
Management and Ownership - The company has a 19.8% ownership in its Manager, which implements its business strategy and manages day-to-day operations[61] - The company has a 19.8% equity interest in its Manager and an 8.0% interest in the parent of its Servicer, structured through wholly owned subsidiaries[82] Fees and Compensation - The base management fee is set at 1.5% of stockholders' equity per annum, calculated quarterly[63] - The company pays an incentive fee of 20% on dividends exceeding 8% of book value, contingent on cumulative core earnings being positive[65] - The company is required to pay a termination fee equal to twice the combined base and incentive fees if the Management Agreement is terminated without cause[68] - The Servicer receives an annual servicing fee ranging from 0.65% to 1.25% of UPB, with specific reductions for certain joint ventures[72] Financing and Capital - The company may utilize various types of borrowings, including bank credit facilities and structured financing arrangements, depending on market conditions[56] - The company finances asset acquisitions with non-recourse securitizations and repurchase agreements, with borrowing bases ranging from 70% to 85% of market value[54] - The company may seek additional capital through public or private offerings, but there is no assurance of success in these efforts[56] - The company expects to continue securitizing whole loan portfolios as a financing tool, creating long-term, fixed-rate, non-recourse financing with moderate leverage[475] Risk Management - The company does not currently hedge risks associated with mortgage loans but may use derivative instruments for risk management in the future[58] - The company is exposed to real estate risk, including volatility in residential property values due to economic conditions and interest rate changes[474] - Credit risk is present due to potential borrower defaults, influenced by factors such as job loss and economic conditions, which may affect property values[478] - Prepayment risk is influenced by various factors, including interest rates and borrower behavior, with expectations of a slowdown in loan prepayments due to the pandemic[477] Servicing and Operations - The Servicer is licensed to service loans in all required states and is an approved servicer for FHA and VA[75] - The Servicer collects mortgage loan payments and is entitled to servicing fees based on specified percentages of the outstanding unpaid principal balance[76] - The company has implemented a multifaceted resolution approach for managing non-performing loans (NPLs) and real estate owned (REO) assets[76] - The company may engage in REO liquidation and short sale processes to generate cash for reinvestment if properties do not meet investment criteria[76] Compliance and Internal Controls - The company monitors compliance with the Investment Company Act to avoid registration as an investment company, ensuring less than 40% of total assets consist of investment securities[84] - The company conducted an evaluation of its disclosure controls and procedures, concluding they were effective as of the end of the reporting period[484] - Management assessed the effectiveness of internal control over financial reporting as of December 31, 2020, finding it effective based on established criteria[489] - The independent auditor, Moss Adams LLP, expressed an unqualified opinion on the company's internal control over financial reporting and consolidated financial statements[490] Market Conditions and Competition - The company competes with larger mortgage and hybrid REITs, hedge funds, and other financial institutions, which may have greater access to capital[79] - The company relies on its Manager's professionals for competitive advantages in assessing risks and pricing potential assets[81] - A rising interest rate environment could positively impact operations related to rental real property, potentially increasing rent levels and property values[476] - The company expects many borrowers to refinance loans at or near the estimated value of the underlying property, potentially generating attractive returns[76]