Only First Mortgage	24,535		24,061		62%	1-Month SOFR plus 4.20%	5/6/2025(2)	None	Hotel	NY
CRE 6	Interest-Only First Mortgage	13,207		12,952		62%	1-Month SOFR plus 4.20%	5/6/2025(2)	None	Hotel	CA
CRE 7	Interest-Only First Mortgage	7,259		7,118		62%	1-Month SOFR plus 4.20%	5/6/2025(2)	None	Hotel	IL, FL
SBC 3(3)	Interest-Only First Mortgage	12,500		12,499		49%	1-Month SOFR plus 5.50%	10/4/2023	None	Nursing Facilities	CT
		$	79,705	$	78,701

(1) In August 2022, the CRE 4 loan was extended by three years through August 6, 2025, with a principal pay down of $16.2 million.

(2) In November 2023, the CRE 5, 6, and 7 loans were each extended through May 6, 2025.

(3) In January 2023, the SBC 3 loan was partially paid down by $862 thousand to bring the unpaid principal balance to $13.5 million, the maturity date was extended through May 5, 2023 for a 50-bps extension fee and the margin was increased from 4.47% to 5.00%. In May 2023, the SBC 3 loan was partially paid down by $750 thousand to bring the unpaid principal to $12.8 million, the maturity date was extended through August 4, 2023, and the margin was increased from 5.00% to 5.50%. In July 2023, the SBC 3 loan was partially paid down by $250 thousand to bring the unpaid principal balance to $12.5 million, and the maturity date was extended through October 4, 2023 for a 25 bps extension fee. In October 2023, the SBC 3 loan was partially paid down by $250 thousand to bring the unpaid principal to $12.3 millions and the maturity date was extended to December 31, 2023 for a 25 bps extension fee.

Non-Performing Commercial Loans

As of September 30, 2023, there are no Commercial Loans that are non-performing.

Geographic Concentration

The mortgages underlying our Non-Agency RMBS and Non-Agency CMBS are located in various states across the United States and other countries. The following table presents the five largest concentrations by location for the mortgages collateralizing our Non-Agency RMBS and Non-Agency CMBS as of September 30, 2023, based on fair value (dollars in thousands):

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	Non-Agency RMBS					Non-Agency CMBS
	Concentration		Fair Value			Concentration		Fair Value
California	33.6	%	$	11,130	California	51.3	%	$	27,803
Florida	13.5	%	4,461		Bahamas	24.8	%	13,425
New York	5.8	%	1,907		Texas	5.1	%	2,782
New Jersey	3.3	%	1,104		Pennsylvania	2.7	%	1,474
Georgia	3.6	%	1,198		New York	2.6	%	1,411

The following table presents the various states across the United States in which the collateral securing our Residential Whole Loans and Residential Bridge Loans at September 30, 2023, based on principal balance, is located (dollars in thousands): 

	Residential Whole Loans					Residential Bridge Loans
	State Concentration		Principal Balance			State Concentration		Principal Balance
California	67.8	%	$	731,058	California	56.7	%	$	1,754
New York	9.0	%	96,757		New York	43.3	%	1,337
Texas	4.8	%	51,407		Total	100.0	%	$	3,091
Florida	3.9	%	42,157
Georgia	3.3	%	35,297
Other	11.2	%	121,329
Total	100.0	%	$	1,078,005

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Financing Activity

     The Company will continue to look to expand and diversify our financing sources, especially those sources that provide an alternative to short-term repurchase agreements with less onerous margin requirements.

Repurchase Agreements

Our repurchase agreements bear interest at a contractually agreed-upon rate and have terms ranging from one month to 12 months. Our counterparties generally require collateral in excess of the loan amount, or haircuts. As of September 30, 2023, the contractual haircuts required under repurchase agreements on our investments were as follows:

	Minimum	Maximum
Short-Term Borrowings
Agency RMBS IOs	25%	25%
Non-Agency RMBS	—%	—%
Long-Term Borrowings
Non-Agency CMBS and Non-Agency RMBS Facility
Non-Agency RMBS	25%	50%
Non-Agency CMBS	30%	60%
Other Securities	35%	48%
Residential Whole Loan Facility
Residential Whole Loans(1)	—%	—%
Commercial Whole Loan Facility
Commercial Loans(2)	22%	32%

(1) The haircut is based on 10% of the outstanding principal amount of the Residential Whole Loans.

(2) Each Commercial Loan is financed separately under this facility and the haircuts are dependent on the type of collateral.

Residential Whole Loan Facility

The facility was extended on October 12, 2023 and matures on March 29, 2024. It bears interest at a rate of 1-Month Term SOFR plus 2.25%, with a SOFR floor of 0.25%.

We finance our Non-QM residential whole loans under this facility. As of September 30, 2023, we had outstanding borrowings of $4.2 million. The borrowing is secured by Non-QM residential whole loans with a fair value of $4.3 million, Residential Bridge Loans with a fair value of $2.8 million and one REO property with a carrying value of $2.3 million as of September 30, 2023.

Non-Agency CMBS and Non-Agency RMBS facility

The facility was paid off in full in May 2023 and replaced with a facility from a different counterparty which matures in May 2024. It bears a current weighted average interest rate of 1-Month Term SOFR plus 2.50%. As of September 30, 2023, the outstanding balance under this facility was $54.9 million. The borrowing is secured by investments with an estimated fair market value of $90.8 million as of September 30, 2023.

Commercial Whole Loan Facility

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The facility was extended on October 12, 2023 and matures on March 29, 2024. It bears interest at a rate of 1-Month Term SOFR plus 2.25%. As of September 30, 2023, the outstanding balance under this facility was $48.0 million. The borrowing is secured by performing commercial loans, with an estimated fair market value of $66.2 million as of September 30, 2023.

Fixed Rate Term Financing Facility

On July 25th, the Company replaced an existing short-term repurchase financing facility with Credit Suisse AG (UBS) with a new two-year term, $65 million fixed rate, non-mark-to-market, syndicated repurchase agreement, in a securitized form. As a result, the Company no longer has any financing arrangements with Credit Suisse AG (UBS) as a counterparty. As of September 30, 2023, the outstanding balance under this facility was $62.4 million, net of deferred financing costs, and is collateralized by our retained Arroyo bonds with an estimated fair market value of $134.7 million which are eliminated in consolidation as of September 30, 2023.

Repurchase Agreements

At September 30, 2023, we had outstanding borrowings under four of our repurchase agreements. The following table summarizes certain characteristics of our repurchase agreements at September 30, 2023 (dollars in thousands):

Securities Pledged	Repurchase Agreement Borrowings		Weighted Average Interest Rate on Borrowings Outstanding at end of period		Weighted Average Remaining Maturity (days)
Short-Term Borrowings:
Agency RMBS	$	351	5.98	%	2
Total short term borrowings	351		5.98	%	2
Long Term Borrowings:
Non-Agency CMBS and Non-Agency RMBS Facility
Non-Agency CMBS (1)	31,621		7.79	%	215
Non-Agency RMBS	77,751		10.80	%	585
Other Securities	8,860		8.09	%	215
Subtotal	118,232		9.79	%	458
Residential Whole Loan Facility
Residential Whole Loans (2)	2,562		7.56	%	25
Residential Bridge Loans (2)	1,641		7.56	%	25
Commercial Whole Loan Facility
Commercial Loans	48,032		7.56	%	34
Total long term borrowings	170,467		9.11	%	328
Repurchase agreements borrowings	$	170,818	9.10	%	327
Less unamortized debt issuance costs	908		N/A		N/A
Repurchase agreement borrowings, net	$	169,910	9.10	%	327

(1)Includes repurchase agreement borrowings on securities eliminated upon VIE consolidation.

(2)Repurchase agreement borrowings on loans owned are through trust certificates. The trust certificates are eliminated in consolidation.

At September 30, 2023, we had outstanding repurchase agreement borrowings with the following counterparties: 

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(dollars in thousands) Repurchase Agreement Counterparties	Amount Outstanding		Percent of Total Amount Outstanding		Company Investments Held as Collateral		Counterparty Rating(1)
WMC RR 2023-1 Trust	$	63,284	37.0	%	$	60,883	Unrated (2)
Goldman Sachs Bank USA	55,299		32.4	%	91,127		A+
Atlas Securitized Products Investments 2, L.P.	48,032		28.1	%	66,201		Unrated (3)
Atlas Securitized Products, L.P.	4,203		2.5	%	9,380		Unrated (3)
Total	$	170,818	100.0	%	$	227,591

(1)The counterparty ratings presented above are the long-term issuer credit ratings as rated at September 30, 2023 by S&P.

(2)WMC RR 2023-1 Trust was established during the three months ended September 30, 2023 and is a syndicated repurchase agreement, in a securitized form, collateralized by our retained Arroyo bonds. This Trust is currently unrated as it has not operated for a sufficient period of time to achieve a credit rating.

(3)    Affiliates of Apollo purchased a significant portion of the Securitized Products Group from Credit Suisse. A majority of the assets and professionals associated with the transaction are now part of or managed by ATLAS SP Partners, a new standalone credit firm focused on asset-backed financing and capital markets solutions. The firm needs more time operating to achieve a credit rating and, therefore, is currently unrated.

The following table presents our average repurchase agreement borrowings, excluding unamortized debt issuance costs, by type of collateral pledged for the three and nine months ended September 30, 2023 (dollars in thousands):

Collateral	Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023
Agency RMBS	$	296	$	287
Non-Agency RMBS(1)	70,673		66,072
Non-Agency CMBS(1)	33,408		40,982
Residential Whole Loans	4,188		4,498
Commercial Loans	48,032		44,516
Other securities	8,861		12,849
Total	$	165,458	$	169,204
Maximum borrowings during the period(2)	$	177,644	$	190,356

(1)Includes repurchase agreement borrowings on securities eliminated upon VIE consolidation.

(2)Amount represents the maximum borrowings at month-end during each of the respective periods.

Repurchase Agreements Financial Metrics

Certain of our financing agreements provide the counterparty with the right to terminate the agreement and accelerate amounts due under the associated agreement if we do not maintain certain financial metrics. Although specific to each financing arrangement, typical financial metrics include minimum equity and liquidity requirements, leverage ratios, and performance triggers. In addition, some of the financing arrangements contain cross-default features, whereby default under an agreement with one lender simultaneously causes default under agreements with other lenders with borrowings outstanding as of September 30, 2023. We were in compliance with the terms of such financial tests as of September 30, 2023.

Securitized Debt

Residential Mortgage-Backed Notes

Arroyo Trust 2019-2

The following table summarizes the consolidated Arroyo Trust 2019's issued mortgage-backed notes at September 30, 2023 which is classified in "Securitized debt, net" in the Consolidated Balance Sheets (dollars in thousands):

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Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity
Issued Mortgage-Backed Notes
Class A-1	$	142,973	3.3%	$	142,973	4/25/2049
Class A-2	7,668		3.5%	7,668		4/25/2049
Class A-3	12,148		3.8%	12,148		4/25/2049
Class M-1	25,055		4.8%	25,055		4/25/2049
Subtotal	$	187,844		$	187,844
Less: Unamortized deferred financing costs	N/A			1,932
Total	$	187,844		$	185,912

Arroyo Trust 2020-1

The following table summarizes the consolidated Arroyo Trust 2020's issued mortgage-backed notes at September 30, 2023 which is classified in "Securitized debt, net" in the Consolidated Balance Sheets (dollars in thousands):

 

Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity
Issued Mortgage-Backed Notes
Class A-1A	$	66,276	1.7%	$	66,276	3/25/2055
Class A-1B	7,865		2.1%	7,865		3/25/2055
Class A-2	13,518		2.9%	13,518		3/25/2055
Class A-3	17,963		3.3%	17,963		3/25/2055
Class M-1	11,739		4.3%	11,739		3/25/2055
Subtotal	$	117,361		$	117,361
Less: Unamortized deferred financing costs	N/A			1,176
Total	$	117,361		$	116,185

Arroyo Trust 2022-1

The following table summarizes the consolidated Arroyo Trust 2022-1's issued mortgage-backed notes at September 30, 2023 which is classified as "Securitized debt, net" on the Consolidated Balance Sheets (dollars in thousands):

Classes	Principal Balance		Coupon	Fair Value		Contractual Maturity
Issued Mortgage-Backed Notes
Class A-1A	$	196,149	2.5%	$	174,066	12/25/2056
Class A-1B	82,942		3.3%	68,578		12/25/2056
Class A-2	21,168		3.6%	15,527		12/25/2056
Class A-3	28,079		3.7%	19,864		12/25/2056
Class M-1	17,928		3.7%	11,374		12/25/2056
Total	$	346,266		$	289,409

Arroyo Trust 2022-2

The following table summarizes the consolidated Arroyo Trust 2022-2's issued mortgage-backed notes at September 30, 2023 which is classified as "Securitized debt, net" on the Consolidated Balance Sheets (dollars in thousands):

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Classes	Principal Balance		Coupon	Fair Value		Contractual Maturity
Issued Mortgage-Backed Notes
Class A-1	$	243,033	5.0%	$	230,646	7/25/2057
Class A-2	20,687		5.0%	19,097		7/25/2057
Class A-3	25,208		5.0%	23,219		7/25/2057
Class M-1	17,694		5.0%	13,277		7/25/2057
Total	$	306,622		$	286,239

Commercial Mortgage-Backed Notes

We hold a controlling financial variable interest in CSMC USA and are required to consolidate the CMBS VIE. Refer to Note 7, "Financings" for details. The following table summarizes the consolidated CSMC USA's commercial mortgage pass-through certificates at September 30, 2023 which is classified in "Securitized debt, net" in the Consolidated Balance Sheets (dollars in thousands):

 

Classes	Principal Balance		Coupon		Fair Value		Contractual Maturity
Class A-1	$	120,391	3.3	%	$	100,388	9/11/2025
Class A-2	531,700		4.0	%	453,714		9/11/2025
Class B	136,400		4.2	%	107,723		9/11/2025
Class C	94,500		4.3	%	71,132		9/11/2025
Class D	153,950		4.4	%	109,772		9/11/2025
Class E	180,150		4.4	%	96,059		9/11/2025
Class F	153,600		4.4	%	62,063		9/11/2025
Class X-1(1)	n/a		0.5	%	4,785		9/11/2025
Class X-2(1)	n/a		—	%	994		9/11/2025
	$	1,370,691			$	1,006,630

(1) Class X-1 and X-2 are interest-only classes with notional balances of $652.1 million and $733.5 million as of September 30, 2023, respectively.

The above table does not reflect the portion of the class F bond held by us because the bond is eliminated in consolidation. Our ownership interest in the F bond represents a controlling financial interest, which resulted in consolidation of the trust. The bond had a fair market value of $6.0 million at September 30, 2023, and our exposure to loss is limited to our ownership interest in this bond.

Convertible Senior Unsecured Notes

2024 Notes

As of September 30, 2023, we had $86.3 million aggregate principal amount of the 2024 Notes outstanding. The 2024 notes mature on September 15, 2024, unless earlier converted, redeemed or repurchased by the holders pursuant to their terms, and are not redeemable by us except during the final three months prior to maturity.

Recourse and Non-Recourse Financing

We utilize both recourse and non-recourse debt to finance our portfolio. Our recourse debt included our short and long-term repurchase agreement financings and our convertible senior unsecured notes. At September 30, 2023, our total non-recourse financing is comprised of $877.7 million of securitized debt issued in connection with our four Residential Whole Loan securitizations and $1.0 billion of securitized debt from owning a Non-Agency CMBS bond with a fair value of $6.0 million that was deemed to be a controlling financial variable interest in CSMC USA which required us to consolidate the CMBS VIE.

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(dollars in thousands)	September 30, 2023		December 31, 2022
Recourse and non-recourse financing	$	2,139,035	$	2,335,323
Non-recourse financing
Arroyo 2019-2	185,912		213,885
Arroyo 2020-1	116,185		124,934
Arroyo 2022-1	289,409		318,219
Arroyo 2022-2	286,239		324,035
CMSC USA	1,006,630		1,077,611
Total recourse financing	$	254,660	$	276,639
Stockholders' equity	$	77,986	$	94,804
Recourse leverage	3.3x		2.9x

Hedging Activity

The following tables summarize the hedging activity during the nine months ended September 30, 2023 (dollars in thousands):

	Notional Amount at				Settlements, Terminations or Expirations		Notional Amount at
Derivative Instrument	December 31, 2022		Acquisitions				September 30, 2023
Fixed pay interest rate swaps	$	158,000	$	—	$	(76,000)	$	82,000
Total derivative instruments	$	158,000	$	—	$	(76,000)	$	82,000

	Fair Value at		Acquisitions		Settlements, Terminations or Expirations		Realized Gains / Losses		Mark-to-market		Fair Value at
Derivative Instrument	December 31, 2022										September 30, 2023
Fixed pay interest rate swaps	$	(60)	$	—	$	992	$	(992)	$	(785)	$	(845)
Total derivative instruments	$	(60)	$	—	$	992	$	(992)	$	(785)	$	(845)

Dividends

During the nine months ended September 30, 2023, we declared dividends totaling $1.05 per share generating a dividend yield of approximately 14.9% based on the stock closing price of $9.40 on September 30, 2023.

Book Value

The following chart reflects our book value per common share basic and diluted over five consecutive quarters:

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    We continue to implement measures to improve our balance sheet by increasing liquidity, reducing leverage, and seeking alternative financing arrangements to preserve long-term shareholder value. The decrease in book value from $14.69 as of June 30, 2023, to $12.89 as of September 30, 2023, was primarily driven by the decreased value of our residential whole loan and securitized commercial loan portfolios of $50.4 million and $12.7 million, respectively.

Pending Merger Agreement

On June 28, 2023, the Company announced that Terra Property Trust, Inc. (“TPT”), an externally managed real estate investment trust (“REIT”) that originates, invests in, and manages loans and assets secured by commercial real estate (“CRE”), and the Company entered into a definitive merger agreement (the "TPT Merger Agreement") under which TPT and WMC agreed to combine.

On August 8, 2023, the Company terminated the TPT Merger Agreement, and concurrently entered into an Agreement and Plan of Merger (the “MITT Merger Agreement”), dated August 8, 2023, by and among AG Mortgage Investment Trust, Inc., a Maryland corporation (“MITT"), AGMIT Merger Sub, LLC, a Delaware limited liability company (“Merger Sub”), the Company, and, solely for the purposes of Section 3.3(a), Section 3.3(i), Article V, Section 6.13, Section 7.2, Section 7.3 and Article IX therein, AG REIT Management, LLC, a Delaware limited liability company (“MITT Manager”),pursuant to which the Company will merge with and into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary of MITT (the “Merger”). Due to the termination of the TPT Merger Agreement, the Company was obligated to pay or cause to be paid to TPT a termination fee of $3 million. Concurrently with the execution of the MITT Merger Agreement, MITT paid the $3 million termination fee directly to TPT on behalf of the Company on August 8, 2023.

Pursuant to, and subject to the terms and conditions set forth in, the MITT Merger Agreement, each outstanding share of the Company’s common stock would be converted into the right to receive (i) 1.498 shares of MITT common stock and (ii) the per share portion of a cash payment from the MITT Manager equal to the lesser of $7 million or approximately 9.9% of the aggregate per share merger consideration (any difference between $7 million and such lower amount would be used to benefit the combined company post closing by offsetting reimbursable expenses that would otherwise be payable to the MITT Manager). Additionally, the MITT Manager, which would be the manager of the combined company, would waive $2.4 million of management fees in the first year post-closing. Cash will be paid in lieu of fractional shares of MITT common stock that would have been received as a result of the Merger.

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On November 7, 2023, the Company adjourned its special meeting of stockholders until December 5, 2023, at 9:00 a.m. Pacific Time, due to a lack of quorum and to allow further solicitation of proxies from the Company’s common stockholders for the approval of the merger at the special meeting.

At a special meeting of MITT stockholders held on November 7, 2023, MITT stockholders approved the issuance of

MITT’s common stock to be issued in connection with the proposed Merger.

The transaction has been approved by the Board of Directors of the Company and is subject to customary closing conditions. The transaction is expected to close during the fourth quarter of 2023.

Results of Operations 

Comparison of the three months ended September 30, 2023 to the three months ended September 30, 2022.

General

During the third quarter of 2023, we continued to take actions to strengthen our balance sheet.

During the three months ended September 30, 2023, we received approximately $407 thousand from the repayment or paydown of Commercial Whole Loans, Non-Agency CMBS, and Other Securities, and $28.8 million from the sale or repayment of Residential Whole Loans, and Non-Agency RMBS. We also purchased $11.0 million of Non-Agency RMBS. Due to spread widening during the quarter, we experienced a decline in the fair value of our residential whole loan and mortgage backed securities investments. Overall, our net loss was $8.7 million, or $1.45 per basic and diluted weighted common share, for the three months ended September 30, 2023.

In contrast, for the three months ended September 30, 2022, we sold approximately $11.7 million of residential whole loans and repurchased $1.0 million aggregate principal amount outstanding of our 2022 Notes at par. Due to spread widening, we experienced a significant decline in the fair value of residential whole loan investments. This decline in fair value of $45.3 million was offset by $3.6 million of unrealized gains on derivatives due to our hedging activity. We also reduced the fair value of CRE 3, a commercial junior mezzanine loan by $18.1 million, as a senior lender consummated a foreclosure on the equity interest in the property. See Note 6 for further discussion. Overall, our net loss was $40.0 million, or $6.63 per basic and diluted weighted common share, for the three months ended September 30, 2022.

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Net Interest Income

    The following tables set forth certain information regarding our net interest income on our investment portfolio for the three months ended September 30, 2023 and September 30, 2022 (dollars in thousands):

Three Months Ended September 30, 2023	Average Amortized Cost of Assets		Total Interest Income		Yield on Average Assets
Investments
Agency RMBS	$	65	$	4	24.41	%
Non-Agency CMBS	86,522		2,008		9.21	%
Non-Agency RMBS	31,903		450		5.60	%
Residential Whole Loans	1,122,987		12,732		4.50	%
Residential Bridge Loans	2,587		—		—	%
Commercial Loans	79,839		1,931		9.60	%
Securitized Commercial Loan	1,315,805		22,574		6.81	%
Other securities	18,889		439		9.22	%
Total investments	$	2,658,597	$	40,138	5.99	%
	Average Carrying Value		Total Interest Expense		Average Cost of Funds(1)
Borrowings
Repurchase agreements	$	165,458	$	3,797	9.10	%
Convertible senior unsecured notes, net	84,613		1,865		8.74	%
Securitized debt	2,256,492		31,314		5.51	%
Total borrowings	$	2,506,563	$	36,976	5.85	%
Net interest income and net interest margin(2)			$	3,162	0.47	%

Three Months Ended September 30, 2022	Average Amortized Cost of Assets		Total Interest Income		Yield on Average Assets
Investments
Agency RMBS	$	53	$	2	14.97	%
Non-Agency CMBS	109,898		2,336		8.43	%
Non-Agency RMBS	36,075		472		5.19	%
Residential Whole Loans	1,248,772		13,884		4.41	%
Residential Bridge Loans	5,585		28		1.99	%
Commercial Loans	191,929		1,540		3.18	%
Securitized Commercial Loan	1,288,238		22,099		6.81	%
Other securities	42,768		1,045		9.69	%
Total investments	$	2,923,318	$	41,406	5.62	%
	Average Carrying Value		Total Interest Expense		Average Cost of Funds(1)
Borrowings
Repurchase agreements	$	265,444	$	2,187	3.27	%
Convertible senior unsecured notes, net	109,329		2,402		8.72	%
Securitized debt	2,348,073		31,118		5.26	%
Total borrowings	$	2,722,846	$	35,707	5.20	%
Net interest income and net interest margin(2)			$	5,699	0.77	%

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(1) Average cost of funds does not include the interest expense related to our derivatives. In accordance with GAAP, such costs are included in "Gain on derivative instruments, net" in the Consolidated Statements of Operations.

(2) Since we do not apply hedge accounting, our net interest margin in this table does not reflect the benefit / cost of our interest rate swaps. See "Non-GAAP Financial Measures" for net investment income table that includes the benefit / cost from our interest rate swaps.

Interest Income

For the three months ended September 30, 2023, and September 30, 2022, we earned interest income on our investments of approximately $40.1 million and $41.4 million, respectively. The decrease of approximately $1.3 million was mainly due to the sale of mortgage-backed securities in the last quarter of 2022 and the first three quarters of 2023, the effect of which was partially offset by increased interest rates.

Interest Expense

Interest expense increased from $35.7 million for the three months ended September 30, 2022 to $37.0 million for the three months ended September 30, 2023. The increase in interest expense was primarily attributable to increased borrowing costs on our repurchase facilities due to increasing market interest rates, offset by a decrease in interest expense incurred when compared to the same period in the prior year as the balance on our outstanding repurchase agreements declined period over period.

Other income (loss), net

Realized gain (loss), net

Realized gain (loss) represents the net gain (loss) on sales or settlements from our investment portfolio and debt. The following table presents the realized gains (losses) of our investments and debt for each of the three months ended September 30, 2023 and September 30, 2022 (dollars in thousands):

 

	For the three months ended September 30, 2023								For the three months ended September 30, 2022
	Proceeds (Payments)		Gross Gains		Gross Losses		Net Gain  (Loss)		Proceeds (Payments)		Gross Gains		Gross Losses		Net Gain (Loss)
Residential Whole Loans	$	—	$	—	$	(29)	$	(29)	$	11,736	$	43	$	(76)	$	(33)
Convertible senior unsecured notes(1)	—		—		—		—		(1,000)		—		(2)		(2)
Total	$	—	$	—	$	(29)	$	(29)	$	10,736	$	43	$	(78)	$	(35)

(1)Realized gains/losses recognized on the extinguishment of the 2022 Notes. See Note 7 - Financings for details.

Unrealized gain (loss), net

Our investments and securitized debt, for which we have elected the fair value option, are recorded at fair value with the periodic changes in fair value being recorded in earnings. The change in unrealized gain (loss) is directly attributable to changes in market pricing on the underlying investments and securitized debt during the period.

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The following table presents the net unrealized gains (losses) we recorded on our investments and securitized debt (dollars in thousands): 

	Three months ended September 30, 2023		Three months ended September 30, 2022
Agency RMBS	$	(2)	$	(8)
Non-Agency CMBS	(5,344)		(628)
Non-Agency RMBS	(878)		(2,506)
Residential whole loans	(21,026)		(45,327)
Residential bridge loans	(1)		25
Commercial Loans	143		(17,729)
Securitized Commercial Loan	(19,735)		(78,046)
Other securities	396		(2,409)
Securitized debt	39,085		103,046
Total	$	(7,362)	$	(43,582)

Gain (loss) on derivatives, net

    As of September 30, 2023, we had interest rate swaps with a notional amount of $82.0 million and no forward starting swaps. Our hedging strategy is designed to mitigate our exposure to interest rate volatility.

The following table presents the components of gain (loss) on derivatives for the three months ended September 30, 2023 and September 30, 2022 (dollars in thousands):

	Realized Gain (Loss), net
Description	Other Settlements / Expirations		Variation Margin Settlement		Return (Recovery) of Basis		Mark-to-Market		Contractual interest income (expense), net(1)		Total
Three months ended September 30, 2023
Interest rate swaps	$	—	$	1,008	$	—	$	(777)	$	846	$	1,077
Agency and Non-Agency Interest-Only Strips— accounted for as derivatives	—		—		(14)		70		24		80
Total	$	—	$	1,008	$	(14)	$	(707)	$	870	$	1,157
Three months ended September 30, 2022
Interest rate swaps	$	(3,371)	$	3,423	$	—	$	4,790	$	298	$	5,140
Interest rate swaptions	(161)		—		—		—		—		(161)
Agency and Non-Agency Interest-Only Strips— accounted for as derivatives	—		—		(5)		(54)		16		(43)
Credit default swaps	(273)		—		—		283		—		10
TBAs	1,319		—		—		(1,383)		—		(64)
Total	$	(2,486)	$	3,423	$	(5)	$	3,636	$	314	$	4,882

(1) Contractual interest income (expense), net on derivative instruments includes interest settlement paid or received.

Other, net

For the three months ended September 30, 2023 and September 30, 2022, "Other, net" was income of $181 thousand and a loss of $61 thousand, respectively. The balance is mainly comprised of income on cash balances, miscellaneous net

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interest income (expense) on cash collateral for our repurchase agreements and derivatives, and miscellaneous fees and expenses on residential mortgage loans.

Expenses

Management Fee

We incurred management fee expense of approximately $974 thousand and $850 thousand for the three months ended September 30, 2023 and September 30, 2022, respectively. Although the Management Fee remained constant period over period, our Manager waived 25% of the calculated Management Fee in 2022, which was not extended into 2023. The management fee incurred for the three months ended September 30, 2023 reflects a reduction in the equity basis for which the management fee is calculated from the comparative period.

The management fees, expense reimbursements, and the relationship between our Manager and the Company are discussed further in Note 10, “Related Party Transactions” to the financial statements contained in this Quarterly Report on Form 10-Q.

Other Operating Expenses

We incurred other operating expenses of approximately $353 thousand and $343 thousand for the three months ended September 30, 2023, and September 30, 2022, respectively. Other operating costs comprise bank fees, trustee fees, and asset management/loan servicing fees for loans acquired serving released.

Transaction Costs

We incurred transaction costs of $3.0 million and $2.6 million for the three months ended September 30, 2023 and September 30, 2022, respectively. The amounts in the current and prior period reflect costs incurred in connection with the strategic review process.

General and Administrative Expenses

We incurred general and administrative expenses of approximately $4.5 million and $2.8 million for the three months ended September 30, 2023, and September 30, 2022, respectively. This increase is the result of the recognition of the $3.0 million termination fee paid to Terra Property Trust, Inc. ("TPT") during the third quarter of 2023 on August 8, 2023 for the termination of the merger agreement entered into by and among TPT, WMC and other parties thereto. This termination fee of $3.0 million was recognized as an expense in General and Administrative Expenses. Simultaneously, we recognized $3.0 million in Other Income (Loss), as the termination fee was paid on our behalf by MITT. This increase was partially offset by a decrease in professional fees related to expected reductions and the elimination of certain audit and compliance costs.

Comparison of the nine months ended September 30, 2023 to the nine months ended September 30, 2022.

General

During the first three quarters of 2023, we continued to make progress towards strengthening our balance sheet, improving liquidity, and the transition of our portfolio to residential investments.

During the nine months ended September 30, 2023, we acquired $11.0 million in Non-Agency RMBS securities and $4.7 million in Other Securities. We sold $15.3 million of Other Securities, $8.8 million in Commercial Loans, and recognized $20.6 million in basis recovery on the maturity of one of our CMBS securities. These sales combined with the CMBS maturity resulted in the recognition of a $83.9 million realized loss, offset by an $76.1 million unrealized gain, which was primarily comprised of the reversal of previously-recognized unrealized losses on the sale of the CRE 3 Commercial Loan. An increase in interest expense and transaction costs of $5.7 million incurred in connection with the strategic review process were the primary drivers of a net loss of $10.8 million, or $1.80 per basic and diluted weighted common share for the nine months ended September 30, 2023. During the third quarter of 2023, there was a $3.0 million termination fee paid to Terra Property Trust, Inc. ("TPT") for the for the termination of the merger agreement entered into by and among TPT, WMC and other parties

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thereto on August 8, 2023. This termination fee was recognized as an expense in General and Administrative Expenses. Simultaneously, we recognized $3.0 million in Other Income (Loss), as the termination fee was paid on our behalf by MITT.

In contrast, for the nine months ended September 30, 2022, we acquired $405.3 million of residential whole loans, sold $42.3 million of investments, including Non-Agency RMBS and CMBS, sold $11.7 million in residential whole loans, realized a gain on the sale of a REO hotel of $12.2 million, and repurchased $1.0 million aggregate principal amount of our existing 2022 Notes at par. We also reduced the fair value of CRE 3, a commercial junior mezzanine loan by $18.1 million, as a senior lender consummated a foreclosure on the equity interest in the property. See Note 6 for further discussion. Also, due to spread widening, we experienced a significant decline in the fair value of our residential whole loan investments. This decline in fair value of $125.5 million, coupled with transaction costs incurred in the securitizations of Arroyo 2022-1 and Arroyo 2022-2 of $5.6 million were key contributors to the generation of a net loss of $88.3 million, or $14.63 per basic and diluted weighted common share for the nine months ended September 30, 2022.

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Net Interest Income

    The following tables set forth certain information regarding our net interest income on our investment portfolio for the nine months ended September 30, 2023 and September 30, 2022 (dollars in thousands):

Nine Months Ended September 30, 2023	Average Amortized Cost of Assets		Total Interest Income		Yield on Average Assets
Investments
Agency RMBS	$	59	$	10	22.66	%
Non-Agency CMBS	89,400		6,240		9.33	%
Non-Agency RMBS	31,129		1,309		5.62	%
Residential Whole Loans	1,151,875		39,025		4.53	%
Residential Bridge Loans	2,929		24		1.10	%
Commercial Loans	80,038		5,520		9.22	%
Securitized Commercial Loan	1,301,538		67,355		6.92	%
Other securities	23,839		1,734		9.73	%
Total investments	$	2,680,807	$	121,217	6.05	%
	Average Carrying Value		Total Interest Expense		Average Cost of Funds(1)
Borrowings
Repurchase agreements	$	169,204	$	9,852	7.78	%
Convertible senior unsecured notes, net	84,204		5,595		8.88	%
Securitized debt	2,278,038		94,243		5.53	%
Total borrowings	$	2,531,446	$	109,690	5.79	%
Net interest income and net interest margin(2)			$	11,527	0.57	%

Nine Months Ended September 30, 2022	Average Amortized Cost of Assets		Total Interest Income		Yield on Average Assets
Investments
Agency RMBS	$	59	$	9	20.39	%
Non-Agency CMBS	142,362		7,436		6.98	%
Non-Agency RMBS	43,815		1,663		5.07	%
Residential Whole Loans	1,165,929		34,712		3.98	%
Residential Bridge Loans	5,688		64		1.50	%
Commercial Loans	192,079		4,046		2.82	%
Securitized Commercial Loan	1,274,894		65,957		6.92	%
Other securities	45,340		2,738		8.07	%
Total investments	$	2,870,166	$	116,625	5.43	%
	Average Carrying Value		Total Interest Expense		Average Cost of Funds(1)
Borrowings
Repurchase agreements	$	402,870	$	8,288	2.75	%
Convertible senior unsecured notes, net	113,670		7,499		8.82	%
Securitized debt	2,129,146		84,621		5.31	%
Total borrowings	$	2,645,686	$	100,408	5.07	%
Net interest income and net interest margin(2)			$	16,217	0.76	%

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(1) Average cost of funds does not include the interest expense related to our derivatives. In accordance with GAAP, such costs are included in "Gain on derivative instruments, net" in the Consolidated Statements of Operations.

(2) Since we do not apply hedge accounting, our net interest margin in this table does not reflect the benefit / cost of our interest rate swaps. See "Non-GAAP Financial Measures" for net investment income table that includes the benefit / cost from our interest rate swaps.

Interest Income

For the nine months ended September 30, 2023, and September 30, 2022, we earned interest income on our investments of approximately $121.2 million and $116.6 million, respectively. The increase of approximately $4.6 million was mainly due to an increase in interest rates.

Interest Expense

Interest expense increased from $100.4 million for the nine months ended September 30, 2022 to $109.7 million for the nine months ended September 30, 2023. The increase in interest expense was primarily a result increased borrowing costs on our repurchase facilities due to increasing market interest rates, offset by lower repurchase borrowings resulting from a smaller investment portfolio.

Other income (loss), net

Realized gain (loss), net

Realized gain (loss) represents the net gain (loss) on sales or settlements from our investment portfolio and debt. The following table presents the realized gains (losses) of our investments and debt for each of the nine months ended September 30, 2023 and September 30, 2022 (dollars in thousands):

 

	For the nine months ended September 30, 2023								For the nine months ended September 30, 2022
	Proceeds (Payments)		Gross Gains		Gross Losses		Net Gain  (Loss)		Proceeds (Payments)		Gross Gains		Gross Losses		Net Gain (Loss)
Non-Agency CMBS	$	—	$	—	$	(1,239)	$	(1,239)	$	10,152	$	—	$	(43,934)	$	(43,934)
Non-Agency RMBS	—		—		(48)		(48)		27,729		255		(1,425)		(1,170)
Other securities	15,324		649		(2,028)		(1,379)		4,406		—		(478)		(478)
Residential Whole-Loans	—		—		(29)		(29)		11,736		43		(76)		(33)
Commercial Loans(1)	8,776		—		(81,223)		(81,223)		—		—		—		—
Disposition of REO(2)	(28)		—		(28)		(28)		54,681		12,198		—		12,198
Convertible senior unsecured notes(3)	—		—		—		—		(11,689)		—		(134)		(134)
Total	$	24,072	$	649	$	(84,595)	$	(83,946)	$	97,015	$	12,496	$	(46,047)	$	(33,551)

(1)Realized gains/losses recognized on the sale of the CRE 3 loan in February 2023. See Note 6, "Commercial Loans" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional details.

(2)Realized gains/losses recognized in connection with the sale of the hotel REO.

(3)Realized gains/losses recognized on the extinguishment of the 2022 Notes. See Note 7, "Financings" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional details.

Unrealized gain (loss), net

Our investments, and securitized debt, for which we have elected the fair value option are recorded at fair value with the periodic changes in fair value being recorded in earnings. The change in unrealized gain (loss) is directly attributable to changes in market pricing on the underlying investments and securitized debt during the period.

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The following table presents the net unrealized gains (losses) we recorded on our investments and securitized debt (dollars in thousands): 

	Nine months ended September 30, 2023		Nine months ended September 30, 2022
Agency RMBS	$	—	$	(59)
Non-Agency CMBS	(10,314)		42,869
Non-Agency RMBS	(750)		(8,420)
Residential Whole Loans	(14,582)		(125,482)
Residential Bridge Loans	7		(58)
Commercial Loans	80,560		(19,876)
Securitized Commercial Loans	(93,785)		(203,828)
Other securities	1,939		(8,677)
Securitized debt	113,025		257,231
Total	$	76,100	$	(66,300)

Gain (loss) on derivatives, net

    As of September 30, 2023, we had interest rate swaps with a notional amount of $82.0 million, and no forward starting swaps. Our hedging strategy is designed to mitigate our exposure to interest rate volatility.

The following table presents the components of gain (loss) on derivatives for the nine months ended September 30, 2023 and September 30, 2022 (dollars in thousands):

	Realized Gain (Loss), net
Description	Other Settlements / Expirations		Variation Margin Settlement		Return (Recovery) of Basis		Mark-to-Market		Contractual interest income (expense), net(1)		Total
Nine months ended September 30, 2023
Interest rate swaps	$	—	$	(992)	$	—	$	(785)	$	2,832	$	1,055
Agency and Non-Agency Interest-Only Strips— accounted for as derivatives	—		—		(16)		135		47		166
Total	$	—	$	(992)	$	(16)	$	(650)	$	2,879	$	1,221
Nine months ended September 30, 2022
Interest rate swaps	$	(3,371)	$	14,744	$	—	$	3,670	$	(255)	$	14,788
Interest rate swaptions	(161)		—		—		—		—		(161)
Agency and Non-Agency Interest-Only Strips— accounted for as derivatives	—		—		(120)		(270)		160		(230)
Credit default swaps	(242)		—		—		393		—		151
TBAs	2,051		—		—		—		—		2,051
Total	$	(1,723)	$	14,744	$	(120)	$	3,793	$	(95)	$	16,599

(1)Contractual interest income (expense), net on derivative instruments includes interest settlement paid or received.

Other, net

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For the nine months ended September 30, 2023 and September 30, 2022, "Other, net" was an income of $424 thousand and a loss of $252 thousand, respectively. The balance is mainly comprised of income on cash balances, miscellaneous net interest income (expense) on cash collateral for our repurchase agreements and derivatives, and miscellaneous fees and expenses on residential mortgage loans.

Expenses

Management Fee

We incurred management fee expense of approximately $2.9 million and $3.0 million for the nine months ended September 30, 2023 and September 30, 2022, respectively. The decline in management fees reflects a reduction in the equity basis from which the management fee is calculated.

The management fees, expense reimbursements and the relationship between our Manager and us are discussed further in Note 10, “Related Party Transactions” to the financial statements contained in this Quarterly Report on Form 10-Q.

Other Operating Expenses

We incurred other operating expenses of approximately $932 thousand and $901 thousand for the nine months ended September 30, 2023, and September 30, 2022, respectively. Other operating costs comprise bank fees, trustee fees and asset management/loan servicing fees for loans acquired serving released. Formerly, transaction and financing costs were included in this expense category.

Transaction costs

We incurred transaction costs of $5.7 million and $5.6 million for the nine months ended September 30, 2023 and September 30, 2022, respectively. Transaction costs for the nine months ended September 30, 2023 represent expenses incurred during the strategic review process during 2023, while transaction costs for the nine months ended September 30, 2022 primarily represent costs related to Arroyo 2022-1 and Arroyo 2022-2 securitizations.

General and Administrative Expenses

We incurred general and administrative expenses of approximately $9.6 million and $7.6 million for the nine months ended September 30, 2023, and September 30, 2022, respectively. This increase is the result of the recognition of the $3.0 million termination fee paid to Terra Property Trust, Inc. ("TPT") for the termination of the Agreement and Plan of Merger during the third quarter of 2023 on August 8, 2023. This increase was partially offset by a decrease in professional fees related to expected reductions and the elimination of certain audit and compliance costs.

Non-GAAP Financial Measures

We believe that our non-GAAP measures (described below), when considered with GAAP, provide supplemental information useful to investors in evaluating the results of our operations. Our presentations of such non-GAAP measures may not be comparable to similarly-titled measures of other companies, who may use different calculations. As a result, such non-GAAP measures should not be considered as substitutes for our GAAP net income, as measures of our financial performance or any measure of our liquidity under GAAP.

Distributable Earnings

Distributable Earnings (formerly referred to as Core Earnings) is a non-GAAP financial measure that is used by us to approximate cash yield or income associated with our portfolio and is defined as GAAP net income (loss) as adjusted, excluding: (i) net realized gain (loss) on investments and termination of derivative contracts; (ii) net unrealized gain (loss) on investments and debt; (iii) net unrealized gain (loss) resulting from mark-to-market adjustments on derivative contracts; (iv) provision for income taxes; (v) non-cash stock-based compensation expense; (vi) non-cash amortization of the convertible senior unsecured notes discount; (vii) one-time charges such as acquisition costs and impairment on loans; and (viii) one-time

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events pursuant to changes in GAAP and certain other non-cash charges after discussions between us, our Manager and our independent directors and after approval by a majority of our independent directors.

We utilize Distributable Earnings as a key metric to evaluate the effective yield of the portfolio. Distributable Earnings allows us to reflect the net investment income of our portfolio as adjusted to reflect the net interest rate swap interest expense.  Distributable Earnings allows us to isolate the interest expense associated with our interest rate swaps in order to monitor and project our borrowing costs and interest rate spread. It is one metric of several used in determining the appropriate distributions to our shareholders.

The table below reconciles Net Income (Loss) to Distributable Earnings for the three and nine months ended September 30, 2023 and September 30, 2022:

(dollars in thousands)	Three months ended September 30, 2023		Three months ended September 30, 2022		Nine months ended September 30, 2023		Nine months ended September 30, 2022
Net loss attributable to common stockholders and participating securities	$	(8,705)	$	(40,010)	$	(10,771)	$	(88,250)
Income tax provision	—		266		—		276
Net loss before income taxes	(8,705)		(39,744)		(10,771)		(87,974)
Adjustments:
Investments:
Net unrealized (gain) loss on investments and securitized debt	7,362		43,582		(76,100)		66,300
Net realized loss on investments	29		33		83,946		36,902
Realized loss on foreign currency transactions	—		1		—		1
One-time transaction costs	3,033		2,632		5,660		5,708
Derivative Instruments:
Net realized (gain) loss on derivatives	(1,008)		(929)		992		(12,982)
Net unrealized (gain) loss on derivatives	707		(3,636)		650		(3,793)
Other:
Realized loss on extinguishment of convertible senior unsecured notes	—		2		—		134
Amortization of discount on convertible senior unsecured notes	172		209		515		648
Non-cash stock-based compensation expense	101		100		301		335
Total adjustments	10,396		41,994		15,964		93,253
Distributable Earnings	$	1,691	$	2,250	$	5,193	$	5,279

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Alternatively, our Distributable Earnings can also be derived as presented in the table below by starting with adjusted net interest income, which includes interest income on Interest-Only Strips accounted for as derivatives and other derivatives, and net interest expense incurred on interest rate swaps and foreign currency swaps and forwards (a Non-GAAP financial measure) subtracting Total expenses, adding Non-cash stock based compensation, adding one-time transaction costs, adding amortization of discount on convertible senior notes and adding interest income on cash balances and other income (loss), net:

 

(dollars in thousands)	Three months ended September 30, 2023		Three months ended September 30, 2022		Nine months ended September 30, 2023		Nine months ended September 30, 2022
Net interest income	$	3,162	$	5,699	$	11,527	$	16,217
Interest income from IOs and IIOs accounted for as derivatives	10		11		31		40
Net interest income (expense) from interest rate swaps	846		298		2,832		(255)
Adjusted net interest income	4,018		6,008		14,390		16,002
Total expenses	(5,816)		(6,645)		(16,095)		(17,069)
Non-cash stock-based compensation	101		100		301		335
One-time transaction costs	3,033		2,632		5,660		5,708
Amortization of discount on convertible unsecured senior notes	172		209		515		648
Interest income on cash balances and other income (loss), net	181		(52)		424		(213)
Income attributable to non-controlling interest	2		(2)		(2)		(133)
Distributable Earnings	$	1,691	$	2,250	$	5,193	$	5,278

Reconciliation of GAAP Book Value to Non-GAAP Economic Book Value

"Economic book value" is a non-GAAP financial measure of our financial position on an unconsolidated basis. We own certain securities that represent a controlling variable interest, which under GAAP requires consolidation; however, our economic exposure to these variable interests is limited to the fair value of the individual investments. Economic book value is calculated by taking the GAAP book value and 1) adding the fair value of the retained interest or acquired security of the VIEs held by us and 2) removing the asset and liabilities associated with each of consolidated trusts (CSMC USA, Arroyo 2019-2, Arroyo 2020-1, Arroyo 2022-1, and Arroyo 2022-2). Management believes that Economic book value provides investors with a useful supplemental measure to evaluate our financial position as it reflects the actual financial interest of these investments irrespective of the variable interest consolidation model applied for GAAP reporting purposes. Economic book value does not represent and should not be considered as a substitute for Stockholders' Equity, as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies.

The table below is a reconciliation of the GAAP Book Value to Non-GAAP Economic Book Value (dollars in thousands - except per share data):

	$ Amount		Per Share
GAAP Book Value at September 30, 2023	$	77,986	$	12.89
Adjustments to deconsolidate VIEs and reflect the Company's interest in the securities owned
Deconsolidation of VIEs assets	(2,011,891)		(332.57)
Deconsolidation of VIEs liabilities	1,892,277		312.80
Interest in securities of VIEs owned, at fair value	140,699		23.26
Economic Book Value at September 30, 2023	$	99,071	$	16.38

Adjusted Net Investment Income and Net Interest Margin

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Adjusted net investment income is a non-GAAP financial measure that is an adjustment to net income which excludes the net interest income for third-party consolidated VIEs, and includes premium amortization for interest rate swaps included in gain/loss on derivative instruments. Adjusted net investment income is used as an input when calculating net interest margin in the below tables and gives investors another view of portfolio performance. Adjusted net investment income may not be comparable to similar measures presented by other companies, as it is a non-GAAP financial measure that is not based on a comprehensive set of accounting rules or principles and therefore may be defined differently by other companies. Adjusted net investment income should be considered in addition to, not as a substitute for, or superior to, financial measures determined in accordance with GAAP.

Net interest margin is a non-GAAP financial measure calculated by dividing annualized adjusted net investment income for the period by adjusted total investments for the period. Net interest margin provides investors visibility into the Company’s profitability of interest income versus interest expense after excluding consolidating VIEs and adding the net effect of our interest rate swaps and derivatives. However, since net interest margin is an adjusted measure derived from net investment income (non-GAAP), and differs from net income (loss) as computed in accordance with GAAP, which may not be comparable to similar measures provided by other companies, it should be considered as supplementary to, and not as a substitute for, net income margin computed by net income (loss) in accordance with GAAP.

The following tables set forth certain information regarding our non-GAAP adjusted net investment income and net interest margin which includes interest income on Agency and Non-Agency Interest-Only Strips classified as derivatives and excludes the interest expense for third-party consolidated VIEs for the three and nine months ended September 30, 2023 and September 30, 2022 (dollars in thousands):

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Three Months Ended September 30, 2023	Average Amortized Cost of Assets(1)		Total Interest Income(2)		Yield on Average Assets
Investments
Agency RMBS	$	925	$	14	6.00	%
Non-Agency CMBS	86,522		2,008		9.21	%
Non-Agency RMBS	31,903		450		5.60	%
Residential Whole Loans	1,122,987		12,732		4.50	%
Residential Bridge Loans	2,587		—		—	%
Commercial Loans	79,839		1,931		9.60	%
Securitized Commercial Loan	1,315,805		22,574		6.81	%
Other securities	18,889		439		9.22	%
Total investments	2,659,457		40,148		5.99	%
Adjustments:
Securitized Commercial Loan from consolidated VIE	(1,315,805)		(22,574)		6.81	%
Investments in consolidated VIE eliminated in consolidation	14,316		225		6.24	%
Adjusted total investments	$	1,357,968	$	17,799	5.20	%
	Average Carrying Value		Total Interest Expense		Average Effective Cost of Funds
Borrowings
Repurchase agreements	$	165,458	$	3,797	9.10	%
Convertible senior unsecured notes, net	84,613		1,865		8.74	%
Securitized debt	2,256,492		31,314		5.51	%
Interest rate swaps	n/a		(846)		(0.13)	%
Total borrowings	2,506,563		36,130		5.72	%
Adjustments:
Securitized debt from consolidated VIE(3)	(1,295,836)		(21,764)		6.66	%
Adjusted total borrowings	$	1,210,727	$	14,366	4.71	%
Adjusted net investment income and net interest margin			$	3,433	1.00	%

(1)Includes Agency and Non-Agency Interest-Only Strips accounted for as derivatives.

(2)Refer to below table for components of interest income.

(3)Includes only the third-party sponsored securitized debt from CSMC USA.

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Three Months Ended September 30, 2022	Average Amortized Cost of Assets(1)		Total Interest Income(2)		Yield on Average Assets
Investments
Agency RMBS	$	902	$	13	5.72	%
Non-Agency CMBS	109,898		2,336		8.43	%
Non-Agency RMBS	36,075		472		5.19	%
Residential whole loans	1,248,772		13,884		4.41	%
Residential bridge loans	5,585		28		1.99	%
Commercial Loans	191,929		1,540		3.18	%
Securitized Commercial Loan	1,288,238		22,099		6.81	%
Other securities	42,768		1,045		9.69	%
Total investments	2,924,167		41,417		5.62	%
Adjustments:
Securitized Commercial Loan from consolidated VIE	(1,288,238)		(22,099)		6.81	%
Investments in consolidated VIE eliminated in consolidation	14,079		220		6.20	%
Adjusted total investments	$	1,650,008	$	19,538	4.70	%
	Average Carrying Value		Total Interest Expense		Average Effective Cost of Funds
Borrowings
Repurchase agreements	$	265,444	$	2,187	3.27	%
Convertible senior unsecured notes, net	109,329		2,402		8.72	%
Securitized debt	2,348,073		31,118		5.26	%
Interest rate swaps	n/a		(298)		0.04	%
Total borrowings	2,722,846		35,409		5.05	%
Adjustments:
Securitized debt from consolidated VIE(3)	(1,270,756)		(21,132)		6.60	%
Adjusted total borrowings	$	1,452,090	$	14,277	3.90	%
Adjusted net investment income and net interest margin			$	5,261	1.26	%

(1)Includes Agency and Non-Agency Interest-Only Strips accounted for as derivatives.

(2)Refer to below table for components of interest income.

(3)Includes only the third-party sponsored securitized debt from CSMC USA.

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Nine months ended September 30, 2023	Average Amortized Cost of Assets(1)		Total Interest Income(2)		Yield on Average Assets
Investments
Agency RMBS	$	921	$	41	5.95	%
Non-Agency CMBS	89,400		6,240		9.33	%
Non-Agency RMBS	31,129		1,309		5.62	%
Residential whole loans	1,151,875		39,025		4.53	%
Residential bridge loans	2,929		24		1.10	%
Commercial Loans	80,038		5,520		9.22	%
Securitized Commercial Loan	1,301,538		67,355		6.92	%
Other securities	23,839		1,734		9.73	%
Total investments	2,681,669		121,248		6.05	%
Adjustments:
Securitized Commercial Loan from consolidated VIE	(1,301,538)		(67,355)		6.92	%
Investments in consolidated VIE eliminated in consolidation	14,196		671		6.32	%
Adjusted total investments	$	1,394,327	$	54,564	5.23	%
	Average Carrying Value		Total Interest Expense		Average Effective Cost of Funds
Borrowings
Repurchase agreements	$	169,204	$	9,852	7.78	%
Convertible senior unsecured notes, net	84,204		5,595		8.88	%
Securitized debt	2,278,038		94,243		5.53	%
Interest rate swaps	n/a		(2,832)		(0.15)	%
Total borrowings	2,531,446		106,858		5.64	%
Adjustments:
Securitized debt from consolidated VIE(3)	(1,289,428)		(64,801)		6.72	%
Adjusted total borrowings	$	1,242,018	$	42,057	4.53	%
Adjusted net investment income and net interest margin			$	12,507	1.20	%

(1)Includes Agency and Non-Agency Interest-Only Strips accounted for as derivatives.

(2)Refer to below table for components of interest income.

(3)Includes only the third-party sponsored securitized debt from CSMC USA.

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Nine months ended September 30, 2022	Average Amortized Cost of Assets(1)		Total Interest Income(2)		Yield on Average Assets
Investments
Agency RMBS	$	1,023	$	49	6.40	%
Non-Agency CMBS	142,362		7,436		6.98	%
Non-Agency RMBS	43,815		1,663		5.07	%
Residential whole loans	1,165,929		34,712		3.98	%
Residential bridge loans	5,688		64		1.50	%
Commercial Loans	192,079		4,046		2.82	%
Securitized Commercial Loan	1,274,894		65,957		6.92	%
Other securities	45,340		2,738		8.07	%
Total investments	2,871,130		116,665		5.43	%
Adjustments:
Securitized Commercial Loan from consolidated VIE	(1,274,894)		(65,957)		6.92	%
Investments in consolidated VIE eliminated in consolidation	13,966		659		6.31	%
Adjusted total investments	$	1,610,202	$	51,367	4.27	%
	Average Carrying Value		Total Interest Expense		Average Effective Cost of Funds
Borrowings
Repurchase agreements	$	402,870	$	8,288	2.75	%
Convertible senior unsecured notes, net	113,670		7,499		8.82	%
Securitized debt	2,129,146		84,621		5.31	%
Interest rate swaps	n/a		255		0.01	%
Total borrowings	2,645,686		100,663		5.09	%
Adjustments:
Securitized debt from consolidated VIE(3)	(1,264,942)		(62,940)		6.65	%
Adjusted total borrowings	$	1,380,744	$	37,723	3.65	%
Adjusted net investment income and net interest margin			$	13,644	1.13	%

(1)Includes Agency and Non-Agency Interest-Only Strips accounted for as derivatives.

(2)Refer to below table for components of interest income.

(3)Includes only the third-party sponsored securitized debt from CSMC USA.

The following table reconciles total interest income to adjusted interest income, which includes interest income on Agency and Non-Agency Interest-Only Strips classified as derivatives (Non-GAAP financial measure) for the three and nine months ended September 30, 2023 and September 30, 2022: 

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(dollars in thousands)	Three months ended September 30, 2023		Three months ended September 30, 2022		Nine months ended September 30, 2023		Nine months ended September 30, 2022
Coupon interest income:
Agency RMBS	$	—	$	—	$	—	$	13
Non-Agency CMBS	1,657		1,949		5,234		7,050
Non-Agency RMBS	756		446		1,960		1,804
Residential Whole Loans	13,563		14,829		41,313		39,972
Residential Bridge Loans	—		28		24		64
Commercial Loans	1,898		1,540		5,421		4,046
Securitized Commercial Loan	15,510		15,510		46,023		46,023
Other securities	583		860		2,079		2,515
Subtotal coupon interest	33,967		35,162		102,054		101,487
Premium accretion, discount amortization and amortization of basis, net:
Agency RMBS	4		2		10		(4)
Non-Agency CMBS	351		387		1,006		386
Non-Agency RMBS	(306)		26		(651)		(141)
Residential Whole Loans	(831)		(945)		(2,288)		(5,260)
Commercial Loans	33		—		99		—
Securitized Commercial Loan	7,064		6,589		21,332		19,934
Other securities	(144)		185		(345)		223
Subtotal accretion and amortization	6,171		6,244		19,163		15,138
Interest income	$	40,138	$	41,406	$	121,217	$	116,625
Contractual interest income, net of amortization of basis on Agency and Non-Agency Interest-Only Strips, classified as derivatives(1):
Coupon interest income	$	24	$	16	$	47	$	160
Amortization of basis	(14)		(5)		(16)		(120)
Subtotal	10		11		31		40
Total adjusted interest income	$	40,148	$	41,417	$	121,248	$	116,665

(1)Reported in "Gain on derivative instruments, net" in our Consolidated Statements of Operations.

Effective Cost of Funds

Effective Cost of Funds includes the net interest component related to our interest rate swaps, as well as the impact of our foreign currency swaps and forwards. While we have not elected hedge accounting for these instruments, such derivative instruments are viewed by us as an economic hedge against increases in future market interest rates on our liabilities and changes in foreign currency exchange rates on our assets and liabilities and are characterized as hedges for purposes of satisfying the REIT requirements and therefore the Effective Cost of Funds reflects interest expense adjusted to include the realized gain/loss (i.e., the interest income/expense component) for all of our interest rate swaps and the impact of our foreign currency swaps and forwards.

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The following table reconciles the Effective Cost of Funds (Non-GAAP financial measure) with interest expense for the three and nine months ended September 30, 2023 and September 30, 2022: 

	Three months ended September 30, 2023				Three months ended September 30, 2022				Nine months ended September 30, 2023				Nine months ended September 30, 2022
(dollars in thousands)	Reconciliation		Cost of Funds/ Effective Borrowing Costs		Reconciliation		Cost of Funds/ Effective Borrowing Costs		Reconciliation		Cost of Funds/ Effective Borrowing Costs		Reconciliation		Cost of Funds/ Effective Borrowing Costs
Interest expense	$	36,976	5.85	%	$	35,707	5.20	%	$	109,690	5.79	%	$	100,408	5.07	%
Adjustments:
Interest expense on Securitized debt from consolidated VIE	(21,764)		(6.66)	%	(21,132)		(6.60)	%	(64,801)		(6.72)	%	(62,940)		(6.65)	%
Net interest (received) paid - interest rate swaps	(846)		(0.13)	%	(298)		0.04	%	(2,832)		(0.15)	%	255		0.01	%
Effective Cost of Funds	$	14,366	4.71	%	$	14,277	3.90	%	$	42,057	4.53	%	$	37,723	3.65	%
Weighted average borrowings	$	1,210,727			$	1,452,090			$	1,242,018			$	1,380,744

Liquidity and Capital Resources

General

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our stockholders, and other general business needs.  To maintain our REIT qualifications under the Internal Revenue Code, we must distribute annually at least 90% of our taxable income, excluding capital gains and, such distributions requirements limit our ability to retain earnings and increase capital for operations. Our principal uses of funds consisted of IRS variation margin settlements, payments made to the Manager for management fees incurred and other vendor services, and payments of interest on outstanding borrowings. These uses were partially offset by our principal sources of funds, which generally consist of borrowings under repurchase agreements, Residential Whole Loan securitizations, payments of principal and interest we receive on our investment portfolio, and cash generated from investment sales.

We believe we have sufficient liquidity and capital resources available, for at least the next 12 months, to fund our operations, meet our financial obligations, purchase our target assets, and make dividend payments to maintain our REIT qualifications. As of September 30, 2023, we had $24.6 million in cash and cash equivalents. Our other sources of liquidity include unencumbered investments and unused borrowing capacity in certain borrowing facilities since the amount borrowed is less than the maximum advance rate.

Sources of Liquidity

Our primary sources of liquidity are as follows:

Cash Generated from and used in Operations

For the nine months ended September 30, 2023, net cash used in operating activities was approximately $1.8 million. This was primarily attributable to additional transaction costs associated with the pending merger and a lower net interest margin. For the nine months ended September 30, 2022, net cash provided by operating activities was approximately $13.1 million. This was primarily attributable to margin settlements of interest rate swaps, the net interest income on our investments, realized gain on the sale of an REO hotel, less operating expenses, and general and administrative expenses.

Cash Provided by and Used in Investing Activities

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For the nine months ended September 30, 2023, net cash provided by investing activities was approximately $116.3 million. This was primarily attributable to the maturity of a CMBS bond held by the REIT, plus principal payments made on our outstanding loans and MBS securities, supplemented by cash received from the sales of the CRE 3 loan and Other Securities. For the nine months ended September 30, 2022, net cash used in investing activities was approximately $100.2 million. This was primarily attributable to purchases of Non-Agency RMBS and Residential Whole Loans during the period, which was partially offset by receipts of principal payments and payoffs on our investments and the sale of an REO hotel.

Cash Provided by and Used in Financing

For the nine months ended September 30, 2023, net cash used in financing activities was approximately $108.1 million. This was primarily attributable to repayments on repurchase agreement borrowings, coupled with repayments on securitized debt. For the nine months ended September 30, 2022, net cash provided by financing activities was approximately $102.3 million. This was attributable to the Arroyo 2022-1 and Arroyo 2022-2 securitizations, and was partially offset by a net decrease in repurchase agreement borrowings, paydowns in our securitized debt, and extinguishment of convertible senior unsecured notes.

Repurchase Agreements

As of September 30, 2023, we had borrowings under four of our master repurchase agreements of approximately $170.8 million. The following tables present our repurchase agreement borrowings by type of collateral pledged, as of September 30, 2023 and September 30, 2022, and the respective effective cost of funds (Non-GAAP financial measure) for the three and nine months ended September 30, 2023 and September 30, 2022, respectively (dollars in thousands). See “Non-GAAP Financial Measures” for more information:

 

	September 30, 2023						Three months ended September 30, 2023				Nine months ended September 30, 2023
Collateral	Borrowings Outstanding		Value of Collateral Pledged		Weighted Average Interest Rate end of period		Weighted Average Cost of Funds		Weighted Average Effective Cost of Funds (Non-GAAP)(1)		Weighted Average Cost of Funds		Weighted Average Effective Cost of Funds (Non-GAAP)(1)		Weighted Average Haircut end of period
Agency RMBS, at fair value	$	351	$	297	5.98	%	5.36	%	5.36	%	5.59	%	5.59	%	25.00	%
Non-Agency CMBS, at fair value(2)	31,621		53,038		7.79	%	7.80	%	7.80	%	7.06	%	7.06	%	37.67	%
Non-Agency RMBS, at fair value	77,751		83,029		10.80	%	10.96	%	10.96	%	8.40	%	8.40	%	7.25	%
Residential Whole Loans, at fair value(3)(4)	2,562		6,598		7.56	%	7.77	%	7.77	%	6.69	%	6.69	%	43.00	%
Residential Bridge Loans, at fair value(3)	1,641		2,782		7.56	%	7.56	%	7.56	%	7.56	%	7.56	%	43.00	%
Commercial Loans, at fair value(3)	48,032		66,202		7.56	%	7.60	%	7.60	%	7.84	%	7.84	%	28.23	%
Other securities, at fair value	8,860		15,645		8.09	%	8.15	%	8.15	%	7.17	%	7.17	%	42.72	%
Interest rate swaps	n/a		n/a		n/a		—		(2.03)	%	n/a		(2.24)	%	n/a
Total	$	170,818	$	227,591	9.10	%	9.10	%	7.08	%	7.78	%	5.55	%	21.54	%

(1)The effective cost of funds for the period presented is calculated on an annualized basis and includes interest expense for the period and net periodic interest payments on interest rate swaps of approximately $846 thousand and $2.8 million received for the three and nine months ended September 30, 2023. While interest rate swaps are not accounted for using hedge accounting, such instruments are viewed by us as an economic hedge against increases in interest rates on our liabilities and are treated as hedges for purposes of satisfying the REIT requirements. See “Non-GAAP Financial Measures.”

(2)Includes repurchase agreement borrowings on securities eliminated upon VIE consolidation.

(3)Repurchase agreement borrowings collateralized by Whole Loans, Bridge Loans, and Commercial Loans owned through trust certificates. The trust certificates are eliminated upon consolidation.

(4)Value of collateral pledged includes one REO property with a carrying value of $2.3 million at September 30, 2023.

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	September 30, 2022						Three months ended September 30, 2022				Nine months ended September 30, 2022
Collateral	Borrowings Outstanding		Fair Value of Collateral Pledged(3)		Weighted Average Interest Rate end of period		Weighted Average Cost of Funds		Weighted Average Effective Cost of Funds (Non-GAAP)(1)		Weighted Average Cost of Funds		Weighted Average Effective Cost of Funds (Non-GAAP)(1)		Weighted Average Haircut end of period
Agency RMBS, at fair value	$	317	$	233	3.15	%	2.47	%	2.47	%	1.60	%	1.60	%	25.00	%
Non-Agency CMBS, at fair value(2)	55,155		90,107		2.28	%	2.31	%	2.31	%	2.07	%	2.07	%	40.00	%
Non-Agency RMBS, at fair value	76,171		122,401		5.05	%	3.89	%	3.89	%	3.04	%	3.04	%	41.26	%
Residential Whole Loans, at fair value(3)	4,827		7,214		5.16	%	2.40	%	2.40	%	2.73	%	2.73	%	48.34	%
Residential Bridge Loans(3)	2,895		5,120		5.60	%	4.72	%	4.72	%	3.53	%	3.53	%	25.00	%
Commercial Loans, at fair value(3)	53,662		81,326		4.72	%	4.27	%	4.27	%	3.34	%	3.34	%	31.57	%
Other securities, at fair value	25,914		38,310		2.54	%	2.57	%	2.57	%	2.27	%	2.27	%	36.90	%
Interest rate swaps	n/a		n/a		n/a		n/a		(0.45)	%	n/a		0.08	%	n/a
Total	$	218,941	$	344,711	3.98	%	3.27	%	2.82	%	2.75	%	2.84	%	38.70	%

(1)The effective cost of funds for the period presented is calculated on an annualized basis and includes interest expense for the period and net periodic interest payments on interest rate swaps of approximately $298 thousand received and $255 thousand paid for the three and nine months ended September 30, 2022. While interest rate swaps are not accounted for using hedge accounting, such instruments are viewed by us as an economic hedge against increases in interest rates on our liabilities and are treated as hedges for the purposes of satisfying the REIT requirements. See "Non-GAAP Financial Measures."

(2)Includes repurchase agreement borrowings on securities eliminated upon VIE consolidation.

(3)Repurchase agreement borrowings collateralized by Whole Loans, Bridge Loans, and Commercial Loans owned through trust certificates. The trust certificates are eliminated upon consolidation.

Contractual Obligations and Commitments

Our contractual obligations as of September 30, 2023 are as follows (dollars in thousands):

 

	Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years		Total
Borrowings under repurchase agreements	$	107,534	$	63,284	$	—	$	—	$	170,818
Contractual interest on repurchase agreements	10,843		6,125		—		—		16,968
Convertible senior unsecured notes	86,250		—		—		—		86,250
Contractual interest on convertible senior unsecured notes	8,733		—		—		—		8,733
Securitized debt(2)	—		1,370,690		—		958,094		2,328,784
Contractual interest on securitized debt	90,829		125,529		69,399		932,861		1,218,618
Total	$	304,189	$	1,565,628	$	69,399	$	1,890,955	$	3,830,171

(1)The table above does not include amounts due under the Management Agreement (as defined herein) with our Manager, as those obligations do not have fixed and determinable payments.

(2)The securitized debt is non-recourse to us and can only be settled with the loans that serve as collateral. The collateral for the securitized debt has a principal balance of $2.5 billion. Assumes entire outstanding principal balance at September 30, 2023 is paid at maturity.

 Management Agreement

On May 9, 2012, we entered into a management agreement (the “Management Agreement”) with our Manager which describes the services to be provided by our Manager and compensation for such services. Our Manager is responsible for managing our operations, including: (i) performing all of our day-to-day functions; (ii) determining investment criteria in conjunction with our Board of Directors; (iii) sourcing, analyzing and executing investments, asset sales and financings; (iv) performing asset management duties; and (v) performing financial and accounting management, subject to the direction and oversight of our Board of Directors. Pursuant to the terms of the Management Agreement, our Manager is paid a management

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fee equal to 1.50% per annum of our stockholders’ equity, (as defined in the Management Agreement), calculated and payable (in cash) quarterly in arrears.

In December 2021, the Manager agreed to voluntarily waive 25% of its management fee solely for the duration of calendar year 2022 in order to support our earnings potential and our transition to a residential focused investment portfolio. Future waivers, if any, will be at the Manager's discretion.

Off-Balance Sheet Arrangements

We do not have any relationships with any entities or financial partnerships, such as entities often referred to as structured investment vehicles, or special purpose or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes.

Further, other than guaranteeing certain obligations of our wholly-owned taxable REIT subsidiary or TRS and the obligations of our wholly-owned subsidiary, WMC CRE LLC, we have not guaranteed any obligations of any entities or entered into any commitment to provide additional funding to any such entities.

Dividends

To maintain our qualification as a REIT, U.S. federal income tax law generally requires that we distribute at least 90% of our REIT taxable income annually, determined without regard to the deduction for dividends paid and excluding capital gains. We must pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our taxable income.

We evaluate each quarter to determine our ability to pay dividends to our stockholders based on our net taxable income if and to the extent authorized by our Board of Directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service payments. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Credit Risk

We are subject to varying degrees of credit risk in connection with our assets. Although we do not expect to encounter credit risk in our Agency CMBS and Agency RMBS, we are exposed to the risk of potential credit losses from general credit spread widening related to Non-Agency RMBS, Non-Agency CMBS, Residential Whole Loans, Residential Bridge Loans, Commercial Loans, and other portfolio investments in addition to unexpected increase in borrower defaults on these investments. Investment decisions are made following a bottom-up credit analysis and specific relevant risk assumptions. As part of the risk management process, our Manager uses detailed proprietary models, applicable to evaluate, depending on the asset class, house price appreciation and depreciation by region, prepayment speeds and foreclosure/default frequency, cost and timing. If our Manager determines that the proposed investment can meet the appropriate risk and return criteria as well as complement our existing asset portfolio, the investment will undergo a more thorough analysis.

As of September 30, 2023, four of the counterparties with which we had outstanding repurchase agreement borrowings held collateral which we posted as security for such borrowings in excess of 5% of our stockholders’ equity. Prior to entering into a repurchase agreement with any particular institution, our Manager does a thorough review of such potential counterparty.  Such review, however, does not assure the creditworthiness of such counterparty nor that the financial wherewithal of the counterparty will not deteriorate in the future.

Interest Rate Risk

Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our assets and our related financing obligations. In general, we expect to finance the acquisition of our assets through financings in the form of repurchase agreements, warehouse facilities, securitizations, bank credit facilities (including term loans and revolving facilities) and public and private equity and debt issuances in addition to transaction or asset specific funding arrangements. Subject to maintaining our qualification as a REIT for U.S. federal income tax purposes, we may utilize derivative financial instruments to hedge the interest rate risk associated with our borrowings. These hedging activities may not be effective. We also may engage in a variety of interest rate management techniques that seek to mitigate changes in interest rates or other potential influences on the values of our assets.

Interest Rate Effect on Net Interest Income

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

Interest Rate Cap Risk

To the extent we invest in adjustable-rate RMBS and whole loans, such instruments may be subject to interest rate caps, which potentially could cause such instruments to acquire many of the characteristics of fixed-rate securities if interest rates were to rise above the cap levels. This issue is magnified to the extent we acquire ARM and hybrid ARM assets that are not based on mortgages which are fully indexed. In addition, ARM and hybrid ARM assets may be subject to periodic payment caps that result in some portion of the interest being deferred and added to the principal outstanding or a portion of the

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incremental interest rate increase being deferred. To the extent we invest in such ARM and/or hybrid ARM assets, we could potentially receive less cash income on such assets than we would need to pay the interest cost on our related borrowings. To mitigate interest rate mismatches, we may utilize the hedging strategies discussed above under “Interest Rate Risk.”

Interest Rate Effects on Fair value

Another component of interest rate risk is the effect that changes in interest rates will have on the market value of the assets that we acquire. We face the risk that the market value of our assets will increase or decrease at different rates than those of our liabilities, including our hedging instruments. See “Market Risk” below.

The impact of changing interest rates on fair value can change significantly when interest rates change materially. Therefore, the volatility in the fair value of our assets could increase significantly in the event interest rates change materially. In addition, other factors impact the fair value of our interest rate-sensitive investments and hedging instruments, such as the shape of the yield curve, market expectations as to future interest rate changes and other market conditions. Accordingly, changes in actual interest rates may have a material adverse effect on us.

Market Risk

Our MBS and other assets are reflected at their fair value with unrealized gains and losses included in earnings. The fair value of our investments fluctuates primarily due to changes in interest rates and other factors. Generally, in a rising interest rate environment, the fair value of these assets would be expected to decrease; conversely, in a decreasing interest rate environment, the fair value of these securities would be expected to increase.

The sensitivity analysis table presented below shows the estimated impact of an instantaneous parallel shift in the yield curve, up and down 50 and 100 basis points, on the market value of our interest rate-sensitive investments, including interest rate swaps, Interest-Only Strips, and net interest income at September 30, 2023, assuming a static portfolio of assets. When evaluating the impact of changes in interest rates, prepayment assumptions and principal reinvestment rates are adjusted based on our Manager’s expectations. The analysis presented utilizes our Manager’s assumptions, models and estimates, which are based on our Manager’s judgment and experience.

 

Change in Interest Rates	Percentage Change in Projected Net Interest Income		Percentage Change in Projected Portfolio Value
+1.00%	(51.83)	%	(1.08)	%
+0.50%	(25.90)	%	(0.54)	%
-0.50%	25.88	%	0.56	%
-1.00%	51.85	%	1.13	%

While the table above reflects the estimated immediate impact of interest rate increases and decreases on a static portfolio, we may rebalance our portfolio from time to time either to seek to take advantage of or reduce the impact of changes in interest rates. It is important to note that the impact of changing interest rates on market value and net interest income can change significantly when interest rates change beyond 100 basis points from current levels. Therefore, the volatility in the market value of our assets could increase significantly when interest rates change beyond amounts shown in the table above. In addition, other factors impact the market value of and net interest income from our interest rate-sensitive investments and derivative instruments, such as the shape of the yield curve, market expectations as to future interest rate changes and other market conditions. Accordingly, interest income would likely differ from that shown above and such difference might be material and adverse to our stockholders.

Certain assumptions have been made in connection with the calculation of the information set forth in the table above and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes.  The base interest rate scenario assumes interest rates at September 30, 2023. The analysis presented utilizes assumptions and estimates based on our Manager’s judgment and experience. Furthermore, while we generally expect to retain such assets and the associated interest rate risk, future purchases and sales of assets could materially change our interest rate risk profile.

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Prepayment Risk

The value of our Agency and Non-Agency RMBS and our Residential Whole Loans may be affected by prepayment rates on the underlying residential mortgage. We acquire RMBS and Residential Whole Loans and anticipate that the underlying residential mortgages will prepay at a projected rate generating an expected yield. If we purchase assets at a premium to par value, when borrowers prepay their residential mortgage loans faster than expected, the corresponding prepayments may reduce the expected yield on our residential mortgage assets because we will have to amortize the related premium on an accelerated basis and, in the case of Agency RMBS, other than interest-only strips, and certain other investment grade rated securities, we are required to make a retrospective adjustment to historical amortization. Conversely, if we purchase assets at a discount to par value, when borrowers prepay their residential mortgage loans slower than expected, such decrease may reduce the expected yield on such assets because we will not be able to accrete the related discount as quickly as originally anticipated and, in the case of Agency RMBS, other than interest-only strips, and certain other investment grade rated securities, we will be required to make a retrospective adjustment to historical amortization.

The value of our Agency and Non-Agency CMBS, as well as commercial whole loans, will also be affected by prepayment rates; however, commercial mortgages frequently limit the ability of the borrower to prepay, thereby providing a certain level of prepayment protection.  Common restrictions include yield maintenance and prepayment penalties, the proceeds of which are generally at least partially allocable to these securities, as well as defeasance.

Likewise, the value of our ABS and other structured securities will also be affected by prepayment rates. The collateral underlying such securities may, similar to most residential mortgages, allow the borrower to prepay at any time or, similar to commercial mortgages, limit the ability of the borrower to prepay by imposing lock-out provisions, prepayment penalties and/or make whole provisions.

Extension Risk

Most residential mortgage loans do not prohibit the partial or full prepayment of principal outstanding.  Accordingly, while the stated maturity of a residential mortgage loan may be 30 years, or in some cases even longer, historically the vast majority of residential mortgage loans are satisfied prior to their maturity date. In periods of rising interest rates, borrowers have less incentive to refinance their existing mortgages and mortgage financing may not be as readily available. This generally results in a slower rate of prepayments and a corresponding longer weighted average life for RMBS and Residential Whole Loans. The increase, or extension, in weighted average life is commonly referred to as “Extension Risk” which can negatively impact our portfolio. To the extent we receive smaller pre-payments of principal, we will have less capital to invest in new assets. This is extremely detrimental in periods of rising interest rates as we will be unable to invest in new higher coupon investments and a larger portion of our portfolio will remain invested in lower coupon investments. Further, our borrowing costs are generally short-term and, even if hedged, are likely to increase in a rising interest rate environment, thereby reducing our net interest margin. Finally, to the extent we acquired securities at a discount to par, a portion of the overall return on such investments is based on the recovery of this discount.  Slower principal prepayments will result in a longer recovery period and a lower overall return on our investment.

Prepayment rates on Agency and Non-Agency CMBS, as well as commercial whole loans, are generally less volatile than residential mortgage assets as commercial mortgages usually limit the ability of the borrower to prepay the mortgage prior to maturity or a period shortly before maturity. Accordingly, extension risk for Agency and Non-Agency CMBS and commercial whole loans is generally less than RMBS and Residential Whole Loans as it presumed that other than defaults (i.e., involuntary prepayments), most commercial mortgages will remain outstanding for the contractual term of the mortgage.

Prepayment rates on ABS and our other structured securities will be determined by the underlying collateral. The extension risk of such securities will generally be less than residential mortgages, but greater than commercial mortgages.

Real Estate Risk

Residential and commercial property values are subject to volatility and may be adversely affected by a number of factors, including, but not limited to: national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions (such as the supply of housing stock); changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to

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building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay our loans, which could also cause us to suffer losses.

 Counterparty Risk

The following discussion on counterparty risk reflects how these transactions are structured, rather than how they are presented for financial reporting purposes.

When we engage in repurchase transactions, we generally sell securities to lenders (i.e., repurchase agreement counterparties) and receive cash from the lenders. The lenders are obligated to resell the same securities back to us at the end of the term of the transaction. Because the cash we receive from the lender when we initially sell the securities to the lender is less than the value of those securities (this difference is the haircut), if the lender defaults on its obligation to resell the same securities back to us, we could incur a loss on the transaction up to the amount of the haircut (assuming there was no change in the value of the securities).

If a counterparty to a bi-lateral interest rate swap cannot perform under the terms of the interest rate swap, we may not receive payments due under that agreement, and thus, we may lose any unrealized gain associated with the interest rate swap. We may also risk the loss of any collateral we have pledged to secure our obligations under an interest rate swap if the counterparty becomes insolvent or files for bankruptcy. In the case of a cleared swap, if our clearing broker were to default, become insolvent or file for bankruptcy, we may also risk the loss of any collateral we have posted to the clearing broker unless we were able to transfer or “port” our positions and held collateral to another clearing broker. In addition, the interest rate swap would no longer mitigate the impact of changes in interest rates as intended. Most of our interest swaps are currently cleared through a central clearing house which reduces but does not eliminate the aforementioned risks. Also see “Liquidity Risk” below.

Prior to entering into a trading agreement or transaction with any particular institution where we take on counterparty risk, our Manager does a thorough review of such potential counterparty. Such review, however, does not assure the creditworthiness of such counterparty nor that the financial wherewithal of the counterparty will not deteriorate in the future.

Liquidity Risk

Our liquidity risk is principally associated with the financing of long-maturity assets with short-term borrowings in the form of repurchase agreements. Although the interest rate adjustments of these assets and liabilities fall within the guidelines established by our operating policies, maturities are not required to be, nor are they, matched.

Should the value of our assets pledged as collateral suddenly decrease, margin calls relating to our repurchase agreements could increase, causing an adverse change in our liquidity position. Our inability to post adequate collateral for a margin call by the counterparty could result in a condition of default under our repurchase agreements, thereby enabling the counterparty to liquidate the collateral pledged by us, which may have a material adverse consequence on our business and results of operations.

In an instance of severe volatility, or where the additional stress on liquidity resulting from volatility is sustained over an extended period of time, we could be required to sell securities, possibly even at a loss to generate sufficient liquidity to satisfy collateral and margin requirements which could have a material adverse effect on our financial position, results of operations and cash flows.

Additionally, if one or more of our repurchase agreement counterparties chose not to provide on-going funding, our ability to finance would decline or exist at possibly less advantageous terms. Further, if we are unable to renew, replace or expand repurchase financing with other sources of financing on substantially similar terms, it may have a material adverse effect on our business, financial position, results of operations and cash flows, due to the long term nature of our investments and relatively short-term maturities of our repurchase agreements. As such, there is no assurance that we will always be able to roll over our repurchase agreements.

The costs associated with our borrowings are generally based on prevailing market interest rates. During a period of rising interest rates, our borrowing costs generally will increase while the yields earned on our existing portfolio of leveraged fixed-rate MBS and other fixed rate assets will remain static. Further, certain of our floating rate assets may contain annual or

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lifetime interest rate caps as well as limit the frequency or timing of changes to the underlying interest rate index. This could result in a decline in our net interest spread and net interest margin. The severity of any such decline would depend on our asset/liability composition at the time, as well as the magnitude and duration of the interest rate increase. Further, an increase in short-term interest rates could also have a negative impact on the market value of our assets. If any of these events happen, we could experience a decrease in net income or incur a net loss during these periods, which could have a material adverse effect on our liquidity and results of operations.

In addition, the assets that comprise our investment portfolio are not traded on a public exchange. A portion of these assets may be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly-traded securities. The illiquidity of our assets may make it difficult for us to sell such assets if the need or desire arises, including in response to changes in economic and other conditions.  Recent regulatory changes have imposed new capital requirements and other restrictions on banks and other market intermediaries’ ability and desire to hold assets on their balance sheets and otherwise make markets in fixed income securities and other assets resulting in reduced liquidity in many sectors of the market. This regulatory trend is expected to continue. As a result of these developments, it may become increasingly difficult for us to sell assets in the market, especially in credit oriented sectors such as Non-Agency RMBS and CMBS, ABS and Whole Loans.

We enter into interest rate swaps to manage our interest rate risk. We are required to pledge cash or securities as collateral as part of a margin arrangement, calculated daily, in connection with the interest rate swaps. The amount of margin that we are required to post will vary and generally reflects collateral required to be posted with respect to interest rate swaps that are in an unrealized loss position to us and is generally based on a percentage of the aggregate notional amount of interest rate swaps per counterparty.  Margin calls could adversely affect our liquidity. Our inability to post adequate collateral for a margin call could result in a condition of default under our interest rate swap agreements, thereby resulting in liquidation of the collateral pledged by us, which may have a material adverse consequence on our business, financial position, results of operations and cash flows. Conversely, if our interest rate swaps are in an unrealized gain position, our counterparties to bilateral swaps are required to post collateral with us, under the same terms that we post collateral with them.  We at times enter into a MAC interest rate swap in which we receive or make a payment at the time of entering such interest rate swap to compensate for the out of the market nature of such interest rate swap. Similar to all other interest rate swaps, MAC interest rate swaps are subject to the margin requirements previously described.

Funding Risk

We have financed a substantial majority of our assets with repurchase agreement financing. Over time, as market conditions change, in addition to these financings, we may use other forms of leverage. Changes in the regulatory environment, as well as, weakness in the financial markets, the residential mortgage markets, the commercial mortgage markets, the asset-backed securitization markets and the economy generally could adversely affect one or more of our potential lenders and could cause one or more of our potential lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing.

Inflation Risk

Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more so than does inflation. Changes in interest rates do not necessarily directly correlate with inflation rates or changes in inflation rates. Our consolidated financial statements are prepared in accordance with GAAP and our distributions will be determined by our Board of Directors consistent with our obligation to distribute to our stockholders at least 90% of our net taxable income on an annual basis, in accordance with the REIT regulations, in order to maintain our REIT qualification.  In each case, our activities and consolidated balance sheets are measured with reference to historical cost and/or fair market value without considering inflation.

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Foreign Investment Risk

We have invested in non U.S. CMBS transactions and, in the future, we may make other investments in non U.S. issuers and transactions. These investments present certain unique risks, including those resulting from future political, legal, and economic developments, which could include favorable or unfavorable changes in currency exchange rates, exchange control regulations (including currency blockage), expropriation, nationalization, or confiscatory taxation of assets, adverse changes in investment capital or exchange control regulations (which may include suspension of the ability to transfer currency from a country), political changes, diplomatic developments, difficulty in obtaining and enforcing judgments against non U.S. entities, the possible imposition of the applicable country’s governmental laws or restrictions, and the reduced availability of public information concerning issuers. In the event of a nationalization, expropriation, or other confiscation of assets, we could lose our entire investment in a security. Legal remedies available to investors in certain jurisdictions may be more limited than those available to investors in the United States. Issuers of non U.S. securities may not be subject to the same degree of regulation as U.S. issuers.

Furthermore, non U.S. issuers are not generally subject to uniform accounting, auditing, and financial reporting standards or other regulatory practices and requirements comparable to those applicable to U.S. issuers. There is generally less government supervision and regulation of non U.S. exchanges, brokers, and issuers than there is in the United States, and there is greater difficulty in taking appropriate legal action in non U.S. courts. There are also special tax considerations that apply to securities of non U.S. issuers and securities principally traded overseas.

To the extent that our investments are denominated in U.S. dollars, these investments are not affected directly by changes in currency exchange rates relative to the dollar and exchange control regulations. We are, however, subject to currency risk with respect to such investments to the extent that a decline in a non U.S. issuer’s or borrower’s own currency relative to the dollar may impair such issuer’s or borrower’s ability to make timely payments of principal and/or interest on a loan or other debt security. To the extent that our investments are in non-dollar denominated securities, the value of the investment and the net investment income available for distribution may be affected favorably or unfavorably by changes in currency exchange rates relative to the dollar and exchange control regulations.

Currency exchange rates can be volatile and affected by, among other factors, the general economics of a country, the actions of governments or central banks and the imposition of currency controls and speculation. In addition, a security may be denominated in a currency that is different from the currency where the issuer is domiciled.

Currency Risk

We have and may continue in the future to invest in assets which are denominated in a currency other than U.S. dollars and may finance such investments with repurchase financing or other forms of financing which may also be denominated in a currency other than U.S. dollars. To the extent we make such investments and/or enter into such financing arrangements, we may utilize foreign currency swaps, forwards or other derivative instruments to hedge our exposure to foreign currency risk.  Despite being economic hedges, we have elected not to treat such derivative instruments as hedges for accounting purposes and therefore the changes in the value of such instruments, including actual and accrued payments, will be included in our Consolidated Statements of Operations. While such transactions are entered into in an effort to minimize our foreign currency risk, there can be no assurance that they will perform as expected. If actual prepayments of the foreign denominated asset are faster, or slower, than expected, the hedge instrument is unlikely to fully protect us from changes in the valuation of such foreign currency. Further, as with interest rate swaps, there is counterparty risk associated with the future creditworthiness of such counterparty.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures: Our management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that the required information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

We have evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures as of September 30, 2023. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

No change occurred in our internal control over financial reporting (as defined in Rule13a-15(f) and Rule 15d-15(f) of the Exchange Act) during the three months ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Company may be involved in various claims and legal actions arising in the ordinary course of business.  During the three months ended September 30, 2023, the Company was not involved in any material legal proceedings.

ITEM 1A. RISK FACTORS

     Other than as set forth below, there were no material changes during the period covered by this report to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 13, 2023. Additional risks not presently known, or that we currently deem immaterial, also may have a material adverse effect on our business, financial condition and results of operations.

Risks Related to the Merger

The failure to complete the Merger in a timely manner or at all could negatively impact the market price of our common stock as well as adversely affect our business, financial condition, operating results and cash flows.

On August 8, 2023, we entered into an Agreement and Plan of Merger (the “MITT Merger Agreement”) with AG Mortgage Investment Trust, Inc., a Maryland corporation (“MITT”), AGMIT Merger Sub, LLC, a Delaware limited liability company and wholly owned subsidiary of MITT (“Merger Sub”), the Company, and, solely for the purposes of Section 3.3(a), Section 3.3(i), Article V, Section 6.13, Section 7.2, Section 7.3 and Article IX therein, AG REIT Management, LLC, a Delaware limited liability company (“MITT Manager”), pursuant to which the Company will merge with and into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary of MITT (the “Merger”). Pursuant to, and subject to the terms and conditions set forth in, the MITT Merger Agreement, each outstanding share of the Company’s common stock would be converted into the right to receive (i) 1.498 shares of MITT common stock and (ii) the per share portion of a cash payment from the MITT Manager equal to the lesser of $7 million or approximately 9.9% of the aggregate per share merger consideration (any difference between $7 million and such lower amount would be used to benefit the combined company post closing by offsetting reimbursable expenses that would otherwise be payable to the MITT Manager). Additionally, the MITT Manager, which would be the manager of the combined company, would waive $2.4 million of management fees in the first year post-closing. Cash will be paid in lieu of fractional shares of MITT common stock that would have been received as a result of the Merger.

On November 7, 2023, the Company adjourned its special meeting of stockholders until December 5, 2023, at 9:00 a.m. Pacific Time, due to a lack of quorum and to allow further solicitation of proxies from the Company’s common stockholders for the approval of the merger at the special meeting.

At a special meeting of MITT stockholders held on November 7, 2023, MITT stockholders approved the issuance of

MITT’s common stock to be issued in connection with the proposed Merger.

There are no assurances that all of the conditions necessary to consummate the Merger will be satisfied or waived or that the conditions will be satisfied or waived in the time frame expected.

Completion of the Merger is subject to several conditions beyond our control that may prevent, delay or otherwise adversely affect its completion in a material way, including the approval of our stockholders. The Merger cannot be completed until the conditions to closing are satisfied or (if permissible under applicable law) waived. We cannot guarantee that the closing conditions set forth in the MITT Merger Agreement, including the approval of our stockholders, will be satisfied or, even if satisfied, that no event of termination will take place. In addition, developments beyond our control, including but not limited to changes in domestic or global economic conditions, may affect the timing or success of the Merger. In the event that the Merger is not completed for any reason, the holders of our common stock will not receive any consideration for their shares of common stock in connection with the proposed Merger. Instead, we will remain an independent public company and the holders of our common stock will continue to own their shares of common stock.

93

If the Merger or a similar transaction is not completed, the share price of our common stock may drop to the extent that the current market price of our common stock reflects an assumption that a transaction will be completed. In addition, in the event the Merger is not consummated, under circumstances specified in the MITT Merger Agreement, we may be required to pay a termination fee of $3.0 million, a failure to complete the Merger may result in negative publicity, negative impressions of us in the financial markets and investment community and negative responses from employees, partners and other third parties. Any disruption to our business resulting from the announcement and pendency of the Merger and from intensifying competition from our competitors, including any adverse changes in our relationships with our employees, partners and other third parties, could continue or accelerate in the event of a failure to complete the Merger. There can be no assurance that our business, financial condition, operating results and cash flows will not be adversely affected, as compared to the condition prior to the announcement of the Merger, if the Merger is not consummated.

The MITT Merger Agreement contains provisions that could discourage or deter a potential competing acquirer that might be willing to pay more to effect an alternative transaction with us.

Under the MITT Merger Agreement, we are generally not permitted to solicit or discuss takeover proposals with third parties, subject to certain exceptions. Further, subject to limited exceptions, the MITT Merger Agreement contains restrictions on our ability to pursue other alternatives to the Merger and, in specified circumstances, could require us to pay MITT a termination fee of $3.0 million. Such restrictions may discourage or deter a third party that may be willing to pay more than MITT for our common stock from considering or proposing an alternative transaction with us. Notwithstanding the foregoing, in no event will the termination fee be paid to MITT more than once.

We may be subject to litigation challenging the Merger.

Any litigation challenging the Merger may require significant management time and attention and significant legal expenses and may result in unfavorable outcomes, which could delay or prevent the Merger from being completed or have a material adverse effect on our business, financial condition, results of operations and cash flows.

The completion of the transaction contemplated by the MITT Merger Agreement may trigger change in control or other similar provisions in certain agreements to which we are a party.

If we are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages. Even if we are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to us.

We have incurred and will continue to incur substantial transaction fees and costs in connection with the Merger.

We have incurred and expect to continue to incur significant costs, expenses and fees for professional services and other transaction costs in connection with the Merger. A material portion of these expenses are payable by us whether or not the Merger is completed. Further, while we have assumed that a certain amount of additional transaction expenses will be incurred, factors beyond our control could affect the total amount or the timing of these expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately. These expenses may exceed the costs historically borne by us. These costs could adversely affect our business, financial condition, operating results and cash flows.

The U.S. and global capital markets are subject to systemic risk that could adversely affect our business, financial condition and results of operations.

Issuers, national and regional banks, financial institutions and other participants in the U.S. and global capital markets are closely interrelated as a result of credit, trading, clearing, technology and other relationships. A significant adverse development (such as a bank run, insolvency, bankruptcy or default) with one or more national or regional banks, financial institutions, or other participants in the financial or capital markets may spread to others and lead to significant concentrated or market-wide problems (such as defaults, liquidity problems, impairment charges, additional bank runs and/or losses) for other participants in these markets. Future developments, including actions taken by the U.S. Department of Treasury, FDIC, Federal Reserve Board, and systemic risk in the U.S. and global banking sectors and broader economies in general, are difficult to assess and quantify, and the form and magnitude of such developments or other actions of the U.S. Department of Treasury,

94

FDIC and Federal Reserve Board may remain unknown for significant periods of time and could have an adverse effect on our business, financial condition and results of operations.

For example, in response to the rapidly declining financial condition of regional banks Silicon Valley Bank (“SVB”) Signature Bank (“Signature”) and First Republic Bank ("First Republic"), the California Department of Financial Protection and Innovation (the “CDFPI”) and the New York State Department of Financial Services (the “NYSDFS”) closed SVB, Signature and First Republic on March 10, 2023, March 12, 2023 and May 1, 2023, respectively, and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver for SVB, Signature and First Republic. Although the U.S. Department of the Treasury, the Federal Reserve and the FDIC have taken measures to stabilize the financial system, uncertainty and liquidity concerns in the broader financial services industry remain. Additionally, should there be additional systemic pressure on the financial system and capital markets, we cannot assure you of the response of any government or regulator, and any response may not be as favorable to industry participants as the measures currently being pursued. In addition, highly publicized issues related to the U.S. and global capital markets in the past have led to significant and widespread investor concerns over the integrity of the capital markets. The current situation related to SVB, Signature and First Republic could in the future lead to further rules and regulations for public companies, banks, financial institutions and other participants in the U.S. and global capital markets, and complying with the requirements of any such rules or regulations may be burdensome. Even if not adopted, evaluating and responding to any such proposed rules or regulations could results in increased costs and require significant attention from management.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

95

ITEM 6. EXHIBITS

The following exhibits are filed as part of this report.

96

 

Exhibit No.	Description
2.1*	Agreement and Plan of Merger, dated as of June 27, 2023, by and among Western Asset Mortgage Capital Corporation, Maverick Merger Sub, LLC, and Terra Property Trust, Inc., incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K, filed on June 28, 2023.**
2.2*	Agreement and Plan of Merger, dated as of August 8, 2023, by and among Western Asset Mortgage Capital Corporation, AG Mortgage Investment Trust, Inc., AGMIT Merger Sub, LLC and AG REIT Management, LLC, incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K, filed on August 9, 2023).**
3.1*	Amended and restated certificate of incorporation of Western Asset Mortgage Capital Corporation, incorporated by reference to Exhibit 3.1 to Amendment No. 10 Form S-11 (Registration Statement No. 333-159962), filed May 8, 2012.
3.2*	Amendment to the amended and restated certificate of incorporation of Western Asset Mortgage Capital Corporation, dated June 3, 2016, incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K, filed March 7, 2017.
3.3*	Amendment to the amended and restated certificate of incorporation of Western Asset Mortgage Capital Corporation, dated July 8, 2022, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed on July 11, 2022.
3.4*	Amended and restated bylaws of Western Asset Mortgage Capital Corporation, incorporated by reference to Exhibit 3.2 to Amendment No. 10 to Form S-11 (Registration Statement No. 333-159962), filed May 8, 2012
4.1*	Specimen Common Stock Certificate of Western Asset Mortgage Capital Corporation, incorporated by reference to Exhibit 4.1 to Amendment No. 10 to Form S-11 (Registration Statement No. 333-159962), filed May 8, 2012.
4.2*	Indenture, dated as of October 2, 2017, between Western Asset Mortgage Capital Corporation and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed on October 3, 2017.
4.3*	First Supplemental Indenture, dated as of October 2, 2017, between Western Asset Mortgage Capital Corporation and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, filed on October 3, 2017.
4.4*	Form of 6.75% Convertible Senior Notes due 2022 (attached as Exhibit A to the First Supplemental Indenture filed as Exhibit 4.3 hereto), incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K, filed on October 3, 2017.
4.5*	Second Supplemental Indenture, dated as of September 14, 2021, between Western Asset Mortgage Capital Corporation and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, filed on October 3, 2017.
4.6*	Form of 6.75% Convertible Senior Notes due 2024 (attached as Exhibit A to the Second Supplemental Indenture filed as Exhibit 4.5 hereto), incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K, filed on October 3, 2017.
31.1	Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.
31.2	Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.
32.1	Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022; (ii) the Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022; (iii) the Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2023 and 2022; (iv) the Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2023 and 2022; and (v) the Notes to Consolidated Financial Statements.
104	Cover Page Interactive Data File (the cover page XBRL tags are embedded within the iXBRL document).

97

Amended and restated certificate of incorporation of Western Asset Mortgage Capital Corporation, incorporated by reference to Exhibit 3.1 to Amendment No. 10 Form S-11 (Registration Statement No. 333-159962), filed May 8, 2012

__________________________________

*Fully or partly previously filed.

** The schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of such schedules and exhibits, or any section thereof, to the SEC upon request.

98

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By:	/s/ BONNIE M. WONGTRAKOOL
Bonnie M. Wongtrakool
Chief Executive Officer and Director (Principal Executive Officer)
November 8, 2023
By:	/s/ ROBERT W. LEHMAN
Robert W. Lehman
Chief Financial Officer
November 8, 2023

99

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Bonnie M. Wongtrakool, certify that:

1.           I have reviewed this report on Form 10-Q of Western Asset Mortgage Capital Corporation;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have):

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, if any, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 8, 2023

By:	/s/ BONNIE M. WONGTRAKOOL
	Name: Bonnie M. Wongtrakool
	Title: Chief Executive Officer and Director

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Robert W. Lehman, certify that:

1.           I have reviewed this report on Form 10-Q of Western Asset Mortgage Capital Corporation;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have):

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, if any, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 8, 2023

By:	/s/ ROBERT W. LEHMAN
	Name: Robert W. Lehman
	Title: Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to

18 U.S. C. Section 1350

as adopted pursuant to

Section 906 of The Sarbanes-Oxley Act of 2002

The undersigned, the Chief Executive Officer of Western Asset Mortgage Capital Corporation (the “Company”), hereby certifies on the date hereof, pursuant to 18 U.S.C. 1350(a), as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (the “Form 10-Q”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 8, 2023	By:	/s/ BONNIE M. WONGTRAKOOL
		Name:	Bonnie M. Wongtrakool
		Title:	Chief Executive Officer and Director

The undersigned, the President and Chief Financial Officer (principal financial officer and principal accounting officer) of Western Asset Mortgage Capital Corporation (the “Company”), hereby certifies on the date hereof, pursuant to 18 U.S.C. 1350(a), as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (the “Form 10-Q”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 8, 2023	By:	/s/ ROBERT W. LEHMAN
		Name:	Robert W. Lehman
		Title:	Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Cover - shares	9 Months Ended
	Sep. 30, 2023	Nov. 08, 2023
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2023
Document Transition Report	false
Entity File Number	001-35543
Entity Registrant Name	Western Asset Mortgage Capital Corporation
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	27-0298092
Entity Address, Address Line One	385 East Colorado Boulevard,
Entity Address, City or Town	Pasadena
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	91101
City Area Code	626
Local Phone Number	844-9400
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Title of 12(b) Security	Common Stock, $0.01 par value
Trading Symbol	WMC
Security Exchange Name	NYSE
Entity Common Stock, Shares Outstanding (in shares)		6,049,559
Entity Central Index Key	0001465885
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q3

XML

Consolidated Balance Sheets - USD ($) $ in Thousands		Sep. 30, 2023	Dec. 31, 2022
Assets:
Cash and cash equivalents		$ 24,608	$ 18,011
Restricted cash		0	248
Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively)		986,978	1,091,145
Residential Bridge Loans, at fair value ($2,782 and none pledged as collateral, at fair value, respectively)		2,782	2,849
Securitized Commercial Loan, at fair value		1,012,650	1,085,103
Commercial Loans, at fair value ($66,202 and $66,864 pledged as collateral, at fair value, respectively)		78,701	90,002
Investment related receivable		8,648	5,960
Interest receivable		10,913	11,330
Due from counterparties		1,262	6,574
Derivative assets, at fair value		0	1
Other assets		4,145	4,860
Total assets	[1]	2,235,776	2,453,234
Liabilities:
Repurchase agreements, net		169,910	193,117
Convertible senior unsecured notes, net		84,750	83,522
Securitized debt, net ($1,582,278 and $1,719,865 at fair value and $110,081 and $128,217 held by affiliates, respectively)		1,884,375	2,058,684
Interest payable (includes $615 and $655 on securitized debt held by affiliates, respectively)		8,638	12,794
Due to counterparties		103	300
Derivative liability, at fair value		845	61
Accounts payable and accrued expenses		6,021	3,201
Payable to affiliate		1,002	4,028
Dividend payable		2,117	2,415
Other liabilities		25	300
Total liabilities	[2]	2,157,786	2,358,422
Commitments and contingencies (Note 15)
Stockholders’ Equity:
Common stock, $0.01 par value, 50,000,000 shares authorized, 6,049,559 and 6,038,012 outstanding, respectively		60	60
Preferred stock, $0.01 par value, 10,000,000 shares authorized and no shares outstanding		0	0
Treasury stock, at cost, 57,981 and 57,981 shares held, respectively		(1,665)	(1,665)
Additional paid-in capital		919,646	919,238
Retained earnings (accumulated deficit)		(840,055)	(822,829)
Total Stockholders’ Equity		77,986	94,804
Non-controlling interest		4	8
Total Equity		77,990	94,812
Total Liabilities and Equity		2,235,776	2,453,234
VIE
Assets:
Restricted cash		0	248
Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively)		986,978	1,091,145
Residential Bridge Loans, at fair value ($2,782 and none pledged as collateral, at fair value, respectively)		2,782	2,849
Securitized Commercial Loan, at fair value		1,012,650	1,085,103
Commercial Loans, at fair value ($66,202 and $66,864 pledged as collateral, at fair value, respectively)		12,499	14,362
Investment related receivable		8,602	5,914
Interest receivable		9,731	10,182
Other assets		0	509
Total assets		2,033,242	2,210,312
Liabilities:
Securitized debt, net ($1,582,278 and $1,719,865 at fair value and $110,081 and $128,217 held by affiliates, respectively)		1,884,375	2,058,684
Interest payable (includes $615 and $655 on securitized debt held by affiliates, respectively)		7,887	8,303
Accounts payable and accrued expenses		21	43
Other liabilities		0	248
Total liabilities		1,892,283	2,067,278
Subtotal Agency MBS
Assets:
Securities, at fair value		895	767
Non-Agency MBS
Assets:
Securities, at fair value		87,327	109,122
Other securities
Assets:
Securities, at fair value		$ 16,867	$ 27,262

[1] September 30, 2023December 31, 2022 (1) Assets of consolidated VIEs included in the total assets above:   Restricted cash$— $248  Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively) 986,978 1,091,145  Residential Bridge Loans, at fair value ($2,782 and none pledged as collateral, at fair value, respectively) 2,782 2,849 Securitized Commercial Loan, at fair value1,012,650 1,085,103 Commercial Loans, at fair value12,499 14,362 Investment related receivable8,602 5,914 Interest receivable9,731 10,182 Other assets— 509 Total assets of consolidated VIEs$2,033,242 $2,210,312  (2) Liabilities of consolidated VIEs included in the total liabilities above:    Securitized debt, net ($1,582,278 and $1,719,865 at fair value and $110,081 and $128,217 held by affiliates, respectively) $1,884,375 $2,058,684  Interest payable (includes $615 and $655 on securitized debt held by affiliates, respectively) 7,887 8,303 Accounts payable and accrued expenses21 43 Other liabilities— 248 Total liabilities of consolidated VIEs$1,892,283 $2,067,278 

[2] September 30, 2023December 31, 2022 (1) Assets of consolidated VIEs included in the total assets above:   Restricted cash$— $248  Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively) 986,978 1,091,145  Residential Bridge Loans, at fair value ($2,782 and none pledged as collateral, at fair value, respectively) 2,782 2,849 Securitized Commercial Loan, at fair value1,012,650 1,085,103 Commercial Loans, at fair value12,499 14,362 Investment related receivable8,602 5,914 Interest receivable9,731 10,182 Other assets— 509 Total assets of consolidated VIEs$2,033,242 $2,210,312  (2) Liabilities of consolidated VIEs included in the total liabilities above:    Securitized debt, net ($1,582,278 and $1,719,865 at fair value and $110,081 and $128,217 held by affiliates, respectively) $1,884,375 $2,058,684  Interest payable (includes $615 and $655 on securitized debt held by affiliates, respectively) 7,887 8,303 Accounts payable and accrued expenses21 43 Other liabilities— 248 Total liabilities of consolidated VIEs$1,892,283 $2,067,278 

XML

Consolidated Balance Sheets (Parenthetical) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Commercial loans, at fair value	$ 66,202,000	$ 66,864,000
Secured debt, held by affiliates	1,884,375,000	2,058,684,000
Interest payable	$ 8,638,000	$ 12,794,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	50,000,000	50,000,000
Common stock, shares outstanding (in shares)	6,049,559	6,038,012
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	10,000,000	10,000,000
Preferred stock, shares outstanding (in shares)	0	0
Treasury stock, shares held (in shares)	57,981	57,981,000
Affiliated Entity
Securitized debt, at fair value	$ 1,582,278,000	$ 1,719,865,000
Secured debt, held by affiliates	110,081,000	128,217,000
Interest payable	615,000	655,000
VIE
Fair value of collateral, residential home loans	986,978,000	1,089,914,000
Residential bridge loans, pledged as collateral, fair value	2,782,000	0
Secured debt, held by affiliates	1,884,375,000	2,058,684,000
Interest payable	7,887,000	8,303,000
Subtotal Agency MBS
Fair value of mortgage-backed securities and other securities pledged as collateral	297,000	249,000
Non-Agency MBS
Fair value of mortgage-backed securities and other securities pledged as collateral	69,164,000	100,115,000
Other securities
Fair value of mortgage-backed securities and other securities pledged as collateral	$ 15,645,000	$ 27,262,000

XML

Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Net Interest Income
Interest income	$ 40,138	$ 41,406	$ 121,217	$ 116,625
Interest expense (includes $3,265, $3,493, $9,848, and $10,412 on securitized debt held by affiliates, respectively)	36,976	35,707	109,690	100,408
Net Interest Income	3,162	5,699	11,527	16,217
Other Income (Loss)
Realized loss, net	(29)	(35)	(83,946)	(33,551)
Unrealized gain (loss), net	(7,362)	(43,582)	76,100	(66,300)
Gain on derivative instruments, net	1,157	4,882	1,221	16,599
Merger termination reimbursement	3,000	0	3,000	0
Other, net	181	(61)	424	(252)
Other Income	(3,053)	(38,796)	(3,201)	(83,504)
Expenses
Management fee to affiliate	974	850	2,908	2,952
Other operating expenses	353	343	932	901
Transaction costs	3,034	2,635	5,666	5,590
General and administrative expenses:
Compensation expense	607	515	1,622	1,143
Professional fees	344	1,626	3,309	4,434
Merger termination expense	3,000	0	3,000	0
Other general and administrative expenses	504	676	1,658	2,049
Total general and administrative expenses	4,455	2,817	9,589	7,626
Total Expenses	8,816	6,645	19,095	17,069
Loss before income taxes	(8,707)	(39,742)	(10,769)	(84,356)
Income tax provision	0	266	0	276
Net loss	(8,707)	(40,008)	(10,769)	(84,632)
Net income (loss) attributable to non-controlling interest	(2)	2	2	3,618
Net loss attributable to common stockholders and participating securities	$ (8,705)	$ (40,010)	$ (10,771)	$ (88,250)
Net loss per common share — basic (in dollars per share)	$ (1.45)	$ (6.63)	$ (1.80)	$ (14.63)
Net loss per common share — diluted (in dollars per share)	$ (1.45)	$ (6.63)	$ (1.80)	$ (14.63)

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Consolidated Statements of Operations (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Interest expense	$ 36,976	$ 35,707	$ 109,690	$ 100,408
Affiliated Entity
Interest expense	$ 3,265	$ 3,493	$ 9,848	$ 10,412

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Consolidated Statements of Changes in Equity - USD ($) $ in Thousands	Total	Total Stockholders' Equity	Common Stock Outstanding	Additional  Paid-In Capital	Retained  Earnings  (Accumulated Deficit)	Treasury Stock	Non-Controlling Interest
Beginning balance (in shares) at Dec. 31, 2021			6,038,012
Beginning balance at Dec. 31, 2021	$ 204,329	$ 193,109	$ 60	$ 918,695	$ (723,981)	$ (1,665)	$ 11,220
Increase (Decrease) in Stockholders' Equity
Equity distribution	(14,817)						(14,817)
Vesting of restricted stock	335	335		335
Net income (loss)	(84,632)	(88,250)			(88,250)		3,618
Dividends declared on non-controlling interest	(6)						(6)
Dividends declared on common stock	(7,246)	(7,246)		76	(7,322)
Ending balance (in shares) at Sep. 30, 2022			6,038,012
Ending balance at Sep. 30, 2022	$ 97,963	97,948	$ 60	919,106	(819,553)	(1,665)	15
Beginning balance (in shares) at Jun. 30, 2022	60,380,105		6,038,012
Beginning balance at Jun. 30, 2022	$ 140,338	140,274	$ 60	918,974	(777,095)	(1,665)	64
Increase (Decrease) in Stockholders' Equity
Equity distribution	(49)						(49)
Vesting of restricted stock	100	100		100
Net income (loss)	(40,008)	(40,010)			(40,010)		2
Dividends declared on non-controlling interest	(2)						(2)
Dividends declared on common stock	(2,416)	(2,416)		32	(2,448)
Ending balance (in shares) at Sep. 30, 2022			6,038,012
Ending balance at Sep. 30, 2022	$ 97,963	97,948	$ 60	919,106	(819,553)	(1,665)	15
Beginning balance (in shares) at Dec. 31, 2022	6,038,012		6,038,012
Beginning balance at Dec. 31, 2022	$ 94,812	94,804	$ 60	919,238	(822,829)	(1,665)	8
Increase (Decrease) in Stockholders' Equity
Exchange of phantom stock (in shares)			11,547
Vesting of restricted stock	301	301		301
Net income (loss)	(10,769)	(10,771)			(10,771)		2
Dividends declared on non-controlling interest	(6)						(6)
Dividends declared on common stock	$ (6,348)	(6,348)		107	(6,455)
Ending balance (in shares) at Sep. 30, 2023	6,049,559		6,049,559
Ending balance at Sep. 30, 2023	$ 77,990	77,986	$ 60	919,646	(840,055)	(1,665)	4
Beginning balance (in shares) at Jun. 30, 2023			6,038,012
Beginning balance at Jun. 30, 2023	88,721	88,713	$ 60	919,511	(829,193)	(1,665)	8
Increase (Decrease) in Stockholders' Equity
Exchange of phantom stock (in shares)			11,547
Vesting of restricted stock	100	100		100
Net income (loss)	(8,707)	(8,705)			(8,705)		(2)
Dividends declared on non-controlling interest	(2)						(2)
Dividends declared on common stock	$ (2,122)	(2,122)		35	(2,157)
Ending balance (in shares) at Sep. 30, 2023	6,049,559		6,049,559
Ending balance at Sep. 30, 2023	$ 77,990	$ 77,986	$ 60	$ 919,646	$ (840,055)	$ (1,665)	$ 4

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Cash flows from operating activities:
Net loss	$ (10,769)	$ (84,632)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Premium amortization and (discount accretion), net	1,253	2,492
Interest income earned added to principal of investments	(129)	(79)
Amortization of deferred financing costs	1,842	1,938
Amortization of discount on convertible senior unsecured notes	515	648
Restricted stock amortization	301	335
Premium on purchase of Residential Whole Loans	0	(6,619)
Unrealized (gain) loss, net	(76,100)	66,300
Realized loss on extinguishment of convertible senior notes	0	134
Realized gain on sale of real estate owned ("REO")	0	(12,198)
Unrealized loss (gain) on derivative instruments, net	650	(3,793)
Realized loss on investments, net	83,918	45,615
Loss on derivatives, net	0	1,762
Loss on foreign currency transactions, net	0	1
Changes in operating assets and liabilities:
Interest receivable	417	499
Other assets	715	0
Interest payable	(4,156)	188
Accounts payable and accrued expenses	2,820	(953)
Payable to affiliate	(3,026)	1,428
Other liabilities	(29)	7
Net cash (used in) provided by operating activities	(1,778)	13,073
Cash flows from investing activities:
Purchase of securities	(15,714)	(39,952)
Proceeds from sale of securities	15,324	42,287
Proceeds from sale of REO	0	54,681
Principal repayments and basis recovered on securities	21,121	6,704
Purchase of Residential Whole Loans	0	(405,298)
Proceeds from sale of Residential Whole Loans	0	11,735
Principal repayments on Residential Whole Loans	83,413	206,660
Proceeds from sale of Commercial Loans	8,776	0
Principal repayments on Commercial Loans	1,962	20,593
Principal repayments on Residential Bridge Loans	1,369	366
Premium for credit default swaps, net	0	(347)
Net settlements of TBAs	0	2,051
Proceeds from sale of interest rate swaptions, net	0	312
Due from counterparties	0	460
Premium for interest rate swaptions, net	0	(473)
Net cash provided by (used in) investing activities	116,251	(100,221)
Cash flows from financing activities:
Payment of offering costs	0	(2)
Payments on extinguishment of convertible senior unsecured notes	0	(11,690)
Proceeds from repurchase agreement borrowings	1,287,837	3,164,451
Repayments of repurchase agreement borrowings	(1,310,136)	(3,562,699)
Proceeds from securitized debt	0	742,432
Repayments of securitized debt	(83,042)	(207,799)
Payments made for deferred financing costs	(1,000)	0
Due from counterparties, net	5,312	890
Due to counterparties, net	(197)	0
Decrease in other liabilities	(248)	(9)
Equity distributions to non-controlling interest	0	(14,817)
Dividends paid on common stock	(6,646)	(8,454)
Dividends paid to non-controlling interest	(4)	(4)
Net cash (used in) provided by financing activities	(108,124)	102,299
Effect of exchange rate changes on cash and cash equivalents	0	(1)
Net increase in cash, cash equivalents and restricted cash	6,349	15,150
Cash, cash equivalents and restricted cash, beginning of period	18,259	40,453
Cash, cash equivalents and restricted cash, end of period	24,608	55,603
Supplemental disclosure of operating cash flow information:
Interest paid	90,765	79,700
Income taxes paid	24	50
Supplemental disclosure of non-cash financing/investing activities:
Dividends and distributions declared, not paid	2,117	2,415
Dividends to non-controlling interest, not paid	2	2
Principal payments of Residential Whole Loans, not settled	8,602	8,674
Principal payments of Residential Bridge Loans, not settled	0	46
Reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Balance Sheets:
Cash and cash equivalents	24,608	55,352
Restricted cash	0	251
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows	$ 24,608	$ 55,603

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Organization

9 Months Ended

Sep. 30, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization

Organization

Western Asset Mortgage Capital Corporation, a Delaware corporation, and its subsidiaries (the “Company”), commenced operations in May 2012. The Company invests in, finances and manages a portfolio of real estate related securities, Whole Loans and other financial assets. The Company’s current portfolio is comprised of Non-Qualified ("Non-QM") Residential Whole Loans, Non-Agency RMBS, Commercial Loans, Non-Agency CMBS and to a lesser extent Agency RMBS, GSE Risk Transfer Securities, Residential Bridge Loans, and asset-backed securities (“ABS”) secured by a portfolio of private student loans. The Company’s investment strategy is based on Western Asset Management Company, LLC’s (the “Manager”) perspective of which mix of portfolio assets it believes provides the Company with the best risk-reward opportunities at any given time. The Company's current investment strategy will focus on residential real estate related investments, including but not limited to non-qualified mortgage loans, Non-Agency RMBS, and other related investments. The Manager will vary the allocation among these asset classes subject to maintaining the Company’s qualification as a REIT and maintaining its exemption from the Investment Company Act of 1940, as amended (the “1940 Act”). These restrictions limit the Company’s ability to invest in non-qualified MBS, non-real estate assets and/or assets which are not secured by real estate. Accordingly, the Company’s portfolio will continue to be principally invested in qualifying MBS, Whole Loans, and other real estate related assets. The Company is externally managed by the Manager, an investment advisor registered with the Securities and Exchange Commission (“SEC”). The Manager is a wholly-owned subsidiary of Franklin Resources, Inc. (“Franklin”). The Company operates and has elected to be taxed as a real estate investment trust or “REIT” commencing with its taxable year ended December 31, 2012.

On June 28, 2023, the Company announced that Terra Property Trust, Inc. (“TPT”), an externally managed real estate investment trust (“REIT”) that originates, invests in, and manages loans and assets secured by commercial real estate (“CRE”), and the Company entered into a definitive merger agreement (the “TPT Merger Agreement”) under which TPT and WMC agreed to combine.

On August 8, 2023, the Company terminated the TPT Merger Agreement, and concurrently entered into an Agreement and Plan of Merger (the “MITT Merger Agreement”), dated August 8, 2023, by and among AG Mortgage Investment Trust, Inc., a Maryland corporation (“MITT”), AGMIT Merger Sub, LLC, a Delaware limited liability company (“Merger Sub”), the Company, and, solely for the purposes of Section 3.3(a), Section 3.3(i), Article V, Section 6.13, Section 7.2, Section 7.3 and Article IX therein, AG REIT Management, LLC, a Delaware limited liability company (“MITT Manager”), pursuant to which the Company will merge with and into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary of MITT (the “Merger”).

Due to the termination of the TPT Merger Agreement, the Company was obligated to pay or cause to be paid to TPT a termination fee of $3 million. Concurrently with the execution of the MITT Merger Agreement, MITT paid the $3 million termination fee directly to TPT on behalf of the Company on August 8, 2023.

Pursuant to, and subject to the terms and conditions set forth in, the MITT Merger Agreement, each outstanding share of the Company’s common stock would be converted into the right to receive (i) 1.498 shares of MITT common stock and (ii) the per share portion of a cash payment from the MITT Manager equal to the lesser of $7 million or approximately 9.9% of the aggregate per share merger consideration (any difference between $7 million and such lower amount would be used to benefit the combined company post closing by offsetting reimbursable expenses that would otherwise be payable to the MITT Manager). Additionally, the MITT Manager, which would be the manager of the combined company, would waive $2.4 million of management fees in the first year post-closing. Cash will be paid in lieu of fractional shares of MITT common stock that would have been received as a result of the Merger.

On November 7, 2023, the Company adjourned its special meeting of stockholders until December 5, 2023, at 9:00 a.m. Pacific Time, due to a lack of quorum and to allow further solicitation of proxies from the Company’s common stockholders for the approval of the merger at the special meeting.

At a special meeting of MITT stockholders held on November 7, 2023, MITT stockholders approved the issuance of

MITT’s common stock to be issued in connection with the proposed Merger.

The transaction has been approved by the Board of Directors of the Company and is subject to customary closing conditions. The transaction is expected to close during the fourth quarter of 2023.

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Basis of Presentation and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2023

Accounting Policies [Abstract]

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. For all periods presented, all per share amounts and common shares outstanding have been adjusted on a retroactive basis to reflect the Company's one-for-ten reverse stock split, which was effected on July 11, 2022. The results of operations for the period ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year or any future period. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 13, 2023.

The consolidated financial statements include the accounts of the Company, its wholly-owned and majority-owned subsidiaries, and variable interest entities (“VIEs”) in which it is considered the primary beneficiary. All intercompany amounts between the Company and its subsidiaries and consolidated VIEs have been eliminated in consolidation.

Reverse Stock Split

Our amended and restated certificate of incorporation as of June 30, 2022, authorized the Company to issue a total of 600,000,000 shares of capital stock, consisting of 500,000,000 shares of common stock, par value $0.01 per share, and 100,000,000 shares of preferred stock, par value $0.01 per share.

Following approval by the Company’s stockholders of a reverse stock split between a range of one-for-five and one-for-ten of currently outstanding shares of the Company’s common stock, on June 30, 2022, the Company's Board of Directors selected a one-for-ten reverse stock split ratio. The one-for-ten reverse stock split was effected on July 11, 2022, which reduced the total number of authorized shares of common stock from 500,000,000 to 50,000,000 and also reduced the total number of authorized shares of preferred stock from 100,000,000 to 10,000,000. The total number of issued and outstanding shares from 60,380,105 to 6,038,012. The par value per share of our common stock remained unchanged at $0.01. All per share amounts and common shares outstanding have been adjusted on a retroactive basis to reflect the Company's one-for-ten reverse stock split.

Our stockholders' equity, in the aggregate, remained unchanged. Per share net income or loss increased because there are fewer shares of common stock outstanding. The common stock held in treasury was reduced in proportion to the reverse stock split ratio. There were no other accounting consequences, including changes to the amount of stock-based compensation expense to be recognized in any period, that arose as a result of the reverse stock split. No fractional shares were issued in

connection with the reverse stock split. Instead, each stockholder holding fractional shares was entitled to receive, in lieu of such fractional shares, cash in an amount determined based on the closing price of the Company's common stock the business day prior to the effective date. The reverse stock split applied to all of the Company's outstanding shares of common stock and did not affect any stockholder’s ownership percentage of shares of the Company's common stock, except for immaterial changes resulting from the payment of cash for fractional shares.

Variable Interest Entities

VIEs are defined as entities, that by design, either lack sufficient equity for the entity to finance its activities without additional subordinated financial support, or are unable to direct the entity’s activities, or are not exposed to the entity’s losses or entitled to its residual returns. The Company evaluates all of its interests in VIEs for consolidation. When the interests are determined to be variable interests, the Company assesses whether it is deemed the primary beneficiary. The primary beneficiary of a VIE is determined to be the party that has both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.

To assess whether the Company has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, it considers all facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes: first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE or have the right to unilaterally remove those decision makers are deemed to have the power to direct the activities of a VIE.

To assess whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, it considers all of its economic interests. This assessment requires the Company to apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing significance include; the design of the VIE, including its capitalization structure, subordination of interests, payment priority, relative share of interests held across various classes within the VIE’s capital structure, and the reasons why the interests are held by the Company.

In instances where the Company and its related parties have variable interests in a VIE, the Company considers whether there is a single party in the related party group that meets both the power and losses or benefits criteria on its own as though no related party relationship existed. If one party within the related party group meets both these criteria, such reporting entity is the primary beneficiary of the VIE and no further analysis is needed. If no party within the related party group on its own meets both the power and losses or benefits criteria, but the related party group as a whole meets these two criteria, the determination of primary beneficiary within the related party group requires significant judgment. The analysis is based upon qualitative as well as quantitative factors, such as the relationship of the VIE to each of the members of the related-party group, as well as the significance of the VIE's activities to those members, with the objective of determining which party is most closely associated with the VIE.

Ongoing assessments of whether an enterprise is the primary beneficiary of a VIE are required.

Use of Estimates

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Significant Accounting Policies

    There have been no significant changes to our accounting policies included in Note 2 to the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2022.

Recently Issued Accounting Pronouncements

Description	Effective Date	Effect on Financial Statements
In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40).” The amendments in this Update affect entities that issue convertible instruments and/or contracts in an entity’s own equity. For convertible instruments, the instruments primarily affected are those issued with beneficial conversion features or cash conversion features because the accounting models for those specific features are removed.	January 1, 2024	The Company evaluated the impact this standard may have on its consolidated financial statements and does not believe it will have a material impact on its financial statements and disclosures due to the limited nature of such transactions.
In March 2021, the FCA announced that the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of USD LIBOR would be June 30, 2023, which is beyond the current sunset date of Topic 848. Accordingly, during December 2022, the FASB issued ASU 2022-06 to defer the sunset date of ASC Topic 848, Reference Rate Reform, which provides temporary optional relief in accounting for the impact of reference rate reform from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of rate reform.	December 31, 2024	With additional time granted to apply the relief in Topic 848 extended through December 31, 2024, Management monitored if any legacy LIBOR reference rate contracts remained outstanding as of September 30, 2023 in the investment portfolio, as either they they terminated prior to the June 30, 2023 LIBOR cessation date, or the Company elected to use the practical expedients per Topic 848 to account for modifications to contracts prospectively within the scope of Topics 310, Receivables, and 470, Debt, as a continuation of the existing contracts. The Company adjusted the effective interest rate of all contracts, hedging relationships, and other transactions that reference LIBOR to revised reference rates and spreads as they occured. The variable-rate and floating-rate note sectors have primarily transitioned away from LIBOR as the market has already adapted to the secured overnight financing rate (SOFR), as the primary index used by issuers. As of September 30, 2023, the Company has fully transitioned away from any contracts, hedging relationships, or other transactions that reference LIBOR, which did not have a material impact on its financial statements and disclosures.

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Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2023

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The following tables present the Company’s financial instruments carried at fair value as of September 30, 2023 and December 31, 2022, based upon the valuation hierarchy (dollars in thousands):

 

	September 30, 2023
	Fair Value
	Level I		Level II		Level III		Total
Assets
Agency RMBS Interest-only strips	$	—	$	—	$	61	$	61
Agency RMBS Interest-only strips accounted for as derivatives, included in MBS	—		—		834		834
Subtotal Agency MBS	—		—		895		895
Non-Agency CMBS	—		54,206		—		54,206
Non-Agency RMBS	—		31,872		—		31,872
Non-Agency RMBS Interest-only strips	—		—		1,249		1,249
Subtotal Non-Agency MBS	—		86,078		1,249		87,327
Other securities	—		16,867		—		16,867
Total mortgage-backed securities and other securities	—		102,945		2,144		105,089
Residential Whole Loans	—		—		986,978		986,978
Residential Bridge Loans	—		—		2,782		2,782
Securitized Commercial Loans	—		—		1,012,650		1,012,650
Commercial Loans	—		—		78,701		78,701
Total Assets	$	—	$	102,945	$	2,083,255	$	2,186,200
Liabilities
Derivative liabilities	$	—	$	845	$	—	$	845
Securitized debt	—		1,576,499		5,779		1,582,278
Total Liabilities	$	—	$	1,577,344	$	5,779	$	1,583,123

	December 31, 2022
	Fair Value
	Level I		Level II		Level III		Total
Assets
Agency RMBS Interest-only strips	$	—	$	—	$	53	$	53
Agency RMBS Interest-only strips accounted for as derivatives, included in MBS	—		—		714		714
Subtotal Agency MBS	—		—		767		767
Non-Agency CMBS	—		85,435		—		85,435
Non-Agency RMBS	—		22,483		—		22,483
Non-Agency RMBS Interest-only strips	—		—		1,204		1,204
Subtotal Non-Agency MBS	—		107,918		1,204		109,122
Other securities	—		27,262		—		27,262
Total mortgage-backed securities and other securities	—		135,180		1,971		137,151
Residential Whole Loans	—		—		1,091,145		1,091,145
Residential Bridge Loans	—		—		2,849		2,849
Securitized Commercial Loan	—		—		1,085,103		1,085,103
Commercial Loans	—		—		90,002		90,002
Derivative assets	—		1		—		1
Total Assets	$	—	$	135,181	$	2,271,070	$	2,406,251
Liabilities
Derivative liabilities	$	—	$	61	$	—	$	61
Securitized debt	—		1,710,938		8,927		1,719,865
Total Liabilities	$	—	$	1,710,999	$	8,927	$	1,719,926

When available, the Company uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Company will use independent pricing services and if the independent pricing service cannot price a particular asset or liability, the Company will obtain third-party broker quotes. The Manager's pricing group, which functions independently from its portfolio management personnel, reviews the third-party broker quotes by comparing the broker quotes for reasonableness to the alternate sources when available. If independent pricing services or third-party broker quotes are not available, the Company determines the fair value of the securities using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as interest rates and, when applicable, estimates of prepayments and credit losses.

In instances when the Company is required to consolidate a VIE that is determined to be a qualifying collateralized financing entity ("CFE") under GAAP, and if the Company has elected the fair value option for the securitized debt, the Company will measure both the financial assets and financial liabilities of the VIE using the fair value of either the VIE’s financial assets or financial liabilities, whichever is more observable.

Mortgage-backed Securities and Other Securities

In determining the proper fair value hierarchy or level, the Company considers the amount of available observable market data for each security. For Agency IOs, Non-Agency RMBS, CMBS and other securities, to determine whether a security should be a Level II, the securities are grouped by security type and the Manager reviews the internal trade history, for

the quarter, for each security type. If there is sufficient trade data above a predetermined threshold of a security type, the Manager determines it has sufficient observable market data and the security will be categorized as a Level II; otherwise, the

security is classified as a Level III.

Values for the Company’s securities are based upon prices obtained from independent third party pricing services. The valuation methodology of the third party pricing services incorporates market information and commonly used market pricing methods, which include actual trades and quoted prices for similar or identical instruments, and are designed to produce a pricing process that is responsive to market conditions. Depending on the type of asset and the underlying collateral, the primary inputs to the model include; yields for TBAs, Agency RMBS, the U.S. Treasury market and floating rate indices such as LIBOR and SOFR, the Constant Maturity Treasury rate, and the prime rate as a benchmark yield. In addition, the model may incorporate the current weighted average maturity and additional pool level information such as prepayment speeds, default frequencies and default severities, if applicable. When the third party pricing service cannot adequately price a particular security, the Company utilizes a broker’s quote which is reviewed for reasonableness by the Manager’s pricing group.

Residential Whole Loans and Residential Bridge Loans

Values for the Company's Residential Whole Loans and Residential Bridge Loans are based upon prices obtained from an independent third-party pricing service that specializes in loan valuation, utilizing a discounted cash flow valuation model that is calibrated to recent loan trade execution. Their valuation methodology incorporates commonly used market pricing methods, which include the inputs considered most significant to the determination of fair value of the Company's Residential Whole Loans and Residential Bridge Loans. The key loan inputs include loan balance, interest rate, loan to value, delinquencies and fair value of the collateral for collateral dependent loans. The assumptions made by the independent third-party pricing service includes the market discount rate, default assumptions, and loss severity. Other inputs and assumptions relevant to the pricing of Residential Whole Loans include FICO scores and prepayment speeds.

The independent third-party pricing service used a combination of recent loan trades and recent Residential Whole Loans and Residential Bridge Loans securitization transactions adjusted for deal cost and liquidity premium, to form their opinion on the appropriate discount rate.

The Company reviews the analysis provided by the pricing service, as well as the key assumptions made available to the Company. Due to the inherent uncertainty of such valuation, the fair values established for Residential Whole Loans and Residential Bridge Loans held by the Company may differ from the fair values that would have been established if a readily available market existed for these loans. In addition, the fair values for the Company's Non-QM Residential Whole Loans held in Arroyo Trust 2022-1 and Arroyo Trust 2022-2 are measured using the fair value of the securitized debt based on the CFE valuation methodology. See Note 5, "Residential Whole Loans and Residential Bridge Loans" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional details. Accordingly, the Company classifies its Residential Whole Loans and Residential Bridge Loans as Level III.

Commercial Loans

    Values for the Company's Commercial Loans are based upon prices obtained from an independent third-party pricing service that specializes in loan valuation, utilizing a valuation model that is calibrated to recent loan trade execution. Their valuation methodology incorporates commonly used market pricing methods, which include the inputs considered most significant to the determination of fair value of the Company's Commercial Loans. The assumptions made by the independent third-party pricing vendor include a market discount rate, default assumption, loss severity, cash flows and probability weighted loss scenarios. The Company reviews the analysis provided by the pricing service as well as the key assumptions. Due to the inherent uncertainty of such valuation, the fair values established for Commercial Loans held by the Company may differ from the fair values that would have been established if a readily available market existed for these loans. Accordingly, the Company's Commercial Loans are classified as Level III.

Securitized Commercial Loans

Values for the Company’s Securitized Commercial Loans are based on the collateralized financing entity ("CFE") valuation methodology. Since there is an extremely limited market for the Securitized Commercial Loans, the Company determined the securitized debt is more actively traded and therefore was more observable. Due to the inherent uncertainty of the Securitized Commercial Loans' valuation, the Company classifies its Securitized Commercial Loans as Level III.

Securitized Debt

Values for the Company's securitized debt that the Company elected the fair value option are based upon prices obtained from independent third party pricing services. The valuation methodology of the third-party pricing services incorporates market information and commonly used market pricing methods, which include actual trades and quoted prices for similar or identical instruments. In determining the proper fair value hierarchy or level, the Company considers the amount of available observable market data for each security. Since the securitized debt represents traded debt securities, the Manager's pricing team reviews the trade activity during the quarter for each security to determine the appropriate level within the fair value hierarchy. If there is sufficient trade data above a predetermined volume threshold, the Manager determines it has sufficient observable market data and the debt security will be categorized as a Level II. If there is not sufficient observable market data the debt security will be categorized as a Level III.

Derivatives

Values for the Company's derivatives are based upon prices from third party pricing services, whose pricing is subject to review by the Manager’s pricing committee. In valuing its over-the-counter interest rate derivatives, such as swaps and swaptions, its currency derivatives, such as swaps, forwards, and credit derivatives such as total return swaps, the Company considers the creditworthiness of both the Company and its counterparties, along with collateral provisions contained in each derivative agreement, from the perspective of both the Company and its counterparties. No credit valuation adjustment was made in determining the fair value of interest rate derivatives and/or futures contracts for the periods ended September 30, 2023 and December 31, 2022. See Note 8, "Derivative Instruments" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

Third Party Pricing Data Review

The Company performs quarterly reviews of the independent third party pricing data. These reviews may include a review of the valuation methodology used by third party valuation specialists and review of the daily change in the prices provided by the independent pricing vendor which exceed established tolerances or comparisons to executed transaction prices, utilizing the Manager’s pricing group. The Manager’s pricing group, which functions independently from its portfolio management personnel, reviews the price differences or changes in price by comparing the vendor price to alternate sources including other independent pricing services or broker quotations. If the price change or difference cannot be corroborated, the Manager’s pricing group consults with the portfolio management team for market color in reviewing such pricing data as warranted.  To the extent that the Manager has information, typically in the form of broker quotations that would indicate that a price received from the independent pricing service is outside of a tolerance range, the Manager generally challenges the independent pricing service price.

The following tables present a summary of the available quantitative information about the significant unobservable inputs used in the fair value measurement of financial instruments for which the Company has utilized Level III inputs to determine fair value as of September 30, 2023 and December 31, 2022 (dollars in thousands):

	Fair Value at				Range
	September 30, 2023		Valuation Technique	Unobservable Input	Minimum		Maximum		Weighted Average
Residential Whole Loans	$	986,978	Discounted Cash Flow	Market Discount Rate	6.4	%	8.4	%	6.8	%
				Weighted Average Life	1.4		10.5		6.4
Residential Bridge Loans	$	2,782	Discounted Cash Flow	Market Discount Rate	12.2	%	20.0	%	15.1	%
				Weighted Average Life	1.3		5.2		3.4
Securitized Commercial Loan	$	1,012,650	Market Comparables, Vendor Pricing	Weighted Average Life	2		2		2
Commercial Loans	$	78,701	Discounted Cash Flow	Market Discount Rate	9.2	%	11.5	%	10.5	%
				Weighted Average Life	0		1.6		1.37

	Fair Value at				Range
	December 31, 2022		Valuation Technique	Unobservable Input	Minimum		Maximum			Weighted Average
Residential Whole Loans	$	1,091,145	Discounted Cash Flow	Market Discount Rate	6.0	%	8.4	%		6.8	%
				Weighted Average Life	1.4		10.4			5.4
Residential Bridge Loans	$	2,849	Discounted Cash Flow	Market Discount Rate	12.9	%	35.7	%	(1)	22.4	%
				Weighted Average Life	0.4		4.1			2.0
Securitized Commercial Loan	$	1,085,103	Market Comparables, Vendor Pricing	Weighted Average Life	2.7		2.7			2.7
Commercial Loans	$	90,002	Discounted Cash Flow	Market Discount Rate	8.4	%	9.6	%		9.2	%
				Weighted Average Life	0.3		2.4			1.2

The following tables present additional information about the Company’s financial instruments which are measured at fair value on a recurring basis for which the Company has utilized Level III inputs to determine fair value:

	Three months ended September 30, 2023
$ in thousands	Agency MBS		Non-Agency MBS		Residential  Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized  Commercial  Loan		Securitized debt
Beginning balance	$	838	$	1,608	$	1,037,381	$	2,782	$	78,806	$	1,025,321	$	6,932
Transfers into Level III from Level II	—		—		—		—		—		—		—
Transfers from Level III into Level II	—		—		—		—		—		—		—
Loan modifications / capitalized interest	—		—		87		—		—		—		—
Principal repayments	—		—		(28,604)		—		(281)		—		—
Total net gains / losses included in net income
Realized gains/(losses), net on assets	—		—		(29)		—		—		—		—
Unrealized gains/(losses), net on assets(1)	67		(251)		(21,131)		—		143		(19,735)		—
Unrealized (gains)/losses, net on liabilities(2)	—		—		—		—		—		—		66
Premium and discount amortization, net	(10)		(108)		(726)		—		33		7,064		(1,219)
Ending balance	$	895	$	1,249	$	986,978	$	2,782	$	78,701	$	1,012,650	$	5,779
Unrealized gains/(losses), net on assets held at the end of the period(1)	$	67	$	(251)	$	(22,085)	$	—	$	143	$	(19,735)	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	(66)

	Three months ended September 30, 2022
$ in thousands	Agency MBS		Non-Agency MBS		Residential  Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized  Commercial  Loan		Securitized debt
Beginning balance	$	785	$	1,181	$	1,195,853	$	5,095	$	128,421	$	1,243,371	$	14,919
Transfers into Level III from Level II	—		—		—		—		—		—		—
Transfers from Level III into Level II	—		—		—		—		—		—		—
Sales and settlements	—		—		(11,735)		—		—		—		—
Loan modifications / capitalized interest	—		—		4		—		—		—		—
Principal repayments	—		—		(37,036)		—		(20,588)		—		—
Total net gains / losses included in net income
Realized gains/(losses), net on assets	—		—		(33)		—		—		—		—
Unrealized gains/(losses), net on assets(1)	(63)		88		(46,545)		25		(17,730)		(78,046)		—
Unrealized (gains)/losses, net on liabilities(2)	—		—		—		—		—		—		(3,863)
Premium and discount amortization, net	(2)		(96)		(883)		—		—		6,589		(1,170)
Ending balance	$	720	$	1,173	$	1,099,625	$	5,120	$	90,103	$	1,171,914	$	9,886
Unrealized gains/(losses), net on assets held at the end of the period(1)	$	(63)	$	88	$	(35,855)	$	25	$	(17,730)	$	(78,046)	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	3,863

	Nine months ended September 30, 2023
$ in thousands	Agency MBS		Non-Agency MBS		Residential  Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized  commercial  loan		Securitized debt
Beginning balance	$	767	$	1,204	$	1,091,145	$	2,849	$	90,002	$	1,085,103	$	8,927
Transfers into Level III from Level II	—		—		—		—		—		—		—
Transfers from Level III into Level II	—		—		—		—		—		—		—
Sales and settlements	—		—		—		—		(8,776)		—		—
Loan modifications / capitalized interest	—		—		129		—		—		—		—
Principal repayments	—		—		(87,397)		(74)		(1,961)		—		—
Total net gains / losses included in net income
Realized gains/(losses), net on assets	—		—		(29)		—		(81,223)		—		—
Unrealized gains/(losses), net on assets(1)	134		361		(14,593)		7		80,560		(93,785)		—
Unrealized (gains)/losses, net on liabilities(2)	—		—		—		—		—		—		(35)
Premium and discount amortization, net	(6)		(316)		(2,277)		—		99		21,332		(3,113)
Ending balance	$	895	$	1,249	$	986,978	$	2,782	$	78,701	$	1,012,650	$	5,779
Unrealized gains/(losses), net on assets held at the end of the period(1)	$	134	$	361	$	(18,171)	$	—	$	(662)	$	(93,785)	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	35

	Nine months ended September 30, 2022
$ in thousands	Agency MBS		Non-Agency MBS		Residential  Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized  commercial  loan		Securitized debt
Beginning balance	$	1,172	$	7,845	$	1,023,502	$	5,428	$	130,572	$	1,355,808	$	14,919
Transfers into Level III from Level II	—		—		—		—		—		—		—
Transfers from Level III into Level II	—		(5,437)		—		—		—		—		—
Purchases	—		—		402,650		—		—		—		—
Sales and settlements	—		—		(11,362)		—		—		—		—
Loan modifications / capitalized interest	—		—		79		—		—		—		—
Principal repayments	—		—		(184,683)		(250)		(20,593)		—		—
Total net gains / losses included in net income
Realized gains/(losses), net on assets	—		—		(32)		—		—		—		—
Unrealized gains/(losses), net on assets(1)	(329)		(998)		(125,943)		(58)		(19,876)		(203,828)		—
Unrealized (gains)/losses, net on liabilities(2)	—		—		—		—		—		—		(2,064)
Premium and discount amortization, net	(123)		(237)		(4,586)		—		—		19,934		(2,969)
Ending balance	$	720	$	1,173	$	1,099,625	$	5,120	$	90,103	$	1,171,914	$	9,886
Unrealized gains/(losses), net on assets held at the end of the period(1)	$	(329)	$	(644)	$	(107,944)	$	17	$	(19,884)	$	(203,828)	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	2,064

(1)Gains and losses are included in "Unrealized gain (loss), net" in the Consolidated Statements of Operations.

(2)Gains and losses on securitized debt are included in "Unrealized gain (loss), net" in the Consolidated Statements of Operations.

Transfers into the Level III category of the fair value hierarchy occur due to the above segmented classes of investments exhibiting indications of reduced levels of market transparency, including changes in observable transactions or executable quotes involving these investments or similar classes of investments. Changes in these indications could impact price transparency, and thereby cause a change in level designations. The Company did not have transfers between either Level I and Level II or Level I and Level III for the three and nine months ended September 30, 2023 and September 30, 2022.

Other Fair Value Disclosures

The Company's repurchase agreement borrowings, convertible senior unsecured notes, and securitized debt from the Arroyo 2019-2 and Arroyo 2020-1 trusts are not carried at fair value in the consolidated financial statements.

Borrowings Under Repurchase Agreements

The fair values of the Company's repurchase agreements approximates the carrying value due to the floating interest rates that are based on an index plus a spread, which is typically consistent with those demanded in the market and the short-term maturities of generally one year or less. The Company's repurchase agreements are classified as Level II.

Convertible Senior Unsecured Notes

The fair values of the convertible senior unsecured notes are based on quoted market prices. Accordingly, the Company's convertible senior unsecured notes were classified as Level I.

The following table presents the carrying value and estimated fair value of the Company’s convertible senior unsecured notes and securitized debt that are not carried at fair value as of September 30, 2023 and December 31, 2022 in the consolidated financial statements (dollars in thousands):

	September 30, 2023				December 31, 2022
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Convertible senior unsecured notes	$	84,750	$	83,367	$	83,522	$	74,712
Securitized debt(1)	305,205		273,799		342,965		309,474
Total	$	389,955	$	357,166	$	426,487	$	384,186

(1) Carrying value excludes $3.1 million and $4.1 million of deferred financing costs as of September 30, 2023 and December 31, 2022, respectively.

"Due from counterparties" and "Due to counterparties" in the Company’s Consolidated Balance Sheets are reflected at cost which approximates fair value.

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Mortgage-Backed Securities and Other Securities

9 Months Ended

Sep. 30, 2023

Investments, Debt and Equity Securities [Abstract]

Mortgage-Backed Securities and Other Securities

Mortgage-Backed Securities and Other Securities

The following tables present certain information about the Company’s investment portfolio at September 30, 2023 and December 31, 2022 (dollars in thousands):

	September 30, 2023
	Principal Balance		Unamortized Premium (Discount), net		Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value		Net Weighted Average Coupon
Agency RMBS Interest-Only Strips(1)(2)	N/A		N/A		$	68	$	—	$	(7)	$	61	—	%
Agency RMBS Interest-Only Strips, accounted for as derivatives(1)(2)	N/A		N/A		N/A		N/A		N/A		834		1.3	%
Total Agency MBS	—		—		68		—		(7)		895		1.1	%
Non-Agency RMBS	50,507		(14,670)		35,837		572		(4,537)		31,872		4.9	%
Non-Agency RMBS Interest- Only Strips(1)	N/A		N/A		4,888		—		(3,639)		1,249		0.3	%
Subtotal Non-Agency RMBS	50,507		(14,670)		40,725		572		(8,176)		33,121		1.6	%
Non-Agency CMBS	88,559		(1,746)		86,813		65		(32,672)		54,206		8.0	%
Total Non-Agency MBS	139,066		(16,416)		127,538		637		(40,848)		87,327		3.7	%
Other securities(3)	25,613		(7,941)		18,740		813		(2,686)		16,867		7.1	%
Total	$	164,679	$	(24,357)	$	146,346	$	1,450	$	(43,541)	$	105,089	3.8	%

	December 31, 2022
	Principal Balance		Unamortized Premium (Discount), net		Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value		Net Weighted Average Coupon(4)
Agency RMBS Interest-Only Strips(1)	N/A		N/A		$	58	$	—	$	(5)	$	53	—	%
Agency RMBS Interest-Only Strips, accounted for as derivatives(1)(2)	N/A		N/A		N/A		N/A		N/A		714		0.1	%
Total Agency MBS	—		—		58		—		(5)		767		0.1	%
Non-Agency RMBS	39,873		(14,423)		25,450		928		(3,895)		22,483		4.2	%
Non-Agency RMBS Interest-Only Strips(1)	N/A		N/A		5,204		—		(4,000)		1,204		0.3	%
Subtotal Non-Agency RMBS	39,873		(14,423)		30,654		928		(7,895)		23,687		1.1	%
Non-Agency CMBS	109,266		(2,763)		106,503		636		(21,704)		85,435		8.1	%
Total Non-Agency MBS	149,139		(17,186)		137,157		1,564		(29,599)		109,122		3.8	%
Other securities(3)	34,691		(8,581)		31,112		543		(4,393)		27,262		7.2	%
Total	$	183,830	$	(25,767)	$	168,327	$	2,107	$	(33,997)	$	137,151	3.9	%

(1)    IOs and IIOs have no principal balances and bear interest based on a notional balance. The notional balance is used solely to determine interest distributions on interest-only class of securities. At September 30, 2023, the notional balance for Agency RMBS IOs and IIOs, Non-Agency RMBS IOs, and IIO and Agency RMBS IOs and IIOs, accounted for as derivatives was $2.2 million, $132.0 million, and $12.2 million, respectively. At December 31, 2022, the notional balance for Agency RMBS IOs and IIOs, Non-Agency RMBS IOs and IIOs, and Agency RMBS IOs and IIOs, accounted for as derivatives was $2.4 million, $143.2 million, and $13.1 million, respectively.

(2)     Interest on these securities is reported as a component of "Gain on derivative instruments, net" in the Consolidated Statements of Operations.

(3)     Other securities include residual interests in ABS which have no principal balance and an amortized cost of approximately $1.1 million and $5.0 million, as of September 30, 2023 and December 31, 2022, respectively.

(4)     The calculation of the weighted average coupon rate includes the weighted average coupon rates of IOs and IIOs accounted for as derivatives using their notional amounts.

As of September 30, 2023 and December 31, 2022, the weighted average expected remaining term of the MBS and other securities investment portfolio was 7.8 years and 6.7 years, respectively.

The following tables present the fair value and contractual maturities of the Company’s investment securities at September 30, 2023 and December 31, 2022 (dollars in thousands):

 

	September 30, 2023
	< or equal to 10 years		> 10 years and < or equal to 20 years		> 20 years and < or equal to 30 years		> 30 years		Total
Agency RMBS Interest-Only Strips	$	—	$	61	$	—	$	—	$	61
Agency RMBS Interest-Only Strips accounted for as derivatives	—		834		—		—		834
Subtotal Agency	—		895		—		—		895
Non-Agency CMBS	37,134		7,418		9,654		—		54,206
Non-Agency RMBS	—		—		7,912		23,960		31,872
Non-Agency RMBS Interest-Only Strips	—		—		188		1,061		1,249
Subtotal Non-Agency	37,134		7,418		17,754		25,021		87,327
Other securities	3,006		—		7,117		6,744		16,867
Total	$	40,140	$	8,313	$	24,871	$	31,765	$	105,089

	December 31, 2022
	< or equal to 10  years		> 10 years and < or  equal to 20 years		> 20 years and < or  equal to 30 years		> 30 years		Total
Agency RMBS Interest-Only Strips	$	—	$	53	$	—	$	—	$	53
Agency RMBS Interest-Only Strips accounted for as derivatives	—		714		—		—		714
Subtotal Agency	—		767		—		—		767
Non-Agency CMBS	64,484		10,469		10,482		—		85,435
Non-Agency RMBS	—		—		8,667		13,816		22,483
Non-Agency RMBS Interest-Only Strips	—		—		230		974		1,204
Subtotal Non-Agency	64,484		10,469		19,379		14,790		109,122
Other securities	6,735		—		13,020		7,507		27,262
Total	$	71,219	$	11,236	$	32,399	$	22,297	$	137,151

The following tables present the gross unrealized losses and estimated fair value of the Company’s MBS and other securities by length of time that such securities have been in a continuous unrealized loss position at September 30, 2023 and December 31, 2022 (dollars in thousands):

	September 30, 2023
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses		Number  of Securities	Fair Value		Unrealized Losses		Number  of Securities	Fair Value		Unrealized Losses		Number  of Securities
Agency RMBS Interest-Only Strips	$	61	$	(7)	1	$	—	$	—	—	$	61	$	(7)	1
Subtotal Agency	61		(7)		1	—		—		—	61		(7)		1
Non-Agency CMBS	7,188		(1,898)		1	46,953		(30,774)		9	54,141		(32,672)		10
Non-Agency RMBS	15,661		(519)		2	9,706		(4,018)		6	25,367		(4,537)		8
Non-Agency RMBS Interest-Only Strips	—		—		—	1,249		(3,639)		4	1,249		(3,639)		4
Subtotal Non-Agency	22,849		(2,417)		3	57,908		(38,431)		19	80,757		(40,848)		22
Other securities	—		—		—	5,521		(2,686)		1	5,521		(2,686)		1
Total	$	22,910	$	(2,424)	4	$	63,429	$	(41,117)	20	$	86,339	$	(43,541)	24

 

	December 31, 2022
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses		Number  of Securities	Fair Value		Unrealized Losses		Number  of Securities	Fair Value		Unrealized Losses		Number  of Securities
Agency RMBS Interest-Only Strips	$	52	$	(5)	1	$	—	$	—	—	$	52	$	(5)	1
Subtotal Agency	52		(5)		1	—		—		—	52		(5)		1
Non-Agency CMBS	—		—		—	76,365		(21,704)		11	76,365		(21,704)		11
Non-Agency RMBS	19,054		(2,794)		5	1,557		(1,101)		2	20,611		(3,895)		7
Non-Agency RMBS Interest-Only Strips	—		—		—	1,203		(4,000)		4	1,203		(4,000)		4
Subtotal Non-Agency	19,054		(2,794)		5	79,125		(26,805)		17	98,179		(29,599)		22
Other securities	12,483		(2,425)		3	9,468		(1,968)		2	21,951		(4,393)		5
Total	$	31,589	$	(5,224)	9	$	88,593	$	(28,773)	19	$	120,182	$	(33,997)	28

The following tables present components of interest income on the Company’s MBS and other securities for the three and nine months ended September 30, 2023 and September 30, 2022, respectively (dollars in thousands):

	Three months ended September 30, 2023						Three months ended September 30, 2022
	Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Accretion		Interest Income		Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Accretion		Interest Income
Agency RMBS	$	—	$	4	$	4	$	—	$	2	$	2
Non-Agency CMBS	1,657		351		2,008		1,949		387		2,336
Non-Agency RMBS	756		(306)		450		446		26		472
Other securities	583		(144)		439		860		185		1,045
Total	$	2,996	$	(95)	$	2,901	$	3,255	$	600	$	3,855

	Nine months ended September 30, 2023						Nine months ended September 30, 2022
	Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Accretion		Interest Income		Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Accretion		Interest Income
Agency RMBS	$	—	$	10	$	10	$	13	$	(4)	$	9
Non-Agency CMBS	5,234		1,006		6,240		7,050		386		7,436
Non-Agency RMBS	1,960		(651)		1,309		1,804		(141)		1,663
Other securities	2,079		(345)		1,734		2,515		223		2,738
Total	$	9,273	$	20	$	9,293	$	11,382	$	464	$	11,846

There were no sales nor realized gain (loss) related to the Company's MBS and Other Securities for the three months ended September 30, 2023 and September 30, 2022. The following table presents the sales and realized gain (loss) of the Company’s MBS and other securities for the nine months ended September 30, 2023 and September 30, 2022, respectively (dollars in thousands):

	Nine months ended September 30, 2023								Nine months ended September 30, 2022
	Proceeds		Gross Gains		Gross Losses		Net Gain  (Loss)		Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)
Non-Agency CMBS	$	—	$	—	$	(1,239)	$	(1,239)	$	10,152	$	—	$	(43,934)	$	(43,934)
Non-Agency RMBS	—		—		(48)		(48)		27,729		255		(1,425)		(1,170)
Other securities	15,324		649		(2,028)		(1,379)		4,406		—		(478)		(478)
Total	$	15,324	$	649	$	(3,315)	$	(2,666)	$	42,287	$	255	$	(45,837)	$	(45,582)

Unconsolidated CMBS VIEs

The Company’s economic interests held in unconsolidated CMBS VIEs are limited in nature to those of a passive holder of CMBS issued by securitization trusts. The Company was not involved in the design or creation of the securitization trusts. The Company evaluates its CMBS holdings, for potential consolidation of the securitized trust, in which it owns the most subordinate tranche or a portion of the controlling class. As of September 30, 2023 and December 31, 2022, the Company held two and two variable interests in unconsolidated CMBS VIEs, respectively, in which it either owned the most subordinate class or a portion of the controlling class. The Company determined it was not the primary beneficiary and accordingly, the CMBS VIEs were not consolidated in the Company’s consolidated financial statements. As of September 30, 2023 and December 31, 2022, the Company’s maximum exposure to loss from these variable interests did not exceed the carrying value of these investments of $15.1 million and $15.5 million, respectively. These investments are classified in "Non-Agency mortgage-backed securities, at fair value" in the Company’s Consolidated Balance Sheets. Further, as of September 30, 2023 and December 31, 2022, the Company did not guarantee any obligations of unconsolidated entities or enter into any commitment or intent to provide funding to any such entities.

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Residential Whole Loans and Bridge Loans

9 Months Ended

Sep. 30, 2023

Variable Interest Entities

Residential Whole Loans and Bridge Loans

Residential Whole Loans and Bridge Loans

Residential Whole Loan Trusts

Revolving Mortgage Investment Trust 2015-1QR2

Revolving Mortgage Investment Trust 2015-1QR2 ("RMI 2015 Trust") was formed to acquire Non-QM Residential Whole Loans. The RMI 2015 Trust issued a trust certificate which is wholly-owned by the Company and represents the entire beneficial interest in pools of Non-QM Residential Whole Loans held by the trust. The Company consolidates the trust since it met the definition of a VIE and the Company determined that it was the primary beneficiary. The Company classifies the underlying Non-QM Residential Whole Loans owned by the trust in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets and has eliminated the intercompany trust certificate in consolidation.

During the three months ended September 30, 2023, all loans formerly held at Revolving Mortgage Investment Trust 2017-BRQ1 ("RMI 2017 Trust") were transferred to the RMI 2015 Trust in order to consolidate costs.

As of September 30, 2023, the RMI 2015 Trust owned nine Non-QM Residential Whole Loans with a fair value of $4.3 million, three of which are investor fixed rate residential mortgages previously held by RMI 2017 Trust with a fair value of $991.7 thousand. As of December 31, 2022, RMI 2015 Trust owned six Non-QM Residential Whole Loans with a fair value of $3.2 million, and RMI 2017 Trust owned three investor fixed rate mortgages with a fair value of $1.2 million. The loans are financed under the Company's residential whole loan facility, and the Company holds the financing liability outside the RMI 2015 Trust. See Note 7, "Financings" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional details.

As of September 30, 2023, the RMI 2015 Trust owned four Residential Bridge Loans with a fair value of $2.8 million. As of December 31, 2022, the RMI 2017 Trust owned five Residential Bridge Loans with a fair value of $2.8 million. The Company is no longer allocating capital to Residential Bridge Loans.

Arroyo Mortgage Trust 2019-2

In May 2019, the Company formed Arroyo Mortgage Trust 2019-2 ("Arroyo Trust 2019"), a wholly-owned subsidiary of the Company, to complete its first residential mortgage-backed securitization comprised of $945.5 million of Non-QM Residential Whole Loans. The Arroyo Trust 2019 issued $919.0 million of mortgage-backed notes and retained all the subordinate and residual debt securities ("Owner Certificates"), which includes the required 5% eligible risk retention. Refer to Note 7, "Financings" for details. The Company consolidates the trust since it met the definition of a VIE and the Company determined that it was the primary beneficiary. The Company classifies the underlying Non-QM Residential Whole Loans in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets and eliminated the intercompany Owner Certificates in consolidation.

As of September 30, 2023 and December 31, 2022, the Arroyo Trust 2019 owned 684 and 766 Non-QM Residential Whole Loans with a fair value of $214.0 million and $237.6 million, respectively.

Arroyo Mortgage Trust 2020-1

In June 2020, the Company formed Arroyo Mortgage Trust 2020-1 ("Arroyo Trust 2020"), a wholly-owned subsidiary of the Company, to complete its second residential mortgage-backed securitization comprised of $355.8 million of Non-QM Residential Whole Loans. The Arroyo Trust 2020 issued $341.7 million of mortgage-backed notes and retained all the subordinate and residual debt securities, which includes the required 5% eligible risk retention. See Note 7, "Financings" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional details. The Company consolidates the trust since it met the definition of a VIE and the Company determined that it was the primary beneficiary. The Company classifies the underlying Non-QM Residential Whole Loans in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets and eliminated the intercompany Owner Certificates.

As of September 30, 2023 and December 31, 2022, the Arroyo Trust 2020 owned 406 and 432 Non-QM Residential Whole Loans with a fair value of $127.7 million and $135.1 million, respectively.

Arroyo Mortgage Trust 2022-1

In February 2022, the Company formed Arroyo Mortgage Trust 2022-1 ("Arroyo Trust 2022-1"), a wholly-owned subsidiary of the Company, to complete its third residential mortgage-backed securitization comprised of $432.0 million of Non-QM Residential Whole Loans. The Arroyo Trust 2022-1 issued $398.9 million of mortgage-backed notes and retained all the subordinate and residual debt securities, which includes the required 5% eligible risk retention. See Note 7, "Financings" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional details. The Company consolidates the trust since it met the definition of a VIE and the Company determined that it was the primary beneficiary. The Company classifies the underlying Non-QM Residential Whole Loans in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets and eliminated the intercompany Owners Certificates.

As of September 30, 2023 and December 31, 2022, the Arroyo Trust 2022-1 owned 682 and 705 Non-QM Residential Whole Loans with a fair value of $324.6 million and $350.7 million, respectively. The Company has elected the fair value option for the securitized debt. The fair values for the Company’s Non-QM loans held in the Arroyo Trust 2022-1 are measured using the fair value of the securitized debt based on the CFE valuation methodology. The Company determined that the securitized debt is more actively traded and, therefore, more observable.

Arroyo Mortgage Trust 2022-2

In July 2022, the Company formed Arroyo Mortgage Trust 2022-2 ("Arroyo Trust 2022-2"), a wholly-owned subsidiary of the Company, to complete its fourth residential mortgage-backed securitization comprised of $402.2 million of Non-QM Residential Whole Loans. The Arroyo Trust 2022-2 issued $351.9 million of mortgage-backed notes and retained all the subordinate and residual debt securities, which includes the required 5% eligible risk retention. See Note 7, "Financings" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for additional details. The Company consolidates the trust since it met the definition of a VIE and the Company determined that it was the primary beneficiary. The Company classifies the underlying Non-QM Residential Whole Loans in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets and eliminated the intercompany Owners Certificates.

As of September 30, 2023 and December 31, 2022, the Arroyo Trust 2022-2 owned 980 and 1,029 Non-QM Residential Whole Loans with a fair value of $316.3 million and $363.3 million, respectively. The Company has elected the fair value option for the securitized debt. The fair values for the Company’s Non-QM loans held in the Arroyo Trust 2022-2 are measured using the fair value of the securitized debt based on the CFE valuation methodology. The Company determined that the securitized debt is more actively traded and, therefore, more observable.

Residential Bridge Loan Trust

    In February 2017, the Company formed Revolving Mortgage Investment Trust 2017-BRQ1 ("RMI 2017 Trust") to acquire Residential Bridge Loans. RMI 2017 Trust issued a trust certificate that is wholly-owned by the Company and represents the entire beneficial interest in pools of Residential Bridge Loans and certain Residential Whole Loans held by the trust. Residential Bridge Loans are mortgage loans secured by residences, typically short-term. The Company consolidates the trust since it met the definition of a VIE and the Company determined that it was the primary beneficiary. The Company has eliminated the intercompany trust certificate in consolidation.

During the three months ended September 30, 2023, the four remaining Residential Bridge Loans with a fair value of $2.8 million in the RMI 2017 Trust were transferred to the RMI 2015 Trust to consolidate costs. The Company is no longer allocating capital to Residential Bridge Loans.

Consolidated Residential Whole Loan and Residential Bridge Loan Trusts

The following table presents a summary of the assets and liabilities of the consolidated residential whole loan trusts and residential bridge loan trust included in the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (dollars in thousands):

 

	September 30, 2023		December 31, 2022
Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively)	$	986,978	$	1,091,145
Residential Bridge Loans, at fair value ($2,782 and none pledged as collateral, at fair value, respectively)	2,782		2,849
Investment related receivable	8,602		5,914
Interest receivable	4,580		4,871
Other assets	—		509
Total assets	$	1,002,942	$	1,105,288
Securitized debt, net	$	877,745	$	981,073
Interest payable	2,892		3,139
Accounts payable and accrued expenses	12		34
Total liabilities	$	880,649	$	984,246

The Residential Whole Loans held by the consolidated Arroyo Trust 2019, Arroyo Trust 2020, Arroyo Trust 2022-1, and Arroyo Trust 2022-2 are held solely to satisfy the liabilities of each respective trust, and has no recourse to the general credit of the Company. The Company is not contractually required and has not provided any additional financial support to the trusts for the periods ended September 30, 2023 and December 31, 2022.

The following table presents the components of the fair value of Residential Whole Loans and Residential Bridge Loans as of September 30, 2023 and December 31, 2022 (dollars in thousands):

 

	Residential Whole Loans, at Fair Value				Residential Bridge Loans, at Fair Value
	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Principal balance	$	1,078,005	$	1,165,301	$	3,091	$	3,166
Unamortized premium	28,530		30,961		—		—
Unamortized discount	(1,394)		(1,536)		—		—
Amortized cost	1,105,141		1,194,726		3,091		3,166
Gross unrealized gains	5,371		2,038		—		—
Gross unrealized losses	(123,534)		(105,619)		(309)		(317)
Fair value	$	986,978	$	1,091,145	$	2,782	$	2,849

Residential Whole Loans

The Residential Whole Loans have low LTV's and are comprised of 2,761 adjustable and fixed rate Non-QM and investor mortgages. The following tables present certain information about the Company’s residential whole loan investment portfolio at September 30, 2023 and December 31, 2022 (dollars in thousands):

 

September 30, 2023
				Weighted Average
Current Coupon Rate	Number of  Loans	Principal  Balance		Original LTV		Original  FICO Score(1)	Expected  Life (years)	Contractual  Maturity  (years)	Coupon  Rate
2.01% – 3.00%	39	$	21,880	66.3	%	758	9.1	27.6	2.9	%
3.01% – 4.00%	361	196,884		67.0	%	760	8.2	28.0	3.7	%
4.01% – 5.00%	1,134	384,437		64.8	%	750	6.8	25.5	4.5	%
5.01% – 6.00%	813	322,376		66.0	%	743	6.1	26.2	5.5	%
6.01% – 7.00%	321	120,933		67.2	%	743	4.8	26.9	6.5	%
7.01% - 8.00%	69	23,865		60.6	%	734	4.1	23.1	7.4	%
8.01% - 9.00%	24	7,630		55.5	%	744	4.3	24.0	8.6	%
Total	2,761	$	1,078,005	65.7	%	749	6.6	26.3	4.9	%

(1)The original FICO score is not available for 210 loans with a principal balance of approximately $64.6 million at September 30, 2023. The Company has excluded these loans from the weighted average computations.

 

December 31, 2022
				Weighted Average
Current Coupon Rate	Number of  Loans	Principal  Balance		Original LTV		Original  FICO Score(1)	Expected  Life (years)	Contractual  Maturity  (years)	Coupon  Rate
2.01% – 3.00%	39	$	22,277	66.3	%	758	8.9	28.3	2.9	%
3.01% – 4.00%	402	214,402		66.3	%	759	7.3	28.5	3.7	%
4.01% – 5.00%	1,337	453,811		64.1	%	749	5.5	26.0	4.6	%
5.01% – 6.00%	901	363,197		65.6	%	742	4.7	26.7	5.4	%
6.01% – 7.00%	249	105,933		69.9	%	742	3.6	28.4	6.4	%
7.01% - 8.00%	15	5,681		75.2	%	730	3.0	29.2	7.4	%
Total	2,943	$	1,165,301	65.6	%	748	5.5	27.0	4.8	%

(1)The original FICO score is not available for 231 loans with a principal balance of approximately $76.6 million at December 31, 2022. The Company has excluded these loans from the weighted average computations.

The following table presents geographic concentrations by U.S. state in which the collateral securing the Company’s Residential Whole Loans are located as of September 30, 2023 and December 31, 2022 (dollars in thousands):

September 30, 2023					December 31, 2022
State	State Concentration		Principal Balance		State	State Concentration		Principal Balance
California	67.8	%	$	731,058	California	66.8	%	$	778,732
New York	9.0	%	96,757		New York	9.3	%	108,108
Texas	4.8	%	51,407		Texas	4.8	%	56,126
Florida	3.9	%	42,157		Florida	4.1	%	47,681
Georgia	3.3	%	35,297		Georgia	3.5	%	40,845
Other	11.2	%	121,329		Other	11.5	%	133,809
Total	100.0	%	$	1,078,005	Total	100.0	%	$	1,165,301

Residential Bridge Loans

The Company is no longer allocating capital to Residential Bridge Loans. The following tables present certain information about the remaining Residential Bridge Loans which are non-performing in the Company's investment portfolio at September 30, 2023 and December 31, 2022 (dollars in thousands):

 

September 30, 2023
				Weighted Average
Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Contractual Maturity  (months)(1)	Coupon Rate
7.01% – 9.00%	2	$	1,822	67.5	%	0.0	8.7	%
9.01% – 11.00%	1	849		90.5	%	0.0	10.0	%
11.01% – 13.00%	1	420		70.0	%	0.0	11.3	%
Total	4	$	3,091	74.2	%	0.0	9.4	%

December 31, 2022
				Weighted Average
Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Contractual Maturity  (months)(1)	Coupon Rate
7.01% – 9.00%	2	$	1,822	67.5	%	0.0	8.7	%
9.01% – 11.00%	1	849		90.5	%	0.0	10.0	%
11.01% – 13.00%	2	495		69.7	%	0.0	11.4	%
Total	5	$	3,166	74.0	%	0.0	9.5	%

(1) Non-performing loans that are past their maturity date are excluded from the calculation of the weighted average contractual maturity. The weighted average contractual maturity for these loans is zero.

The following table presents geographic concentrations by U.S. state in which the collateral securing the Company’s Residential Bridge Loans are located as of September 30, 2023 and December 31, 2022 (dollars in thousands):

  

September 30, 2023					December 31, 2022
State	Concentration		Principal Balance		State	Concentration		Principal Balance
California	56.7	%	$	1,754	California	55.4	%	$	1,754
New York	43.3	%	1,337		New York	42.2	%	1,337
Total	100.0	%	$	3,091	New Jersey	2.4	%	75
					Total	100.0	%	$	3,166

Loan Aging

The following table presents the aging of the Residential Whole Loans and Residential Bridge Loans as of September 30, 2023 (dollars in thousands):

	Residential Whole Loans (1)					Residential Bridge Loans (1)
	No of Loans	Principal		Fair Value		No of Loans	Principal		Fair Value
Current	2,707	$	1,048,261	$	959,343	—	$	—	$	—
1-30 days	23	10,407		9,617		—	—		—
31-60 days	—	—		—		—	—		—
61-90 days	11	8,155		7,696		—	—		—
90+ days	20	11,182		10,322		4	3,091		2,782
Total	2,761	$	1,078,005	$	986,978	4	$	3,091	$	2,782

(1) As of September 30, 2023, there were no loans in forbearance.

Residential Whole Loans

As of September 30, 2023, there were 20 Residential Whole Loans carried at fair value in non-accrual status with an unpaid principal balance of approximately $11.2 million and a fair value of $10.3 million. These non-performing loans represent approximately 1.0% of the total outstanding principal balance. These loans are collateral dependent with a weighted average original LTV of 61.6%.

As of December 31, 2022, there were 13 Residential Whole Loans carried at fair value in non-accrual status with an unpaid principal balance of approximately $8.7 million and a fair value of approximately $8.0 million. These non-performing loans represent approximately 0.8% of the total outstanding principal balance. These loans are collateral dependent with a weighted average original LTV of 60.0%.

These loans are carried at fair value, and accordingly no allowance for credit losses or credit loss expense was recorded, since the adjustment for credit losses, if any, would be reflected in the fair value of these loans as a component of "Unrealized gain (loss), net" in the Consolidated Statements of Operations contained in this Quarterly Report on Form 10-Q. The Company stopped accruing interest income for these loans when they became contractually 90 days delinquent.

Residential Bridge Loans

    As of September 30, 2023, the Company had four remaining Residential Bridge Loans in the portfolio. Of these, four were in non-accrual status with an unpaid principal balance of approximately $3.1 million and a fair value of $2.8 million.

As of December 31, 2022, the Company had five remaining Residential Bridge Loans in the portfolio. Of these, five were in non-accrual status with an unpaid principal balance of approximately $3.2 million and a fair value of $2.8 million. These loans are collateral dependent.

The Residential Bridge Loans were carried at fair value. No allowance for credit losses was recorded because the valuation adjustments as of September 30, 2023 and December 31, 2022, if any, would be reflected in the fair value of these loans. The Company stopped accruing interest income for these loans when they became contractually 90 days delinquent.

Residential Real Estate Owned

As of September 30, 2023 and December 31, 2022, the Company had one residential REO property with a carrying value of $2.3 million, respectively, related to a foreclosed Residential Whole Loan. The REO property held by the Company as of September 30, 2023 and December 31, 2022 was transferred to REO in December 2022. The residential REO properties are held for sale and accordingly carried at the lower of cost or fair value less cost to sell. The residential REO properties are classified in "Other assets" in the Consolidated Balance Sheets contained in this Quarterly Report on Form 10-Q.

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Commercial Loans

9 Months Ended

Sep. 30, 2023

Noncontrolling Interest [Abstract]

Commercial Loans

Commercial LoansCommercial Loans

    In January 2019, WMC CRE LLC ("CRE LLC"), a wholly-owned subsidiary of the Company was formed for the purpose of acquiring Commercial Loans. The Commercial Loans owned by CRE LLC are financed under the Commercial Whole Loan Facility. See Note 7, "Financing" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

The following table presents information about the Commercial Loans owned by CRE LLC as of September 30, 2023 (dollars in thousands):

Loan	Acquisition Date	Loan Type	Principal Balance		Fair Value		Original LTV	Interest Rate	Maturity Date	Extension Option	Collateral
CRE 4	September 2019	Interest-Only First Mortgage	$	22,204	$	22,071	63%	1-Month SOFR plus 3.38%	8/6/2025(1)	None	Retail
CRE 5	December 2019	Interest-Only First Mortgage	24,535		24,061		62%	1-Month SOFR plus 4.20%	5/6/2025(2)	None	Hotel
CRE 6	December 2019	Interest-Only First Mortgage	13,207		12,952		62%	1-Month SOFR plus 4.20%	5/6/2025(2)	None	Hotel
CRE 7	December 2019	Interest-Only First Mortgage	7,259		7,118		62%	1-Month SOFR plus 4.20%	5/6/2025(2)	None	Hotel
			$	67,205	$	66,202

(1) In August 2022, CRE 4 was extended three-years through August 6, 2025, with a principal paydown of $16.2 million.

(2) In November 2023, CRE 5, 6, and 7 were each extended through May 6, 2025.

Commercial Loan Sale

On February 3, 2023, the CRE 3 loan was sold to an unaffiliated third party for its recorded fair value as of December 31, 2022 of $8.8 million. At the time of sale, the Company recognized a realized loss of $81.2 million and a related reversal of unrealized loss of the same amount.

Commercial Loan Trust

In March 2018, the Company formed the Revolving Small Balance Commercial Trust 2018-1 ("RSBC Trust") to acquire commercial real estate mortgage loans. The Company consolidates the trust because it determined that the wholly-owned RSBC Trust was a VIE and that the Company was the primary beneficiary. As of September 30, 2023, there was one loan remaining in the trust.

The following table presents information on the commercial real estate mortgage loan held by RSBC Trust as of September 30, 2023 (dollars in thousands):

Loan	Acquisition Date	Loan Type	Principal Balance		Fair Value		LTV	Interest Rate(1)	Maturity Date(1)	Extension Option	Collateral
SBC 3	January 2019	Interest-Only First Mortgage	$	12,500	$	12,499	49%	1-Month SOFR plus 5.50%	10/4/2023	None	Nursing Facilities
			$	12,500	$	12,499

(1) In January 2023, the SBC 3 loan was partially paid down by $862 thousand to bring the unpaid principal balance to $13.5 million, the maturity date was extended through May 5, 2023 for a 50 bps extension fee and the margin was increased from 4.47% to 5.00%. In May 2023, the SBC 3 loan was partially paid down by $750 thousand to bring the unpaid principal to $12.8 million, the maturity date was extended through August 4, 2023, and the margin was increased from 5.00% to 5.50%. In July 2023, the SBC 3 loan was partially paid down by $250 thousand to bring the unpaid principal balance to $12.5 million, and the maturity date was extended to October 4, 2023 for a 25 bps extension fee. In October 2023, the SBC 3 loan was partially paid down by $250 thousand to bring the unpaid principal to $12.3 million and the maturity date was extended to December 31, 2023 for a 25 bps extension fee.

Securitized Commercial Loans

    Securitized Commercial Loans are comprised of Commercial Loans from consolidated third party sponsored CMBS VIE's. At September 30, 2023, the Company had a variable interest in one third party sponsored CMBS VIE, CSMC Trust 2014-USA, that it determined it was the primary beneficiary and was required to consolidate. The Commercial Loan that serves as collateral for the securitized debt issued by this VIE can only be used to settle the securitized debt. See Note 7, "Financings"

to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for details on the associated securitized debt. The Company assesses modifications to VIEs on an ongoing basis to determine if a significant reconsideration event has occurred that would change the Company’s initial consolidation assessment.

CSMC Trust 2014-USA

The Company together with other related party entities own more than 50% of the controlling class of CSMC Trust 2014-USA ("CSMC USA"). As of September 30, 2023, the Company held an 8.8% interest in the trust certificates issued by CSMC USA (F Class) with an outstanding principal balance of $14.9 million. The Company performs ongoing reassessment of its CMBS VIE holdings for potential consolidation of the securitized trust in which it owns a portion of the controlling class. Since the ownership of the controlling financial interest is held within a related party group, the Company must determine whether it is the primary beneficiary under the related party tie-breaker rule. As a result of the Company's evaluation, it was determined that the Company is the primary beneficiary of CSMC USA, and effective on August 1, 2020, consolidated CSMC USA. The Company’s investment in the trust certificate of CSMC USA (F Class) was eliminated in the consolidation. The CSMC USA holds a commercial loan secured by a first mortgage lien on the borrowers’ fee and leasehold interests in a portion of a super-regional mall. The outstanding principal balance on this commercial loan is $1.4 billion as of September 30, 2023. The loan has a stated maturity date of September 11, 2025 and bears a fixed interest rate of 4.38%. The Company elected the fair value option for the commercial loan as well as the associated securitized debt.

In December 2020, the commercial loan held by CSMC USA was amended to an interest only payment through maturity. As part of the modification, a Cash Management Forbearance Agreement was entered into by the special servicer and the borrower, which required both increased reporting requirements and monthly net cash remittance.

Consolidated Securitized Commercial Loan Trust and Commercial Loan Trust

The two commercial consolidated trusts, CSMC USA and RSBC Trust, collectively held two Commercial Loans as of September 30, 2023. The following table presents a summary of the assets and liabilities of the two consolidated trusts included in the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (dollars in thousands):

 

	September 30, 2023		December 31, 2022
Restricted cash	$	—	$	248
Securitized Commercial Loan, at fair value	1,012,650		1,085,103
Commercial Loans, at fair value	12,499		14,362
Interest receivable	5,151		5,311
Total assets	$	1,030,300	$	1,105,024
Securitized debt, at fair value	$	1,006,630	$	1,077,611
Interest payable	4,995		5,164
Accounts payable and accrued expenses	9		9
Other liabilities	—		248
Total liabilities	$	1,011,634	$	1,083,032

The Company’s risk with respect to its investment in the securitized commercial loan trust is limited to its direct ownership in the trust. The Commercial Loan held by the consolidated securitized commercial loan trust is held solely to satisfy the liabilities of the trust, and creditors of the trust have no recourse to the general credit of the Company. The Securitized Commercial Loan of the trust can only be used to satisfy the obligations of the trust. The Company is not contractually required to provide, and has not provided any additional financial support to the securitized commercial loan trust for the three and nine months ended September 30, 2023 and September 30, 2022. 

The following table presents the components of the fair value of the Securitized Commercial Loan and Commercial Loans as of September 30, 2023 and December 31, 2022 (dollars in thousands):

	CSMC USA Trust Securitized Commercial Loan, at Fair Value				RSBC Trust Commercial Loans, at Fair Value				Commercial Loans, at Fair Value
	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Principal balance	$	1,385,591	$	1,385,591	$	12,500	$	14,362	$	67,205	$	157,205
Unamortized discount	(62,799)		(84,132)		—		—		—		—
Amortized cost	1,322,792		1,301,459		12,500		14,362		67,205		157,205
Gross unrealized gains	—		—		—		—		—		—
Gross unrealized losses	(310,142)		(216,356)		(1)		—		(1,003)		(81,565)
Fair value	$	1,012,650	$	1,085,103	$	12,499	$	14,362	$	66,202	$	75,640

Non-Performing Commercial Loans

As of September 30, 2023, there are no Commercial Loans that are non-performing.

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Financings

9 Months Ended

Sep. 30, 2023

Debt Disclosure [Abstract]

Financings

Financings

Repurchase Agreements

The Company has primarily financed its investment acquisitions with repurchase agreements. The repurchase agreements bear interest at a contractually agreed-upon rate and historically had terms ranging from one month to 12 months.  The Company’s repurchase agreement borrowings are accounted for as secured borrowings when the Company maintains effective control of the financed assets. Under these repurchase agreements, the respective counterparties retain the right to determine the fair value of the underlying collateral. A reduction in the value of pledged assets normally requires the Company to post additional securities as collateral, pay down borrowings, or establish cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements, which is referred to as a margin call. The inability of the Company to post adequate collateral for a margin call by a counterparty, in a time frame as short as the close of the same business day, could result in a condition of default under the Company’s repurchase agreements, thereby enabling the counterparty to liquidate the collateral pledged by the Company, which may have a material adverse effect on the Company’s financial position, results of operations, and cash flows. 

Residential Whole Loan Facility

The facility was extended on October 12, 2023 and matures on March 29, 2024. It bears interest at a rate of 1-Month Term SOFR plus 2.25%, with a floor of 0.25%.

The Company finances its non-securitized Non-QM residential whole loans under this facility. As of September 30, 2023, the Company had outstanding borrowings of $4.2 million under the facility. The borrowing is secured by Non-QM residential whole loans with a fair value of $4.3 million, Residential Bridge Loans with a fair value of $2.8 million and one REO property with a carrying value of $2.3 million as of September 30, 2023.

Non-Agency CMBS and Non-Agency RMBS facility

The facility was paid off in full in May 2023 and replaced with a facility from a different counterparty which matures in May 2024. It bears a current weighted average interest rate of 1-Month Term SOFR plus 2.50%. As of September 30, 2023, the outstanding balance under this facility was $54.9 million. The borrowing is secured by investments with a fair market value of $90.8 million as of September 30, 2023.

Commercial Whole Loan Facility

The facility was extended on October 12, 2023 and matures on March 29, 2024. It bears interest at a rate of 1-Month Term SOFR plus 2.25%. As of September 30, 2023, the outstanding balance under this facility was $48.0 million. The borrowing is secured by the performing commercial loans with an estimated fair market value of $66.2 million as of September 30, 2023.

Fixed Rate Term Financing Facility

On July 25th, the Company replaced an existing short-term repurchase financing facility with Credit Suisse AG (UBS) with a new two-year term, $65 million fixed rate, non-mark-to-market, syndicated repurchase agreement, in a securitized form. As a result, the Company no longer has any financing arrangements with Credit Suisse AG (UBS) as a counterparty. As of September 30, 2023, the outstanding balance under this facility was $62.4 million, net of deferred financing costs, and is collateralized by our retained Arroyo bonds with an estimated fair market value of $134.7 million which are eliminated in consolidation as of September 30, 2023.

Financial Metrics

Certain of the Company’s financing arrangements provide the counterparty with the right to terminate the agreement and accelerate amounts due under the associated agreement if the Company does not maintain financial metrics. Although specific to each financing arrangement, typical financial metrics include minimum equity, liquidity requirements, leverage ratios, and performance triggers. In addition, some of the financing arrangements contain cross-default features, whereby default under an agreement with one lender simultaneously causes default under agreements with other lenders. The Company was in compliance with the terms of such financial tests as of September 30, 2023.

As of September 30, 2023, the Company had borrowings under four of its master repurchase agreements. The following table summarizes certain characteristics of the Company’s repurchase agreements at September 30, 2023 and December 31, 2022 (dollars in thousands):

 

	September 30, 2023					December 31, 2022
Securities Pledged	Repurchase Agreement Borrowings		Weighted Average Interest Rate on Borrowings Outstanding at end of period		Weighted Average Remaining Maturity (days)	Repurchase Agreement Borrowings		Weighted Average Interest Rate on Borrowings Outstanding at end of period		Weighted Average Remaining Maturity (days)
Short-term borrowings:
Agency RMBS	$	351	5.98	%	2	$	293	4.78	%	32
Non-Agency RMBS(1)	—		—	%	0	48,237		7.50	%	26
Other securities	—		—	%	0	1,776		7.09	%	17
Total short-term borrowings	351		5.98	%	2	50,306		7.47	%	26
Long-term borrowings:
Non-Agency CMBS and Non-Agency RMBS Facility
Non-Agency CMBS(1)	31,621		7.79	%	215	55,154		6.30	%	122
Non-Agency RMBS	77,751		10.80	%	585	19,129		6.30	%	122
Other securities	8,860		8.09	%	215	16,863		6.30	%	122
Subtotal	118,232		9.79	%	458	91,146		6.30	%	122
Residential Whole Loan Facility
Residential Whole Loans(2)	2,562		7.56	%	25	3,633		6.66	%	298
Residential Bridge Loans(2)	1,641		7.56	%	25	—		—	%	0
Commercial Whole Loan Facility
Commercial Loans	48,032		7.56	%	34	48,032		6.13	%	307
Total long-term borrowings	170,467		9.11	%	328	142,811		6.25	%	189
Repurchase agreements borrowings	$	170,818	9.10	%	327	$	193,117	6.57	%	146
Less unamortized debt issuance costs	908		N/A		N/A	—		N/A		N/A
Repurchase agreements borrowings, net	$	169,910	9.10	%	327	$	193,117	6.57	%	146

(1)Includes repurchase agreement borrowings on securities eliminated upon VIE consolidation.

(2)Repurchase agreement borrowings on loans owned are through trust certificates. The trust certificates are eliminated in consolidation.

At September 30, 2023 and December 31, 2022, repurchase agreements collateralized by investments had the following remaining maturities:

 

(dollars in thousands)	September 30, 2023		December 31, 2022
1 to 29 days	$	4,554	$	50,013
30 to 59 days	48,032		293
60 to 89 days	—		—
Greater than or equal to 90 days	118,232		142,811
Total	$	170,818	$	193,117

At September 30, 2023, the following table reflects amounts of collateral at risk under its repurchase agreements greater than 10% of the Company's equity with any counterparty (dollars in thousands):

	September 30, 2023
Counterparty	Amount of  Collateral at Risk, at fair value		Weighted Average Remaining Maturity (days)	Percentage of  Stockholders’  Equity
Goldman Sachs Bank USA	$	36,387	214	46.7	%
Atlas Securitized Products Investments 2, L.P.	18,461		34	23.7	%

Collateral For Borrowings Under Repurchase Agreements

The following table summarizes the Company’s collateral positions, with respect to its borrowings under repurchase agreements at September 30, 2023 and December 31, 2022 (dollars in thousands):

 

	September 30, 2023						December 31, 2022
	Assets Pledged		Accrued Interest		Assets Pledged and Accrued Interest		Assets Pledged		Accrued Interest		Assets Pledged and Accrued Interest
Assets pledged for borrowings under repurchase agreements:
Agency RMBS, at fair value	$	297	$	3	$	300	$	249	$	—	$	249
Non-Agency CMBS, at fair value(1)	53,038		386		53,424		83,925		483		84,408
Non-Agency RMBS, at fair value	83,029		456		83,485		104,487		533		105,020
Residential Whole Loans, at fair value(2)	4,343		11		4,354		3,229		3		3,232
Residential Bridge Loans(2)	2,782		32		2,814		—		—		—
Commercial Loans, at fair value(2)	66,202		424		66,626		66,864		362		67,226
REO, at carrying value	2,255		—		2,255		2,255		—		2,255
Other securities, at fair value	15,645		67		15,712		27,262		78		27,340
Cash(3)	241		—		241		3,410		—		3,410
Total	$	227,832	$	1,379	$	229,211	$	291,681	$	1,459	$	293,140

(1)Includes securities eliminated upon VIE consolidation.

(2)Loans owned through trust certificates are pledged as collateral. The trust certificates are eliminated upon consolidation.

(3)Cash posted as collateral is included in "Due from counterparties" in the Company’s Consolidated Balance Sheets.

A reduction in the value of pledged assets typically results in the repurchase agreement counterparties initiating a margin call. At September 30, 2023 and December 31, 2022, investments held by counterparties as security for repurchase agreements totaled approximately $227.6 million and $288.3 million, respectively. Cash collateral held by counterparties at September 30, 2023 and December 31, 2022 was approximately $241 thousand and $3.4 million, respectively. Cash posted by repurchase agreement counterparties at both September 30, 2023 and December 31, 2022 was $103 thousand and $300 thousand, respectively.

Convertible Senior Unsecured Notes

6.75% Convertible Senior Unsecured Notes due 2024 (the "2024 Notes")

In September 2021, the Company issued $86.3 million aggregate principal amount of the 2024 Notes for net proceeds of $83.3 million. Interest on the 2024 Notes is paid semiannually. The 2024 Notes are convertible into, at the Company's election, cash, shares of the Company's common stock, or a combination of both, subject to the satisfaction of certain conditions and during specified periods. The conversion rate is subject to adjustment upon the occurrence of certain specified events and the holders may require the Company to repurchase all or any portion of their notes for cash equal to 100% of the principal amount of the 2024 Notes, plus accrued and unpaid interest, if the Company undergoes a fundamental change as specified in the supplemental indenture for the 2024 Notes. The post reverse stock split conversion rate is 33.7952 shares of common stock per

$1,000 principal amount of notes and represented a conversion price of $29.59 per share of common stock. The 2024 Notes mature on September 15, 2024, unless earlier converted, redeemed, or repurchased by the holders pursuant to their terms, and are not redeemable by the Company except during the final three months prior to maturity.

Securitized Debt

Arroyo Trust 2019-2

In May 2019, the Company completed a residential mortgage-backed securitization comprised of $945.5 million of Non-QM Residential Whole Loans, issuing $919.0 million of mortgage-backed notes. The Company did not elect the fair value option for these notes, so they are recorded at their principal balance less unamortized deferred financing cost and classified in "Securitized debt, net" in the Consolidated Balance Sheets. The following table summarizes the issued Arroyo Trust 2019-2's residential mortgage pass-through certificates at September 30, 2023 (dollars in thousands):

 

Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity
Offered Notes:
Class A-1	$	142,973	3.3%	$	142,973	4/25/2049
Class A-2	7,668		3.5%	7,668		4/25/2049
Class A-3	12,148		3.8%	12,148		4/25/2049
Class M-1	25,055		4.8%	25,055		4/25/2049
Subtotal	$	187,844		$	187,844
Less: Unamortized Deferred Financing Costs	N/A			1,932
Total	$	187,844		$	185,912

The Company retained the non-offered securities in the securitization, which include the class B, Class A-IO-S and Class XS certificates. These non-offered securities were eliminated in consolidation. The securitized debt of the Arroyo Trust 2019-2 can only be settled with the residential loans that serve as collateral for the securitized debt and is non-recourse to the Company. At September 30, 2023, Residential Whole Loans, with an outstanding principal balance of approximately $212.3 million, serve as collateral for the Arroyo Trust 2019-2's securitized debt. The Company may redeem the offered notes on or after the earlier of (i) the three-year anniversary of the closing date or (ii) the date on which the aggregate collateral balance is 20% of the original principal balance. The notes are redeemable at their face value plus accrued interest.

Arroyo Trust 2020-1

In June 2020, the Company completed a residential mortgage-backed securitization comprised of $355.8 million of Non-QM Residential Whole Loans, issuing $341.7 million of mortgage-backed notes. The Company did not elect the fair value option for these notes, so they are recorded at their principal balance less unamortized deferred financing cost and classified in "Securitized debt, net" in the Consolidated Balance Sheets. The following table summarizes the issued Arroyo Trust 2020-1's residential mortgage pass-through certificates at September 30, 2023 (dollars in thousands):

 

Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity
Offered Notes:
Class A-1A	$	66,276	1.7%	$	66,276	3/25/2055
Class A-1B	7,865		2.1%	7,865		3/25/2055
Class A-2	13,518		2.9%	13,518		3/25/2055
Class A-3	17,963		3.3%	17,963		3/25/2055
Class M-1	11,739		4.3%	11,739		3/25/2055
Subtotal	$	117,361		$	117,361
Less: Unamortized Deferred Financing Costs	N/A			1,176
Total	$	117,361		$	116,185

The Company retained the non-offered securities in the securitization, which include the Class B, Class A-IO-S, and Class XS certificates. These non-offered securities were eliminated in consolidation. The securitized debt of the Arroyo Trust 2020-1 can only be settled with the residential loans that serve as collateral for the securitized debt and is non-recourse to the Company. At September 30, 2023, Residential Whole Loans with an outstanding principal balance of approximately $130.4 million serve as collateral for the Arroyo Trust 2020-1's securitized debt. The Company may redeem the offered notes on or after the earlier of (i) the three-year anniversary of the closing date or (ii) the date on which the aggregate collateral balance is equal to or less than 30% of the original principal balance. The notes are redeemable at their face value plus accrued interest.

Arroyo Trust 2022-1

In February 2022, the Company completed a residential-mortgage backed securitization comprised of $432.0 million of Non-QM Residential Whole Loans, issuing $398.9 million of mortgage-backed notes. The Company has chosen to make the fair value election pursuant to ASC 825 for the debt and accordingly the bonds are recorded at fair value in the Consolidated Balance Sheets with the periodic changes in fair value are recorded in current period earnings in the Consolidated Statements of Operations as a component of "Unrealized gain (loss), net."

The following table summarizes the issued Arroyo Trust 2022-1's residential mortgage pass-through certificates at September 30, 2023 (dollars in thousands):

Classes	Principal Balance		Coupon	Fair Value		Contractual Maturity
Offered Notes:
Class A-1A	$	196,149	2.5%	$	174,066	12/25/2056
Class A-1B	82,942		3.3%	68,578		12/25/2056
Class A-2	21,168		3.6%	15,527		12/25/2056
Class A-3	28,079		3.7%	19,864		12/25/2056
Class M-1	17,928		3.7%	11,374		12/25/2056
Total	$	346,266		$	289,409

The Company retained the non-offered securities in the securitization, which include the Class B, Class A-IO-S, and Class XS certificates. These non-offered securities were eliminated in consolidation. The securitized debt of the Arroyo Trust 2022-1 can only be settled with the residential loans that serve as collateral for the securitized debt and is non-recourse to the Company. At September 30, 2023, Residential Whole Loans with an outstanding principal balance of approximately $378.0 million serve as collateral for the Arroyo Trust 2022-1's securitized debt. The Company may redeem the offered notes on or after the earlier of (i) the three-year anniversary of the closing date or (ii) the date on which the aggregate collateral balance is equal to or less than 30% of the original principal balance. The notes are redeemable at their fair value plus accrued interest.

Arroyo Trust 2022-2

In July 2022, the Company completed a residential-mortgage backed securitization comprised of $402.2 million of Non-QM Residential Whole Loans, issuing $351.9 million of mortgage-backed notes. The Company has chosen to make the fair value election pursuant to ASC 825 for the debt and accordingly the bonds are recorded at fair value in the Consolidated Balance Sheets with the periodic changes in fair value are recorded in current period earnings in the Consolidated Statements of Operations as a component of "Unrealized gain (loss), net."

The following table summarizes the issued Arroyo Trust 2022-2's residential mortgage pass-through certificates at September 30, 2023 (dollars in thousands):

Classes	Principal Balance		Coupon	Fair Value		Contractual Maturity
Offered Notes:
Class A-1	$	243,033	5.0%	$	230,646	7/25/2057
Class A-2	20,687		5.0%	19,097		7/25/2057
Class A-3	25,208		5.0%	23,219		7/25/2057
Class M-1	17,694		5.0%	13,277		7/25/2057
Total	$	306,622		$	286,239

The Company retained the non-offered securities in the securitization, which include the Class B-1, Class B-2, Class B-3, Class A-IO-S, and Class XS certificates. These non-offered securities were eliminated in consolidation. The securitized debt of the Arroyo Trust 2022-2 can only be settled with the residential loans that serve as collateral for the securitized debt and is non-recourse to the Company. At September 30, 2023, Residential Whole Loans with an outstanding principal balance of approximately $353.1 million serve as collateral for the Arroyo Trust 2022-2's securitized debt. The Company may redeem the offered notes on or after the earlier of (i) the three-year anniversary of the closing date or (ii) the date on which the aggregate collateral balance is equal to or less than 30% of the original principal balance. The notes are redeemable at their fair value plus accrued interest.

Commercial Mortgage-Backed Notes

CSMC 2014 USA

The following table summarizes CSMC 2014 USA's commercial mortgage pass-through certificates at September 30, 2023 (dollars in thousands):

 

Classes	Principal Balance		Coupon		Fair Value		Contractual Maturity
Class A-1	$	120,391	3.3	%	$	100,388	9/11/2025
Class A-2	531,700		4.0	%	453,714		9/11/2025
Class B	136,400		4.2	%	107,723		9/11/2025
Class C	94,500		4.3	%	71,132		9/11/2025
Class D	153,950		4.4	%	109,772		9/11/2025
Class E	180,150		4.4	%	96,059		9/11/2025
Class F	153,600		4.4	%	62,063		9/11/2025
Class X-1(1)	n/a		0.5	%	4,785		9/11/2025
Class X-2(1)	n/a		—	%	994		9/11/2025
	$	1,370,691			$	1,006,630

(1) Class X-1 and X-2 are interest-only classes with notional balances of $652.1 million and $733.5 million as of September 30, 2023, respectively.

At September 30, 2023, the Company owned a portion of the class F certificates with an outstanding principal balance of $14.9 million, which is eliminated in consolidation. The remaining CSMC USA debt that we elected the fair value option had a fair value of $1.0 billion at September 30, 2023, and is recorded in "Securitized debt, net" in the Consolidated Balance Sheets. Of the remaining outstanding principal balance of $1.4 billion, $174.7 million is owned by related parties and $1.2 billion is owned by third parties. The securitized debt of the CSMC USA can only be settled with the Commercial Loan with an outstanding principal balance of approximately $1.4 billion at September 30, 2023, that serves as collateral for the securitized debt and is non-recourse to the Company. The Company has chosen to make the fair value election pursuant to ASC 825 for the debt and accordingly the periodic changes in fair value are recorded in current period earnings in the Consolidated Statements of Operations as a component of "Unrealized gain (loss), net."

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Derivative Instruments

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative InstrumentsThe Company’s derivatives may include interest rate swaps, swaptions, options, futures contracts, TBAs, Agency, Non-Agency Interest-Only Strips that are classified as derivatives, credit default swaps, and total return swaps.

The following table summarizes the Company’s derivative instruments at September 30, 2023 and December 31, 2022 (dollars in thousands):

			September 30, 2023				December 31, 2022
Derivative Instrument	Accounting Designation	Consolidated Balance Sheets Location	Notional Amount		Fair Value		Notional Amount		Fair Value
Interest rate swaps, asset	Non-Hedge	Derivative assets, at fair value	$	—	$	—	$	60,000	$	1
Total derivative instruments, assets					—				1
Interest rate swaps, liability	Non-Hedge	Derivative liability, at fair value	82,000		(845)		98,000		(61)
Total derivative instruments, liabilities					(845)				(61)
Total derivative instruments, net					$	(845)			$	(60)

The following tables summarize the effects of the Company’s derivative positions, including Interest-Only Strips characterized as derivatives and TBAs, which are reported in "Gain on derivative instruments, net" in the Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and September 30, 2022 (dollars in thousands):

 

	Realized Gain (Loss), net
Description	Other Settlements/ Expirations		Variation Margin Settlement		Return (Recovery) of Basis		Mark-to-Market		Contractual interest income (expense), net(1)		Total
Three months ended September 30, 2023
Interest rate swaps	$	—	$	1,008	$	—	$	(777)	$	846	$	1,077
Interest-Only Strips— accounted for as derivatives	—		—		(14)		70		24		80
Total	$	—	$	1,008	$	(14)	$	(707)	$	870	$	1,157
Three months ended September 30, 2022
Interest rate swaps	$	(3,371)	$	3,423	$	—	$	4,790	$	298	$	5,140
Interest rate swaptions	$	(161)	$	—	$	—	$	—	$	—	$	(161)
Interest-Only Strips— accounted for as derivatives	—		—		(5)		(54)		16		(43)
Credit default swaps	(273)		—		—		283		—		10
TBAs	1,319		—		—		(1,383)		—		(64)
Total	$	(2,486)	$	3,423	$	(5)	$	3,636	$	314	$	4,882

	Realized Gain (Loss), net
Description	Other Settlements/ Expirations		Variation Margin Settlement		Return (Recovery) of Basis		Mark-to-Market		Contractual interest income (expense), net(1)		Total
Nine months ended September 30, 2023
Interest rate swaps	$	—	$	(992)	$	—	$	(785)	$	2,832	$	1,055
Interest-Only Strips— accounted for as derivatives	—		—		(16)		135		47		166
Total	$	—	$	(992)	$	(16)	$	(650)	$	2,879	$	1,221
Nine months ended September 30, 2022
Interest rate swaps	$	(3,371)	$	14,744	$	—	$	3,670	$	(255)	$	14,788
Interest rate swaptions	(161)		—		—		—		—		(161)
Interest-Only Strips— accounted for as derivatives	—		—		(120)		(270)		160		(230)
Credit default swaps	(242)		—		—		393		—		151
TBAs	2,051		—		—		—		—		2,051
Total	$	(1,723)	$	14,744	$	(120)	$	3,793	$	(95)	$	16,599

At September 30, 2023 and December 31, 2022, the Company had cash pledged as collateral for derivatives of approximately $1.0 million and $3.2 million, respectively, which is reported in "Due from counterparties" in the Consolidated Balance Sheets.

Interest Rate Swaps

The Company uses interest rate swaps to mitigate its exposure to higher short-term interest rates in connection with its repurchase agreements. Interest rate swaps generally involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the interest rate swap without exchange of the underlying notional amount.  Notwithstanding the foregoing, in order to manage its hedge position with regard to its liabilities, the Company on occasion will enter into interest rate swaps which involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the interest rate swap without exchange of the underlying notional amount. The Company also enters into forward starting swaps to help mitigate the effects of changes in interest rates on a portion of its borrowings under repurchase agreements. The Company generally enters into MAC (Market Agreed Coupon) interest rate swaps in which it may receive or make a payment at the time of entering such interest rate swap to compensate for the out of the market nature of such interest rate swap. Similar to all other interest rate swaps, these interest rate swaps are also subject to margin requirements.

The Company has not elected to account for its interest rate swaps as “hedges” under GAAP, accordingly the change in fair value of the interest rate swaps not designated in hedging relationships are recorded together with periodic net interest settlement amounts in "Gain on derivatives instruments, net" in the Consolidated Statements of Operations.

The following tables provide additional information on the Company's fixed-pay interest rate swaps as of September 30, 2023 and December 31, 2022 (dollars in thousands):

	September 30, 2023
Fixed Pay Interest Rate Swap Remaining Term	Notional Amount		Average  Fixed Pay Rate		Average Variable Receive Rate		Average Maturity (Years)
1 year or less	$	60,000	1.4	%	5.1	%	0.5
Greater than 5 years	22,000		1.2	%	5.3	%	8.0
Total	$	82,000	1.3	%	5.2	%	2.5

	December 31, 2022
Fixed Pay Interest Rate Swap Remaining Term	Notional Amount		Average  Fixed Pay Rate		Average Variable Receive Rate		Average Maturity (Years)
Greater than 1 year and less than 3 years	$	60,000	1.4	%	2.0	%	1.3
Greater than 3 years and less than 5 years	70,000		1.4	%	1.8	%	4.1
Greater than 5 years	$	28,000	1.7	%	3.6	%	9.0
Total	$	158,000	1.4	%	2.2	%	3.9

Interest-Only Strips

The Company also invests in Interest-Only strips. In determining the classification of its holdings of Interest-Only strips, the Company evaluates the securities to determine if the nature of the cash flows has been altered from that of the underlying mortgage collateral. Generally, Interest-Only strips for which the security represents a strip off of a mortgage pass through security will be considered a hybrid instrument classified as an MBS investment in the Consolidated Balance Sheets utilizing the fair value option. Alternatively, those Interest-Only strips, for which the underlying mortgage collateral has been included into a structured security that alters the cash flows from the underlying mortgage collateral, are accounted for as derivatives at fair value with changes recognized in "Gain on derivative instruments, net" in the Consolidated Statements of Operations, along with any interest received. The carrying value of these Interest-Only Strips is included in "Agency mortgage-backed securities, at fair value" in the Consolidated Balance Sheets.

Credit Default Swaps

    The Company currently has no outstanding credit default swaps. Under these instruments, the buyer makes a monthly premium payment over the term of the contract in exchange for the seller making a payment for losses of the reference securities, upon the occurrence of a specified credit event.

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Offsetting Assets and Liabilities

9 Months Ended

Sep. 30, 2023

Offsetting [Abstract]

Offsetting Assets and Liabilities

Offsetting Assets and Liabilities

The following tables present information about certain assets and liabilities that are subject to master netting agreements (or similar agreements) and can potentially be offset in the Company’s Consolidated Balance Sheets at September 30, 2023 and December 31, 2022 (dollars in thousands):

  

	September 30, 2023
	Gross  Amounts		Gross  Amounts  Offset in the Consolidated Balance  Sheets		Net Amounts of Assets  presented in  the Consolidated Balance  Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets				Net Amount
Description							Financial  Instruments(1)		Cash  Collateral (1)
Derivative Assets
Agency and Non-Agency Interest-Only Strips, accounted for as derivatives included in MBS	$	834	$	—	$	834	$	(236)	$	—	$	598
Total assets	$	834	$	—	$	834	$	(236)	$	—	$	598
Derivative Liabilities and Repurchase Agreements
Derivative liability, at fair value(2)(3)	$	845	$	—	$	845	$	—	$	(845)	$	—
Repurchase Agreements(4)	169,910		—		169,910		(167,509)		—		2,401
Total liability	$	170,755	$	—	$	170,755	$	(167,509)	$	(845)	$	2,401

(1)Amounts disclosed in the financial instruments column of the tables above represent securities, whole loans, securitized commercial loan collateral pledged, and derivative assets that are available to be offset against liability balances associated with repurchase agreement and derivative liabilities. Amounts disclosed in the cash collateral column of the tables above represents amounts pledged or received as collateral against derivative transactions.

(2)Derivative asset, at fair value, includes interest rate swaps.

(3)Cash collateral pledged against the Company’s derivative counterparties was approximately $1.0 million as of September 30, 2023.

(4)The carrying value of investments pledged against the Company’s repurchase agreements was approximately $227.6 million as of September 30, 2023.

 

	December 31, 2022
	Gross  Amounts		Gross  Amounts  Offset in the Consolidated Balance  Sheets		Net Amounts of Assets  presented in  the Consolidated Balance  Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets				Net Amount
Description							Financial  Instruments(1)		Cash  Collateral (1)
Derivative Assets
Agency and Non-Agency Interest-Only Strips, accounted for as derivatives included in MBS	$	714	$	—	$	714	$	(196)	$	—	$	518
Derivative asset, at fair value(2)	1		—		1		(1)		—		—
Total assets	$	715	$	—	$	715	$	(197)	$	—	$	518
Derivative Liabilities and Repurchase Agreements
Derivative liability, at fair value(2)(3)	$	61	$	—	$	61	$	(1)	$	(60)	$	—
Repurchase Agreements(4)	193,117		—		193,117		(193,073)		(44)		—
Total liability	$	193,178	$	—	$	193,178	$	(193,074)	$	(104)	$	—

(1)Amounts disclosed in the financial instruments column of the tables above represent securities, whole loans, securitized commercial loan collateral pledged, and derivative assets that are available to be offset against liability balances associated with repurchase agreement and derivative liabilities. Amounts disclosed in the cash collateral column of the tables above represents amounts pledged or received as collateral against derivative transactions.

(2)Derivative asset, at fair value and Derivative liability, at fair value includes interest rate swaps and credit default swaps.

(3)Cash collateral pledged against the Company’s derivative counterparties was approximately $3.2 million as of December 31, 2022.

(4)The carrying value of investments pledged against the Company’s repurchase agreements was approximately $288.3 million as of December 31, 2022.

Certain of the Company’s repurchase agreement and derivative transactions are governed by underlying agreements that generally provide for a right of set-off in the event of default or in the event of a bankruptcy of either party to the transaction.

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Related Party Transactions

9 Months Ended

Sep. 30, 2023

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

Management Agreement

In connection with the Company’s initial public offering ("IPO") in May 2012, the Company entered into a management agreement (the “Management Agreement”) with the Manager, which describes the services to be provided by the Manager and compensation for such services. The Manager is responsible for managing the Company’s operations, including;(i) performing all of its day-to-day functions, (ii) determining investment criteria in conjunction with the Board of Directors, (iii) sourcing, analyzing and executing investments, asset sales and financings, (iv) performing asset management duties, and (v) performing financial and accounting management, subject to the direction and oversight of the Company’s Board of Directors. Pursuant to the terms of the Management Agreement, the Manager is paid a management fee equal to 1.50% per annum of the Company’s stockholders’ equity (as defined in the Management Agreement), calculated and payable (in cash) quarterly in arrears. For purposes of calculating the management fee, “stockholders’ equity” means the sum of the net proceeds from any issuances of the Company’s equity securities since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus retained earnings, calculated in accordance with GAAP, at the end of the most recently completed fiscal quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less any amount paid for repurchases of the Company’s shares of common stock, excluding any unrealized gains or losses on our investments and derivatives and other non-cash items (excluding other than temporary impairment) that have impacted stockholders' equity as reported in the Company’s consolidated financial statements prepared in accordance with GAAP, regardless of whether such items are included in other comprehensive income or loss, or in net income, and excluding one-time events pursuant to changes in GAAP and certain other non-cash charges after discussions between the Manager and the Company’s independent directors and after approval by a majority of the Company’s independent directors. However, if the Company’s stockholders’ equity for any given quarter is negative based on the calculation described above, the Manager will not be entitled to receive any management fee for that quarter.

In addition, the Company may be required to reimburse the Manager for certain expenses as described below, and shall reimburse the Manager for the compensation paid to the Company’s controller. Expense reimbursements to the Manager are made in cash on a regular basis. The Company’s reimbursement obligation is not subject to any dollar limitation. Because the Manager’s personnel perform certain legal, accounting, due diligence tasks and other services that outside professionals or outside consultants otherwise would perform, the Manager may be paid or reimbursed for the documented cost of performing such tasks, provided that such costs and reimbursements are in amounts which are no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s-length basis.

The Management Agreement may be amended, supplemented or modified by agreement between the Company and the Manager. The Management Agreement expires on May 15, 2024. It is automatically renewed for one-year terms on each May 15th unless previously terminated as described below. The Company’s independent directors review the Manager’s performance and any fees payable to the Manager annually and, the Management Agreement may be terminated annually upon the affirmative vote of at least two-thirds (2/3) of the Company’s independent directors, based upon: (i) the Manager’s unsatisfactory performance that is materially detrimental to the Company; or (ii) the Company’s determination that any fees payable to the Manager are not fair, subject to the Manager’s right to prevent such termination due to unfair fees by accepting a reduction of management fees agreed to by at least two-thirds (2/3) of the Company’s independent directors. The Company will provide the Manager 180 days prior notice of any such termination. Unless terminated for cause, the Company will pay the Manager a termination fee equal to three times the average annual management fee earned by the Manager during the prior 24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination.

The Company may also terminate the Management Agreement at any time, without the payment of any termination fee, with 30 days prior written notice from the Company’s Board of Directors for cause, which will be determined by at least two-thirds (2/3) of the Company’s independent directors, which is defined as: (i) the Manager’s continued material breach of any provision of the Management Agreement (including the Manager’s failure to comply with the Company’s investment guidelines); (ii) the Manager’s fraud, misappropriation of funds, or embezzlement against the Company; (iii) the Manager’s gross negligence in the performance of its duties under the Management Agreement; (iv) the occurrence of certain events with respect to the bankruptcy or insolvency of the Manager, including an order for relief in an involuntary bankruptcy case or the

Manager authorizing or filing a voluntary bankruptcy petition; (v) the Manager is convicted (including a plea of nolo contendere) of a felony; or (vi) the dissolution of the Manager.

In December 2021, the Manager agreed to voluntarily waive 25% of its management fee solely for the duration of calendar year 2022 in order to support the earnings potential of the Company and its transition to a residential focused investment portfolio. Future waivers, if any, will be at the Manager's discretion.

     For the three months ended September 30, 2023 and September 30, 2022, the Company incurred approximately $974 thousand and approximately $850 thousand in management fees, respectively. For the nine months ended September 30, 2023 and September 30, 2022, the Company incurred approximately $2.9 million and approximately $3.0 million in management fees, respectively.

In addition to the management fee, the Company is also responsible for reimbursing the Manager for certain expenses paid by the Manager on behalf of the Company as defined in the Management Agreement. For the three months ended September 30, 2023 and September 30, 2022, the Company recorded expenses included in general and administrative expenses totaling approximately $67 thousand and approximately $64 thousand, respectively, related to reimbursable employee costs. For the nine months ended September 30, 2023 and September 30, 2022, the Company recorded expenses included in general and administrative expenses totaling approximately $217 thousand and approximately $511 thousand, respectively, related to reimbursable employee costs. Any such expenses incurred by the Manager and reimbursed by the Company, including the employee compensation expense, are typically included in the Company’s general and administrative expense in the Consolidated Statements of Operations. At September 30, 2023 and December 31, 2022, approximately $1.0 million and approximately $3.9 million, respectively, for management fees incurred but not yet paid was included in "Payable to affiliate" in the Consolidated Balance Sheets. In addition, at September 30, 2023 and December 31, 2022, approximately $49 thousand and approximately $86 thousand, respectively, of reimbursable costs incurred but not yet paid was included in "Payable to affiliate" in the Consolidated Balance Sheets.

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Share-Based Payments

9 Months Ended

Sep. 30, 2023

Share-Based Payment Arrangement, Noncash Expense [Abstract]

Share-Based Payments

Share-Based Payments

The Company's ability to grant equity-based awards under the Company's previous equity incentive plans expired on May 9, 2022. At the Annual Meeting of Stockholders held on June 24, 2022, the Company's stockholders approved the Western Asset Mortgage Capital Corporation 2022 Omnibus Incentive Plan and the Western Asset Mortgage Capital Corporation 2022 Manager Omnibus Incentive Plan (collectively, the “2022 Plans”). The 2022 Plans provide for the issuance of options (including non-statutory stock options and incentive stock options), stock appreciation rights (referred to as SARs), restricted stock, restricted stock units (referred to as RSUs), stock bonuses, other stock based awards and cash awards.

The aggregate maximum number of shares of our common stock available for future issuances under the 2022 Plans is 1,000,000 shares, which was reduced to 100,000 shares following the completion of the reverse stock split. The Manager and the officers, employees, non-employee directors, independent contractors, and consultants of the Company or any affiliate of the Company, including any individuals who are employees of the Manager or one of the Manager’s affiliates, are eligible to participate in the 2022 Plans, provided that they have been selected by the Plan Administrator.

On June 23, 2023, the Company granted a total of 31,184 restricted stock units (7,796 per each independent director), to each of the Company's four independent directors. These restricted stock units will vest in full on June 23, 2024, the first anniversary of the grant date, and will be settled in shares of the Company’s common stock upon each of the independent director’s separation from service with the Company.

On June 24, 2022, the Company granted 21,704 restricted stock units (5,426 per each independent director) on a post reverse stock split basis, to each of the Company's 4 independent directors. These restricted stock units and associated dividend equivalent units vested in full on June 24, 2023, the one year anniversary of the grant date, and will be settled in shares of the Company's common stock upon each of the independent director's separation from service with the Company.

On June 30, 2022, the Company granted 20,000 restricted stock units on a post reverse-stock-split basis under the Western Asset Mortgage Capital Corporation 2022 Omnibus Incentive Plan to the Company’s Chief Financial Officer. These restricted stock units and associated dividend equivalent units vest in equal installments on the first and second anniversary of the grant date. On June 30, 2023, 10,000 restricted stock units and 1,547 dividend equivalent units vested which were settled by the issuance of 11,547 shares of the Company's common stock during Q3 2023.

During the nine months ended September 30, 2023 and September 30, 2022, 31,704 and 11,716 restricted stock units vested, respectively. The Company recognized stock-based compensation expense of approximately $101 thousand and approximately $100 thousand for the three months ended September 30, 2023 and September 30, 2022, respectively. The Company recognized stock-based compensation expense of approximately $301 thousand and approximately $335 thousand for the nine months ended September 30, 2023 and September 30, 2022, respectively. In addition, the Company had unamortized compensation expense of $277 thousand and $298 thousand for equity awards at September 30, 2023 and December 31, 2022, respectively.

Holders of restricted stock units are entitled to receive dividends (or dividend equivalent units) and distributions that become payable on the restricted stock units during the restricted period. Dividend equivalent units allocable to restricted stock units are deemed to purchase additional phantom shares of the Company's common stock that are credited to each participant's deferral account. The award agreements include restrictions whereby the restricted stock units cannot be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of prior to the lapse of restrictions under the respective award agreement. The restrictions lapse on the unvested restricted stock units awarded when vested, subject to the grantee's continuing to provide services to the Company as of the vesting date. Unvested restricted stock units and rights to dividends thereon are forfeited upon termination of the grantee.    

The following is a summary of restricted equity awards vesting dates as of September 30, 2023 and December 31, 2022: 

	September 30, 2023	December 31, 2022
Vesting Date	Shares Vesting	Shares Vesting
June 2023	—	31,704
June 2024	43,151	10,000
Total	43,151	41,704

The following table presents information with respect to shares issued under the Company’s Equity Incentive Plans for the nine months ended September 30, 2023 and September 30, 2022:

 

	September 30, 2023			September 30, 2022
	Restricted Stock Units	Weighted Average  Grant Date Fair  Value(1)		Restricted Stock Units	Weighted Average  Grant Date Fair  Value(1)
Outstanding at beginning of period	81,914	$	31.21	114,825	$	131.85
Granted(2)	41,559	9.15		45,954	12.75
Issuance of common shares	(11,547)	11.89		—	—
Outstanding at end of period	111,926	25.01		160,779	97.81
Unvested at end of period	43,151	$	9.58	41,704	$	12.52

(1)The grant date fair value of the awards is based on the closing market price of the Company’s common stock at the grant date.

(2)Includes 10,375 and 4,250 shares attributed to dividends on restricted stock under the Director Deferred Fee Plan for the nine months ended September 30, 2023 and September 30, 2022, respectively.

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Stockholders' Equity

9 Months Ended

Sep. 30, 2023

Stockholders' Equity Note [Abstract]

Stockholders' Equity

Stockholders’ Equity

Reverse Stock Split

On June 30, 2022, the Company announced that its Board of Directors approved a one-for-ten reverse stock split of the Company's outstanding shares of common stock. The one-for-ten reverse stock split was effected on July 11, 2022, which reduced the total number of authorized shares of common stock from 500,000,000 to 50,000,000 and also reduced the total number of authorized shares of preferred stock from 100,000,000 to 10,000,000. The number of common shares outstanding reducing from 60,380,105 to 6,038,012. The par value per share of our common stock remained unchanged at $0.01. All per

share amounts and common shares outstanding have been adjusted on a retroactive basis to reflect the Company's one-for-ten reverse stock split.

The Company's stockholders' equity, in the aggregate, remains unchanged. Per share net income or loss increased because there are fewer shares of common stock outstanding. The common stock held in treasury was reduced in proportion to the Reverse Stock Split Ratio. There were no other accounting consequences, including changes to the amount of stock-based compensation expense to be recognized in any period, that arose as a result of the reverse stock split. No fractional shares were issued in connection with the reverse stock split. Instead, each stockholder holding fractional shares was entitled to receive, in lieu of such fractional shares, cash in an amount determined based on the closing price of the Company's common stock the business day prior to the Effective Date. The reverse stock split applied to all of the Company's outstanding shares of common stock and did not affect any stockholder’s ownership percentage of shares of the Company's common stock, except for immaterial changes resulting from the payment of cash for fractional shares.

At-The-Market Program

    In March 2017, the Company entered into an equity distribution agreement with JMP Securities LLC, which was amended on June 5, 2020, under which the Company may offer and sell up to $100 million worth of shares of common stock in an At-The-Market equity offering. During the nine months ended September 30, 2023, the Company did not sell any shares under the amended agreement.

Stock Repurchase Program 

In December 2021, the Company extended its stock repurchase program as authorized by its Board of Directors. Under the extended program, the Company is permitted to repurchase up to 300,000 shares of its common stock, adjusted on a retroactive basis to reflect the Company's one-for-ten reverse stock split, through December 31, 2023. The previous authorization expired December 31, 2021. Any purchases made pursuant to the program will be made in the open market, in privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rules 10b5-1 and 10b-18 of the Securities and Exchange Commission Act of 1934, as amended. The authorization does not obligate the Company to acquire any particular amount of common shares, or any shares at all, and the program may be suspended or discontinued at the Company's discretion without prior notice.

During the nine months ended September 30, 2023, the Company did not repurchase any shares under the stock repurchase program.

Dividends

The following table presents cash dividends declared and paid by the Company on its common stock, not adjusted on a retroactive basis to reflect the Company's one-for-ten reverse stock split to align with 1099-DIV per share amounts as reported.

 

Declaration Date	Record Date	Payment Date	Amount per Share		Tax Characterization
2023
September 21, 2023	October 2, 2023	October 26, 2023	$	0.35	Not yet determined
June 21, 2023	July 3, 2023	July 26, 2023	$	0.35	Not yet determined
March 22, 2023	April 3, 2023	April 26, 2023	$	0.35	Not yet determined
2022
December 21, 2022	January 3, 2023	January 26, 2023	$	0.40	Not yet determined(1)
September 22, 2022	October 3, 2022	October 26, 2022	$	0.40	Ordinary income
June 21, 2022	July 1, 2022	July 25, 2022	$	0.04	Ordinary income
March 23, 2022	April 4, 2022	April 26, 2022	$	0.04	Ordinary income

(1)The cash distributions made on January 26, 2023, with a record date of January 3, 2023, are treated as received by stockholders on January 26, 2023 and taxable in calendar year 2023.

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Net Loss per Common Share

9 Months Ended

Sep. 30, 2023

Earnings Per Share [Abstract]

Net Loss per Common Share

Net Loss per Common Share

The table below presents basic and diluted net loss per share of common stock using the two-class method for the three and nine months ended September 30, 2023 and September 30, 2022 (dollars, other than shares and per share amounts, in thousands), adjusted on a retroactive basis to reflect the Company's one-for-ten reverse stock split.

 

	For the three months ended September 30, 2023		For the three months ended September 30, 2022		For the nine months ended September 30, 2023		For the nine months ended September 30, 2022
Numerator:
Net loss attributable to common stockholders and participating securities for basic and diluted earnings per share	$	(8,705)	$	(40,010)	$	(10,771)	$	(88,250)
Less:
Dividends and undistributed earnings allocated to participating securities	39		32		101		62
Net loss allocable to common stockholders — basic and diluted	$	(8,744)	$	(40,042)	$	(10,872)	$	(88,312)
Denominator:
Weighted average common shares outstanding for basic earnings per share	6,049,559		6,038,012		6,041,946		6,036,876
Weighted average common shares outstanding for diluted earnings per share	6,049,559		6,038,012		6,041,946		6,036,876
Basic loss per common share	$	(1.45)	$	(6.63)	$	(1.80)	$	(14.63)
Diluted loss per common share	$	(1.45)	$	(6.63)	$	(1.80)	$	(14.63)

For the three and nine months ended September 30, 2023 and September 30, 2022, the Company excluded the effects of the convertible senior unsecured notes from the computation of diluted earnings per share since the average market value per share of the Company’s common stock was below the exercise price of the convertible senior unsecured notes.

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Income Taxes

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

As a REIT, the Company is not subject to federal income tax to the extent that it makes qualifying distributions to its stockholders and satisfies on a continuing basis, through actual investment and operating results, the REIT requirements including certain asset, income and stock ownership tests.

Based on the Company’s analysis of any potential uncertain income tax positions, the Company concluded that it does not have any uncertain tax positions that meet the recognition or measurement criteria as of September 30, 2023. The Company files U.S. federal and state income tax returns.  As of September 30, 2023, U.S. federal tax returns filed by the Company for 2021, 2020, and 2019 and state tax returns filed for 2021, 2020, 2019, 2018 and 2017 are open for examination pursuant to relevant statutes of limitation. In the event that the Company incurs income tax related interest and penalties, the Company’s policy is to classify them as a component of its provision for income taxes.

Income Tax Provision

Subject to the limitation under the REIT asset test rules, the Company is permitted to own up to 100% of the stock of one or more taxable REIT subsidiaries ("TRS"). Currently, the Company owns one TRS that is taxable as a corporation and is subject to federal, state and local income tax on its net income at the applicable corporate rates. The TRS, which was formed in Delaware on July 28, 2014, is a limited liability company and a wholly-owned subsidiary of the Company. During the three months ended September 30, 2023 and September 30, 2022, the Company recorded a federal and state tax benefit of zero and a tax provision of $266 thousand, respectively, which is recorded in "Income tax provision" in the Consolidated Statements of Operations. During the nine months ended September 30, 2023 and September 30, 2022, the Company recorded a federal and state tax provision of zero and a tax provision of $276 thousand respectively.

Deferred Tax Asset

As of September 30, 2023 and December 31, 2022, the Company recorded a deferred tax asset of approximately $13.8 million and $13.5 million, respectively, relating to capital loss carryforward and temporary differences as a result of the timing of income recognition of certain investments held in the TRS. The capital loss carryforwards may only be recognized to the extent of capital gains. There is uncertainty as to the TRS ability to recognize capital gains in the future. As a result, the Company has concluded it is more likely than not the deferred tax asset will not be realized and has recorded a full valuation allowance.

In addition, the REIT generated net operating losses ("NOLs") during the year ended December 31, 2021 related to ordinary losses on its MBS portfolio and it generated NOLs for the years ended December 31, 2020 and December 31, 2017, related to its interest rate swap terminations, and for its California return a portion of the NOLs is apportioned to the TRS. The Company recorded a deferred tax asset relating to the NOLs of $14.6 million and $14.5 million in the REIT and $1.7 million and $1.6 million in the TRS as of September 30, 2023 and December 31, 2022, respectively. The TRS can carryback the NOLs generated during the years ended December 31, 2020 and December 31, 2017 to each of the two preceding years to request a refund for taxes paid. As of September 30, 2023 and December 31, 2022, the Company has concluded it is more likely than not the deferred tax asset relating to the NOLs will not be realized and it has recorded a combined valuation allowance of $16.3 million and $16.1 million, respectively.

Effective Tax Rate

The Company's effective tax rate differs from its combined federal and state income tax rate primarily due to its valuation allowance and the deduction of dividends distributions to be paid under Code Section 857(a).

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2023

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

From time to time, the Company may become involved in various claims and legal actions arising in the ordinary course of business. Management is not aware of any material commitments nor contingencies at September 30, 2023.

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Subsequent Events	9 Months Ended
	Sep. 30, 2023
Subsequent Events [Abstract]
Subsequent Events	Subsequent Events On October 26, 2023, the Company announced that its Board of Directors declared an interim fourth quarter dividend of $0.14 per share of the Company’s common stock. The dividend is payable on November 8, 2023 to stockholders of record as of November 3, 2023. The interim fourth quarter dividend was made pursuant to the terms of the MITT Merger Agreement.

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Basis of Presentation and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2023

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation and Consolidation

The accompanying unaudited consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. For all periods presented, all per share amounts and common shares outstanding have been adjusted on a retroactive basis to reflect the Company's one-for-ten reverse stock split, which was effected on July 11, 2022. The results of operations for the period ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year or any future period. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 13, 2023.

Consolidation

The consolidated financial statements include the accounts of the Company, its wholly-owned and majority-owned subsidiaries, and variable interest entities (“VIEs”) in which it is considered the primary beneficiary. All intercompany amounts between the Company and its subsidiaries and consolidated VIEs have been eliminated in consolidation.

Variable Interest Entities

Variable Interest Entities

VIEs are defined as entities, that by design, either lack sufficient equity for the entity to finance its activities without additional subordinated financial support, or are unable to direct the entity’s activities, or are not exposed to the entity’s losses or entitled to its residual returns. The Company evaluates all of its interests in VIEs for consolidation. When the interests are determined to be variable interests, the Company assesses whether it is deemed the primary beneficiary. The primary beneficiary of a VIE is determined to be the party that has both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.

To assess whether the Company has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, it considers all facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes: first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE or have the right to unilaterally remove those decision makers are deemed to have the power to direct the activities of a VIE.

To assess whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, it considers all of its economic interests. This assessment requires the Company to apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing significance include; the design of the VIE, including its capitalization structure, subordination of interests, payment priority, relative share of interests held across various classes within the VIE’s capital structure, and the reasons why the interests are held by the Company.

In instances where the Company and its related parties have variable interests in a VIE, the Company considers whether there is a single party in the related party group that meets both the power and losses or benefits criteria on its own as though no related party relationship existed. If one party within the related party group meets both these criteria, such reporting entity is the primary beneficiary of the VIE and no further analysis is needed. If no party within the related party group on its own meets both the power and losses or benefits criteria, but the related party group as a whole meets these two criteria, the determination of primary beneficiary within the related party group requires significant judgment. The analysis is based upon qualitative as well as quantitative factors, such as the relationship of the VIE to each of the members of the related-party group, as well as the significance of the VIE's activities to those members, with the objective of determining which party is most closely associated with the VIE.

Ongoing assessments of whether an enterprise is the primary beneficiary of a VIE are required.

Use of Estimates

Use of Estimates

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Recently Issued Accounting Pronouncements

Significant Accounting Policies

    There have been no significant changes to our accounting policies included in Note 2 to the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2022.

Recently Issued Accounting Pronouncements

Description	Effective Date	Effect on Financial Statements
In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40).” The amendments in this Update affect entities that issue convertible instruments and/or contracts in an entity’s own equity. For convertible instruments, the instruments primarily affected are those issued with beneficial conversion features or cash conversion features because the accounting models for those specific features are removed.	January 1, 2024	The Company evaluated the impact this standard may have on its consolidated financial statements and does not believe it will have a material impact on its financial statements and disclosures due to the limited nature of such transactions.
In March 2021, the FCA announced that the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of USD LIBOR would be June 30, 2023, which is beyond the current sunset date of Topic 848. Accordingly, during December 2022, the FASB issued ASU 2022-06 to defer the sunset date of ASC Topic 848, Reference Rate Reform, which provides temporary optional relief in accounting for the impact of reference rate reform from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of rate reform.	December 31, 2024	With additional time granted to apply the relief in Topic 848 extended through December 31, 2024, Management monitored if any legacy LIBOR reference rate contracts remained outstanding as of September 30, 2023 in the investment portfolio, as either they they terminated prior to the June 30, 2023 LIBOR cessation date, or the Company elected to use the practical expedients per Topic 848 to account for modifications to contracts prospectively within the scope of Topics 310, Receivables, and 470, Debt, as a continuation of the existing contracts. The Company adjusted the effective interest rate of all contracts, hedging relationships, and other transactions that reference LIBOR to revised reference rates and spreads as they occured. The variable-rate and floating-rate note sectors have primarily transitioned away from LIBOR as the market has already adapted to the secured overnight financing rate (SOFR), as the primary index used by issuers. As of September 30, 2023, the Company has fully transitioned away from any contracts, hedging relationships, or other transactions that reference LIBOR, which did not have a material impact on its financial statements and disclosures.

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Basis of Presentation and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2023

Accounting Policies [Abstract]

Schedule of New Accounting Pronouncements and Changes in Accounting Principles

Recently Issued Accounting Pronouncements

Description	Effective Date	Effect on Financial Statements
In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40).” The amendments in this Update affect entities that issue convertible instruments and/or contracts in an entity’s own equity. For convertible instruments, the instruments primarily affected are those issued with beneficial conversion features or cash conversion features because the accounting models for those specific features are removed.	January 1, 2024	The Company evaluated the impact this standard may have on its consolidated financial statements and does not believe it will have a material impact on its financial statements and disclosures due to the limited nature of such transactions.
In March 2021, the FCA announced that the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of USD LIBOR would be June 30, 2023, which is beyond the current sunset date of Topic 848. Accordingly, during December 2022, the FASB issued ASU 2022-06 to defer the sunset date of ASC Topic 848, Reference Rate Reform, which provides temporary optional relief in accounting for the impact of reference rate reform from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of rate reform.	December 31, 2024	With additional time granted to apply the relief in Topic 848 extended through December 31, 2024, Management monitored if any legacy LIBOR reference rate contracts remained outstanding as of September 30, 2023 in the investment portfolio, as either they they terminated prior to the June 30, 2023 LIBOR cessation date, or the Company elected to use the practical expedients per Topic 848 to account for modifications to contracts prospectively within the scope of Topics 310, Receivables, and 470, Debt, as a continuation of the existing contracts. The Company adjusted the effective interest rate of all contracts, hedging relationships, and other transactions that reference LIBOR to revised reference rates and spreads as they occured. The variable-rate and floating-rate note sectors have primarily transitioned away from LIBOR as the market has already adapted to the secured overnight financing rate (SOFR), as the primary index used by issuers. As of September 30, 2023, the Company has fully transitioned away from any contracts, hedging relationships, or other transactions that reference LIBOR, which did not have a material impact on its financial statements and disclosures.

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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2023

Fair Value Disclosures [Abstract]

Schedule of the Entity's Financial Instruments Carried at Fair Value Based Upon the Valuation Hierarchy

The following tables present the Company’s financial instruments carried at fair value as of September 30, 2023 and December 31, 2022, based upon the valuation hierarchy (dollars in thousands):

 

	September 30, 2023
	Fair Value
	Level I		Level II		Level III		Total
Assets
Agency RMBS Interest-only strips	$	—	$	—	$	61	$	61
Agency RMBS Interest-only strips accounted for as derivatives, included in MBS	—		—		834		834
Subtotal Agency MBS	—		—		895		895
Non-Agency CMBS	—		54,206		—		54,206
Non-Agency RMBS	—		31,872		—		31,872
Non-Agency RMBS Interest-only strips	—		—		1,249		1,249
Subtotal Non-Agency MBS	—		86,078		1,249		87,327
Other securities	—		16,867		—		16,867
Total mortgage-backed securities and other securities	—		102,945		2,144		105,089
Residential Whole Loans	—		—		986,978		986,978
Residential Bridge Loans	—		—		2,782		2,782
Securitized Commercial Loans	—		—		1,012,650		1,012,650
Commercial Loans	—		—		78,701		78,701
Total Assets	$	—	$	102,945	$	2,083,255	$	2,186,200
Liabilities
Derivative liabilities	$	—	$	845	$	—	$	845
Securitized debt	—		1,576,499		5,779		1,582,278
Total Liabilities	$	—	$	1,577,344	$	5,779	$	1,583,123

	December 31, 2022
	Fair Value
	Level I		Level II		Level III		Total
Assets
Agency RMBS Interest-only strips	$	—	$	—	$	53	$	53
Agency RMBS Interest-only strips accounted for as derivatives, included in MBS	—		—		714		714
Subtotal Agency MBS	—		—		767		767
Non-Agency CMBS	—		85,435		—		85,435
Non-Agency RMBS	—		22,483		—		22,483
Non-Agency RMBS Interest-only strips	—		—		1,204		1,204
Subtotal Non-Agency MBS	—		107,918		1,204		109,122
Other securities	—		27,262		—		27,262
Total mortgage-backed securities and other securities	—		135,180		1,971		137,151
Residential Whole Loans	—		—		1,091,145		1,091,145
Residential Bridge Loans	—		—		2,849		2,849
Securitized Commercial Loan	—		—		1,085,103		1,085,103
Commercial Loans	—		—		90,002		90,002
Derivative assets	—		1		—		1
Total Assets	$	—	$	135,181	$	2,271,070	$	2,406,251
Liabilities
Derivative liabilities	$	—	$	61	$	—	$	61
Securitized debt	—		1,710,938		8,927		1,719,865
Total Liabilities	$	—	$	1,710,999	$	8,927	$	1,719,926

Summary of Quantitative Information

The following tables present a summary of the available quantitative information about the significant unobservable inputs used in the fair value measurement of financial instruments for which the Company has utilized Level III inputs to determine fair value as of September 30, 2023 and December 31, 2022 (dollars in thousands):

	Fair Value at				Range
	September 30, 2023		Valuation Technique	Unobservable Input	Minimum		Maximum		Weighted Average
Residential Whole Loans	$	986,978	Discounted Cash Flow	Market Discount Rate	6.4	%	8.4	%	6.8	%
				Weighted Average Life	1.4		10.5		6.4
Residential Bridge Loans	$	2,782	Discounted Cash Flow	Market Discount Rate	12.2	%	20.0	%	15.1	%
				Weighted Average Life	1.3		5.2		3.4
Securitized Commercial Loan	$	1,012,650	Market Comparables, Vendor Pricing	Weighted Average Life	2		2		2
Commercial Loans	$	78,701	Discounted Cash Flow	Market Discount Rate	9.2	%	11.5	%	10.5	%
				Weighted Average Life	0		1.6		1.37

	Fair Value at				Range
	December 31, 2022		Valuation Technique	Unobservable Input	Minimum		Maximum			Weighted Average
Residential Whole Loans	$	1,091,145	Discounted Cash Flow	Market Discount Rate	6.0	%	8.4	%		6.8	%
				Weighted Average Life	1.4		10.4			5.4
Residential Bridge Loans	$	2,849	Discounted Cash Flow	Market Discount Rate	12.9	%	35.7	%	(1)	22.4	%
				Weighted Average Life	0.4		4.1			2.0
Securitized Commercial Loan	$	1,085,103	Market Comparables, Vendor Pricing	Weighted Average Life	2.7		2.7			2.7
Commercial Loans	$	90,002	Discounted Cash Flow	Market Discount Rate	8.4	%	9.6	%		9.2	%
				Weighted Average Life	0.3		2.4			1.2

Schedule of Financial Instruments Measured at Level III

The following tables present additional information about the Company’s financial instruments which are measured at fair value on a recurring basis for which the Company has utilized Level III inputs to determine fair value:

	Three months ended September 30, 2023
$ in thousands	Agency MBS		Non-Agency MBS		Residential  Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized  Commercial  Loan		Securitized debt
Beginning balance	$	838	$	1,608	$	1,037,381	$	2,782	$	78,806	$	1,025,321	$	6,932
Transfers into Level III from Level II	—		—		—		—		—		—		—
Transfers from Level III into Level II	—		—		—		—		—		—		—
Loan modifications / capitalized interest	—		—		87		—		—		—		—
Principal repayments	—		—		(28,604)		—		(281)		—		—
Total net gains / losses included in net income
Realized gains/(losses), net on assets	—		—		(29)		—		—		—		—
Unrealized gains/(losses), net on assets(1)	67		(251)		(21,131)		—		143		(19,735)		—
Unrealized (gains)/losses, net on liabilities(2)	—		—		—		—		—		—		66
Premium and discount amortization, net	(10)		(108)		(726)		—		33		7,064		(1,219)
Ending balance	$	895	$	1,249	$	986,978	$	2,782	$	78,701	$	1,012,650	$	5,779
Unrealized gains/(losses), net on assets held at the end of the period(1)	$	67	$	(251)	$	(22,085)	$	—	$	143	$	(19,735)	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	(66)

	Three months ended September 30, 2022
$ in thousands	Agency MBS		Non-Agency MBS		Residential  Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized  Commercial  Loan		Securitized debt
Beginning balance	$	785	$	1,181	$	1,195,853	$	5,095	$	128,421	$	1,243,371	$	14,919
Transfers into Level III from Level II	—		—		—		—		—		—		—
Transfers from Level III into Level II	—		—		—		—		—		—		—
Sales and settlements	—		—		(11,735)		—		—		—		—
Loan modifications / capitalized interest	—		—		4		—		—		—		—
Principal repayments	—		—		(37,036)		—		(20,588)		—		—
Total net gains / losses included in net income
Realized gains/(losses), net on assets	—		—		(33)		—		—		—		—
Unrealized gains/(losses), net on assets(1)	(63)		88		(46,545)		25		(17,730)		(78,046)		—
Unrealized (gains)/losses, net on liabilities(2)	—		—		—		—		—		—		(3,863)
Premium and discount amortization, net	(2)		(96)		(883)		—		—		6,589		(1,170)
Ending balance	$	720	$	1,173	$	1,099,625	$	5,120	$	90,103	$	1,171,914	$	9,886
Unrealized gains/(losses), net on assets held at the end of the period(1)	$	(63)	$	88	$	(35,855)	$	25	$	(17,730)	$	(78,046)	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	3,863

	Nine months ended September 30, 2023
$ in thousands	Agency MBS		Non-Agency MBS		Residential  Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized  commercial  loan		Securitized debt
Beginning balance	$	767	$	1,204	$	1,091,145	$	2,849	$	90,002	$	1,085,103	$	8,927
Transfers into Level III from Level II	—		—		—		—		—		—		—
Transfers from Level III into Level II	—		—		—		—		—		—		—
Sales and settlements	—		—		—		—		(8,776)		—		—
Loan modifications / capitalized interest	—		—		129		—		—		—		—
Principal repayments	—		—		(87,397)		(74)		(1,961)		—		—
Total net gains / losses included in net income
Realized gains/(losses), net on assets	—		—		(29)		—		(81,223)		—		—
Unrealized gains/(losses), net on assets(1)	134		361		(14,593)		7		80,560		(93,785)		—
Unrealized (gains)/losses, net on liabilities(2)	—		—		—		—		—		—		(35)
Premium and discount amortization, net	(6)		(316)		(2,277)		—		99		21,332		(3,113)
Ending balance	$	895	$	1,249	$	986,978	$	2,782	$	78,701	$	1,012,650	$	5,779
Unrealized gains/(losses), net on assets held at the end of the period(1)	$	134	$	361	$	(18,171)	$	—	$	(662)	$	(93,785)	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	35

	Nine months ended September 30, 2022
$ in thousands	Agency MBS		Non-Agency MBS		Residential  Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized  commercial  loan		Securitized debt
Beginning balance	$	1,172	$	7,845	$	1,023,502	$	5,428	$	130,572	$	1,355,808	$	14,919
Transfers into Level III from Level II	—		—		—		—		—		—		—
Transfers from Level III into Level II	—		(5,437)		—		—		—		—		—
Purchases	—		—		402,650		—		—		—		—
Sales and settlements	—		—		(11,362)		—		—		—		—
Loan modifications / capitalized interest	—		—		79		—		—		—		—
Principal repayments	—		—		(184,683)		(250)		(20,593)		—		—
Total net gains / losses included in net income
Realized gains/(losses), net on assets	—		—		(32)		—		—		—		—
Unrealized gains/(losses), net on assets(1)	(329)		(998)		(125,943)		(58)		(19,876)		(203,828)		—
Unrealized (gains)/losses, net on liabilities(2)	—		—		—		—		—		—		(2,064)
Premium and discount amortization, net	(123)		(237)		(4,586)		—		—		19,934		(2,969)
Ending balance	$	720	$	1,173	$	1,099,625	$	5,120	$	90,103	$	1,171,914	$	9,886
Unrealized gains/(losses), net on assets held at the end of the period(1)	$	(329)	$	(644)	$	(107,944)	$	17	$	(19,884)	$	(203,828)	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	2,064

(1)Gains and losses are included in "Unrealized gain (loss), net" in the Consolidated Statements of Operations.

(2)Gains and losses on securitized debt are included in "Unrealized gain (loss), net" in the Consolidated Statements of Operations.

Schedule of Carrying Value and Estimated Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value of the Company’s convertible senior unsecured notes and securitized debt that are not carried at fair value as of September 30, 2023 and December 31, 2022 in the consolidated financial statements (dollars in thousands):

	September 30, 2023				December 31, 2022
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Convertible senior unsecured notes	$	84,750	$	83,367	$	83,522	$	74,712
Securitized debt(1)	305,205		273,799		342,965		309,474
Total	$	389,955	$	357,166	$	426,487	$	384,186

(1) Carrying value excludes $3.1 million and $4.1 million of deferred financing costs as of September 30, 2023 and December 31, 2022, respectively.

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Mortgage-Backed Securities and Other Securities (Tables)

9 Months Ended

Sep. 30, 2023

Investments, Debt and Equity Securities [Abstract]

Summary of Certain Information about the Company's Investment Portfolio

The following tables present certain information about the Company’s investment portfolio at September 30, 2023 and December 31, 2022 (dollars in thousands):

	September 30, 2023
	Principal Balance		Unamortized Premium (Discount), net		Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value		Net Weighted Average Coupon
Agency RMBS Interest-Only Strips(1)(2)	N/A		N/A		$	68	$	—	$	(7)	$	61	—	%
Agency RMBS Interest-Only Strips, accounted for as derivatives(1)(2)	N/A		N/A		N/A		N/A		N/A		834		1.3	%
Total Agency MBS	—		—		68		—		(7)		895		1.1	%
Non-Agency RMBS	50,507		(14,670)		35,837		572		(4,537)		31,872		4.9	%
Non-Agency RMBS Interest- Only Strips(1)	N/A		N/A		4,888		—		(3,639)		1,249		0.3	%
Subtotal Non-Agency RMBS	50,507		(14,670)		40,725		572		(8,176)		33,121		1.6	%
Non-Agency CMBS	88,559		(1,746)		86,813		65		(32,672)		54,206		8.0	%
Total Non-Agency MBS	139,066		(16,416)		127,538		637		(40,848)		87,327		3.7	%
Other securities(3)	25,613		(7,941)		18,740		813		(2,686)		16,867		7.1	%
Total	$	164,679	$	(24,357)	$	146,346	$	1,450	$	(43,541)	$	105,089	3.8	%

	December 31, 2022
	Principal Balance		Unamortized Premium (Discount), net		Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value		Net Weighted Average Coupon(4)
Agency RMBS Interest-Only Strips(1)	N/A		N/A		$	58	$	—	$	(5)	$	53	—	%
Agency RMBS Interest-Only Strips, accounted for as derivatives(1)(2)	N/A		N/A		N/A		N/A		N/A		714		0.1	%
Total Agency MBS	—		—		58		—		(5)		767		0.1	%
Non-Agency RMBS	39,873		(14,423)		25,450		928		(3,895)		22,483		4.2	%
Non-Agency RMBS Interest-Only Strips(1)	N/A		N/A		5,204		—		(4,000)		1,204		0.3	%
Subtotal Non-Agency RMBS	39,873		(14,423)		30,654		928		(7,895)		23,687		1.1	%
Non-Agency CMBS	109,266		(2,763)		106,503		636		(21,704)		85,435		8.1	%
Total Non-Agency MBS	149,139		(17,186)		137,157		1,564		(29,599)		109,122		3.8	%
Other securities(3)	34,691		(8,581)		31,112		543		(4,393)		27,262		7.2	%
Total	$	183,830	$	(25,767)	$	168,327	$	2,107	$	(33,997)	$	137,151	3.9	%

(1)    IOs and IIOs have no principal balances and bear interest based on a notional balance. The notional balance is used solely to determine interest distributions on interest-only class of securities. At September 30, 2023, the notional balance for Agency RMBS IOs and IIOs, Non-Agency RMBS IOs, and IIO and Agency RMBS IOs and IIOs, accounted for as derivatives was $2.2 million, $132.0 million, and $12.2 million, respectively. At December 31, 2022, the notional balance for Agency RMBS IOs and IIOs, Non-Agency RMBS IOs and IIOs, and Agency RMBS IOs and IIOs, accounted for as derivatives was $2.4 million, $143.2 million, and $13.1 million, respectively.

(2)     Interest on these securities is reported as a component of "Gain on derivative instruments, net" in the Consolidated Statements of Operations.

(3)     Other securities include residual interests in ABS which have no principal balance and an amortized cost of approximately $1.1 million and $5.0 million, as of September 30, 2023 and December 31, 2022, respectively.

(4)     The calculation of the weighted average coupon rate includes the weighted average coupon rates of IOs and IIOs accounted for as derivatives using their notional amounts.

Schedule of the Fair Value and Contractual Maturities of the Company's Investment Securities

The following tables present the fair value and contractual maturities of the Company’s investment securities at September 30, 2023 and December 31, 2022 (dollars in thousands):

 

	September 30, 2023
	< or equal to 10 years		> 10 years and < or equal to 20 years		> 20 years and < or equal to 30 years		> 30 years		Total
Agency RMBS Interest-Only Strips	$	—	$	61	$	—	$	—	$	61
Agency RMBS Interest-Only Strips accounted for as derivatives	—		834		—		—		834
Subtotal Agency	—		895		—		—		895
Non-Agency CMBS	37,134		7,418		9,654		—		54,206
Non-Agency RMBS	—		—		7,912		23,960		31,872
Non-Agency RMBS Interest-Only Strips	—		—		188		1,061		1,249
Subtotal Non-Agency	37,134		7,418		17,754		25,021		87,327
Other securities	3,006		—		7,117		6,744		16,867
Total	$	40,140	$	8,313	$	24,871	$	31,765	$	105,089

	December 31, 2022
	< or equal to 10  years		> 10 years and < or  equal to 20 years		> 20 years and < or  equal to 30 years		> 30 years		Total
Agency RMBS Interest-Only Strips	$	—	$	53	$	—	$	—	$	53
Agency RMBS Interest-Only Strips accounted for as derivatives	—		714		—		—		714
Subtotal Agency	—		767		—		—		767
Non-Agency CMBS	64,484		10,469		10,482		—		85,435
Non-Agency RMBS	—		—		8,667		13,816		22,483
Non-Agency RMBS Interest-Only Strips	—		—		230		974		1,204
Subtotal Non-Agency	64,484		10,469		19,379		14,790		109,122
Other securities	6,735		—		13,020		7,507		27,262
Total	$	71,219	$	11,236	$	32,399	$	22,297	$	137,151

Schedule of Gross Unrealized Losses and Estimated Fair Value of the Company's MBS and Other Securities by Length of Time that Such Securities have been in a Continuous Unrealized Loss Position

The following tables present the gross unrealized losses and estimated fair value of the Company’s MBS and other securities by length of time that such securities have been in a continuous unrealized loss position at September 30, 2023 and December 31, 2022 (dollars in thousands):

	September 30, 2023
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses		Number  of Securities	Fair Value		Unrealized Losses		Number  of Securities	Fair Value		Unrealized Losses		Number  of Securities
Agency RMBS Interest-Only Strips	$	61	$	(7)	1	$	—	$	—	—	$	61	$	(7)	1
Subtotal Agency	61		(7)		1	—		—		—	61		(7)		1
Non-Agency CMBS	7,188		(1,898)		1	46,953		(30,774)		9	54,141		(32,672)		10
Non-Agency RMBS	15,661		(519)		2	9,706		(4,018)		6	25,367		(4,537)		8
Non-Agency RMBS Interest-Only Strips	—		—		—	1,249		(3,639)		4	1,249		(3,639)		4
Subtotal Non-Agency	22,849		(2,417)		3	57,908		(38,431)		19	80,757		(40,848)		22
Other securities	—		—		—	5,521		(2,686)		1	5,521		(2,686)		1
Total	$	22,910	$	(2,424)	4	$	63,429	$	(41,117)	20	$	86,339	$	(43,541)	24

 

	December 31, 2022
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses		Number  of Securities	Fair Value		Unrealized Losses		Number  of Securities	Fair Value		Unrealized Losses		Number  of Securities
Agency RMBS Interest-Only Strips	$	52	$	(5)	1	$	—	$	—	—	$	52	$	(5)	1
Subtotal Agency	52		(5)		1	—		—		—	52		(5)		1
Non-Agency CMBS	—		—		—	76,365		(21,704)		11	76,365		(21,704)		11
Non-Agency RMBS	19,054		(2,794)		5	1,557		(1,101)		2	20,611		(3,895)		7
Non-Agency RMBS Interest-Only Strips	—		—		—	1,203		(4,000)		4	1,203		(4,000)		4
Subtotal Non-Agency	19,054		(2,794)		5	79,125		(26,805)		17	98,179		(29,599)		22
Other securities	12,483		(2,425)		3	9,468		(1,968)		2	21,951		(4,393)		5
Total	$	31,589	$	(5,224)	9	$	88,593	$	(28,773)	19	$	120,182	$	(33,997)	28

Summary of the Components of Interest Income on the Company's MBS and Other Securities

The following tables present components of interest income on the Company’s MBS and other securities for the three and nine months ended September 30, 2023 and September 30, 2022, respectively (dollars in thousands):

	Three months ended September 30, 2023						Three months ended September 30, 2022
	Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Accretion		Interest Income		Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Accretion		Interest Income
Agency RMBS	$	—	$	4	$	4	$	—	$	2	$	2
Non-Agency CMBS	1,657		351		2,008		1,949		387		2,336
Non-Agency RMBS	756		(306)		450		446		26		472
Other securities	583		(144)		439		860		185		1,045
Total	$	2,996	$	(95)	$	2,901	$	3,255	$	600	$	3,855

	Nine months ended September 30, 2023						Nine months ended September 30, 2022
	Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Accretion		Interest Income		Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Accretion		Interest Income
Agency RMBS	$	—	$	10	$	10	$	13	$	(4)	$	9
Non-Agency CMBS	5,234		1,006		6,240		7,050		386		7,436
Non-Agency RMBS	1,960		(651)		1,309		1,804		(141)		1,663
Other securities	2,079		(345)		1,734		2,515		223		2,738
Total	$	9,273	$	20	$	9,293	$	11,382	$	464	$	11,846

Schedule of Sales and Realized Gain (Loss) of the Company's MBS and Other Securities

The following table presents the sales and realized gain (loss) of the Company’s MBS and other securities for the nine months ended September 30, 2023 and September 30, 2022, respectively (dollars in thousands):

	Nine months ended September 30, 2023								Nine months ended September 30, 2022
	Proceeds		Gross Gains		Gross Losses		Net Gain  (Loss)		Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)
Non-Agency CMBS	$	—	$	—	$	(1,239)	$	(1,239)	$	10,152	$	—	$	(43,934)	$	(43,934)
Non-Agency RMBS	—		—		(48)		(48)		27,729		255		(1,425)		(1,170)
Other securities	15,324		649		(2,028)		(1,379)		4,406		—		(478)		(478)
Total	$	15,324	$	649	$	(3,315)	$	(2,666)	$	42,287	$	255	$	(45,837)	$	(45,582)

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Residential Whole Loans and Bridge Loans (Tables)

9 Months Ended

Sep. 30, 2023

Variable Interest Entities

Schedule of the Assets and Liabilities of the VIE Included in the Consolidated Balance Sheets

The following table presents a summary of the assets and liabilities of the consolidated residential whole loan trusts and residential bridge loan trust included in the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (dollars in thousands): 

	September 30, 2023		December 31, 2022
Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively)	$	986,978	$	1,091,145
Residential Bridge Loans, at fair value ($2,782 and none pledged as collateral, at fair value, respectively)	2,782		2,849
Investment related receivable	8,602		5,914
Interest receivable	4,580		4,871
Other assets	—		509
Total assets	$	1,002,942	$	1,105,288
Securitized debt, net	$	877,745	$	981,073
Interest payable	2,892		3,139
Accounts payable and accrued expenses	12		34
Total liabilities	$	880,649	$	984,246

The following table presents a summary of the assets and liabilities of the two consolidated trusts included in the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (dollars in thousands): 

	September 30, 2023		December 31, 2022
Restricted cash	$	—	$	248
Securitized Commercial Loan, at fair value	1,012,650		1,085,103
Commercial Loans, at fair value	12,499		14,362
Interest receivable	5,151		5,311
Total assets	$	1,030,300	$	1,105,024
Securitized debt, at fair value	$	1,006,630	$	1,077,611
Interest payable	4,995		5,164
Accounts payable and accrued expenses	9		9
Other liabilities	—		248
Total liabilities	$	1,011,634	$	1,083,032

Schedule of Components of the Carrying Value of Residential Whole-Loans and Securitized Commercial Loan

The following table presents the components of the fair value of Residential Whole Loans and Residential Bridge Loans as of September 30, 2023 and December 31, 2022 (dollars in thousands):

 

	Residential Whole Loans, at Fair Value				Residential Bridge Loans, at Fair Value
	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Principal balance	$	1,078,005	$	1,165,301	$	3,091	$	3,166
Unamortized premium	28,530		30,961		—		—
Unamortized discount	(1,394)		(1,536)		—		—
Amortized cost	1,105,141		1,194,726		3,091		3,166
Gross unrealized gains	5,371		2,038		—		—
Gross unrealized losses	(123,534)		(105,619)		(309)		(317)
Fair value	$	986,978	$	1,091,145	$	2,782	$	2,849

Schedule of Certain Information about the Residential Whole Loans Investment Portfolio

The Residential Whole Loans have low LTV's and are comprised of 2,761 adjustable and fixed rate Non-QM and investor mortgages. The following tables present certain information about the Company’s residential whole loan investment portfolio at September 30, 2023 and December 31, 2022 (dollars in thousands):

 

September 30, 2023
				Weighted Average
Current Coupon Rate	Number of  Loans	Principal  Balance		Original LTV		Original  FICO Score(1)	Expected  Life (years)	Contractual  Maturity  (years)	Coupon  Rate
2.01% – 3.00%	39	$	21,880	66.3	%	758	9.1	27.6	2.9	%
3.01% – 4.00%	361	196,884		67.0	%	760	8.2	28.0	3.7	%
4.01% – 5.00%	1,134	384,437		64.8	%	750	6.8	25.5	4.5	%
5.01% – 6.00%	813	322,376		66.0	%	743	6.1	26.2	5.5	%
6.01% – 7.00%	321	120,933		67.2	%	743	4.8	26.9	6.5	%
7.01% - 8.00%	69	23,865		60.6	%	734	4.1	23.1	7.4	%
8.01% - 9.00%	24	7,630		55.5	%	744	4.3	24.0	8.6	%
Total	2,761	$	1,078,005	65.7	%	749	6.6	26.3	4.9	%

(1)The original FICO score is not available for 210 loans with a principal balance of approximately $64.6 million at September 30, 2023. The Company has excluded these loans from the weighted average computations.

 

December 31, 2022
				Weighted Average
Current Coupon Rate	Number of  Loans	Principal  Balance		Original LTV		Original  FICO Score(1)	Expected  Life (years)	Contractual  Maturity  (years)	Coupon  Rate
2.01% – 3.00%	39	$	22,277	66.3	%	758	8.9	28.3	2.9	%
3.01% – 4.00%	402	214,402		66.3	%	759	7.3	28.5	3.7	%
4.01% – 5.00%	1,337	453,811		64.1	%	749	5.5	26.0	4.6	%
5.01% – 6.00%	901	363,197		65.6	%	742	4.7	26.7	5.4	%
6.01% – 7.00%	249	105,933		69.9	%	742	3.6	28.4	6.4	%
7.01% - 8.00%	15	5,681		75.2	%	730	3.0	29.2	7.4	%
Total	2,943	$	1,165,301	65.6	%	748	5.5	27.0	4.8	%

(1)The original FICO score is not available for 231 loans with a principal balance of approximately $76.6 million at December 31, 2022. The Company has excluded these loans from the weighted average computations.

Schedule of the U.S. States Concentration and Principal Balance of Collateral Securing Residential Whole Loans

The following table presents geographic concentrations by U.S. state in which the collateral securing the Company’s Residential Whole Loans are located as of September 30, 2023 and December 31, 2022 (dollars in thousands):

September 30, 2023					December 31, 2022
State	State Concentration		Principal Balance		State	State Concentration		Principal Balance
California	67.8	%	$	731,058	California	66.8	%	$	778,732
New York	9.0	%	96,757		New York	9.3	%	108,108
Texas	4.8	%	51,407		Texas	4.8	%	56,126
Florida	3.9	%	42,157		Florida	4.1	%	47,681
Georgia	3.3	%	35,297		Georgia	3.5	%	40,845
Other	11.2	%	121,329		Other	11.5	%	133,809
Total	100.0	%	$	1,078,005	Total	100.0	%	$	1,165,301

Schedule of Residential Bridge Loans

The Company is no longer allocating capital to Residential Bridge Loans. The following tables present certain information about the remaining Residential Bridge Loans which are non-performing in the Company's investment portfolio at September 30, 2023 and December 31, 2022 (dollars in thousands):

 

September 30, 2023
				Weighted Average
Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Contractual Maturity  (months)(1)	Coupon Rate
7.01% – 9.00%	2	$	1,822	67.5	%	0.0	8.7	%
9.01% – 11.00%	1	849		90.5	%	0.0	10.0	%
11.01% – 13.00%	1	420		70.0	%	0.0	11.3	%
Total	4	$	3,091	74.2	%	0.0	9.4	%

December 31, 2022
				Weighted Average
Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Contractual Maturity  (months)(1)	Coupon Rate
7.01% – 9.00%	2	$	1,822	67.5	%	0.0	8.7	%
9.01% – 11.00%	1	849		90.5	%	0.0	10.0	%
11.01% – 13.00%	2	495		69.7	%	0.0	11.4	%
Total	5	$	3,166	74.0	%	0.0	9.5	%

(1) Non-performing loans that are past their maturity date are excluded from the calculation of the weighted average contractual maturity. The weighted average contractual maturity for these loans is zero.

Schedule of the U.S. States Concentration and Principal Balance of Collateral Securing Residential Bridge-Loans

The following table presents geographic concentrations by U.S. state in which the collateral securing the Company’s Residential Bridge Loans are located as of September 30, 2023 and December 31, 2022 (dollars in thousands):

  

September 30, 2023					December 31, 2022
State	Concentration		Principal Balance		State	Concentration		Principal Balance
California	56.7	%	$	1,754	California	55.4	%	$	1,754
New York	43.3	%	1,337		New York	42.2	%	1,337
Total	100.0	%	$	3,091	New Jersey	2.4	%	75
					Total	100.0	%	$	3,166

Schedule of Financing Receivable, Past Due

The following table presents the aging of the Residential Whole Loans and Residential Bridge Loans as of September 30, 2023 (dollars in thousands):

	Residential Whole Loans (1)					Residential Bridge Loans (1)
	No of Loans	Principal		Fair Value		No of Loans	Principal		Fair Value
Current	2,707	$	1,048,261	$	959,343	—	$	—	$	—
1-30 days	23	10,407		9,617		—	—		—
31-60 days	—	—		—		—	—		—
61-90 days	11	8,155		7,696		—	—		—
90+ days	20	11,182		10,322		4	3,091		2,782
Total	2,761	$	1,078,005	$	986,978	4	$	3,091	$	2,782

(1) As of September 30, 2023, there were no loans in forbearance.

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Commercial Loans (Tables)

9 Months Ended

Sep. 30, 2023

Noncontrolling Interest [Abstract]

Schedule of Commercial Real Estate Loans Held

The following table presents information about the Commercial Loans owned by CRE LLC as of September 30, 2023 (dollars in thousands):

Loan	Acquisition Date	Loan Type	Principal Balance		Fair Value		Original LTV	Interest Rate	Maturity Date	Extension Option	Collateral
CRE 4	September 2019	Interest-Only First Mortgage	$	22,204	$	22,071	63%	1-Month SOFR plus 3.38%	8/6/2025(1)	None	Retail
CRE 5	December 2019	Interest-Only First Mortgage	24,535		24,061		62%	1-Month SOFR plus 4.20%	5/6/2025(2)	None	Hotel
CRE 6	December 2019	Interest-Only First Mortgage	13,207		12,952		62%	1-Month SOFR plus 4.20%	5/6/2025(2)	None	Hotel
CRE 7	December 2019	Interest-Only First Mortgage	7,259		7,118		62%	1-Month SOFR plus 4.20%	5/6/2025(2)	None	Hotel
			$	67,205	$	66,202

(1) In August 2022, CRE 4 was extended three-years through August 6, 2025, with a principal paydown of $16.2 million.

(2) In November 2023, CRE 5, 6, and 7 were each extended through May 6, 2025.

The following table presents information on the commercial real estate mortgage loan held by RSBC Trust as of September 30, 2023 (dollars in thousands):

Loan	Acquisition Date	Loan Type	Principal Balance		Fair Value		LTV	Interest Rate(1)	Maturity Date(1)	Extension Option	Collateral
SBC 3	January 2019	Interest-Only First Mortgage	$	12,500	$	12,499	49%	1-Month SOFR plus 5.50%	10/4/2023	None	Nursing Facilities
			$	12,500	$	12,499

(1) In January 2023, the SBC 3 loan was partially paid down by $862 thousand to bring the unpaid principal balance to $13.5 million, the maturity date was extended through May 5, 2023 for a 50 bps extension fee and the margin was increased from 4.47% to 5.00%. In May 2023, the SBC 3 loan was partially paid down by $750 thousand to bring the unpaid principal to $12.8 million, the maturity date was extended through August 4, 2023, and the margin was increased from 5.00% to 5.50%. In July 2023, the SBC 3 loan was partially paid down by $250 thousand to bring the unpaid principal balance to $12.5 million, and the maturity date was extended to October 4, 2023 for a 25 bps extension fee. In October 2023, the SBC 3 loan was partially paid down by $250 thousand to bring the unpaid principal to $12.3 million and the maturity date was extended to December 31, 2023 for a 25 bps extension fee.

Schedule of the Assets and Liabilities of the VIE Included in the Consolidated Balance Sheets

The following table presents a summary of the assets and liabilities of the consolidated residential whole loan trusts and residential bridge loan trust included in the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (dollars in thousands): 

	September 30, 2023		December 31, 2022
Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively)	$	986,978	$	1,091,145
Residential Bridge Loans, at fair value ($2,782 and none pledged as collateral, at fair value, respectively)	2,782		2,849
Investment related receivable	8,602		5,914
Interest receivable	4,580		4,871
Other assets	—		509
Total assets	$	1,002,942	$	1,105,288
Securitized debt, net	$	877,745	$	981,073
Interest payable	2,892		3,139
Accounts payable and accrued expenses	12		34
Total liabilities	$	880,649	$	984,246

The following table presents a summary of the assets and liabilities of the two consolidated trusts included in the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (dollars in thousands): 

	September 30, 2023		December 31, 2022
Restricted cash	$	—	$	248
Securitized Commercial Loan, at fair value	1,012,650		1,085,103
Commercial Loans, at fair value	12,499		14,362
Interest receivable	5,151		5,311
Total assets	$	1,030,300	$	1,105,024
Securitized debt, at fair value	$	1,006,630	$	1,077,611
Interest payable	4,995		5,164
Accounts payable and accrued expenses	9		9
Other liabilities	—		248
Total liabilities	$	1,011,634	$	1,083,032

Schedule of Carrying Value of the Commercial Real Estate Loans

The following table presents the components of the fair value of the Securitized Commercial Loan and Commercial Loans as of September 30, 2023 and December 31, 2022 (dollars in thousands):

	CSMC USA Trust Securitized Commercial Loan, at Fair Value				RSBC Trust Commercial Loans, at Fair Value				Commercial Loans, at Fair Value
	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Principal balance	$	1,385,591	$	1,385,591	$	12,500	$	14,362	$	67,205	$	157,205
Unamortized discount	(62,799)		(84,132)		—		—		—		—
Amortized cost	1,322,792		1,301,459		12,500		14,362		67,205		157,205
Gross unrealized gains	—		—		—		—		—		—
Gross unrealized losses	(310,142)		(216,356)		(1)		—		(1,003)		(81,565)
Fair value	$	1,012,650	$	1,085,103	$	12,499	$	14,362	$	66,202	$	75,640

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Financings (Tables)

9 Months Ended

Sep. 30, 2023

Debt Disclosure [Abstract]

Summary of Certain Characteristics of the Company's Repurchase Agreements

The following table summarizes certain characteristics of the Company’s repurchase agreements at September 30, 2023 and December 31, 2022 (dollars in thousands):

 

	September 30, 2023					December 31, 2022
Securities Pledged	Repurchase Agreement Borrowings		Weighted Average Interest Rate on Borrowings Outstanding at end of period		Weighted Average Remaining Maturity (days)	Repurchase Agreement Borrowings		Weighted Average Interest Rate on Borrowings Outstanding at end of period		Weighted Average Remaining Maturity (days)
Short-term borrowings:
Agency RMBS	$	351	5.98	%	2	$	293	4.78	%	32
Non-Agency RMBS(1)	—		—	%	0	48,237		7.50	%	26
Other securities	—		—	%	0	1,776		7.09	%	17
Total short-term borrowings	351		5.98	%	2	50,306		7.47	%	26
Long-term borrowings:
Non-Agency CMBS and Non-Agency RMBS Facility
Non-Agency CMBS(1)	31,621		7.79	%	215	55,154		6.30	%	122
Non-Agency RMBS	77,751		10.80	%	585	19,129		6.30	%	122
Other securities	8,860		8.09	%	215	16,863		6.30	%	122
Subtotal	118,232		9.79	%	458	91,146		6.30	%	122
Residential Whole Loan Facility
Residential Whole Loans(2)	2,562		7.56	%	25	3,633		6.66	%	298
Residential Bridge Loans(2)	1,641		7.56	%	25	—		—	%	0
Commercial Whole Loan Facility
Commercial Loans	48,032		7.56	%	34	48,032		6.13	%	307
Total long-term borrowings	170,467		9.11	%	328	142,811		6.25	%	189
Repurchase agreements borrowings	$	170,818	9.10	%	327	$	193,117	6.57	%	146
Less unamortized debt issuance costs	908		N/A		N/A	—		N/A		N/A
Repurchase agreements borrowings, net	$	169,910	9.10	%	327	$	193,117	6.57	%	146

(1)Includes repurchase agreement borrowings on securities eliminated upon VIE consolidation.

(2)Repurchase agreement borrowings on loans owned are through trust certificates. The trust certificates are eliminated in consolidation.

Schedule of Repurchase Agreements Collateralized by Investments

At September 30, 2023 and December 31, 2022, repurchase agreements collateralized by investments had the following remaining maturities:

 

(dollars in thousands)	September 30, 2023		December 31, 2022
1 to 29 days	$	4,554	$	50,013
30 to 59 days	48,032		293
60 to 89 days	—		—
Greater than or equal to 90 days	118,232		142,811
Total	$	170,818	$	193,117

Schedule of Amounts of Collateral at Risk Under its Repurchase Agreements Greater than 10% of the Company's Equity with any Counterparty

At September 30, 2023, the following table reflects amounts of collateral at risk under its repurchase agreements greater than 10% of the Company's equity with any counterparty (dollars in thousands):

	September 30, 2023
Counterparty	Amount of  Collateral at Risk, at fair value		Weighted Average Remaining Maturity (days)	Percentage of  Stockholders’  Equity
Goldman Sachs Bank USA	$	36,387	214	46.7	%
Atlas Securitized Products Investments 2, L.P.	18,461		34	23.7	%

Summary of Collateral Positions, with Respect to Borrowings Under Repurchase Agreements, Securitized Debt, Derivatives and Clearing Margin Account

The following table summarizes the Company’s collateral positions, with respect to its borrowings under repurchase agreements at September 30, 2023 and December 31, 2022 (dollars in thousands):

 

	September 30, 2023						December 31, 2022
	Assets Pledged		Accrued Interest		Assets Pledged and Accrued Interest		Assets Pledged		Accrued Interest		Assets Pledged and Accrued Interest
Assets pledged for borrowings under repurchase agreements:
Agency RMBS, at fair value	$	297	$	3	$	300	$	249	$	—	$	249
Non-Agency CMBS, at fair value(1)	53,038		386		53,424		83,925		483		84,408
Non-Agency RMBS, at fair value	83,029		456		83,485		104,487		533		105,020
Residential Whole Loans, at fair value(2)	4,343		11		4,354		3,229		3		3,232
Residential Bridge Loans(2)	2,782		32		2,814		—		—		—
Commercial Loans, at fair value(2)	66,202		424		66,626		66,864		362		67,226
REO, at carrying value	2,255		—		2,255		2,255		—		2,255
Other securities, at fair value	15,645		67		15,712		27,262		78		27,340
Cash(3)	241		—		241		3,410		—		3,410
Total	$	227,832	$	1,379	$	229,211	$	291,681	$	1,459	$	293,140

(1)Includes securities eliminated upon VIE consolidation.

(2)Loans owned through trust certificates are pledged as collateral. The trust certificates are eliminated upon consolidation.

(3)Cash posted as collateral is included in "Due from counterparties" in the Company’s Consolidated Balance Sheets.

Schedule of Commercial Mortgage Pass-through Certificates

The following table summarizes the issued Arroyo Trust 2019-2's residential mortgage pass-through certificates at September 30, 2023 (dollars in thousands): 

Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity
Offered Notes:
Class A-1	$	142,973	3.3%	$	142,973	4/25/2049
Class A-2	7,668		3.5%	7,668		4/25/2049
Class A-3	12,148		3.8%	12,148		4/25/2049
Class M-1	25,055		4.8%	25,055		4/25/2049
Subtotal	$	187,844		$	187,844
Less: Unamortized Deferred Financing Costs	N/A			1,932
Total	$	187,844		$	185,912

The following table summarizes the issued Arroyo Trust 2020-1's residential mortgage pass-through certificates at September 30, 2023 (dollars in thousands): 

Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity
Offered Notes:
Class A-1A	$	66,276	1.7%	$	66,276	3/25/2055
Class A-1B	7,865		2.1%	7,865		3/25/2055
Class A-2	13,518		2.9%	13,518		3/25/2055
Class A-3	17,963		3.3%	17,963		3/25/2055
Class M-1	11,739		4.3%	11,739		3/25/2055
Subtotal	$	117,361		$	117,361
Less: Unamortized Deferred Financing Costs	N/A			1,176
Total	$	117,361		$	116,185

The following table summarizes the issued Arroyo Trust 2022-1's residential mortgage pass-through certificates at September 30, 2023 (dollars in thousands):

Classes	Principal Balance		Coupon	Fair Value		Contractual Maturity
Offered Notes:
Class A-1A	$	196,149	2.5%	$	174,066	12/25/2056
Class A-1B	82,942		3.3%	68,578		12/25/2056
Class A-2	21,168		3.6%	15,527		12/25/2056
Class A-3	28,079		3.7%	19,864		12/25/2056
Class M-1	17,928		3.7%	11,374		12/25/2056
Total	$	346,266		$	289,409

The following table summarizes the issued Arroyo Trust 2022-2's residential mortgage pass-through certificates at September 30, 2023 (dollars in thousands):

Classes	Principal Balance		Coupon	Fair Value		Contractual Maturity
Offered Notes:
Class A-1	$	243,033	5.0%	$	230,646	7/25/2057
Class A-2	20,687		5.0%	19,097		7/25/2057
Class A-3	25,208		5.0%	23,219		7/25/2057
Class M-1	17,694		5.0%	13,277		7/25/2057
Total	$	306,622		$	286,239

The following table summarizes CSMC 2014 USA's commercial mortgage pass-through certificates at September 30, 2023 (dollars in thousands):

 

Classes	Principal Balance		Coupon		Fair Value		Contractual Maturity
Class A-1	$	120,391	3.3	%	$	100,388	9/11/2025
Class A-2	531,700		4.0	%	453,714		9/11/2025
Class B	136,400		4.2	%	107,723		9/11/2025
Class C	94,500		4.3	%	71,132		9/11/2025
Class D	153,950		4.4	%	109,772		9/11/2025
Class E	180,150		4.4	%	96,059		9/11/2025
Class F	153,600		4.4	%	62,063		9/11/2025
Class X-1(1)	n/a		0.5	%	4,785		9/11/2025
Class X-2(1)	n/a		—	%	994		9/11/2025
	$	1,370,691			$	1,006,630

(1) Class X-1 and X-2 are interest-only classes with notional balances of $652.1 million and $733.5 million as of September 30, 2023, respectively.

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Derivative Instruments (Tables)

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Summary of the Entity's Derivative Instruments

The following table summarizes the Company’s derivative instruments at September 30, 2023 and December 31, 2022 (dollars in thousands):

			September 30, 2023				December 31, 2022
Derivative Instrument	Accounting Designation	Consolidated Balance Sheets Location	Notional Amount		Fair Value		Notional Amount		Fair Value
Interest rate swaps, asset	Non-Hedge	Derivative assets, at fair value	$	—	$	—	$	60,000	$	1
Total derivative instruments, assets					—				1
Interest rate swaps, liability	Non-Hedge	Derivative liability, at fair value	82,000		(845)		98,000		(61)
Total derivative instruments, liabilities					(845)				(61)
Total derivative instruments, net					$	(845)			$	(60)

Summary of the effect of entity's Derivative Instruments Reported in Gain (Loss) on Derivative Instruments, Net on the Statements of Operations

The following tables summarize the effects of the Company’s derivative positions, including Interest-Only Strips characterized as derivatives and TBAs, which are reported in "Gain on derivative instruments, net" in the Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and September 30, 2022 (dollars in thousands):

 

	Realized Gain (Loss), net
Description	Other Settlements/ Expirations		Variation Margin Settlement		Return (Recovery) of Basis		Mark-to-Market		Contractual interest income (expense), net(1)		Total
Three months ended September 30, 2023
Interest rate swaps	$	—	$	1,008	$	—	$	(777)	$	846	$	1,077
Interest-Only Strips— accounted for as derivatives	—		—		(14)		70		24		80
Total	$	—	$	1,008	$	(14)	$	(707)	$	870	$	1,157
Three months ended September 30, 2022
Interest rate swaps	$	(3,371)	$	3,423	$	—	$	4,790	$	298	$	5,140
Interest rate swaptions	$	(161)	$	—	$	—	$	—	$	—	$	(161)
Interest-Only Strips— accounted for as derivatives	—		—		(5)		(54)		16		(43)
Credit default swaps	(273)		—		—		283		—		10
TBAs	1,319		—		—		(1,383)		—		(64)
Total	$	(2,486)	$	3,423	$	(5)	$	3,636	$	314	$	4,882

	Realized Gain (Loss), net
Description	Other Settlements/ Expirations		Variation Margin Settlement		Return (Recovery) of Basis		Mark-to-Market		Contractual interest income (expense), net(1)		Total
Nine months ended September 30, 2023
Interest rate swaps	$	—	$	(992)	$	—	$	(785)	$	2,832	$	1,055
Interest-Only Strips— accounted for as derivatives	—		—		(16)		135		47		166
Total	$	—	$	(992)	$	(16)	$	(650)	$	2,879	$	1,221
Nine months ended September 30, 2022
Interest rate swaps	$	(3,371)	$	14,744	$	—	$	3,670	$	(255)	$	14,788
Interest rate swaptions	(161)		—		—		—		—		(161)
Interest-Only Strips— accounted for as derivatives	—		—		(120)		(270)		160		(230)
Credit default swaps	(242)		—		—		393		—		151
TBAs	2,051		—		—		—		—		2,051
Total	$	(1,723)	$	14,744	$	(120)	$	3,793	$	(95)	$	16,599

Summary of Interest Rate Swaps or Interest Rate Swaptions

The following tables provide additional information on the Company's fixed-pay interest rate swaps as of September 30, 2023 and December 31, 2022 (dollars in thousands):

	September 30, 2023
Fixed Pay Interest Rate Swap Remaining Term	Notional Amount		Average  Fixed Pay Rate		Average Variable Receive Rate		Average Maturity (Years)
1 year or less	$	60,000	1.4	%	5.1	%	0.5
Greater than 5 years	22,000		1.2	%	5.3	%	8.0
Total	$	82,000	1.3	%	5.2	%	2.5

	December 31, 2022
Fixed Pay Interest Rate Swap Remaining Term	Notional Amount		Average  Fixed Pay Rate		Average Variable Receive Rate		Average Maturity (Years)
Greater than 1 year and less than 3 years	$	60,000	1.4	%	2.0	%	1.3
Greater than 3 years and less than 5 years	70,000		1.4	%	1.8	%	4.1
Greater than 5 years	$	28,000	1.7	%	3.6	%	9.0
Total	$	158,000	1.4	%	2.2	%	3.9

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Offsetting Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2023

Offsetting [Abstract]

Schedule of Gross and Net Information about the Company's Assets Subject to Master Netting Arrangements

The following tables present information about certain assets and liabilities that are subject to master netting agreements (or similar agreements) and can potentially be offset in the Company’s Consolidated Balance Sheets at September 30, 2023 and December 31, 2022 (dollars in thousands):

  

	September 30, 2023
	Gross  Amounts		Gross  Amounts  Offset in the Consolidated Balance  Sheets		Net Amounts of Assets  presented in  the Consolidated Balance  Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets				Net Amount
Description							Financial  Instruments(1)		Cash  Collateral (1)
Derivative Assets
Agency and Non-Agency Interest-Only Strips, accounted for as derivatives included in MBS	$	834	$	—	$	834	$	(236)	$	—	$	598
Total assets	$	834	$	—	$	834	$	(236)	$	—	$	598
Derivative Liabilities and Repurchase Agreements
Derivative liability, at fair value(2)(3)	$	845	$	—	$	845	$	—	$	(845)	$	—
Repurchase Agreements(4)	169,910		—		169,910		(167,509)		—		2,401
Total liability	$	170,755	$	—	$	170,755	$	(167,509)	$	(845)	$	2,401

(1)Amounts disclosed in the financial instruments column of the tables above represent securities, whole loans, securitized commercial loan collateral pledged, and derivative assets that are available to be offset against liability balances associated with repurchase agreement and derivative liabilities. Amounts disclosed in the cash collateral column of the tables above represents amounts pledged or received as collateral against derivative transactions.

(2)Derivative asset, at fair value, includes interest rate swaps.

(3)Cash collateral pledged against the Company’s derivative counterparties was approximately $1.0 million as of September 30, 2023.

(4)The carrying value of investments pledged against the Company’s repurchase agreements was approximately $227.6 million as of September 30, 2023.

 

	December 31, 2022
	Gross  Amounts		Gross  Amounts  Offset in the Consolidated Balance  Sheets		Net Amounts of Assets  presented in  the Consolidated Balance  Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets				Net Amount
Description							Financial  Instruments(1)		Cash  Collateral (1)
Derivative Assets
Agency and Non-Agency Interest-Only Strips, accounted for as derivatives included in MBS	$	714	$	—	$	714	$	(196)	$	—	$	518
Derivative asset, at fair value(2)	1		—		1		(1)		—		—
Total assets	$	715	$	—	$	715	$	(197)	$	—	$	518
Derivative Liabilities and Repurchase Agreements
Derivative liability, at fair value(2)(3)	$	61	$	—	$	61	$	(1)	$	(60)	$	—
Repurchase Agreements(4)	193,117		—		193,117		(193,073)		(44)		—
Total liability	$	193,178	$	—	$	193,178	$	(193,074)	$	(104)	$	—

(1)Amounts disclosed in the financial instruments column of the tables above represent securities, whole loans, securitized commercial loan collateral pledged, and derivative assets that are available to be offset against liability balances associated with repurchase agreement and derivative liabilities. Amounts disclosed in the cash collateral column of the tables above represents amounts pledged or received as collateral against derivative transactions.

(2)Derivative asset, at fair value and Derivative liability, at fair value includes interest rate swaps and credit default swaps.

(3)Cash collateral pledged against the Company’s derivative counterparties was approximately $3.2 million as of December 31, 2022.

(4)The carrying value of investments pledged against the Company’s repurchase agreements was approximately $288.3 million as of December 31, 2022.

Schedule of Gross and Net Information about the Company's Liabilities Subject to Master Netting Arrangements

The following tables present information about certain assets and liabilities that are subject to master netting agreements (or similar agreements) and can potentially be offset in the Company’s Consolidated Balance Sheets at September 30, 2023 and December 31, 2022 (dollars in thousands):

  

	September 30, 2023
	Gross  Amounts		Gross  Amounts  Offset in the Consolidated Balance  Sheets		Net Amounts of Assets  presented in  the Consolidated Balance  Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets				Net Amount
Description							Financial  Instruments(1)		Cash  Collateral (1)
Derivative Assets
Agency and Non-Agency Interest-Only Strips, accounted for as derivatives included in MBS	$	834	$	—	$	834	$	(236)	$	—	$	598
Total assets	$	834	$	—	$	834	$	(236)	$	—	$	598
Derivative Liabilities and Repurchase Agreements
Derivative liability, at fair value(2)(3)	$	845	$	—	$	845	$	—	$	(845)	$	—
Repurchase Agreements(4)	169,910		—		169,910		(167,509)		—		2,401
Total liability	$	170,755	$	—	$	170,755	$	(167,509)	$	(845)	$	2,401

(1)Amounts disclosed in the financial instruments column of the tables above represent securities, whole loans, securitized commercial loan collateral pledged, and derivative assets that are available to be offset against liability balances associated with repurchase agreement and derivative liabilities. Amounts disclosed in the cash collateral column of the tables above represents amounts pledged or received as collateral against derivative transactions.

(2)Derivative asset, at fair value, includes interest rate swaps.

(3)Cash collateral pledged against the Company’s derivative counterparties was approximately $1.0 million as of September 30, 2023.

(4)The carrying value of investments pledged against the Company’s repurchase agreements was approximately $227.6 million as of September 30, 2023.

 

	December 31, 2022
	Gross  Amounts		Gross  Amounts  Offset in the Consolidated Balance  Sheets		Net Amounts of Assets  presented in  the Consolidated Balance  Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets				Net Amount
Description							Financial  Instruments(1)		Cash  Collateral (1)
Derivative Assets
Agency and Non-Agency Interest-Only Strips, accounted for as derivatives included in MBS	$	714	$	—	$	714	$	(196)	$	—	$	518
Derivative asset, at fair value(2)	1		—		1		(1)		—		—
Total assets	$	715	$	—	$	715	$	(197)	$	—	$	518
Derivative Liabilities and Repurchase Agreements
Derivative liability, at fair value(2)(3)	$	61	$	—	$	61	$	(1)	$	(60)	$	—
Repurchase Agreements(4)	193,117		—		193,117		(193,073)		(44)		—
Total liability	$	193,178	$	—	$	193,178	$	(193,074)	$	(104)	$	—

(1)Amounts disclosed in the financial instruments column of the tables above represent securities, whole loans, securitized commercial loan collateral pledged, and derivative assets that are available to be offset against liability balances associated with repurchase agreement and derivative liabilities. Amounts disclosed in the cash collateral column of the tables above represents amounts pledged or received as collateral against derivative transactions.

(2)Derivative asset, at fair value and Derivative liability, at fair value includes interest rate swaps and credit default swaps.

(3)Cash collateral pledged against the Company’s derivative counterparties was approximately $3.2 million as of December 31, 2022.

(4)The carrying value of investments pledged against the Company’s repurchase agreements was approximately $288.3 million as of December 31, 2022.

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Share-Based Payments (Tables)

9 Months Ended

Sep. 30, 2023

Share-Based Payment Arrangement, Noncash Expense [Abstract]

Summary of Restricted Common Stock Vesting Dates

The following is a summary of restricted equity awards vesting dates as of September 30, 2023 and December 31, 2022: 

	September 30, 2023	December 31, 2022
Vesting Date	Shares Vesting	Shares Vesting
June 2023	—	31,704
June 2024	43,151	10,000
Total	43,151	41,704

Schedule of Shares Issued Under the Company’s Equity Incentive Plans

The following table presents information with respect to shares issued under the Company’s Equity Incentive Plans for the nine months ended September 30, 2023 and September 30, 2022:

 

	September 30, 2023			September 30, 2022
	Restricted Stock Units	Weighted Average  Grant Date Fair  Value(1)		Restricted Stock Units	Weighted Average  Grant Date Fair  Value(1)
Outstanding at beginning of period	81,914	$	31.21	114,825	$	131.85
Granted(2)	41,559	9.15		45,954	12.75
Issuance of common shares	(11,547)	11.89		—	—
Outstanding at end of period	111,926	25.01		160,779	97.81
Unvested at end of period	43,151	$	9.58	41,704	$	12.52

(1)The grant date fair value of the awards is based on the closing market price of the Company’s common stock at the grant date.

(2)Includes 10,375 and 4,250 shares attributed to dividends on restricted stock under the Director Deferred Fee Plan for the nine months ended September 30, 2023 and September 30, 2022, respectively.

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2023

Stockholders' Equity Note [Abstract]

Schedule of Cash Dividends Declared and Paid on Common Stock

The following table presents cash dividends declared and paid by the Company on its common stock, not adjusted on a retroactive basis to reflect the Company's one-for-ten reverse stock split to align with 1099-DIV per share amounts as reported.

 

Declaration Date	Record Date	Payment Date	Amount per Share		Tax Characterization
2023
September 21, 2023	October 2, 2023	October 26, 2023	$	0.35	Not yet determined
June 21, 2023	July 3, 2023	July 26, 2023	$	0.35	Not yet determined
March 22, 2023	April 3, 2023	April 26, 2023	$	0.35	Not yet determined
2022
December 21, 2022	January 3, 2023	January 26, 2023	$	0.40	Not yet determined(1)
September 22, 2022	October 3, 2022	October 26, 2022	$	0.40	Ordinary income
June 21, 2022	July 1, 2022	July 25, 2022	$	0.04	Ordinary income
March 23, 2022	April 4, 2022	April 26, 2022	$	0.04	Ordinary income

(1)The cash distributions made on January 26, 2023, with a record date of January 3, 2023, are treated as received by stockholders on January 26, 2023 and taxable in calendar year 2023.

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Net Loss per Common Share (Tables)

9 Months Ended

Sep. 30, 2023

Earnings Per Share [Abstract]

Schedule of Basic and Diluted Net Loss Per Share of Common Stock

The table below presents basic and diluted net loss per share of common stock using the two-class method for the three and nine months ended September 30, 2023 and September 30, 2022 (dollars, other than shares and per share amounts, in thousands), adjusted on a retroactive basis to reflect the Company's one-for-ten reverse stock split.

 

	For the three months ended September 30, 2023		For the three months ended September 30, 2022		For the nine months ended September 30, 2023		For the nine months ended September 30, 2022
Numerator:
Net loss attributable to common stockholders and participating securities for basic and diluted earnings per share	$	(8,705)	$	(40,010)	$	(10,771)	$	(88,250)
Less:
Dividends and undistributed earnings allocated to participating securities	39		32		101		62
Net loss allocable to common stockholders — basic and diluted	$	(8,744)	$	(40,042)	$	(10,872)	$	(88,312)
Denominator:
Weighted average common shares outstanding for basic earnings per share	6,049,559		6,038,012		6,041,946		6,036,876
Weighted average common shares outstanding for diluted earnings per share	6,049,559		6,038,012		6,041,946		6,036,876
Basic loss per common share	$	(1.45)	$	(6.63)	$	(1.80)	$	(14.63)
Diluted loss per common share	$	(1.45)	$	(6.63)	$	(1.80)	$	(14.63)

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Organization (Details) - MITT Merger Agreement $ in Millions	Aug. 08, 2023 USD ($) shares
Business Acquisition [Line Items]
Payment of termination fee	$ 3.0
Right to receive per share (in shares) | shares	1.498
Cash payment	$ 7.0
Percentage of share consideration	9.90%
Management fee waived	$ 2.4

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Basis of Presentation and Summary of Significant Accounting Policies (Details)			9 Months Ended
	Jul. 11, 2022 $ / shares shares	Jun. 30, 2022 $ / shares shares	Sep. 30, 2023 $ / shares shares	Dec. 31, 2022 $ / shares shares
Class of Stock [Line Items]
Capital stock reserved for issuance (in shares)		600,000,000
Common stock, shares authorized (in shares)	50,000,000	500,000,000	50,000,000	50,000,000
Common stock, par value (in dollars per share) | $ / shares	$ 0.01	$ 0.01	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	10,000,000	100,000,000	10,000,000	10,000,000
Preferred stock, par value (in dollars per share) | $ / shares		$ 0.01	$ 0.01	$ 0.01
Stockholders' equity note, stock split, conversion ratio	0.1		0.1
Common stock, shares issued (in shares)	6,038,012	60,380,105
Common stock, shares outstanding (in shares)	6,038,012	60,380,105	6,049,559	6,038,012
Minimum
Class of Stock [Line Items]
Stockholders' equity note, stock split, conversion ratio		0.2
Maximum
Class of Stock [Line Items]
Stockholders' equity note, stock split, conversion ratio		0.1

XML

Fair Value of Financial Instruments - Financial Instruments Carried at Fair Value (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Assets
Derivative assets	$ 834	$ 715
Liabilities
Derivative liabilities	845	61
Residential  Whole Loans
Assets
Fair value	986,978	1,091,145
Agency RMBS Interest-only strips
Assets
Estimated Fair Value	61	53
Agency RMBS Interest-only strips accounted for as derivatives, included in MBS
Assets
Estimated Fair Value	834	714
Subtotal Agency MBS
Assets
Estimated Fair Value	895	767
Non-Agency CMBS
Assets
Estimated Fair Value	54,206	85,435
Non-Agency RMBS
Assets
Estimated Fair Value	31,872	22,483
Non-Agency RMBS Interest-only strips
Assets
Estimated Fair Value	1,249	1,204
Subtotal Non-Agency MBS
Assets
Estimated Fair Value	87,327	109,122
Other securities
Assets
Estimated Fair Value	16,867	27,262
Total mortgage-backed securities and other securities
Assets
Estimated Fair Value	105,089	137,151
Fair Value, Measurements, Recurring
Assets
Derivative assets		1
Total Assets	2,186,200	2,406,251
Liabilities
Derivative liabilities	845	61
Securitized debt	1,582,278	1,719,865
Total Liabilities	1,583,123	1,719,926
Fair Value, Measurements, Recurring | Residential  Whole Loans
Assets
Fair value	986,978	1,091,145
Fair Value, Measurements, Recurring | Residential Bridge Loans
Assets
Fair value	2,782	2,849
Fair Value, Measurements, Recurring | Securitized Commercial Loans
Assets
Fair value	1,012,650	1,085,103
Fair Value, Measurements, Recurring | Commercial Loans
Assets
Fair value	78,701	90,002
Fair Value, Measurements, Recurring | Agency RMBS Interest-only strips
Assets
Estimated Fair Value	61	53
Fair Value, Measurements, Recurring | Agency RMBS Interest-only strips accounted for as derivatives, included in MBS
Assets
Estimated Fair Value	834	714
Fair Value, Measurements, Recurring | Subtotal Agency MBS
Assets
Estimated Fair Value	895	767
Fair Value, Measurements, Recurring | Non-Agency CMBS
Assets
Estimated Fair Value	54,206	85,435
Fair Value, Measurements, Recurring | Non-Agency RMBS
Assets
Estimated Fair Value	31,872	22,483
Fair Value, Measurements, Recurring | Non-Agency RMBS Interest-only strips
Assets
Estimated Fair Value	1,249	1,204
Fair Value, Measurements, Recurring | Subtotal Non-Agency MBS
Assets
Estimated Fair Value	87,327	109,122
Fair Value, Measurements, Recurring | Other securities
Assets
Estimated Fair Value	16,867	27,262
Fair Value, Measurements, Recurring | Total mortgage-backed securities and other securities
Assets
Estimated Fair Value	105,089	137,151
Level I | Fair Value, Measurements, Recurring
Assets
Derivative assets		0
Total Assets	0	0
Liabilities
Derivative liabilities	0	0
Securitized debt	0	0
Total Liabilities	0	0
Level I | Fair Value, Measurements, Recurring | Residential  Whole Loans
Assets
Fair value	0	0
Level I | Fair Value, Measurements, Recurring | Residential Bridge Loans
Assets
Fair value	0	0
Level I | Fair Value, Measurements, Recurring | Securitized Commercial Loans
Assets
Fair value	0	0
Level I | Fair Value, Measurements, Recurring | Commercial Loans
Assets
Fair value	0	0
Level I | Fair Value, Measurements, Recurring | Agency RMBS Interest-only strips
Assets
Estimated Fair Value	0	0
Level I | Fair Value, Measurements, Recurring | Agency RMBS Interest-only strips accounted for as derivatives, included in MBS
Assets
Estimated Fair Value	0	0
Level I | Fair Value, Measurements, Recurring | Subtotal Agency MBS
Assets
Estimated Fair Value	0	0
Level I | Fair Value, Measurements, Recurring | Non-Agency CMBS
Assets
Estimated Fair Value	0	0
Level I | Fair Value, Measurements, Recurring | Non-Agency RMBS
Assets
Estimated Fair Value	0	0
Level I | Fair Value, Measurements, Recurring | Non-Agency RMBS Interest-only strips
Assets
Estimated Fair Value	0	0
Level I | Fair Value, Measurements, Recurring | Subtotal Non-Agency MBS
Assets
Estimated Fair Value	0	0
Level I | Fair Value, Measurements, Recurring | Other securities
Assets
Estimated Fair Value	0	0
Level I | Fair Value, Measurements, Recurring | Total mortgage-backed securities and other securities
Assets
Estimated Fair Value	0	0
Level II | Fair Value, Measurements, Recurring
Assets
Derivative assets		1
Total Assets	102,945	135,181
Liabilities
Derivative liabilities	845	61
Securitized debt	1,576,499	1,710,938
Total Liabilities	1,577,344	1,710,999
Level II | Fair Value, Measurements, Recurring | Residential  Whole Loans
Assets
Fair value	0	0
Level II | Fair Value, Measurements, Recurring | Residential Bridge Loans
Assets
Fair value	0	0
Level II | Fair Value, Measurements, Recurring | Securitized Commercial Loans
Assets
Fair value	0	0
Level II | Fair Value, Measurements, Recurring | Commercial Loans
Assets
Fair value	0	0
Level II | Fair Value, Measurements, Recurring | Agency RMBS Interest-only strips
Assets
Estimated Fair Value	0	0
Level II | Fair Value, Measurements, Recurring | Agency RMBS Interest-only strips accounted for as derivatives, included in MBS
Assets
Estimated Fair Value	0	0
Level II | Fair Value, Measurements, Recurring | Subtotal Agency MBS
Assets
Estimated Fair Value	0	0
Level II | Fair Value, Measurements, Recurring | Non-Agency CMBS
Assets
Estimated Fair Value	54,206	85,435
Level II | Fair Value, Measurements, Recurring | Non-Agency RMBS
Assets
Estimated Fair Value	31,872	22,483
Level II | Fair Value, Measurements, Recurring | Non-Agency RMBS Interest-only strips
Assets
Estimated Fair Value	0	0
Level II | Fair Value, Measurements, Recurring | Subtotal Non-Agency MBS
Assets
Estimated Fair Value	86,078	107,918
Level II | Fair Value, Measurements, Recurring | Other securities
Assets
Estimated Fair Value	16,867	27,262
Level II | Fair Value, Measurements, Recurring | Total mortgage-backed securities and other securities
Assets
Estimated Fair Value	102,945	135,180
Level III | Residential  Whole Loans
Assets
Fair value	986,978	1,091,145
Level III | Residential Bridge Loans
Assets
Fair value	2,782	2,849
Level III | Securitized Commercial Loans
Assets
Fair value	1,012,650	1,085,103
Level III | Commercial Loans
Assets
Fair value	78,701	90,002
Level III | Fair Value, Measurements, Recurring
Assets
Derivative assets		0
Total Assets	2,083,255	2,271,070
Liabilities
Derivative liabilities	0	0
Securitized debt	5,779	8,927
Total Liabilities	5,779	8,927
Level III | Fair Value, Measurements, Recurring | Residential  Whole Loans
Assets
Fair value	986,978	1,091,145
Level III | Fair Value, Measurements, Recurring | Residential Bridge Loans
Assets
Fair value	2,782	2,849
Level III | Fair Value, Measurements, Recurring | Securitized Commercial Loans
Assets
Fair value	1,012,650	1,085,103
Level III | Fair Value, Measurements, Recurring | Commercial Loans
Assets
Fair value	78,701	90,002
Level III | Fair Value, Measurements, Recurring | Agency RMBS Interest-only strips
Assets
Estimated Fair Value	61	53
Level III | Fair Value, Measurements, Recurring | Agency RMBS Interest-only strips accounted for as derivatives, included in MBS
Assets
Estimated Fair Value	834	714
Level III | Fair Value, Measurements, Recurring | Subtotal Agency MBS
Assets
Estimated Fair Value	895	767
Level III | Fair Value, Measurements, Recurring | Non-Agency CMBS
Assets
Estimated Fair Value	0	0
Level III | Fair Value, Measurements, Recurring | Non-Agency RMBS
Assets
Estimated Fair Value	0	0
Level III | Fair Value, Measurements, Recurring | Non-Agency RMBS Interest-only strips
Assets
Estimated Fair Value	1,249	1,204
Level III | Fair Value, Measurements, Recurring | Subtotal Non-Agency MBS
Assets
Estimated Fair Value	1,249	1,204
Level III | Fair Value, Measurements, Recurring | Other securities
Assets
Estimated Fair Value	0	0
Level III | Fair Value, Measurements, Recurring | Total mortgage-backed securities and other securities
Assets
Estimated Fair Value	$ 2,144	$ 1,971

XML

Fair Value of Financial Instruments - Summary of Quantitative Information (Details) $ in Thousands	Sep. 30, 2023 USD ($)	Dec. 31, 2022 USD ($)
Residential  Whole Loans
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value	$ 986,978	$ 1,091,145
Residential  Whole Loans | Level III
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value	$ 986,978	$ 1,091,145
Residential  Whole Loans | Minimum | Discounted Cash Flow | Level III | Market Discount Rate
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, measurement input	0.064	0.060
Residential  Whole Loans | Minimum | Discounted Cash Flow | Level III | Weighted Average Life
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, term	1 year 4 months 24 days	1 year 4 months 24 days
Residential  Whole Loans | Maximum | Discounted Cash Flow | Level III | Market Discount Rate
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, measurement input	0.084	0.084
Residential  Whole Loans | Maximum | Discounted Cash Flow | Level III | Weighted Average Life
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, term	10 years 6 months	10 years 4 months 24 days
Residential  Whole Loans | Weighted Average | Discounted Cash Flow | Level III | Market Discount Rate
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, measurement input	0.068	0.068
Residential  Whole Loans | Weighted Average | Discounted Cash Flow | Level III | Weighted Average Life
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, term	6 years 4 months 24 days	5 years 4 months 24 days
Residential Bridge Loans | Level III
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value	$ 2,782	$ 2,849
Residential Bridge Loans | Minimum | Discounted Cash Flow | Level III | Market Discount Rate
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, measurement input	0.122	0.129
Residential Bridge Loans | Minimum | Discounted Cash Flow | Level III | Weighted Average Life
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, term	1 year 3 months 18 days	4 months 24 days
Residential Bridge Loans | Maximum | Discounted Cash Flow | Level III | Market Discount Rate
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, measurement input	0.200	0.357
Residential Bridge Loans | Maximum | Discounted Cash Flow | Level III | Weighted Average Life
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, term	5 years 2 months 12 days	4 years 1 month 6 days
Residential Bridge Loans | Weighted Average | Discounted Cash Flow | Level III | Market Discount Rate
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, measurement input	0.151	0.224
Residential Bridge Loans | Weighted Average | Discounted Cash Flow | Level III | Weighted Average Life
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, term	3 years 4 months 24 days	2 years
Securitized Commercial Loans | Level III
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value	$ 1,012,650	$ 1,085,103
Securitized Commercial Loans | Minimum | Market Comparables, Vendor Pricing | Level III | Weighted Average Life
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, term	2 years	2 years 8 months 12 days
Securitized Commercial Loans | Maximum | Market Comparables, Vendor Pricing | Level III | Weighted Average Life
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, term	2 years	2 years 8 months 12 days
Securitized Commercial Loans | Weighted Average | Market Comparables, Vendor Pricing | Level III | Weighted Average Life
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, term	2 years	2 years 8 months 12 days
Commercial Loans | Level III
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value	$ 78,701	$ 90,002
Commercial Loans | Minimum | Discounted Cash Flow | Level III | Market Discount Rate
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, measurement input	0.092	0.084
Commercial Loans | Minimum | Discounted Cash Flow | Level III | Weighted Average Life
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, term	0 years	3 months 18 days
Commercial Loans | Maximum | Discounted Cash Flow | Level III | Market Discount Rate
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, measurement input	0.115	0.096
Commercial Loans | Maximum | Discounted Cash Flow | Level III | Weighted Average Life
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, term	1 year 7 months 6 days	2 years 4 months 24 days
Commercial Loans | Weighted Average | Discounted Cash Flow | Level III | Market Discount Rate
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, measurement input	0.105	0.092
Commercial Loans | Weighted Average | Discounted Cash Flow | Level III | Weighted Average Life
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Loans held-for-sale, term	1 year 4 months 13 days	1 year 2 months 12 days

XML

Fair Value of Financial Instruments - Financial Instruments Measured at Level III (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
	Feb. 03, 2023	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Investment assets measured at fair value on recurring basis for which the entity has utilized Level III inputs to determine fair value
Premium and discount amortization, net				$ (1,253)	$ (2,492)
Fair value asset recurring basis still held unrealized gain loss statement of income extensible list not disclosed flag		Unrealized gains/(losses), net on assets(1)
Level III | Fair Value, Measurements, Recurring | Securitized debt
Investment assets measured at fair value on recurring basis for which the entity has utilized Level III inputs to determine fair value
Beginning balance		$ 6,932	$ 14,919	8,927	14,919
Transfers into Level III from Level II		0	0	0	0
Transfers from Level III into Level II		0	0	0	0
Purchases					0
Sales and settlements			0	0	0
Loan modifications / capitalized interest		0	0	0	0
Principal repayments		0	0	0	0
Realized gains/(losses), net on assets		0	0	0	0
Unrealized gains/(losses), net on assets		0	0	0	0
Unrealized (gains)/losses, net on liabilities		66	(3,863)	(35)	(2,064)
Premium and discount amortization, net		(1,219)	(1,170)	(3,113)	(2,969)
Ending balance		5,779	9,886	5,779	9,886
Unrealized gains/(losses), net on assets and liabilities held at the end of the period		(66)	3,863	35	2,064
Level III | Fair Value, Measurements, Recurring | Securitized debt | Assets
Investment assets measured at fair value on recurring basis for which the entity has utilized Level III inputs to determine fair value
Unrealized gains/(losses), net on assets and liabilities held at the end of the period		0	0	0	0
Level III | Fair Value, Measurements, Recurring | Residential  Whole Loans
Investment assets measured at fair value on recurring basis for which the entity has utilized Level III inputs to determine fair value
Beginning balance		1,037,381	1,195,853	1,091,145	1,023,502
Transfers into Level III from Level II		0	0	0	0
Transfers from Level III into Level II		0	0	0	0
Purchases					402,650
Sales and settlements			(11,735)	0	(11,362)
Loan modifications / capitalized interest		87	4	129	79
Principal repayments		(28,604)	(37,036)	(87,397)	(184,683)
Realized gains/(losses), net on assets		(29)	(33)	(29)	(32)
Unrealized gains/(losses), net on assets		(21,131)	(46,545)	(14,593)	(125,943)
Unrealized (gains)/losses, net on liabilities		0	0	0	0
Premium and discount amortization, net		(726)	(883)	(2,277)	(4,586)
Ending balance		986,978	1,099,625	986,978	1,099,625
Unrealized gains/(losses), net on assets and liabilities held at the end of the period		0	0	0	0
Level III | Fair Value, Measurements, Recurring | Residential  Whole Loans | Assets
Investment assets measured at fair value on recurring basis for which the entity has utilized Level III inputs to determine fair value
Unrealized gains/(losses), net on assets and liabilities held at the end of the period		(22,085)	(35,855)	(18,171)	(107,944)
Level III | Fair Value, Measurements, Recurring | Residential Bridge Loans
Investment assets measured at fair value on recurring basis for which the entity has utilized Level III inputs to determine fair value
Beginning balance		2,782	5,095	2,849	5,428
Transfers into Level III from Level II		0	0	0	0
Transfers from Level III into Level II		0	0	0	0
Purchases					0
Sales and settlements			0	0	0
Loan modifications / capitalized interest		0	0	0	0
Principal repayments		0	0	(74)	(250)
Realized gains/(losses), net on assets		0	0	0	0
Unrealized gains/(losses), net on assets		0	25	7	(58)
Unrealized (gains)/losses, net on liabilities		0	0	0	0
Premium and discount amortization, net		0	0	0	0
Ending balance		2,782	5,120	2,782	5,120
Unrealized gains/(losses), net on assets and liabilities held at the end of the period		0	0	0	0
Level III | Fair Value, Measurements, Recurring | Residential Bridge Loans | Assets
Investment assets measured at fair value on recurring basis for which the entity has utilized Level III inputs to determine fair value
Unrealized gains/(losses), net on assets and liabilities held at the end of the period		0	25	0	17
Level III | Fair Value, Measurements, Recurring | Commercial Loans
Investment assets measured at fair value on recurring basis for which the entity has utilized Level III inputs to determine fair value
Beginning balance		78,806	128,421	90,002	130,572
Transfers into Level III from Level II		0	0	0	0
Transfers from Level III into Level II		0	0	0	0
Purchases					0
Sales and settlements			0	(8,776)	0
Loan modifications / capitalized interest		0	0	0	0
Principal repayments		(281)	(20,588)	(1,961)	(20,593)
Realized gains/(losses), net on assets	$ (81,200)	0	0	(81,223)	0
Unrealized gains/(losses), net on assets		143	(17,730)	80,560	(19,876)
Unrealized (gains)/losses, net on liabilities		0	0	0	0
Premium and discount amortization, net		33	0	99	0
Ending balance		78,701	90,103	78,701	90,103
Unrealized gains/(losses), net on assets and liabilities held at the end of the period		0	0	0	0
Level III | Fair Value, Measurements, Recurring | Commercial Loans | Assets
Investment assets measured at fair value on recurring basis for which the entity has utilized Level III inputs to determine fair value
Unrealized gains/(losses), net on assets and liabilities held at the end of the period		143	(17,730)	(662)	(19,884)
Level III | Fair Value, Measurements, Recurring | Securitized Commercial Loans
Investment assets measured at fair value on recurring basis for which the entity has utilized Level III inputs to determine fair value
Beginning balance		1,025,321	1,243,371	1,085,103	1,355,808
Transfers into Level III from Level II		0	0	0	0
Transfers from Level III into Level II		0	0	0	0
Purchases					0
Sales and settlements			0	0	0
Loan modifications / capitalized interest		0	0	0	0
Principal repayments		0	0	0	0
Realized gains/(losses), net on assets		0	0	0	0
Unrealized gains/(losses), net on assets		(19,735)	(78,046)	(93,785)	(203,828)
Unrealized (gains)/losses, net on liabilities		0	0	0	0
Premium and discount amortization, net		7,064	6,589	21,332	19,934
Ending balance		1,012,650	1,171,914	1,012,650	1,171,914
Unrealized gains/(losses), net on assets and liabilities held at the end of the period		0	0	0	0
Level III | Fair Value, Measurements, Recurring | Securitized Commercial Loans | Assets
Investment assets measured at fair value on recurring basis for which the entity has utilized Level III inputs to determine fair value
Unrealized gains/(losses), net on assets and liabilities held at the end of the period		(19,735)	(78,046)	(93,785)	(203,828)
Level III | Fair Value, Measurements, Recurring | Agency MBS
Investment assets measured at fair value on recurring basis for which the entity has utilized Level III inputs to determine fair value
Beginning balance		838	785	767	1,172
Transfers into Level III from Level II		0	0	0	0
Transfers from Level III into Level II		0	0	0	0
Purchases					0
Sales and settlements			0	0	0
Loan modifications / capitalized interest		0	0	0	0
Principal repayments		0	0	0	0
Realized gains/(losses), net on assets		0	0	0	0
Unrealized gains/(losses), net on assets		67	(63)	134	(329)
Unrealized (gains)/losses, net on liabilities		0	0	0	0
Premium and discount amortization, net		(10)	(2)	(6)	(123)
Ending balance		895	720	895	720
Unrealized gains/(losses), net on assets and liabilities held at the end of the period		0	0	0	0
Level III | Fair Value, Measurements, Recurring | Agency MBS | Assets
Investment assets measured at fair value on recurring basis for which the entity has utilized Level III inputs to determine fair value
Unrealized gains/(losses), net on assets and liabilities held at the end of the period		67	(63)	134	(329)
Level III | Fair Value, Measurements, Recurring | Non-Agency MBS
Investment assets measured at fair value on recurring basis for which the entity has utilized Level III inputs to determine fair value
Beginning balance		1,608	1,181	1,204	7,845
Transfers into Level III from Level II		0	0	0	0
Transfers from Level III into Level II		0	0	0	(5,437)
Purchases					0
Sales and settlements			0	0	0
Loan modifications / capitalized interest		0	0	0	0
Principal repayments		0	0	0	0
Realized gains/(losses), net on assets		0	0	0	0
Unrealized gains/(losses), net on assets		(251)	88	361	(998)
Unrealized (gains)/losses, net on liabilities		0	0	0	0
Premium and discount amortization, net		(108)	(96)	(316)	(237)
Ending balance		1,249	1,173	1,249	1,173
Unrealized gains/(losses), net on assets and liabilities held at the end of the period		0	0	0	0
Level III | Fair Value, Measurements, Recurring | Non-Agency MBS | Assets
Investment assets measured at fair value on recurring basis for which the entity has utilized Level III inputs to determine fair value
Unrealized gains/(losses), net on assets and liabilities held at the end of the period		$ (251)	$ 88	$ 361	$ (644)

XML

Fair Value of Financial Instruments - Carrying Value and Estimated Fair Value of Financial Instruments (Details) - Fair Value, Measurements, Recurring - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securitized debt	$ 1,582,278	$ 1,719,865
Total Liabilities	1,583,123	1,719,926
Carrying Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Convertible senior unsecured notes	84,750	83,522
Securitized debt	305,205	342,965
Total Liabilities	389,955	426,487
Debt issuance costs	3,100	4,100
Estimated Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Convertible senior unsecured notes	83,367	74,712
Securitized debt	273,799	309,474
Total Liabilities	$ 357,166	$ 384,186

XML

Mortgage-Backed Securities and Other Securities - Company's Investment Portfolio (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Agency RMBS Interest-Only Strips
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	$ 68,000	$ 58,000
Unrealized Gain	0	0
Unrealized Loss	(7,000)	(5,000)
Estimated Fair Value	$ 61,000	$ 53,000
Net Weighted Average Coupon	0.00%	0.00%
Notional balance	$ 2,200,000	$ 2,400,000
Agency RMBS Interest-Only Strips, accounted for as derivatives
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	$ 834,000	$ 714,000
Net Weighted Average Coupon	1.30%	0.10%
Notional balance	$ 12,200,000	$ 13,100,000
Total Agency MBS
Debt Securities, Available-for-sale [Line Items]
Principal Balance	0	0
Unamortized Premium (Discount), net	0	0
Amortized Cost	68,000	58,000
Unrealized Gain	0	0
Unrealized Loss	(7,000)	(5,000)
Estimated Fair Value	$ 895,000	$ 767,000
Net Weighted Average Coupon	1.10%	0.10%
Non-Agency RMBS
Debt Securities, Available-for-sale [Line Items]
Principal Balance	$ 50,507,000	$ 39,873,000
Unamortized Premium (Discount), net	(14,670,000)	(14,423,000)
Amortized Cost	35,837,000	25,450,000
Unrealized Gain	572,000	928,000
Unrealized Loss	(4,537,000)	(3,895,000)
Estimated Fair Value	$ 31,872,000	$ 22,483,000
Net Weighted Average Coupon	4.90%	4.20%
Non-Agency RMBS Interest-Only Strips
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	$ 4,888,000	$ 5,204,000
Unrealized Gain	0	0
Unrealized Loss	(3,639,000)	(4,000,000)
Estimated Fair Value	$ 1,249,000	$ 1,204,000
Net Weighted Average Coupon	0.30%	0.30%
Notional balance	$ 132,000,000	$ 143,200,000
Subtotal Non-Agency RMBS
Debt Securities, Available-for-sale [Line Items]
Principal Balance	50,507,000	39,873,000
Unamortized Premium (Discount), net	(14,670,000)	(14,423,000)
Amortized Cost	40,725,000	30,654,000
Unrealized Gain	572,000	928,000
Unrealized Loss	(8,176,000)	(7,895,000)
Estimated Fair Value	$ 33,121,000	$ 23,687,000
Net Weighted Average Coupon	1.60%	1.10%
Non-Agency CMBS
Debt Securities, Available-for-sale [Line Items]
Principal Balance	$ 88,559,000	$ 109,266,000
Unamortized Premium (Discount), net	(1,746,000)	(2,763,000)
Amortized Cost	86,813,000	106,503,000
Unrealized Gain	65,000	636,000
Unrealized Loss	(32,672,000)	(21,704,000)
Estimated Fair Value	$ 54,206,000	$ 85,435,000
Net Weighted Average Coupon	8.00%	8.10%
Total Non-Agency MBS
Debt Securities, Available-for-sale [Line Items]
Principal Balance	$ 139,066,000	$ 149,139,000
Unamortized Premium (Discount), net	(16,416,000)	(17,186,000)
Amortized Cost	127,538,000	137,157,000
Unrealized Gain	637,000	1,564,000
Unrealized Loss	(40,848,000)	(29,599,000)
Estimated Fair Value	$ 87,327,000	$ 109,122,000
Net Weighted Average Coupon	3.70%	3.80%
Other securities
Debt Securities, Available-for-sale [Line Items]
Principal Balance	$ 25,613,000	$ 34,691,000
Unamortized Premium (Discount), net	(7,941,000)	(8,581,000)
Amortized Cost	18,740,000	31,112,000
Unrealized Gain	813,000	543,000
Unrealized Loss	(2,686,000)	(4,393,000)
Estimated Fair Value	$ 16,867,000	$ 27,262,000
Net Weighted Average Coupon	7.10%	7.20%
Total
Debt Securities, Available-for-sale [Line Items]
Principal Balance	$ 164,679,000	$ 183,830,000
Unamortized Premium (Discount), net	(24,357,000)	(25,767,000)
Amortized Cost	146,346,000	168,327,000
Unrealized Gain	1,450,000	2,107,000
Unrealized Loss	(43,541,000)	(33,997,000)
Estimated Fair Value	$ 105,089,000	$ 137,151,000
Net Weighted Average Coupon	3.80%	3.90%
Weighted average expected remaining term to the expected maturity of investment portfolio	7 years 9 months 18 days	6 years 8 months 12 days
Residual interests in asset-backed securities
Debt Securities, Available-for-sale [Line Items]
Principal Balance	$ 0	$ 0
Amortized Cost	$ 1,100,000	$ 5,000,000

XML

Mortgage-Backed Securities and Other Securities - Type of Security (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Agency RMBS Interest-only strips
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	$ 61	$ 53
Agency RMBS Interest-only strips | Less than or equal to 10 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	0	0
Agency RMBS Interest-only strips | More than 10 years and less than or equal to 20 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	61	53
Agency RMBS Interest-only strips | More than 20 years and less than or equal to 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	0	0
Agency RMBS Interest-only strips | More than 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	0	0
Agency RMBS Interest-Only Strips accounted for as derivatives
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	834	714
Agency RMBS Interest-Only Strips accounted for as derivatives | Less than or equal to 10 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	0	0
Agency RMBS Interest-Only Strips accounted for as derivatives | More than 10 years and less than or equal to 20 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	834	714
Agency RMBS Interest-Only Strips accounted for as derivatives | More than 20 years and less than or equal to 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	0	0
Agency RMBS Interest-Only Strips accounted for as derivatives | More than 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	0	0
Subtotal Agency MBS
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	895	767
Subtotal Agency MBS | Less than or equal to 10 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	0	0
Subtotal Agency MBS | More than 10 years and less than or equal to 20 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	895	767
Subtotal Agency MBS | More than 20 years and less than or equal to 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	0	0
Subtotal Agency MBS | More than 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	0	0
Non-Agency CMBS
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	54,206	85,435
Non-Agency CMBS | Less than or equal to 10 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	37,134	64,484
Non-Agency CMBS | More than 10 years and less than or equal to 20 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	7,418	10,469
Non-Agency CMBS | More than 20 years and less than or equal to 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	9,654	10,482
Non-Agency CMBS | More than 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	0	0
Non-Agency RMBS
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	31,872	22,483
Non-Agency RMBS | Less than or equal to 10 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	0	0
Non-Agency RMBS | More than 10 years and less than or equal to 20 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	0	0
Non-Agency RMBS | More than 20 years and less than or equal to 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	7,912	8,667
Non-Agency RMBS | More than 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	23,960	13,816
Non-Agency RMBS Interest-only strips
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	1,249	1,204
Non-Agency RMBS Interest-only strips | Less than or equal to 10 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	0	0
Non-Agency RMBS Interest-only strips | More than 10 years and less than or equal to 20 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	0	0
Non-Agency RMBS Interest-only strips | More than 20 years and less than or equal to 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	188	230
Non-Agency RMBS Interest-only strips | More than 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	1,061	974
Subtotal Non-Agency MBS
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	87,327	109,122
Subtotal Non-Agency MBS | Less than or equal to 10 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	37,134	64,484
Subtotal Non-Agency MBS | More than 10 years and less than or equal to 20 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	7,418	10,469
Subtotal Non-Agency MBS | More than 20 years and less than or equal to 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	17,754	19,379
Subtotal Non-Agency MBS | More than 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	25,021	14,790
Other securities
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	16,867	27,262
Other securities | Less than or equal to 10 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	3,006	6,735
Other securities | More than 10 years and less than or equal to 20 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	0	0
Other securities | More than 20 years and less than or equal to 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	7,117	13,020
Other securities | More than 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	6,744	7,507
Total
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	105,089	137,151
Total | Less than or equal to 10 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	40,140	71,219
Total | More than 10 years and less than or equal to 20 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	8,313	11,236
Total | More than 20 years and less than or equal to 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	24,871	32,399
Total | More than 30 years
Debt Securities, Available-for-sale [Line Items]
Estimated Fair Value	$ 31,765	$ 22,297

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Mortgage-Backed Securities and Other Securities - FV and Unrealized Loss (Details) $ in Thousands	Sep. 30, 2023 USD ($) security	Dec. 31, 2022 USD ($) security
Debt Securities, Available-for-sale [Line Items]
Fair value, less than 12 months	$ 22,910	$ 31,589
Fair value, 12 months or more	63,429	88,593
Fair Value	86,339	120,182
Unrealized Losses
Unrealized losses, less than 12 Months	(2,424)	(5,224)
Unrealized losses, 12 months or more	(41,117)	(28,773)
Unrealized Losses	$ (43,541)	$ (33,997)
Number  of Securities
Number of securities, less than 12 months | security	4	9
Number of securities, 12 months or more | security	20	19
Number  of Securities | security	24	28
Subtotal Agency
Debt Securities, Available-for-sale [Line Items]
Fair value, less than 12 months	$ 61	$ 52
Fair value, 12 months or more	0	0
Fair Value	61	52
Unrealized Losses
Unrealized losses, less than 12 Months	(7)	(5)
Unrealized losses, 12 months or more	0	0
Unrealized Losses	$ (7)	$ (5)
Number  of Securities
Number of securities, less than 12 months | security	1	1
Number of securities, 12 months or more | security	0	0
Number  of Securities | security	1	1
Agency RMBS Interest-only strips
Debt Securities, Available-for-sale [Line Items]
Fair value, less than 12 months	$ 61	$ 52
Fair value, 12 months or more	0	0
Fair Value	61	52
Unrealized Losses
Unrealized losses, less than 12 Months	(7)	(5)
Unrealized losses, 12 months or more	0	0
Unrealized Losses	$ (7)	$ (5)
Number  of Securities
Number of securities, less than 12 months | security	1	1
Number of securities, 12 months or more | security	0	0
Number  of Securities | security	1	1
Subtotal Non-Agency MBS
Debt Securities, Available-for-sale [Line Items]
Fair value, less than 12 months	$ 22,849	$ 19,054
Fair value, 12 months or more	57,908	79,125
Fair Value	80,757	98,179
Unrealized Losses
Unrealized losses, less than 12 Months	(2,417)	(2,794)
Unrealized losses, 12 months or more	(38,431)	(26,805)
Unrealized Losses	$ (40,848)	$ (29,599)
Number  of Securities
Number of securities, less than 12 months | security	3	5
Number of securities, 12 months or more | security	19	17
Number  of Securities | security	22	22
Non-Agency CMBS
Debt Securities, Available-for-sale [Line Items]
Fair value, less than 12 months	$ 7,188	$ 0
Fair value, 12 months or more	46,953	76,365
Fair Value	54,141	76,365
Unrealized Losses
Unrealized losses, less than 12 Months	(1,898)	0
Unrealized losses, 12 months or more	(30,774)	(21,704)
Unrealized Losses	$ (32,672)	$ (21,704)
Number  of Securities
Number of securities, less than 12 months | security	1	0
Number of securities, 12 months or more | security	9	11
Number  of Securities | security	10	11
Non-Agency RMBS
Debt Securities, Available-for-sale [Line Items]
Fair value, less than 12 months	$ 15,661	$ 19,054
Fair value, 12 months or more	9,706	1,557
Fair Value	25,367	20,611
Unrealized Losses
Unrealized losses, less than 12 Months	(519)	(2,794)
Unrealized losses, 12 months or more	(4,018)	(1,101)
Unrealized Losses	$ (4,537)	$ (3,895)
Number  of Securities
Number of securities, less than 12 months | security	2	5
Number of securities, 12 months or more | security	6	2
Number  of Securities | security	8	7
Non-Agency RMBS Interest-only strips
Debt Securities, Available-for-sale [Line Items]
Fair value, less than 12 months	$ 0	$ 0
Fair value, 12 months or more	1,249	1,203
Fair Value	1,249	1,203
Unrealized Losses
Unrealized losses, less than 12 Months	0	0
Unrealized losses, 12 months or more	(3,639)	(4,000)
Unrealized Losses	$ (3,639)	$ (4,000)
Number  of Securities
Number of securities, less than 12 months | security	0	0
Number of securities, 12 months or more | security	4	4
Number  of Securities | security	4	4
Other securities
Debt Securities, Available-for-sale [Line Items]
Fair value, less than 12 months	$ 0	$ 12,483
Fair value, 12 months or more	5,521	9,468
Fair Value	5,521	21,951
Unrealized Losses
Unrealized losses, less than 12 Months	0	(2,425)
Unrealized losses, 12 months or more	(2,686)	(1,968)
Unrealized Losses	$ (2,686)	$ (4,393)
Number  of Securities
Number of securities, less than 12 months | security	0	3
Number of securities, 12 months or more | security	1	2
Number  of Securities | security	1	5

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Mortgage-Backed Securities and Other Securities - Financing Receivables (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Components of interest income
Net (Premium Amortization/Amortization Basis) Discount Accretion			$ (1,253)	$ (2,492)
Interest Income	$ 40,138	$ 41,406	121,217	116,625
Agency RMBS, at fair value
Components of interest income
Coupon Interest	0	0	0	13
Net (Premium Amortization/Amortization Basis) Discount Accretion	4	2	10	(4)
Interest Income	4	2	10	9
Non-Agency CMBS
Components of interest income
Coupon Interest	1,657	1,949	5,234	7,050
Net (Premium Amortization/Amortization Basis) Discount Accretion	351	387	1,006	386
Interest Income	2,008	2,336	6,240	7,436
Non-Agency RMBS
Components of interest income
Coupon Interest	756	446	1,960	1,804
Net (Premium Amortization/Amortization Basis) Discount Accretion	(306)	26	(651)	(141)
Interest Income	450	472	1,309	1,663
Other securities
Components of interest income
Coupon Interest	583	860	2,079	2,515
Net (Premium Amortization/Amortization Basis) Discount Accretion	(144)	185	(345)	223
Interest Income	439	1,045	1,734	2,738
Total
Components of interest income
Coupon Interest	2,996	3,255	9,273	11,382
Net (Premium Amortization/Amortization Basis) Discount Accretion	(95)	600	20	464
Interest Income	$ 2,901	$ 3,855	$ 9,293	$ 11,846

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Mortgage-Backed Securities and Other Securities - Gross Gains and Losses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Debt Securities, Available-for-sale, Gain (Loss) [Abstract]
Net Gain  (Loss)	$ (29)	$ (35)	$ (83,946)	$ (33,551)
Non-Agency CMBS
Debt Securities, Available-for-sale, Gain (Loss) [Abstract]
Proceeds			0	10,152
Gross Gains			0	0
Gross Losses			(1,239)	(43,934)
Net Gain  (Loss)			(1,239)	(43,934)
Non-Agency RMBS
Debt Securities, Available-for-sale, Gain (Loss) [Abstract]
Proceeds			0	27,729
Gross Gains			0	255
Gross Losses			(48)	(1,425)
Net Gain  (Loss)			(48)	(1,170)
Other securities
Debt Securities, Available-for-sale, Gain (Loss) [Abstract]
Proceeds			15,324	4,406
Gross Gains			649	0
Gross Losses			(2,028)	(478)
Net Gain  (Loss)			(1,379)	(478)
Total
Debt Securities, Available-for-sale, Gain (Loss) [Abstract]
Proceeds			15,324	42,287
Gross Gains			649	255
Gross Losses			(3,315)	(45,837)
Net Gain  (Loss)			$ (2,666)	$ (45,582)

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Mortgage-Backed Securities and Other Securities - Unconsolidated CMBS VIEs (Details) $ in Millions	9 Months Ended	12 Months Ended
	Sep. 30, 2023 USD ($) loan trust	Dec. 31, 2022 USD ($) trust loan
Variable Interest Entity [Line Items]
Number of commercial loans trusts | trust	2	2
Variable interest entity, reporting entity involvement, maximum loss exposure, amount | $	$ 15.1	$ 15.5
VIE, Non Primary
Variable Interest Entity [Line Items]
Number of commercial loans trusts | loan	2	2

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Residential Whole Loans and Bridge Loans - Narrative (Details)	1 Months Ended	3 Months Ended	9 Months Ended	12 Months Ended
	May 31, 2019 USD ($)	Sep. 30, 2023 USD ($) loan property	Sep. 30, 2023 USD ($) loan property trust	Dec. 31, 2022 USD ($) loan trust property	Jul. 31, 2022 USD ($)	Feb. 28, 2022 USD ($)	Jun. 30, 2020 USD ($)
Variable Interest Entity [Line Items]
Repurchase agreements, net		$ 169,910,000	$ 169,910,000	$ 193,117,000
Number of real estate properties owned | property		1	1	1
Residential Bridge Loans | 90+ days
Variable Interest Entity [Line Items]
Mortgage Loans on Real Estate, Number of Loans, Nonperforming | loan			4
Residential  Whole Loans
Variable Interest Entity [Line Items]
Number of  Loans | loan			2,761	2,943
Fair value		$ 986,978,000	$ 986,978,000	$ 1,091,145,000
Residential Bridge Loans
Variable Interest Entity [Line Items]
Fair value		2,782,000	$ 2,782,000
Mortgage Loans on Real Estate, Number of Loans, Nonperforming | loan			4
Principal		3,091,000	$ 3,091,000
Residential Bridge Loans | 90+ days
Variable Interest Entity [Line Items]
Fair value		2,782,000	$ 2,782,000
Mortgage Loans on Real Estate, Number of Loans, Nonperforming | loan			4	5
Principal		$ 3,091,000	$ 3,091,000
Non-Qualifying Adjustable Rate Mortgage Loan | Residential Bridge Loans
Variable Interest Entity [Line Items]
Number of  Loans | loan		4		5
Fair value		$ 2,800,000	$ 2,800,000	$ 2,800,000
Non-Qualifying Adjustable Rate Mortgage Loan | Residential  Whole Loans
Variable Interest Entity [Line Items]
Number of  Loans | loan			2,761
Investor Fixed Rate Mortgage Loan | Residential Bridge Loans
Variable Interest Entity [Line Items]
Number of  Loans | loan			3	3
Investor Fixed Rate Mortgage Loan | Estimated Fair Value | Residential Bridge Loans
Variable Interest Entity [Line Items]
Fair value		991,700	$ 991,700	$ 1,200,000
RMI 2015 Trust | Non-Qualifying Adjustable Rate Mortgage Loan | Arroyo Trust
Variable Interest Entity [Line Items]
Number of  Loans | trust			9	6
RMI 2015 Trust | Non-Qualifying Adjustable Rate Mortgage Loan | Arroyo Trust | Estimated Fair Value
Variable Interest Entity [Line Items]
Fair value		4,300,000	$ 4,300,000	$ 3,200,000
Arroyo Trust 2019 | Residential  Whole Loans
Variable Interest Entity [Line Items]
Repurchase agreements, net	$ 919,000,000
Arroyo Trust 2019 | Arroyo Trust | Residential  Whole Loans
Variable Interest Entity [Line Items]
Transferred of non-qm residential whole loans	$ 945,500,000
Arroyo Trust 2019 | Non-Qualifying Adjustable Rate Mortgage Loan | Arroyo Trust
Variable Interest Entity [Line Items]
Number of  Loans | loan			684,000	766,000
Arroyo Trust 2019 | Non-Qualifying Adjustable Rate Mortgage Loan | Arroyo Trust | Estimated Fair Value
Variable Interest Entity [Line Items]
Fair value		214,000,000	$ 214,000,000	$ 237,600,000
Arroyo Mortgage Trust 2020 | Residential  Whole Loans
Variable Interest Entity [Line Items]
Repurchase agreements, net							$ 341,700,000
Arroyo Mortgage Trust 2020 | Arroyo Trust | Residential  Whole Loans
Variable Interest Entity [Line Items]
Line of credit facility, maximum borrowing capacity							$ 355,800,000
Long-term debt, fair value		127,700,000	$ 127,700,000	$ 135,100,000
Arroyo Mortgage Trust 2020 | Non-Qualifying Adjustable Rate Mortgage Loan | Arroyo Trust
Variable Interest Entity [Line Items]
Number of  Loans | loan			406,000	432
Arroyo Mortgage Trust 2022 | Residential  Whole Loans
Variable Interest Entity [Line Items]
Repurchase agreements, net						$ 398,900,000
Arroyo Mortgage Trust 2022 | Arroyo Trust | Residential  Whole Loans
Variable Interest Entity [Line Items]
Repurchase agreements, net		324,600,000	$ 324,600,000	$ 350,700,000
Line of credit facility, maximum borrowing capacity						$ 432,000,000
Arroyo Mortgage Trust 2022 | Non-Qualifying Adjustable Rate Mortgage Loan | Arroyo Trust
Variable Interest Entity [Line Items]
Number of  Loans | loan			682	705,000
Arroyo Mortgage Trust 2022-2 | Residential  Whole Loans
Variable Interest Entity [Line Items]
Repurchase agreements, net					$ 351,900,000
Arroyo Mortgage Trust 2022-2 | Arroyo Trust | Residential  Whole Loans
Variable Interest Entity [Line Items]
Repurchase agreements, net		316,300,000	$ 316,300,000	$ 363,300,000
Line of credit facility, maximum borrowing capacity					$ 402,200,000
Arroyo Mortgage Trust 2022-2 | Non-Qualifying Adjustable Rate Mortgage Loan | Arroyo Trust
Variable Interest Entity [Line Items]
Number of  Loans | loan			980	1,029,000
VIE | Residential Bridge Loans
Variable Interest Entity [Line Items]
Number of  Loans | loan			4	5
Principal		3,100,000	$ 3,100,000
Investment in mortgage loans on real estate, principal amount at fair value of delinquent loan				$ 3,200,000
Foreclosed other real estate owned		2,300,000	$ 2,300,000	$ 2,300,000
VIE | Residential  Whole Loans
Variable Interest Entity [Line Items]
Mortgage Loans on Real Estate, Number of Loans, Nonperforming | loan			20	13
Mortgage loans on real estate, principal amount of delinquent loans		11,200,000	$ 11,200,000	$ 8,700,000
Mortgage loans on real estate, number of loans, nonperforming, percentage			1.00%	0.80%
Original LTV, collateral dependent			61.60%	60.00%
VIE | Estimated Fair Value | Residential Bridge Loans
Variable Interest Entity [Line Items]
Fair value		2,800,000	$ 2,800,000	$ 2,800,000
VIE | Estimated Fair Value | Residential  Whole Loans
Variable Interest Entity [Line Items]
Fair value		$ 10,300,000	$ 10,300,000	$ 8,000,000

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Residential Whole Loans and Bridge Loans - Summary of the Assets and Liabilities of the Residential and Commercial Loan Trusts (Details) - USD ($)		Sep. 30, 2023	Dec. 31, 2022
Variable Interest Entity [Line Items]
Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively)		$ 986,978,000	$ 1,091,145,000
Investment related receivable		8,648,000	5,960,000
Interest receivable		10,913,000	11,330,000
Other assets		4,145,000	4,860,000
Total assets	[1]	2,235,776,000	2,453,234,000
Securitized debt, net		1,884,375,000	2,058,684,000
Interest payable		8,638,000	12,794,000
Accounts payable and accrued expenses		6,021,000	3,201,000
Total liabilities	[2]	2,157,786,000	2,358,422,000
VIE
Variable Interest Entity [Line Items]
Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively)		986,978,000	1,091,145,000
Residential Bridge Loans, at fair value ($2,782 and none pledged as collateral, at fair value, respectively)		2,782,000	0
Investment related receivable		8,602,000	5,914,000
Interest receivable		9,731,000	10,182,000
Other assets		0	509,000
Total assets		2,033,242,000	2,210,312,000
Securitized debt, net		1,884,375,000	2,058,684,000
Interest payable		7,887,000	8,303,000
Accounts payable and accrued expenses		21,000	43,000
Total liabilities		1,892,283,000	2,067,278,000
Fair value of collateral, residential home loans		986,978,000	1,089,914,000
Residential Whole-Loan And Residential Bridge Loan | VIE
Variable Interest Entity [Line Items]
Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively)		986,978,000	1,091,145,000
Residential Bridge Loans, at fair value ($2,782 and none pledged as collateral, at fair value, respectively)		2,782,000	2,849,000
Investment related receivable		8,602,000	5,914,000
Interest receivable		4,580,000	4,871,000
Other assets		0	509,000
Total assets		1,002,942,000	1,105,288,000
Securitized debt, net		877,745,000	981,073,000
Interest payable		2,892,000	3,139,000
Accounts payable and accrued expenses		12,000	34,000
Total liabilities		$ 880,649,000	$ 984,246,000

[1] September 30, 2023December 31, 2022 (1) Assets of consolidated VIEs included in the total assets above:   Restricted cash$— $248  Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively) 986,978 1,091,145  Residential Bridge Loans, at fair value ($2,782 and none pledged as collateral, at fair value, respectively) 2,782 2,849 Securitized Commercial Loan, at fair value1,012,650 1,085,103 Commercial Loans, at fair value12,499 14,362 Investment related receivable8,602 5,914 Interest receivable9,731 10,182 Other assets— 509 Total assets of consolidated VIEs$2,033,242 $2,210,312  (2) Liabilities of consolidated VIEs included in the total liabilities above:    Securitized debt, net ($1,582,278 and $1,719,865 at fair value and $110,081 and $128,217 held by affiliates, respectively) $1,884,375 $2,058,684  Interest payable (includes $615 and $655 on securitized debt held by affiliates, respectively) 7,887 8,303 Accounts payable and accrued expenses21 43 Other liabilities— 248 Total liabilities of consolidated VIEs$1,892,283 $2,067,278 

[2] September 30, 2023December 31, 2022 (1) Assets of consolidated VIEs included in the total assets above:   Restricted cash$— $248  Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively) 986,978 1,091,145  Residential Bridge Loans, at fair value ($2,782 and none pledged as collateral, at fair value, respectively) 2,782 2,849 Securitized Commercial Loan, at fair value1,012,650 1,085,103 Commercial Loans, at fair value12,499 14,362 Investment related receivable8,602 5,914 Interest receivable9,731 10,182 Other assets— 509 Total assets of consolidated VIEs$2,033,242 $2,210,312  (2) Liabilities of consolidated VIEs included in the total liabilities above:    Securitized debt, net ($1,582,278 and $1,719,865 at fair value and $110,081 and $128,217 held by affiliates, respectively) $1,884,375 $2,058,684  Interest payable (includes $615 and $655 on securitized debt held by affiliates, respectively) 7,887 8,303 Accounts payable and accrued expenses21 43 Other liabilities— 248 Total liabilities of consolidated VIEs$1,892,283 $2,067,278 

XML

Residential Whole Loans and Bridge Loans - Components of the Fair Value of Residential Whole Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Residential Whole Loans, at Fair Value
Variable Interest Entity [Line Items]
Principal  Balance	$ 1,078,005	$ 1,165,301
Unamortized premium	28,530	30,961
Unamortized discount	(1,394)	(1,536)
Amortized cost	1,105,141	1,194,726
Gross unrealized gains	5,371	2,038
Gross unrealized losses	(123,534)	(105,619)
Fair value	986,978	1,091,145
Residential Bridge Loans, at Fair Value
Variable Interest Entity [Line Items]
Principal  Balance	3,091	3,166
Unamortized premium	0	0
Unamortized discount	0	0
Amortized cost	3,091	3,166
Gross unrealized gains	0	0
Gross unrealized losses	(309)	(317)
Fair value	$ 2,782	$ 2,849

XML

Residential Whole Loans and Bridge Loans - Investment Portfolio (Details) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2023 USD ($) loan	Dec. 31, 2022 USD ($) loan
2.01% – 3.00%
Variable Interest Entity [Line Items]
Coupon  Rate	2.90%	2.90%
Number of  Loans | loan	39	39
Principal  Balance | $	$ 21,880	$ 22,277
Original LTV	66.30%	66.30%
Original FICO score	758	758
Expected  Life (years)	9 years 1 month 6 days	8 years 10 months 24 days
Contractual  Maturity  (years)	27 years 7 months 6 days	28 years 3 months 18 days
2.01% – 3.00% | Minimum
Variable Interest Entity [Line Items]
Coupon  Rate	2.01%	2.01%
2.01% – 3.00% | Maximum
Variable Interest Entity [Line Items]
Coupon  Rate	3.00%	3.00%
3.01% – 4.00%
Variable Interest Entity [Line Items]
Coupon  Rate	3.70%	3.70%
Number of  Loans | loan	361	402
Principal  Balance | $	$ 196,884	$ 214,402
Original LTV	67.00%	66.30%
Original FICO score	760	759
Expected  Life (years)	8 years 2 months 12 days	7 years 3 months 18 days
Contractual  Maturity  (years)	28 years	28 years 6 months
3.01% – 4.00% | Minimum
Variable Interest Entity [Line Items]
Coupon  Rate	3.01%	3.01%
3.01% – 4.00% | Maximum
Variable Interest Entity [Line Items]
Coupon  Rate	4.00%	400.00%
4.01% – 5.00%
Variable Interest Entity [Line Items]
Coupon  Rate	4.50%	4.60%
Number of  Loans | loan	1,134	1,337
Principal  Balance | $	$ 384,437	$ 453,811
Original LTV	64.80%	64.10%
Original FICO score	750	749
Expected  Life (years)	6 years 9 months 18 days	5 years 6 months
Contractual  Maturity  (years)	25 years 6 months	26 years
4.01% – 5.00% | Minimum
Variable Interest Entity [Line Items]
Coupon  Rate	4.01%	4.01%
4.01% – 5.00% | Maximum
Variable Interest Entity [Line Items]
Coupon  Rate	5.00%	5.00%
5.01% – 6.00%
Variable Interest Entity [Line Items]
Coupon  Rate	5.50%	5.40%
Number of  Loans | loan	813	901
Principal  Balance | $	$ 322,376	$ 363,197
Original LTV	66.00%	65.60%
Original FICO score	743	742
Expected  Life (years)	6 years 1 month 6 days	4 years 8 months 12 days
Contractual  Maturity  (years)	26 years 2 months 12 days	26 years 8 months 12 days
5.01% – 6.00% | Minimum
Variable Interest Entity [Line Items]
Coupon  Rate	5.01%	5.01%
5.01% – 6.00% | Maximum
Variable Interest Entity [Line Items]
Coupon  Rate	6.00%	6.00%
6.01% – 7.00%
Variable Interest Entity [Line Items]
Coupon  Rate	6.50%	6.40%
Number of  Loans | loan	321	249
Principal  Balance | $	$ 120,933	$ 105,933
Original LTV	67.20%	69.90%
Original FICO score	743	742
Expected  Life (years)	4 years 9 months 18 days	3 years 7 months 6 days
Contractual  Maturity  (years)	26 years 10 months 24 days	28 years 4 months 24 days
6.01% – 7.00% | Minimum
Variable Interest Entity [Line Items]
Coupon  Rate	6.01%	6.01%
6.01% – 7.00% | Maximum
Variable Interest Entity [Line Items]
Coupon  Rate	7.00%	7.00%
7.01% - 8.00%
Variable Interest Entity [Line Items]
Coupon  Rate	7.40%	7.40%
Number of  Loans | loan	69	15
Principal  Balance | $	$ 23,865	$ 5,681
Original LTV	60.60%	75.20%
Original FICO score	734	730
Expected  Life (years)	4 years 1 month 6 days	3 years
Contractual  Maturity  (years)	23 years 1 month 6 days	29 years 2 months 12 days
7.01% - 8.00% | Minimum
Variable Interest Entity [Line Items]
Coupon  Rate	7.01%	7.01%
7.01% - 8.00% | Maximum
Variable Interest Entity [Line Items]
Coupon  Rate	8.00%	8.00%
8.01% - 9.00%
Variable Interest Entity [Line Items]
Coupon  Rate	8.60%
Number of  Loans | loan	24
Principal  Balance | $	$ 7,630
Original LTV	55.50%
Original FICO score	744
Expected  Life (years)	4 years 3 months 18 days
Contractual  Maturity  (years)	24 years
8.01% - 9.00% | Minimum
Variable Interest Entity [Line Items]
Coupon  Rate	8.01%
8.01% - 9.00% | Maximum
Variable Interest Entity [Line Items]
Coupon  Rate	9.00%
Residential  Whole Loans
Variable Interest Entity [Line Items]
Coupon  Rate	4.90%	4.80%
Number of  Loans | loan	2,761	2,943
Principal  Balance | $	$ 1,078,005	$ 1,165,301
Original LTV	65.70%	65.60%
Original FICO score	749	748
Expected  Life (years)	6 years 7 months 6 days	5 years 6 months
Contractual  Maturity  (years)	26 years 3 months 18 days	27 years
Residential portfolio segment with no FICO score
Variable Interest Entity [Line Items]
Number of  Loans | loan	210	231
Principal  Balance | $	$ 64,600	$ 76,600
7.01% – 9.00%
Variable Interest Entity [Line Items]
Coupon  Rate	8.70%	8.70%
Number of  Loans | loan	2	2
Principal  Balance | $	$ 1,822	$ 1,822
Original LTV	67.50%	67.50%
Contractual  Maturity  (years)	0 years	0 years
7.01% – 9.00% | Minimum
Variable Interest Entity [Line Items]
Coupon  Rate	7.01%	7.01%
7.01% – 9.00% | Maximum
Variable Interest Entity [Line Items]
Coupon  Rate	9.00%	9.00%
9.01% – 11.00%
Variable Interest Entity [Line Items]
Coupon  Rate	10.00%	10.00%
Number of  Loans | loan	1	1
Principal  Balance | $	$ 849	$ 849
Original LTV	90.50%	90.50%
Contractual  Maturity  (years)	0 years	0 years
9.01% – 11.00% | Minimum
Variable Interest Entity [Line Items]
Coupon  Rate	9.01%	9.01%
9.01% – 11.00% | Maximum
Variable Interest Entity [Line Items]
Coupon  Rate	11.00%	11.00%
11.01% – 13.00%
Variable Interest Entity [Line Items]
Coupon  Rate	11.30%	11.40%
Number of  Loans | loan	1	2
Principal  Balance | $	$ 420	$ 495
Original LTV	70.00%	69.70%
Contractual  Maturity  (years)	0 years	0 years
11.01% – 13.00% | Minimum
Variable Interest Entity [Line Items]
Coupon  Rate	11.01%	11.01%
11.01% – 13.00% | Maximum
Variable Interest Entity [Line Items]
Coupon  Rate	13.00%	13.00%
Residential Bridge Loans | VIE
Variable Interest Entity [Line Items]
Coupon  Rate	9.40%	9.50%
Number of  Loans | loan	4	5
Principal  Balance | $	$ 3,091	$ 3,166
Original LTV	74.20%	74.00%
Contractual  Maturity  (years)	0 years	0 years

XML

Residential Whole Loans and Bridge Loans - Collateral Securing (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Residential  Whole Loans
Variable Interest Entity [Line Items]
Principal  Balance	$ 1,078,005	$ 1,165,301
Geographic Concentration Risk | Financing Receivables Total | Residential  Whole Loans
Variable Interest Entity [Line Items]
State Concentration	100.00%	100.00%
Principal  Balance	$ 1,078,005	$ 1,165,301
Geographic Concentration Risk | Financing Receivables Total | Residential Bridge Loans
Variable Interest Entity [Line Items]
State Concentration	100.00%	100.00%
Principal  Balance	$ 3,091	$ 3,166
California | Geographic Concentration Risk | Financing Receivables Total | Residential  Whole Loans
Variable Interest Entity [Line Items]
State Concentration	67.80%	66.80%
Principal  Balance	$ 731,058	$ 778,732
California | Geographic Concentration Risk | Financing Receivables Total | Residential Bridge Loans
Variable Interest Entity [Line Items]
State Concentration	56.70%	55.40%
Principal  Balance	$ 1,754	$ 1,754
New York | Geographic Concentration Risk | Financing Receivables Total | Residential  Whole Loans
Variable Interest Entity [Line Items]
State Concentration	9.00%	9.30%
Principal  Balance	$ 96,757	$ 108,108
New York | Geographic Concentration Risk | Financing Receivables Total | Residential Bridge Loans
Variable Interest Entity [Line Items]
State Concentration	43.30%	42.20%
Principal  Balance	$ 1,337	$ 1,337
Texas | Geographic Concentration Risk | Financing Receivables Total | Residential  Whole Loans
Variable Interest Entity [Line Items]
State Concentration	4.80%	4.80%
Principal  Balance	$ 51,407	$ 56,126
Florida | Geographic Concentration Risk | Financing Receivables Total | Residential  Whole Loans
Variable Interest Entity [Line Items]
State Concentration	3.90%	4.10%
Principal  Balance	$ 42,157	$ 47,681
Georgia | Geographic Concentration Risk | Financing Receivables Total | Residential  Whole Loans
Variable Interest Entity [Line Items]
State Concentration	3.30%	3.50%
Principal  Balance	$ 35,297	$ 40,845
Other | Geographic Concentration Risk | Financing Receivables Total | Residential  Whole Loans
Variable Interest Entity [Line Items]
State Concentration	11.20%	11.50%
Principal  Balance	$ 121,329	$ 133,809
New Jersey | Geographic Concentration Risk | Financing Receivables Total | Residential Bridge Loans
Variable Interest Entity [Line Items]
State Concentration		2.40%
Principal  Balance		$ 75

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Residential Whole Loans and Bridge Loans - Aging of Delinquent Loans (Details) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2023 USD ($) loan	Dec. 31, 2022 loan
Residential whole-loans
Variable Interest Entity [Line Items]
Number of loans | loan	2,761
Principal	$ 1,078,005
Fair value	$ 986,978
Residential Bridge Loans
Variable Interest Entity [Line Items]
Number of loans | loan	4
Principal	$ 3,091
Fair value	$ 2,782
Non-QM Loans
Variable Interest Entity [Line Items]
Number of loans in forbearance | loan	0
Current | Residential whole-loans
Variable Interest Entity [Line Items]
Number of loans | loan	2,707
Principal	$ 1,048,261
Fair value	$ 959,343
Current | Residential Bridge Loans
Variable Interest Entity [Line Items]
Number of loans | loan	0
Principal	$ 0
Fair value	$ 0
1-30 days | Residential whole-loans
Variable Interest Entity [Line Items]
Number of loans | loan	23
Principal	$ 10,407
Fair value	$ 9,617
1-30 days | Residential Bridge Loans
Variable Interest Entity [Line Items]
Number of loans | loan	0
Principal	$ 0
Fair value	$ 0
31-60 days | Residential whole-loans
Variable Interest Entity [Line Items]
Number of loans | loan	0
Principal	$ 0
Fair value	$ 0
31-60 days | Residential Bridge Loans
Variable Interest Entity [Line Items]
Number of loans | loan	0
Principal	$ 0
Fair value	$ 0
61-90 days | Residential whole-loans
Variable Interest Entity [Line Items]
Number of loans | loan	11
Principal	$ 8,155
Fair value	$ 7,696
61-90 days | Residential Bridge Loans
Variable Interest Entity [Line Items]
Number of loans | loan	0
Principal	$ 0
Fair value	$ 0
90+ days | Residential whole-loans
Variable Interest Entity [Line Items]
Number of loans | loan	20
Principal	$ 11,182
Fair value	$ 10,322
90+ days | Residential Bridge Loans
Variable Interest Entity [Line Items]
Number of loans | loan	4	5
Principal	$ 3,091
Fair value	$ 2,782

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Commercial Loans - Commercial Loans Held (Details) - USD ($) $ in Thousands	1 Months Ended					9 Months Ended		12 Months Ended
	Oct. 31, 2023	Jul. 31, 2023	May 31, 2023	Jan. 31, 2023	Aug. 31, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Principal repayments on commercial loan						$ 1,962	$ 20,593
Repayments of secured debt						83,042	$ 207,799
CRE LLC And CRE Mezz | Securitized Commercial Loans
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Principal  Balance						67,205
Fair Value						66,202
RSBC Trust | Securitized Commercial Loans
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Principal  Balance						12,500
Fair Value						12,499
Retail | CRE LLC And CRE Mezz | Securitized Commercial Loans | Interest-Only First Mortgage | CRE 4
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Principal  Balance						22,204
Fair Value						$ 22,071
Coupon  Rate						63.00%
Option to extend term					3 years
Principal repayments on commercial loan					$ 16,200
Retail | SOFR | CRE LLC And CRE Mezz | Securitized Commercial Loans | Interest-Only First Mortgage | CRE 4
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Coupon  Rate						3.38%
Hotel | CRE LLC And CRE Mezz | Securitized Commercial Loans | Interest-Only First Mortgage | CRE 5
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Principal  Balance						$ 24,535
Fair Value						$ 24,061
Coupon  Rate						62.00%
Hotel | CRE LLC And CRE Mezz | Securitized Commercial Loans | Interest-Only First Mortgage | CRE 6
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Principal  Balance						$ 13,207
Fair Value						$ 12,952
Coupon  Rate						62.00%
Hotel | CRE LLC And CRE Mezz | Securitized Commercial Loans | Interest-Only First Mortgage | CRE 7
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Principal  Balance						$ 7,259
Fair Value						$ 7,118
Coupon  Rate						62.00%
Hotel | SOFR | CRE LLC And CRE Mezz | Securitized Commercial Loans | Interest-Only First Mortgage | CRE 5
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Coupon  Rate						4.20%
Hotel | SOFR | CRE LLC And CRE Mezz | Securitized Commercial Loans | Interest-Only First Mortgage | CRE 6
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Coupon  Rate						4.20%
Hotel | SOFR | CRE LLC And CRE Mezz | Securitized Commercial Loans | Interest-Only First Mortgage | CRE 7
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Coupon  Rate						4.20%
Nursing Facilities | RSBC Trust | Securitized Commercial Loans | Interest-Only First Mortgage | SBC 3
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Principal  Balance		$ 12,500	$ 12,800	$ 13,500		$ 12,500
Fair Value						$ 12,499
Coupon  Rate						49.00%
Repayments of secured debt		$ 250	$ 750	$ 862
Nursing Facilities | RSBC Trust | Securitized Commercial Loans | Interest-Only First Mortgage | SBC 3 | Subsequent Event
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Principal  Balance	$ 12,300
Repayments of secured debt	$ 250
Nursing Facilities | SOFR | RSBC Trust | Securitized Commercial Loans | Interest-Only First Mortgage | SBC 3
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Coupon  Rate			5.50%	5.00%		5.50%		4.47%
BPS extension fee		0.25%		0.50%
Nursing Facilities | SOFR | RSBC Trust | Securitized Commercial Loans | Interest-Only First Mortgage | SBC 3 | Subsequent Event
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
BPS extension fee	0.25%

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Commercial Loans - Narrative (Details) $ in Thousands		3 Months Ended		9 Months Ended		12 Months Ended
	Feb. 03, 2023 USD ($)	Sep. 30, 2023 USD ($) loan	Sep. 30, 2022 USD ($)	Sep. 30, 2023 USD ($) loan entity trust	Sep. 30, 2022 USD ($)	Dec. 31, 2022 USD ($) trust	Jul. 31, 2023 USD ($)	May 31, 2023 USD ($)	Jan. 31, 2023 USD ($)
Variable Interest Entity [Line Items]
Variable interest entity, number of entity | entity				1
Number of commercial loans trusts | trust				2		2
CSMC Trust
Variable Interest Entity [Line Items]
Principal		$ 1,385,591		$ 1,385,591		$ 1,385,591
CSMC Trust | Class F | Secured Debt
Variable Interest Entity [Line Items]
Debt instrument, debt default, amount		$ 14,900		$ 14,900
CSMC Trust
Variable Interest Entity [Line Items]
Variable interest entity, amount acquired, interest rate		8.80%		8.80%
Debt instrument, basis spread on variable rate				4.38%
Securitized Commercial Loans | CSMC Trust
Variable Interest Entity [Line Items]
Principal		$ 1,400,000		$ 1,400,000
Securitized Commercial Loans | RSBC Trust
Variable Interest Entity [Line Items]
Principal  Balance		12,500		12,500
Securitized Commercial Loans | Level III | Fair Value, Measurements, Recurring
Variable Interest Entity [Line Items]
Realized loss		0	$ 0	$ 0	$ 0
Commercial Loans
Variable Interest Entity [Line Items]
Number of commercial loans trusts | trust				2
Commercial Loans | Level III | Fair Value, Measurements, Recurring
Variable Interest Entity [Line Items]
Realized loss	$ (81,200)	0	$ 0	$ (81,223)	$ 0
CRE 3 | Securitized Commercial Loans
Variable Interest Entity [Line Items]
Principal  Balance						$ 8,800
SBC 3 | Securitized Commercial Loans | Interest-Only First Mortgage | Nursing Facilities | RSBC Trust
Variable Interest Entity [Line Items]
Principal  Balance		$ 12,500		$ 12,500			$ 12,500	$ 12,800	$ 13,500
Number of commercial loans | loan		1		1

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Commercial Loans - Consolidated Commercial Loan Trusts Included in the Consolidated Balance Sheets (Details) - USD ($) $ in Thousands		Sep. 30, 2023	Dec. 31, 2022	Sep. 30, 2022
Noncontrolling Interest [Line Items]
Restricted cash		$ 0	$ 248	$ 251
Securitized Commercial Loan, at fair value		1,012,650	1,085,103
Commercial Loans, at fair value		66,202	66,864
Interest receivable		10,913	11,330
Total assets	[1]	2,235,776	2,453,234
Interest payable		8,638	12,794
Accounts payable and accrued expenses		6,021	3,201
Other liabilities		25	300
Total liabilities	[2]	2,157,786	2,358,422
VIE
Noncontrolling Interest [Line Items]
Restricted cash		0	248
Securitized Commercial Loan, at fair value		1,012,650	1,085,103
Interest receivable		9,731	10,182
Total assets		2,033,242	2,210,312
Interest payable		7,887	8,303
Accounts payable and accrued expenses		21	43
Other liabilities		0	248
Total liabilities		1,892,283	2,067,278
Securitized Commercial Loans | VIE
Noncontrolling Interest [Line Items]
Restricted cash		0	248
Securitized Commercial Loan, at fair value		1,012,650	1,085,103
Commercial Loans, at fair value		12,499	14,362
Interest receivable		5,151	5,311
Total assets		1,030,300	1,105,024
Securitized debt, at fair value		1,006,630	1,077,611
Interest payable		4,995	5,164
Accounts payable and accrued expenses		9	9
Other liabilities		0	248
Total liabilities		$ 1,011,634	$ 1,083,032

[1] September 30, 2023December 31, 2022 (1) Assets of consolidated VIEs included in the total assets above:   Restricted cash$— $248  Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively) 986,978 1,091,145  Residential Bridge Loans, at fair value ($2,782 and none pledged as collateral, at fair value, respectively) 2,782 2,849 Securitized Commercial Loan, at fair value1,012,650 1,085,103 Commercial Loans, at fair value12,499 14,362 Investment related receivable8,602 5,914 Interest receivable9,731 10,182 Other assets— 509 Total assets of consolidated VIEs$2,033,242 $2,210,312  (2) Liabilities of consolidated VIEs included in the total liabilities above:    Securitized debt, net ($1,582,278 and $1,719,865 at fair value and $110,081 and $128,217 held by affiliates, respectively) $1,884,375 $2,058,684  Interest payable (includes $615 and $655 on securitized debt held by affiliates, respectively) 7,887 8,303 Accounts payable and accrued expenses21 43 Other liabilities— 248 Total liabilities of consolidated VIEs$1,892,283 $2,067,278 

[2] September 30, 2023December 31, 2022 (1) Assets of consolidated VIEs included in the total assets above:   Restricted cash$— $248  Residential Whole Loans, at fair value ($986,978 and $1,089,914 pledged as collateral, at fair value, respectively) 986,978 1,091,145  Residential Bridge Loans, at fair value ($2,782 and none pledged as collateral, at fair value, respectively) 2,782 2,849 Securitized Commercial Loan, at fair value1,012,650 1,085,103 Commercial Loans, at fair value12,499 14,362 Investment related receivable8,602 5,914 Interest receivable9,731 10,182 Other assets— 509 Total assets of consolidated VIEs$2,033,242 $2,210,312  (2) Liabilities of consolidated VIEs included in the total liabilities above:    Securitized debt, net ($1,582,278 and $1,719,865 at fair value and $110,081 and $128,217 held by affiliates, respectively) $1,884,375 $2,058,684  Interest payable (includes $615 and $655 on securitized debt held by affiliates, respectively) 7,887 8,303 Accounts payable and accrued expenses21 43 Other liabilities— 248 Total liabilities of consolidated VIEs$1,892,283 $2,067,278 

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Commercial Loans - Components of the Carrying Value of Commercial Real Estate Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Commercial Loans, at Fair Value
Variable Interest Entity [Line Items]
Principal	$ 67,205	$ 157,205
Unamortized discount	0	0
Amortized cost	67,205	157,205
Gross unrealized gains	0	0
Gross unrealized losses	(1,003)	(81,565)
Fair value	66,202	75,640
CSMC USA Trust Securitized Commercial Loan, at Fair Value
Variable Interest Entity [Line Items]
Principal	1,385,591	1,385,591
Unamortized discount	(62,799)	(84,132)
Amortized cost	1,322,792	1,301,459
Gross unrealized gains	0	0
Gross unrealized losses	(310,142)	(216,356)
Fair value	1,012,650	1,085,103
RSBC Trust Commercial Loans, at Fair Value
Variable Interest Entity [Line Items]
Principal	12,500	14,362
Unamortized discount	0	0
Amortized cost	12,500	14,362
Gross unrealized gains	0	0
Gross unrealized losses	(1)	0
Fair value	$ 12,499	$ 14,362

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Financings - Narrative (Details)			1 Months Ended		9 Months Ended
	Oct. 12, 2023	Jul. 25, 2023 USD ($)	Sep. 30, 2021 USD ($)	May 31, 2019 USD ($)	Sep. 30, 2023 USD ($) agreement property $ / shares	Dec. 31, 2022 USD ($) property	Jul. 31, 2022 USD ($)	Feb. 28, 2022 USD ($)	Jun. 30, 2020 USD ($)
Debt Instrument [Line Items]
Number of real estate properties owned | property					1	1
Commercial loans, at fair value					$ 66,202,000	$ 66,864,000
Number of counterparties from whom entity borrowed under repurchase agreement | agreement					4
Securities loaned, collateral, right to reclaim cash					$ 241,000	3,400,000
Securities purchased under agreements to resell, collateral, obligation to return cash					103,000	300,000
Repurchase agreements, net					169,910,000	193,117,000
Affiliated Entity
Debt Instrument [Line Items]
Securitized debt, at fair value					1,582,278,000	1,719,865,000
Repurchase agreements
Debt Instrument [Line Items]
Assets Pledged					227,600,000	288,300,000
Repurchase agreements
Debt Instrument [Line Items]
Debt instrument, term		2 years
Commercial loans, at fair value					134,700,000
Debt outstanding					62,400,000
Debt instrument, face amount		$ 65,000,000
Arroyo Trust | Secured Debt
Debt Instrument [Line Items]
Debt outstanding					185,912,000
Debt instrument, face amount					187,844,000
Arroyo Mortgage Trust 2020 | Secured Debt
Debt Instrument [Line Items]
Debt outstanding					116,185,000
Debt instrument, face amount					117,361,000
VIE
Debt Instrument [Line Items]
Assets Pledged					2,782,000	0
Arroyo Mortgage Trust 2022 | Secured Debt
Debt Instrument [Line Items]
Debt instrument, face amount					346,266,000
Arroyo Mortgage Trust 2022-2 | Secured Debt
Debt Instrument [Line Items]
Debt instrument, face amount					$ 306,622,000
Redemption of offering notes period					3 years
Securitized debt, at fair value					$ 286,239,000
CSMC Trust
Debt Instrument [Line Items]
Trust certificates issued					1,400,000,000
Principal					1,385,591,000	1,385,591,000
CSMC Trust | Affiliated Entity
Debt Instrument [Line Items]
Trust certificates issued					174,700,000
CSMC Trust | Third parties
Debt Instrument [Line Items]
Trust certificates issued					1,200,000,000
CSMC Trust | Secured Debt
Debt Instrument [Line Items]
Debt instrument, face amount					1,370,691,000
Securitized debt, at fair value					1,006,630,000
Non-QM Loans | Arroyo Trust
Debt Instrument [Line Items]
Borrowing amount					4,200,000
Non-QM Loans | Arroyo Mortgage Trust 2020 | Arroyo Trust
Debt Instrument [Line Items]
Line of credit facility, remaining borrowing capacity					4,300,000
Non-QM Loans | SOFR | Arroyo Trust | Subsequent Event
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate	2.25%
Residential Bridge Loans
Debt Instrument [Line Items]
Line of credit facility, remaining borrowing capacity					2,800,000
Residential Bridge Loans | VIE
Debt Instrument [Line Items]
Foreclosed other real estate owned					2,300,000	2,300,000
Principal					3,100,000
Residential  Whole Loans | Arroyo Trust | Secured Debt
Debt Instrument [Line Items]
Debt outstanding					$ 212,300,000
Redemption of offering notes period					3 years
Maximum aggregate collateral balance over original principal balance percentage					20.00%
Residential  Whole Loans | Arroyo Mortgage Trust 2020
Debt Instrument [Line Items]
Repurchase agreements, net									$ 341,700,000
Residential  Whole Loans | Arroyo Mortgage Trust 2020 | Secured Debt
Debt Instrument [Line Items]
Debt outstanding					$ 130,400,000
Redemption of offering notes period					3 years
Maximum aggregate collateral balance over original principal balance percentage					30.00%
Residential  Whole Loans | Arroyo Mortgage Trust 2020 | Arroyo Trust
Debt Instrument [Line Items]
Line of credit facility, maximum borrowing capacity									$ 355,800,000
Residential  Whole Loans | Arroyo Trust 2019
Debt Instrument [Line Items]
Repurchase agreements, net				$ 919,000,000
Residential  Whole Loans | Arroyo Trust 2019 | Arroyo Trust
Debt Instrument [Line Items]
Transferred of non-qm residential whole loans				$ 945,500,000
Residential  Whole Loans | Arroyo Mortgage Trust 2022
Debt Instrument [Line Items]
Repurchase agreements, net								$ 398,900,000
Residential  Whole Loans | Arroyo Mortgage Trust 2022 | Secured Debt
Debt Instrument [Line Items]
Debt outstanding					$ 378,000,000
Redemption of offering notes period					3 years
Residential  Whole Loans | Arroyo Mortgage Trust 2022 | Arroyo Trust
Debt Instrument [Line Items]
Repurchase agreements, net					$ 324,600,000	350,700,000
Line of credit facility, maximum borrowing capacity								$ 432,000,000
Residential  Whole Loans | Arroyo Mortgage Trust 2022-2
Debt Instrument [Line Items]
Debt outstanding					$ 353,100,000
Repurchase agreements, net							$ 351,900,000
Residential  Whole Loans | Arroyo Mortgage Trust 2022-2 | Secured Debt
Debt Instrument [Line Items]
Maximum aggregate collateral balance over original principal balance percentage					30.00%
Residential  Whole Loans | Arroyo Mortgage Trust 2022-2 | Arroyo Trust
Debt Instrument [Line Items]
Repurchase agreements, net					$ 316,300,000	363,300,000
Line of credit facility, maximum borrowing capacity							$ 402,200,000
Securitized Commercial Loans | VIE
Debt Instrument [Line Items]
Commercial loans, at fair value					12,499,000	14,362,000
Securitized debt, at fair value					1,006,630,000	$ 1,077,611,000
Securitized Commercial Loans | CSMC Trust
Debt Instrument [Line Items]
Principal					1,400,000,000
Non-Agency CMBS and Non-Agency RMBS Facility
Debt Instrument [Line Items]
Line of credit facility, remaining borrowing capacity					54,900,000
Commercial loans, at fair value					$ 90,800,000
Non-Agency CMBS and Non-Agency RMBS Facility | SOFR
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate					2.50%
Commercial Whole Loan Facility | Estimated Fair Value
Debt Instrument [Line Items]
Commercial loans, at fair value					$ 66,200,000
Commercial Whole Loan Facility | Repurchase agreements
Debt Instrument [Line Items]
Debt outstanding					$ 48,000,000
Commercial Whole Loan Facility | SOFR | Repurchase agreements
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate					2.25%
6.75% Convertible Senior Unsecured Notes | Convertible Senior Unsecured Notes due 2024
Debt Instrument [Line Items]
Interest rate stated percentage					6.75%
Debt instrument, face amount			$ 86,300,000
Proceeds from notes payable			$ 83,300,000
Redemption price, percentage			100.00%
Convertible senior unsecured notes, conversion price (in dollars per share) | $ / shares					$ 29.59
Debt instrument, convertible, conversion ratio			0.0337952
Class F | CSMC Trust | Secured Debt
Debt Instrument [Line Items]
Debt instrument, face amount					$ 153,600,000
Debt instrument, debt default, amount					14,900,000
Securitized debt, at fair value					62,063,000
Class F | CSMC Trust | Secured Debt | Estimated Fair Value
Debt Instrument [Line Items]
Securitized debt, at fair value					$ 1,000,000,000
Minimum | Non-QM Loans | SOFR | Arroyo Trust | Subsequent Event
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate	0.25%
Minimum | Repurchase Agreements
Debt Instrument [Line Items]
Debt instrument, term					1 month
Maximum | Repurchase Agreements
Debt Instrument [Line Items]
Debt instrument, term					12 months

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Financings - Borrowings Under Repurchase Agreements (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	$ 170,818	$ 193,117
Less unamortized debt issuance costs	908	0
Repurchase agreements, net	$ 169,910	$ 193,117
Weighted Average Interest Rate on Borrowings Outstanding at end of period	9.10%	6.57%
Weighted average interest rate on borrowings outstanding at end of period, total	9.10%	6.57%
Weighted Average Remaining Maturity (days)	327 days	146 days
Repurchase agreements
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	$ 170,467	$ 142,811
Weighted Average Interest Rate on Borrowings Outstanding at end of period	9.11%	6.25%
Weighted Average Remaining Maturity (days)	328 days	189 days
Repurchase agreements | Non-Agency RMBS
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	$ 77,751	$ 19,129
Weighted Average Interest Rate on Borrowings Outstanding at end of period	10.80%	6.30%
Weighted Average Remaining Maturity (days)	585 days	122 days
Repurchase agreements | Other securities
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	$ 8,860	$ 16,863
Weighted Average Interest Rate on Borrowings Outstanding at end of period	8.09%	6.30%
Weighted Average Remaining Maturity (days)	215 days	122 days
Repurchase agreements | Non-Agency CMBS
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	$ 31,621	$ 55,154
Weighted Average Interest Rate on Borrowings Outstanding at end of period	7.79%	6.30%
Weighted Average Remaining Maturity (days)	215 days	122 days
Repurchase agreements | Non-Agency CMBS and Non-Agency RMBS Facility
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	$ 118,232	$ 91,146
Weighted Average Interest Rate on Borrowings Outstanding at end of period	9.79%	6.30%
Weighted Average Remaining Maturity (days)	458 days	122 days
Repurchase agreements | Residential Whole Loans
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	$ 2,562	$ 3,633
Weighted Average Interest Rate on Borrowings Outstanding at end of period	7.56%	6.66%
Weighted Average Remaining Maturity (days)	25 days	298 days
Repurchase agreements | Residential Bridge Loans
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	$ 1,641	$ 0
Weighted Average Interest Rate on Borrowings Outstanding at end of period	7.56%	0.00%
Weighted Average Remaining Maturity (days)	25 days	0 days
Repurchase agreements | Commercial Loans
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	$ 48,032	$ 48,032
Weighted Average Interest Rate on Borrowings Outstanding at end of period	7.56%	6.13%
Weighted Average Remaining Maturity (days)	34 days	307 days
Repurchase agreements
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	$ 351	$ 50,306
Weighted Average Interest Rate on Borrowings Outstanding at end of period	5.98%	7.47%
Weighted Average Remaining Maturity (days)	2 days	26 days
Repurchase agreements | Agency RMBS, at fair value
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	$ 351	$ 293
Weighted Average Interest Rate on Borrowings Outstanding at end of period	5.98%	4.78%
Weighted Average Remaining Maturity (days)	2 days	32 days
Repurchase agreements | Non-Agency RMBS
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	$ 0	$ 48,237
Weighted Average Interest Rate on Borrowings Outstanding at end of period	0.00%	7.50%
Weighted Average Remaining Maturity (days)	0 days	26 days
Repurchase agreements | Other securities
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	$ 0	$ 1,776
Weighted Average Interest Rate on Borrowings Outstanding at end of period	0.00%	7.09%
Weighted Average Remaining Maturity (days)	0 days	17 days

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Financings - Borrowings under Repurchase Agreements Maturity Dates (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	$ 170,818	$ 193,117
1 to 29 days
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	4,554	50,013
30 to 59 days
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	48,032	293
60 to 89 days
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	0	0
Greater than or equal to 90 days
Certain characteristics of the Company's repurchase agreements
Repurchase Agreement Borrowings	$ 118,232	$ 142,811

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Financings - Borrowings under Repurchase Agreements Risk by Counterparty (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2023 USD ($)
Goldman Sachs Bank USA
Amounts of collateral at risk under its repurchase agreements greater than 10% of the Company's equity with any counterparty
Amount of  Collateral at Risk, at fair value	$ 36,387
Weighted Average Remaining Maturity (days)	214 days
Percentage of  Stockholders’  Equity	46.70%
Atlas Securitized Products Investments 2, L.P.
Amounts of collateral at risk under its repurchase agreements greater than 10% of the Company's equity with any counterparty
Amount of  Collateral at Risk, at fair value	$ 18,461
Weighted Average Remaining Maturity (days)	34 days
Percentage of  Stockholders’  Equity	23.70%

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Financings - Collateral Positions (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Financial Instruments Owned and Pledged as Collateral [Line Items]
Assets pledged- fair value	$ 227,832	$ 291,681
Accrued Interest	1,379	1,459
Assets Pledged and Accrued Interest	229,211	293,140
Cash
Financial Instruments Owned and Pledged as Collateral [Line Items]
Assets Pledged	241	3,410
Accrued Interest	0	0
Assets Pledged and Accrued Interest	241	3,410
Repurchase agreements
Financial Instruments Owned and Pledged as Collateral [Line Items]
Assets Pledged	227,600	288,300
Repurchase agreements | Agency RMBS, at fair value
Financial Instruments Owned and Pledged as Collateral [Line Items]
Assets Pledged	297	249
Accrued Interest	3	0
Assets Pledged and Accrued Interest	300	249
Repurchase agreements | Non-Agency CMBS
Financial Instruments Owned and Pledged as Collateral [Line Items]
Assets Pledged	53,038	83,925
Accrued Interest	386	483
Assets Pledged and Accrued Interest	53,424	84,408
Repurchase agreements | Non-Agency RMBS
Financial Instruments Owned and Pledged as Collateral [Line Items]
Assets Pledged	83,029	104,487
Accrued Interest	456	533
Assets Pledged and Accrued Interest	83,485	105,020
Repurchase agreements | Residential Whole Loans, at fair value
Financial Instruments Owned and Pledged as Collateral [Line Items]
Assets Pledged	4,343	3,229
Accrued Interest	11	3
Assets Pledged and Accrued Interest	4,354	3,232
Repurchase agreements | Residential Bridge Loans
Financial Instruments Owned and Pledged as Collateral [Line Items]
Assets Pledged	2,782	0
Accrued Interest	32	0
Assets Pledged and Accrued Interest	2,814	0
Repurchase agreements | Commercial Loans, at fair value
Financial Instruments Owned and Pledged as Collateral [Line Items]
Assets Pledged	66,202	66,864
Accrued Interest	424	362
Assets Pledged and Accrued Interest	66,626	67,226
Repurchase agreements | REO, at carrying value
Financial Instruments Owned and Pledged as Collateral [Line Items]
Assets Pledged	2,255	2,255
Assets Pledged and Accrued Interest	2,255	2,255
Repurchase agreements | Other securities
Financial Instruments Owned and Pledged as Collateral [Line Items]
Assets Pledged	15,645	27,262
Accrued Interest	67	78
Assets Pledged and Accrued Interest	$ 15,712	$ 27,340

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Financings - Commercial Mortgage Pass Through Certificates (Details) - Secured Debt $ in Thousands	9 Months Ended
	Sep. 30, 2023 USD ($)
Arroyo Trust
Debt Instrument [Line Items]
Principal Balance	$ 187,844
Carrying Value	187,844
Less: Unamortized Deferred Financing Costs	1,932
Total	185,912
Arroyo Mortgage Trust 2020
Debt Instrument [Line Items]
Principal Balance	117,361
Carrying Value	117,361
Less: Unamortized Deferred Financing Costs	1,176
Total	116,185
Arroyo Mortgage Trust 2022
Debt Instrument [Line Items]
Principal Balance	346,266
Carrying Value	289,409
Arroyo Mortgage Trust 2022-2
Debt Instrument [Line Items]
Principal Balance	306,622
Fair Value	286,239
CSMC Trust
Debt Instrument [Line Items]
Principal Balance	1,370,691
Fair Value	1,006,630
Class A-1A | Arroyo Mortgage Trust 2020
Debt Instrument [Line Items]
Principal Balance	$ 66,276
Coupon	1.70%
Carrying Value	$ 66,276
Class A-1A | Arroyo Mortgage Trust 2022
Debt Instrument [Line Items]
Principal Balance	$ 196,149
Coupon	2.50%
Carrying Value	$ 174,066
Class A-1B | Arroyo Mortgage Trust 2020
Debt Instrument [Line Items]
Principal Balance	$ 7,865
Coupon	2.10%
Carrying Value	$ 7,865
Class A-1B | Arroyo Mortgage Trust 2022
Debt Instrument [Line Items]
Principal Balance	$ 82,942
Coupon	3.30%
Carrying Value	$ 68,578
Class A-1 | Arroyo Trust
Debt Instrument [Line Items]
Principal Balance	$ 142,973
Coupon	3.30%
Carrying Value	$ 142,973
Class A-1 | Arroyo Mortgage Trust 2022-2
Debt Instrument [Line Items]
Principal Balance	$ 243,033
Coupon	5.00%
Fair Value	$ 230,646
Class A-1 | CSMC Trust
Debt Instrument [Line Items]
Principal Balance	$ 120,391
Coupon	3.30%
Fair Value	$ 100,388
Class A-2 | Arroyo Trust
Debt Instrument [Line Items]
Principal Balance	$ 7,668
Coupon	3.50%
Carrying Value	$ 7,668
Class A-2 | Arroyo Mortgage Trust 2020
Debt Instrument [Line Items]
Principal Balance	$ 13,518
Coupon	2.90%
Carrying Value	$ 13,518
Class A-2 | Arroyo Mortgage Trust 2022
Debt Instrument [Line Items]
Principal Balance	$ 21,168
Coupon	3.60%
Carrying Value	$ 15,527
Class A-2 | Arroyo Mortgage Trust 2022-2
Debt Instrument [Line Items]
Principal Balance	$ 20,687
Coupon	5.00%
Fair Value	$ 19,097
Class A-2 | CSMC Trust
Debt Instrument [Line Items]
Principal Balance	$ 531,700
Coupon	4.00%
Fair Value	$ 453,714
Class A-3 | Arroyo Trust
Debt Instrument [Line Items]
Principal Balance	$ 12,148
Coupon	3.80%
Carrying Value	$ 12,148
Class A-3 | Arroyo Mortgage Trust 2020
Debt Instrument [Line Items]
Principal Balance	$ 17,963
Coupon	3.30%
Carrying Value	$ 17,963
Class A-3 | Arroyo Mortgage Trust 2022
Debt Instrument [Line Items]
Principal Balance	$ 28,079
Coupon	3.70%
Carrying Value	$ 19,864
Class A-3 | Arroyo Mortgage Trust 2022-2
Debt Instrument [Line Items]
Principal Balance	$ 25,208
Coupon	5.00%
Fair Value	$ 23,219
Class B | CSMC Trust
Debt Instrument [Line Items]
Principal Balance	$ 136,400
Coupon	4.20%
Fair Value	$ 107,723
Class C | CSMC Trust
Debt Instrument [Line Items]
Principal Balance	$ 94,500
Coupon	4.30%
Fair Value	$ 71,132
Class D | CSMC Trust
Debt Instrument [Line Items]
Principal Balance	$ 153,950
Coupon	4.40%
Fair Value	$ 109,772
Class E | CSMC Trust
Debt Instrument [Line Items]
Principal Balance	$ 180,150
Coupon	4.40%
Fair Value	$ 96,059
Class F | CSMC Trust
Debt Instrument [Line Items]
Principal Balance	$ 153,600
Coupon	4.40%
Fair Value	$ 62,063
Class M-1 | Arroyo Trust
Debt Instrument [Line Items]
Principal Balance	$ 25,055
Coupon	4.80%
Carrying Value	$ 25,055
Class M-1 | Arroyo Mortgage Trust 2020
Debt Instrument [Line Items]
Principal Balance	$ 11,739
Coupon	4.30%
Carrying Value	$ 11,739
Class M-1 | Arroyo Mortgage Trust 2022
Debt Instrument [Line Items]
Principal Balance	$ 17,928
Coupon	3.70%
Carrying Value	$ 11,374
Class M-1 | Arroyo Mortgage Trust 2022-2
Debt Instrument [Line Items]
Principal Balance	$ 17,694
Coupon	5.00%
Fair Value	$ 13,277
Class X-1 | CSMC Trust
Debt Instrument [Line Items]
Coupon	0.50%
Fair Value	$ 4,785
Notional amount	$ 652,100
Class X-2 | CSMC Trust
Debt Instrument [Line Items]
Coupon	0.00%
Fair Value	$ 994
Notional amount	$ 733,500

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Derivative Instruments - Summary of Entity's Derivative Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Fair Value
Derivative assets	$ 834	$ 715
Derivative liabilities	(845)	(61)
Derivative instruments not accounted as hedges under GAAP
Fair Value
Derivative assets	0	1
Derivative liabilities	(845)	(61)
Total derivative instruments	(845)	(60)
Interest rate swaps | Derivative instruments not accounted as hedges under GAAP
Notional Amount
Notional amount, assets	0	60,000
Notional amount, liabilities	82,000	98,000
Fair Value
Derivative assets	0	1
Derivative liabilities	$ (845)	$ (61)

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Derivative Instruments - Gain or Loss (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Amounts recognized on the statements of operations related to the Company's derivatives
Return (Recovery) of Basis			$ (650)	$ 3,793
Total	$ 1,157	$ 4,882	1,221	16,599
Derivative instruments not accounted as hedges under GAAP
Amounts recognized on the statements of operations related to the Company's derivatives
Other Settlements/ Expirations	0	(2,486)	0	(1,723)
Variation Margin Settlement	1,008	3,423	(992)	14,744
Return (Recovery) of Basis	(14)	(5)	(16)	(120)
Mark-to-Market	(707)	3,636	(650)	3,793
Contractual interest income (expense), net	870	314	2,879	(95)
Total	1,157	4,882	1,221	16,599
Interest rate swaps | Derivative instruments not accounted as hedges under GAAP
Amounts recognized on the statements of operations related to the Company's derivatives
Other Settlements/ Expirations	0	(3,371)	0	(3,371)
Variation Margin Settlement	1,008	3,423	(992)	14,744
Return (Recovery) of Basis	0	0	0	0
Mark-to-Market	(777)	4,790	(785)	3,670
Contractual interest income (expense), net	846	298	2,832	(255)
Total	1,077	5,140	1,055	14,788
Interest-Only Strips— accounted for as derivatives | Derivative instruments not accounted as hedges under GAAP
Amounts recognized on the statements of operations related to the Company's derivatives
Other Settlements/ Expirations	0	0	0	0
Variation Margin Settlement	0	0	0	0
Return (Recovery) of Basis	(14)	(5)	(16)	(120)
Mark-to-Market	70	(54)	135	(270)
Contractual interest income (expense), net	24	16	47	160
Total	$ 80	(43)	$ 166	(230)
Interest rate swaptions | Derivative instruments not accounted as hedges under GAAP
Amounts recognized on the statements of operations related to the Company's derivatives
Other Settlements/ Expirations		(161)		(161)
Variation Margin Settlement		0		0
Return (Recovery) of Basis		0		0
Mark-to-Market		0		0
Contractual interest income (expense), net		0		0
Total		(161)		(161)
Credit default swaps | Derivative instruments not accounted as hedges under GAAP
Amounts recognized on the statements of operations related to the Company's derivatives
Other Settlements/ Expirations		(273)		(242)
Variation Margin Settlement		0		0
Return (Recovery) of Basis		0		0
Mark-to-Market		283		393
Contractual interest income (expense), net		0		0
Total		10		151
TBAs | Derivative instruments not accounted as hedges under GAAP
Amounts recognized on the statements of operations related to the Company's derivatives
Other Settlements/ Expirations		1,319		2,051
Variation Margin Settlement		0		0
Return (Recovery) of Basis		0		0
Mark-to-Market		(1,383)		0
Contractual interest income (expense), net		0		0
Total		$ (64)		$ 2,051

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Derivative Instruments - Narrative (Details) - USD ($) $ in Millions	Sep. 30, 2023	Dec. 31, 2022
Due From Counterparties
Interest rate swaps and interest rate swaptions
Collateral already posted, aggregate fair value	$ 1.0	$ 3.2

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Derivative Instruments - Swap of Terms (Details) - Interest rate swaps - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Interest rate swaps and interest rate swaptions
Notional Amount	$ 82,000,000	$ 158,000,000
Average  Fixed Pay Rate	1.30%	1.40%
Average Variable Receive Rate	5.20%	2.20%
Average Maturity (Years)	2 years 6 months	3 years 10 months 24 days
1 year or less
Interest rate swaps and interest rate swaptions
Notional Amount	$ 60,000,000
Average  Fixed Pay Rate	1.40%
Average Variable Receive Rate	5.10%
Average Maturity (Years)	6 months
Greater than 1 year and less than 3 years
Interest rate swaps and interest rate swaptions
Notional Amount		$ 60,000,000
Average  Fixed Pay Rate		1.40%
Average Variable Receive Rate		2.00%
Average Maturity (Years)		1 year 3 months 18 days
Greater than 3 years and less than 5 years
Interest rate swaps and interest rate swaptions
Notional Amount		$ 70,000,000
Average  Fixed Pay Rate		1.40%
Average Variable Receive Rate		1.80%
Average Maturity (Years)		4 years 1 month 6 days
Greater than 5 years
Interest rate swaps and interest rate swaptions
Notional Amount	$ 22,000,000	$ 28,000,000
Average  Fixed Pay Rate	1.20%	1.70%
Average Variable Receive Rate	5.30%	3.60%
Average Maturity (Years)	8 years	9 years

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Offsetting Assets and Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Derivative Assets
Gross  Amounts	$ 834	$ 715
Gross  Amounts  Offset in the Consolidated Balance  Sheets	0	0
Net Amounts of Assets  presented in  the Consolidated Balance  Sheets	834	715
Gross amounts not offset in the consolidated balance sheets, financial instruments	(236)	(197)
Gross amounts not offset in the consolidated balance sheets, cash collateral	0	0
Net Amount	598	518
Derivative Liabilities and Repurchase Agreements
Gross amounts, derivative liability, at fair value	845	61
Gross amounts offset in the consolidated balance sheets , derivative liability, at fair value	0	0
Derivative liability, at fair value	845	61
Gross amounts not offset in the consolidated balance sheets, financial instruments, derivative liability, at fair value	0	(1)
Gross amounts not offset in the consolidated balance sheets, cash collateral, derivative liability, at fair value	(845)	(60)
Derivative liability, at fair value, net amount	0	0
Gross amounts, repurchase agreements	169,910	193,117
Gross amounts offset in the consolidated balance sheets, repurchase agreements	0	0
Repurchase agreements, net	169,910	193,117
Gross amounts not offset in the consolidated balance sheets, financial instruments, repurchase agreements	(167,509)	(193,073)
Gross amounts not offset in the consolidated balance sheets, cash collateral, repurchase agreements	0	(44)
Repurchase agreements, net amount	2,401	0
Gross amounts of total liabilities	170,755	193,178
Gross amounts offset in the consolidated balance sheets, total liabilities	0	0
Net amounts of assets presented in consolidated balance sheets, total liabilities	170,755	193,178
Gross amounts not offset in the consolidated balance sheets, financial instruments, total liabilities	(167,509)	(193,074)
Gross amounts not offset in the consolidated balance sheets, cash collateral, total liability	(845)	(104)
Net amount, total liabilities	2,401	0
Fair value of investments pledged against repurchase agreements	227,600	288,300
Derivative Counterparties
Derivative Liabilities and Repurchase Agreements
Gross amounts not offset in the consolidated balance sheets, cash collateral, total liability	(1,000)	(3,200)
Agency and Non-Agency Interest-Only Strips, accounted for as derivatives included in MBS
Derivative Assets
Gross  Amounts	834	714
Gross  Amounts  Offset in the Consolidated Balance  Sheets	0	0
Net Amounts of Assets  presented in  the Consolidated Balance  Sheets	834	714
Gross amounts not offset in the consolidated balance sheets, financial instruments	(236)	(196)
Gross amounts not offset in the consolidated balance sheets, cash collateral	0	0
Net Amount	$ 598	518
Derivative asset, at fair value
Derivative Assets
Gross  Amounts		1
Gross  Amounts  Offset in the Consolidated Balance  Sheets		0
Net Amounts of Assets  presented in  the Consolidated Balance  Sheets		1
Gross amounts not offset in the consolidated balance sheets, financial instruments		(1)
Gross amounts not offset in the consolidated balance sheets, cash collateral		0
Net Amount		$ 0

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Related Party Transactions (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022	Dec. 31, 2021
Related Party Transactions
Management fees	$ 974	$ 850	$ 2,908	$ 2,952
Payable to affiliate	1,002		$ 1,002		$ 4,028
Related Party
Related Party Transactions
Management fees percentage			1.50%
Renewal term of management agreement period			1 year
Notice period to terminate the management agreement following initial term			180 days
Termination fee of management agreement			3
Prior period over which management fees were incurred used to calculate the termination fee under the management agreement			24 months
Notice period to terminate the management agreement for cause			30 days
Management fee waived, percent						25.00%
Management fees	974	850	$ 2,900	3,000
Reimbursable employee costs	67	$ 64	217	$ 511
Related Party | Management Fees
Related Party Transactions
Payable to affiliate	1,000		1,000		3,900
Related Party | Reimbursable Costs
Related Party Transactions
Payable to affiliate	$ 49		$ 49		$ 86
Related Party | Minimum
Related Party Transactions
Proportion of affirmative votes by the entity's independent directors to terminate the management agreement percentage			67.00%
Proportion of votes required by the entity's independent directors for acceptance of reduction in management fees percentage			67.00%

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Share-Based Payments - Narrative (Details) $ in Thousands				3 Months Ended		6 Months Ended	9 Months Ended
	Jun. 23, 2023 director shares	Jun. 30, 2022 shares	Jun. 24, 2022 director shares	Sep. 30, 2023 USD ($)	Sep. 30, 2022 USD ($)	Jun. 30, 2023 shares	Sep. 30, 2023 USD ($) shares	Sep. 30, 2022 USD ($) shares	Dec. 31, 2022 USD ($)	Jul. 11, 2022 shares	Jun. 28, 2022 shares
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Stock-based compensation expense recognized | $				$ 101	$ 100		$ 301	$ 335
Restricted stock units
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Vested (in shares)							31,704	11,716
Restricted stock units | Scenario 1
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Granted (in shares)	31,184		21,704
Restricted stock units | Director | Scenario 1
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Granted (in shares)	7,796		5,426
Number of independent directors to whom awards were granted | director	4		4
Restricted stock units | Chief Financial Officer
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Granted (in shares)		20,000
Vested (in shares)						10,000
Issuance of common shares (in shares)							11,547
Dividend equivalent units | Chief Financial Officer
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Vested (in shares)						1,547
Equity awards
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Unamortized compensation expense | $				$ 277			$ 277		$ 298
Common Stock
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Number of shares remained available for issuance (in shares)										100,000	1,000,000

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Share-Based Payments - Restricted Common Stock Vesting Dates (Details) - Restricted common stock - shares	9 Months Ended	12 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Summary of restricted common stock vesting dates
Vested (in shares)	43,151	41,704
June 2023
Summary of restricted common stock vesting dates
Vested (in shares)	0	31,704
June 2024
Summary of restricted common stock vesting dates
Vested (in shares)	43,151	10,000

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Share-Based Payments - Shares Issued Under the Company’s Equity Incentive Plans (Details) - Restricted common stock - $ / shares	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Restricted Stock Units
Outstanding, beginning of period (in shares)	81,914	114,825
Granted (in shares)	41,559	45,954
Issuance of common shares (in shares)	(11,547)	0
Outstanding, end of period (in shares)	111,926	160,779
Unvested at the end of period (in shares)	43,151	41,704
Weighted Average Grant Date Fair Value
Outstanding at beginning of period (in dollars per share)	$ 31.21	$ 131.85
Granted (in dollars per share)	9.15	12.75
Issuance of common shares (in dollars per share)	11.89	0
Outstanding at end of year (in dollars per share)	25.01	97.81
Weighted average grant date fair  value, unvested at end of year (in dollars per share)	$ 9.58	$ 12.52
Director Deferred Fee Plan
Weighted Average Grant Date Fair Value
Exchange of phantom stock to common stock (in shares)	10,375	4,250

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Stockholders' Equity (Details)																9 Months Ended
	Oct. 26, 2023 $ / shares	Sep. 21, 2023 $ / shares	Jul. 26, 2023 $ / shares	Jun. 21, 2023 $ / shares	Apr. 26, 2023 $ / shares	Mar. 22, 2023 $ / shares	Jan. 26, 2023 $ / shares	Dec. 21, 2022 $ / shares	Oct. 26, 2022 $ / shares	Sep. 22, 2022 $ / shares	Jul. 25, 2022 $ / shares	Jul. 11, 2022 $ / shares shares	Jun. 21, 2022 $ / shares	Apr. 26, 2022 $ / shares	Mar. 23, 2022 $ / shares	Sep. 30, 2023 $ / shares shares	Jun. 30, 2023 shares	Dec. 31, 2022 $ / shares shares	Sep. 30, 2022 shares	Jun. 30, 2022 $ / shares shares	Dec. 31, 2021 shares	Jun. 05, 2020 USD ($)
Shareholders equity
Common stock, shares authorized (in shares)												50,000,000				50,000,000		50,000,000		500,000,000
Preferred stock, shares authorized (in shares)												10,000,000				10,000,000		10,000,000		100,000,000
Common stock, shares issued (in shares)												6,038,012								60,380,105
Common stock, shares outstanding (in shares)												6,038,012				6,049,559		6,038,012		60,380,105
Common stock, par value (in dollars per share) | $ / shares												$ 0.01				$ 0.01		$ 0.01		$ 0.01
Shares authorized to be repurchased (in shares)																					300,000
Stock repurchased during period (in shares)																0
Stockholders' equity note, stock split, conversion ratio												0.1				0.1
Dividends, cash paid per share of common stock (in dollars per share) | $ / shares			$ 0.35		$ 0.35		$ 0.40		$ 0.40		$ 0.04			$ 0.04
Dividends, declared per share of common stock (in dollars per share) | $ / shares		$ 0.35		$ 0.35		$ 0.35		$ 0.40		$ 0.40			$ 0.04		$ 0.04
Subsequent Event
Shareholders equity
Dividends, cash paid per share of common stock (in dollars per share) | $ / shares	$ 0.35
Dividends, declared per share of common stock (in dollars per share) | $ / shares	$ 0.14
Common Stock Outstanding
Shareholders equity
Common stock, shares outstanding (in shares)																6,049,559	6,038,012	6,038,012	6,038,012	6,038,012	6,038,012
Common Stock Outstanding | At The Market Offering
Shareholders equity
Equity offering amount, maximum | $																						$ 100,000,000
Sale of stock (in shares)																0

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Net Loss per Common Share (Details) $ / shares in Units, $ in Thousands		3 Months Ended		9 Months Ended
	Jul. 11, 2022	Sep. 30, 2023 USD ($) $ / shares shares	Sep. 30, 2022 USD ($) $ / shares shares	Sep. 30, 2023 USD ($) $ / shares shares	Sep. 30, 2022 USD ($) $ / shares shares
Earnings Per Share [Abstract]
Stockholders' equity note, stock split, conversion ratio	0.1			0.1
Numerator:
Net loss attributable to common stockholders and participating securities for basic and diluted earnings per share		$ (8,705)	$ (40,010)	$ (10,771)	$ (88,250)
Dividends and undistributed earnings allocated to participating securities		39	32	101	62
Dividends and undistributed earnings allocated to participating securities		39	32	101	62
Net loss allocable to common stockholders — basic		(8,744)	(40,042)	(10,872)	(88,312)
Net loss allocable to common stockholders — diluted		$ (8,744)	$ (40,042)	$ (10,872)	$ (88,312)
Denominator:
Weighted average common shares outstanding for basic earnings per share (in shares) | shares		6,049,559	6,038,012	6,041,946	6,036,876
Weighted average common shares outstanding for diluted earnings per share (in shares) | shares		6,049,559	6,038,012	6,041,946	6,036,876
Basic loss per common share (in dollars per share) | $ / shares		$ (1.45)	$ (6.63)	$ (1.80)	$ (14.63)
Diluted loss per common share (in dollars per share) | $ / shares		$ (1.45)	$ (6.63)	$ (1.80)	$ (14.63)

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Income Taxes (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Valuation Allowance [Line Items]
Current federal, state and local, tax (benefit) expense	$ 0	$ 266,000	$ 0	$ 276,000
Operating Loss Carryforwards
Valuation Allowance [Line Items]
Valuation allowances balance	16,300,000		16,300,000		$ 16,100,000
State Jurisdiction
Valuation Allowance [Line Items]
Deferred tax asset, net operating losses	14,600,000		14,600,000		14,500,000
Taxable REIT Subsidiary
Valuation Allowance [Line Items]
Deferred tax assets, capital loss carryforwards	13,800,000		13,800,000		13,500,000
Taxable REIT Subsidiary | State Jurisdiction
Valuation Allowance [Line Items]
Deferred tax asset, net operating losses	$ 1,700,000		$ 1,700,000		$ 1,600,000

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Subsequent Events (Details) - $ / shares	Oct. 26, 2023	Sep. 21, 2023	Jun. 21, 2023	Mar. 22, 2023	Dec. 21, 2022	Sep. 22, 2022	Jun. 21, 2022	Mar. 23, 2022
Subsequent Event [Line Items]
Dividends, declared per share of common stock (in dollars per share)		$ 0.35	$ 0.35	$ 0.35	$ 0.40	$ 0.40	$ 0.04	$ 0.04
Subsequent Event
Subsequent Event [Line Items]
Dividends, declared per share of common stock (in dollars per share)	$ 0.14