TPG Mortgage Investment Trust, Inc. (MITT)

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

In this quarterly report on Form 10-Q, or this "report," we refer to TPG Mortgage Investment Trust, Inc. and its wholly-owned subsidiaries as "we," "us," the "Company," or "our," unless we specifically state otherwise or the context indicates otherwise. We refer to our external manager, AG REIT Management, LLC, as our "Manager," we refer to the direct parent company of our Manager, Angelo, Gordon & Co., L.P., as "TPG Angelo Gordon", and we refer to the parent company of TPG Angelo Gordon, TPG Inc., as “TPG.”

The following discussion contains forward looking statements and should be read in conjunction with our consolidated financial statements and the accompanying notes to our consolidated financial statements, which are included in Item 1 of this report, as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2025, and any subsequent filings.

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Forward-Looking Statements

We make forward-looking statements 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"), in this report that are subject to substantial known and unknown risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, returns, results of operations, plans, yields, objectives, the composition of our portfolio, actions by governmental entities, including the Federal Reserve, and the potential effects of actual and proposed legislation on us, and our views on certain macroeconomic trends. When we use the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "remain," "intend," "should," "could," "will," "may" or similar expressions, we intend to identify forward-looking statements.

These forward-looking statements are based upon information presently available to our management and are inherently subjective, uncertain and subject to change. There can be no assurance that actual results will not differ materially from our expectations. Some, but not all, of the factors that might cause such a difference include, without limitation:

•the persistence of labor shortages, supply chain imbalances, changes in trade policies and tariffs, conflict involving the U.S. and the Middle East, the Russia-Ukraine conflict, inflation, and the potential for an economic recession and market disruptions;

•changes in our business and investment strategy;

•our ability to predict and control costs;

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

•changes in the yield curve;

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

•regulatory and structural changes in the residential loan market and its impact on non-agency mortgage markets;

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

•our ability to obtain and maintain financing arrangements on terms favorable to us or at all;

•our ability to enter into, or refinance, securitization transactions on the terms and pace anticipated or at all;

•the degree to which our hedging strategies may or may not protect us from interest rate and credit risk volatility;

•changes in general economic conditions, in our industry and in the finance and real estate markets, including the impact on the value of our assets;

•conditions in the market for residential mortgage investments and Agency RMBS;

•conditions in the market for commercial investments, including the Company's ability to successfully realize the commercial investments acquired from Western Asset Mortgage Capital Corporation ("WMC") within the timeframe anticipated or at all;

•legislative and regulatory actions by the U.S. Congress, U.S. Department of the Treasury, the Federal Reserve and other agencies and instrumentalities;

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

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

•our ability to qualify for an exemption from registration under the Investment Company Act of 1940, as amended (the "Investment Company Act").

We caution investors not to rely unduly on any forward-looking statements, which speak only as of the date made, and urge you to carefully consider the risks noted above and identified under the captions "Risk Factors," and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2025 and any subsequent filings. New risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements that we make, or that are attributable to us, are expressly qualified by this cautionary notice.

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First Quarter 2026 Executive Summary

Financial Highlights

•$9.97 Book Value per share;

•$(0.27) of Net Income/(Loss) Available to Common Stockholders per diluted common share and $0.26 of Earnings Available for Distribution ("EAD") per diluted common share;

◦Refer to the "Earnings Available for Distribution" section below for further details related to our reconciliation of Net Income/(Loss) Available to Common Stockholders to EAD;

•14.1x GAAP Leverage Ratio and 1.7x Economic Leverage Ratio; and

•$0.24 dividend per common share declared in the first quarter 2026;

◦Increased our quarterly dividend from $0.23 per common share in the fourth quarter 2025, which represented a 4.3% increase.

Investment Activity

•The table below summarizes the fair value of purchases and proceeds from sales of investments during the quarter ended March 31, 2026 (in thousands).

(1)During the quarter, we partnered with a third-party mortgage originator and executed a rated securitization collateralized by $504.5 million of Home Equity Loans. As the co-sponsor, we retained an "eligible vertical interest" to comply with risk retention rules which consists of retaining at least 5% of each class of securities issued in the securitizations. Upon evaluating our retained interest in the securitization trust, we determined we were not the primary beneficiary and, as a result, did not consolidate the securitization trust, which resulted in us recording an investment in Non-Agency RMBS.

Financing Activity

•Pledged Home Equity Loans with a fair value of $66.2 million and an unpaid principal balance of $63.7 million, in which we have no outstanding financing but have the ability to borrow at an advance rate of 87.5% of unpaid principal balance pledged as collateral. As of March 31, 2026, $50 million of this available financing is contractually committed; and

•In March 2026, the we extended the maturity of our financing arrangement collateralized by Legacy WMC Commercial Loans to September 19, 2026. All proceeds from asset paydowns or sales will be applied to reduce the outstanding balance, which was $25.4 million as of March 31, 2026.

Our company

We are a residential mortgage REIT with a focus on investing in a diversified risk-adjusted portfolio of residential mortgage-related assets in the U.S. mortgage market. Our objective is to provide attractive risk-adjusted returns to our stockholders over the long-term, primarily through dividends and capital appreciation.

We focus our investment activities primarily on acquiring and securitizing newly-originated residential mortgage loans within the non-agency segment of the housing market. We obtain our assets through Arc Home, LLC ("Arc Home"), our residential mortgage loan originator in which we own an approximate 66.0% interest as of March 31, 2026, and through other third-party origination partners. We finance our acquired loans through various financing lines on a short-term basis and utilize TPG's proprietary securitization platform to secure long-term, non-recourse, non-mark-to-market financing as market conditions permit. Through our ownership in Arc Home, we also have exposure to mortgage banking activities. Arc Home is a multi-channel licensed mortgage originator and servicer primarily engaged in the business of originating and selling residential mortgage loans while retaining the mortgage servicing rights associated with certain loans that it originates.

Our investment portfolio (which excludes our ownership in Arc Home) primarily includes Residential Investments and Agency RMBS. Currently, our Residential Investments primarily consist of Non-Agency Loans, Agency-Eligible Loans, Home Equity Loans and Non-Agency RMBS collateralized by these loan types, which we refer to as our target assets. In addition, we may also invest in other types of residential mortgage loans and other mortgage related assets

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As of March 31, 2026, our investment portfolio consisted of the following Residential Investments and Agency RMBS:

[[GREPCENT_TABLE]]
[["Asset Class","","Description"],["Residential Investments"],["Non-Agency Loans(1)","","\u2022Non-Agency Loans are loans that do not conform to the underwriting guidelines of a government-sponsored enterprise (\"GSE\"). Non-Agency Loans consist of Qualified mortgage loans (\"QM Loans\") and Non-Qualified mortgage loans (\"Non-QM Loans\") which are collateralized by a first lien mortgaged property. QM Loans are residential mortgage loans that comply with the Ability-To-Repay rules and related guidelines of the Consumer Financial Protection Bureau."],["Agency-Eligible Loans(1)","","\u2022Agency-Eligible Loans are loans that are collateralized by a first lien mortgaged property and are primarily secured by investment properties. These loans are underwritten in accordance with GSE guidelines, but are not guaranteed by a GSE. Although these loans are underwritten in accordance with GSE guidelines and can be delivered to Fannie Mae and Freddie Mac, the Company includes these loans within its Non-Agency securitizations."],["Home Equity Loans(1)","","\u2022Home Equity Loans consist of revolving lines of credit and closed-end loans secured primarily by second liens on residential mortgaged properties. These products provide borrowers with access to home equity without requiring the payoff of an existing mortgage. Revolving lines of credit generally feature an initial draw period of 3 to 5 years, after which the balances convert to 15- or 25-year amortizing loans. Closed-end home equity loans are primarily fixed-rate obligations where the full principal amount is funded at origination and repaid through a fully amortizing schedule with original terms to maturity ranging from 10 to 30 years."],["Re- and Non-Performing Loans(1)","","\u2022Performing, re-performing, and non-performing loans are residential mortgage loans collateralized by a first lien mortgaged property."],["Non-Agency RMBS(2)","","\u2022Non-Agency Residential Mortgage-Backed Securities (\"RMBS\") represent fixed- and floating-rate RMBS issued by entities other than U.S. GSEs or agencies of the U.S. government. Non-Agency RMBS are primarily secured by Non-QM, Agency-Eligible, Home Equity, and Prime Jumbo Loans."],["Agency RMBS(2)","","\u2022Agency RMBS represent interests in pools of residential mortgage loans guaranteed by a GSE such as Fannie Mae or Freddie Mac

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains forward-looking statements and should be read in conjunction with our consolidated financial statements and the accompanying notes to our consolidated financial statements, which are included in this report.

Our company

We are a residential mortgage REIT with a focus on investing in a diversified risk-adjusted portfolio of residential mortgage-related assets in the U.S. mortgage market. Our objective is to provide attractive risk-adjusted returns to our stockholders over the long-term, primarily through dividends and capital appreciation.

We focus our investment activities primarily on acquiring and securitizing newly-originated residential mortgage loans within the non-agency segment of the housing market. We obtain our assets through Arc Home, LLC ("Arc Home"), our residential mortgage loan originator in which we own an approximate 66.0% interest, and through other third-party origination partners. We finance our acquired loans through various financing lines on a short-term basis and utilize TPG Inc.'s ("TPG") proprietary securitization platform to secure long-term, non-recourse, non-mark-to-market financing as market conditions permit. Through our ownership in Arc Home, we also have exposure to mortgage banking activities. Arc Home is a multi-channel licensed mortgage originator and servicer primarily engaged in the business of originating and selling residential mortgage loans while retaining the mortgage servicing rights associated with certain loans that it originates.

Our investment portfolio (which excludes our ownership in Arc Home) primarily includes Residential Investments and Agency RMBS. Currently, our Residential Investments primarily consist of Non-Agency Loans, Agency-Eligible Loans, Home Equity Loans and Non-Agency RMBS collateralized by these loan types, which we refer to as our target assets. In addition, we may also invest in other types of residential mortgage loans and other mortgage related assets. Our investment portfolio also includes commercial loans and commercial-mortgage backed securities ("CMBS") (collectively, the "Legacy WMC Commercial Investments") that were acquired in the WMC acquisition. We expect to either hold the Legacy WMC Commercial Investments until maturity or opportunistically exit these investments.

We were incorporated in Maryland on March 1, 2011 and commenced operations in July 2011. We conduct our operations to qualify and be taxed as a 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, with the exception of business conducted in our domestic taxable REIT subsidiaries ("TRS") which are subject to corporate income tax. We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act.

We are externally managed by our Manager, a wholly-owned subsidiary of TPG, pursuant to a management agreement. Our Manager has delegated to Angelo, Gordon & Co., L.P. ("TPG Angelo Gordon"), an affiliate of TPG, the overall responsibility of its day-to-day duties and obligations arising under our management agreement. TPG (NASDAQ: TPG) is a leading global alternative asset management firm.

2025 Executive Summary

Financial Highlights

•$10.48 Book Value per share;

•$0.90 of Net Income/(Loss) Available to Common Stockholders per diluted common share and $0.86 of Earnings Available for Distribution ("EAD") per diluted common share for the year ended December 31, 2025;

◦Refer to the "Earnings Available for Distribution" section below for further details related to our reconciliation of Net Income/(Loss) Available to Common Stockholders to EAD;

•14.4x GAAP Leverage Ratio and 1.6x Economic Leverage Ratio; and

•$0.85 dividend per common share declared during the year;

◦Increase of 13.3% from $0.75 dividend per common share declared during 2024.

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Investment Activity

•The table below summarizes the fair value of purchases and proceeds from sales of investments during the year ended December 31, 2025 (in thousands).

(1)During the year, we partnered with mortgage originators and executed three rated securitizations collateralized by $1.5 billion of Home Equity Loans. As the co-sponsor, the Company retained an "eligible vertical interest" to comply with risk retention rules which consists of at least 5% of each class of securities issued in the securitizations. Upon evaluating our retained interest in the securitization trusts, we determined we were not the primary beneficiary and, as a result, did not consolidate the securitization trusts, which resulted in us recording an investment in Non-Agency RMBS.

Acquisition of Additional Interest in AG Arc LLC

•On August 1, 2025, purchased an additional 21.4% interest in AG Arc LLC (“AG Arc”) from certain private funds managed by an affiliate of TPG. In connection with the acquisition, we issued 2,027,676 restricted shares of our common stock as consideration. Upon closing of the transaction on August 1, 2025, and giving effect to our acquisition of the additional 21.4% interest, we have an approximate 66.0% interest in AG Arc. Refer to Note 10 to the "Notes to Consolidated Financial Statements" for additional information related to the transaction.

Financing Activity

•The table below summarizes the rated securitizations executed during the year ended December 31, 2025 (in millions).

(1) Converted recourse financing with mark-to-market margin calls to non-recourse financing without mark-to-market margin calls.

•Paid off certain Legacy WMC fixed-rate long-term financing arrangements collateralized by certain retained interests in securitizations acquired from WMC. Generated total net proceeds of $55.4 million by pledging these assets under a recourse financing arrangement with mark-to-market margin calls and issuing additional securitized debt;

•Pledged Home Equity Loans with a fair value of $69.7 million and an unpaid principal balance of $66.8 million, in which we have no outstanding financing but have the ability to borrow at an advance rate of 87.5% of unpaid principal balance pledged as collateral. As of December 31, 2025, $50 million of this available financing is contractually committed;

•Amended a financing arrangement to convert financing on our residential mortgage loans with a total borrowing capacity of $400 million from financing with mark-to-market margin calls to financing without mark-to-market margin calls; and

•Exercised our optional redemption right related to a 2022 vintage Non-Agency securitization, paying down $275.0 million of securitized debt.

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Market Conditions

During the fourth quarter of 2025 and through January of 2026, Federal Reserve Chair Jerome Powell adopted a more cautious posture as the central bank sought to balance a labor market showing early signs of softening with persistent inflation. Although the unemployment rate edged higher to 4.4% by the end of 2025, core inflation remained near 3%. In response to these shifting dynamics, the Federal Open Market Committee delivered two additional 25 basis point interest rate cuts at its October and December meetings, bringing the target Fed Funds range to 3.50% to 3.75%. However, at the January 2026 meeting, the Federal Reserve elected to hold rates steady, whereby Chair Powell maintained that while risks to the dual mandate had diminished, current policy was not significantly restrictive, signaling a patient, meeting-by-meeting approach to further easing while under his chairmanship. The Treasury market reflected this "higher-for-longer" concern even as the Federal Reserve cut short-term rates. This resulted in a further steepening of the yield curve. By quarter-end, the yield spread between 2-year and 10-year U.S. Treasuries widened to approximately 70 basis points, remaining around that level through January 2026. Despite elevated long-term Treasury yields, the 30-year fixed mortgage rate declined by 15 to 20 basis points over the course of the fourth quarter to the low 6% area, reflecting modest easing in long-term borrowing costs for consumers. On January 30, 2026, Kevin Warsh was nominated to succeed Jerome Powell as the Federal Reserve Chair in May 2026 and after some initial market volatility, markets subsequently stabilized as investors assessed the potential implications of the nomination on monetary policy.

RMBS credit spreads were broadly tighter during the fourth quarter of 2025, particularly lower in the capital structure. Senior Non-QM spreads trended slightly tighter by a few basis points while mezzanine and subordinate tranches were 20 to 25 basis points tighter. Similarly, senior prime jumbo spreads were mixed while the subordinate tranches tightened by 20 to 35 basis points. Closed-end second lien spreads were flat to slightly wider higher in the capital structure while mezzanine tranches were flat to approximately 10 basis points tighter. Trends in credit spreads on credit risk transfer ("CRT") assets can serve as a proxy for market participants evaluating credit-related assets given the observability of transactions. Credit spreads on lower priority CRT tranches continued to tighten as market participants sought higher-yielding assets backed by seasoned mortgage credit. These tranche profiles have benefitted from some scarcity value as the GSEs have opted to retain more of the capital structure for their newly issued transactions amid favorable underlying collateral fundamentals. Higher priority CRT tranches were flat to slightly tighter during the fourth quarter of 2025. Non-QM credit curves continued to flatten amid robust demand for residential credit. Overall, credit spread changes for the full-year 2025 were broadly similar to the fourth quarter, with credit spreads on senior tranches mixed, while spreads on lower tranches in the capital structure were tighter by up to 25 to 30 basis points.

During the fourth quarter, primary RMBS market activity declined by 6% to $51 billion as compared to prior quarter. However, fourth quarter issuance volume was 27% higher than year-ago levels and brought the full-year 2025 primary issuance to over $200 billion, a 37% increase against 2024. Growth in the Non-QM sector was the primary driver of the annual increase, rising by approximately $35 billion, nearly doubling the volume in 2024. In addition, Home Equity issuance increased by over $13 billion, also nearly double 2024, and Prime Jumbo and Agency-Eligible issuance increased by a combined $10 billion. For the full-year 2025, Non-QM was roughly 40% of the year’s total issuance, followed by Prime Jumbo and Agency, collectively about 22%, and Home Equity at 14%. Residential transition loans, also known as fix-and-flip, comprised 4% of total issuance. Other sectors such as Single-Family Rental, CRT and Re/Non-performing loans comprised the balance.

The S&P CoreLogic Case-Shiller U.S. National Home Price Index was 1.3% higher year-over-year in December 2025, the latest data available, about 1% below the peak established in June 2025. Regional price variations continued to exist, and on an annual basis, metros in the Northeast and Midwest continued to lead gains while regions in Florida, Texas and the Mountain West have been weaker. Chicago area home prices led annual gains, rising by 5.3% from December 2024 to December 2025, and New York followed nearby at 5.1%. Cleveland home prices rose 4.0% and Boston was 1% higher over the year. California regions hovered around flat as Los Angeles and San Diego home price growth was inside of 1% while San Francisco fell by 10 basis points. Denver fell by 2.1% and Dallas home prices were 1.5% lower. In Florida, Miami home prices fell by 1.5% and Tampa was 2.9% lower against year-ago readings. Home price growth and available for-sale inventory have had a relatively strong inverse relationship as regions with inventory growth using 2019 as a baseline, have had weaker home price gains, and vice versa.

During the quarter, prevailing mortgage rates hovered between 6.2% and 6.3% and ended the quarter at 6.15%, according to the Freddie Mac Primary Mortgage Market Survey, last approaching these levels in the late third and early fourth quarter of 2024. Conforming mortgage interest rate locks remained in the low 6% area through December 2025 and held there at the start of January 2026. After a slow climb throughout 2023 and 2024, the effective mortgage rate outstanding (the rate on outstanding mortgage debt) continued to inch higher to 4.2% as of the third quarter of 2025, the latest data available, roughly 200 basis points lower than prevailing rates. This rate is almost 90 basis points higher than its low of 3.31% in the first quarter of 2022. While this suggests some softening of the mortgage lock-in effect, or disincentive for existing homeowners to sell their homes

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because their current mortgage rate is well below current market rates, this rate is up only 17 basis points from the start of the year, showing the stickiness of low-rate borrowers staying in place and reduced housing activity.

Total existing home inventory fell in December 2025 to 1.18 million, the latest data available. The reading follows the May to October period when inventory was approximately 1.5 million. Existing home inventory in 2025 hovered at its highest levels since 2020, averaging 1.3 to 1.5 million for most of the year, however these levels hardly breach the typical inventory levels of 1.5 to 2 million units that prevailed from 2016 to 2019 and remain well below the 1.7 to 2.5 million range seen between 2000 to 2004, periods with a smaller count of U.S. households. When evaluating new listings, which are a timelier barometer of home sale activity, 2025 inventory was 4.1 million units, the lowest since 2011. This figure is 3% lower year-over-year and is 24% below average year-to-date listings through November 2025 from 2015 through 2022. This reduced level of activity follows an annual shortage of over 1 million new listings in each of 2023 and 2024 compared to annual activity in 2015 through 2019 as well as pandemic-affected 2020 through 2022, underscoring the limited supply theme.

Presentation of investment, financing and hedging activities

In the "Investment activities," "Financing activities," "Hedging activities" and "Liquidity and capital resources" sections of this Part II, Item 7, we present information on our investment portfolio and the related financing arrangements inclusive of unconsolidated ownership interests in affiliates that are accounted for under GAAP using the equity method. Our investment portfolio excludes our investment in Arc Home.

Our investment portfolio and the related financing arrangements are presented along with a reconciliation to GAAP. This presentation of our investment portfolio is consistent with how our management team evaluates the business, and we believe this presentation, when considered with the GAAP presentation, provides supplemental information useful for investors in evaluating our investment portfolio and financial condition. See Notes 2 and 10 to the "Notes to Consolidated Financial Statements" for a discussion of investments in debt and equity of affiliates. See below for further terms used when describing our investment portfolio.

•Our "Investment portfolio" includes our Residential Investments, Agency RMBS, inclusive of TBAs, and Legacy WMC Commercial Investments.

•Our "Residential Investments" refer to our residential mortgage loans and Non-Agency RMBS.

◦"Residential mortgage loans" or "Loans" refer to our Non-Agency Loans, Agency-Eligible Loans, Home Equity Loans, and Re/Non-Performing Loans (exclusive of retained tranches from unconsolidated securitizations).

◦"Non-Agency RMBS" refer to the retained tranches from unconsolidated securitizations of Non-Agency Loans and Re/Non-Performing Loans issued under the GCAT shelf, as well as Non-Agency RMBS issued by third-parties.

•"Real estate securities" refers to our Non-Agency RMBS and Agency RMBS, inclusive of TBAs, as well as Legacy WMC CMBS that were acquired in the WMC Acquisition.

•Our "Legacy WMC Commercial Investments" refer to the commercial loans and CMBS that we acquired in the WMC Acquisition. We expect to either hold the Legacy WMC Commercial Investments until maturity or opportunistically exit these investments.

•Our "GAAP Residential Investments" refer to our Residential Investments excluding investments held within affiliated entities.

•Our "GAAP Investment portfolio" includes our GAAP Residential Investments, Agency RMBS, and Legacy WMC Commercial Investments.

For a reconciliation of our Investment portfolio to our GAAP Investment portfolio, see the GAAP Investment Portfolio Reconciliation Table below.

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Book value per share

The below table details book value per common share. Per share amounts for book value are calculated using all outstanding common shares in accordance with GAAP as of year-end.

Results of Operations

Our operating results can be affected by a number of factors and primarily depend on the size and composition of our investment portfolio, the level of our net interest income, the fair value of our assets and the supply of, and demand for, our investments in residential mortgage loans in the marketplace, among other things, which can be impacted by unanticipated credit events experienced by borrowers whose residential mortgage loans are included in our investment portfolio, such as defaults, liquidations or delinquencies, and other unanticipated events in our markets. Our primary source of net income or loss available to common stockholders is our net interest income, inclusive of our cost or benefit of hedging, which represents the difference between the interest earned on our investment portfolio and the costs of financing and economic hedges in place on our investment portfolio, as well as any income or losses from our equity investments in affiliates which includes operating income/(loss) from Arc Home.

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Year Ended December 31, 2025 compared to the Year Ended December 31, 2024

The table below presents certain information from our consolidated statements of operations for the years ended December 31, 2025 and 2024 (in thousands):

Interest income

Interest income is calculated using the effective interest method for our GAAP investment portfolio.

Interest income increased from the year ended December 31, 2024 to the year ended December 31, 2025 primarily as a result of purchases of residential mortgage loans and Non-Agency RMBS and an increase in the weighted average yield of our investment portfolio. The following table presents a summary of the weighted average amortized cost of and the weighted average yield on our GAAP investment portfolio for the years ended December 31, 2025 and 2024 ($ in millions).

Interest expense

Interest expense is inclusive of our financing cost related to our financing arrangements on our GAAP investment portfolio, securitized debt, Senior Unsecured Notes, and, for the year ended December 31, 2024, Legacy WMC Convertible Notes.

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Interest expense increased from the year ended December 31, 2024 to the year ended December 31, 2025 due to a higher weighted average GAAP financing balance outstanding resulting primarily from the issuance of securitized debt during the periods and the issuance of Senior Unsecured Notes in January and May of 2024, offset by the repayment of the Legacy WMC Convertible Notes upon maturity in September 2024. Additionally, there was an increase in the weighted average financing rate. The following table presents a summary of the weighted average financing balance and the weighted average financing rate for the years ended December 31, 2025 and 2024 ($ in millions).

Net interest component of interest rate swaps

We recorded income on the net interest component of interest rate swaps during the years ended December 31, 2025 and 2024 as a result of our swap portfolio being in a net receive position during each of the entire periods. The decrease in income from the year ended December 31, 2024 to the year ended December 31, 2025 was the result of a decrease in the weighted average receive rate and weighted average notional balance. The following table presents a summary of the weighted average notional value of and the weighted average (pay)/receive rate on our interest rate swap portfolio for the years ended of December 31, 2025 and 2024 ($ in millions).

Net realized gain/(loss)

The following table presents a summary of Net realized gain/(loss) for the years ended December 31, 2025 and 2024 (in thousands). See Note 3, Note 4, and Note 7 to the "Notes to Consolidated Financial Statements" for additional information on realized gains/(losses).

Net unrealized gain/(loss)

The following table presents a summary of Net unrealized gain/(loss) for the years ended December 31, 2025 and 2024 (in thousands).

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Management fee to affiliate

Our management fee is based upon a percentage of our Stockholders’ Equity. See the "Contractual obligations" section of this Part II, Item 7 for further detail on the calculation of our management fee and for the definition of Stockholders’ Equity. In connection with the WMC Acquisition, we and our Manager entered into the MITT Management Agreement Amendment pursuant to which the base management fee was reduced by $0.6 million for the first four quarters following the transaction closing, beginning with the fiscal quarter in which the transaction closing occurred (i.e., resulting in an aggregate $2.4 million waiver of base management fees). As a result, during the year ended December 31, 2024, the base management fee was reduced by $1.8 million.

Non-investment related expenses

The following table presents a summary of our non-investment related expenses for the years ended December 31, 2025 and 2024 (in thousands).

(1) We are required to reimburse our Manager or its affiliates for operating expenses incurred by our Manager or its affiliates on our behalf, including certain compensation expenses and other expenses relating to legal, accounting, and other services. See the "Contractual obligations" section of this Part II, Item 7 for further detail. For the year ended December 31, 2024, the Manager agreed to waive its right to receive expense reimbursements of $1.1 million pursuant to the MITT Management Agreement Amendment executed in connection with the WMC Acquisition.

(2) During the year ended December 31, 2025, we recorded a reduction in excise tax expense of $0.1 million related to an excise tax refund.

Investment related expenses

The following table presents a summary of our investment related expenses for the years ended December 31, 2025 and 2024 (in thousands). These expenses increased from the year ended December 31, 2024 to the year ended December 31, 2025 primarily due to an increase in our GAAP residential mortgage loan portfolio.

(1) We are required to reimburse our Manager or its affiliates for operating expenses incurred by our Manager or its affiliates on our behalf associated with our investment portfolio.

Transaction related expenses

During the year ended December 31, 2025, we recorded transaction related expenses of $5.2 million on the purchase and securitization of residential mortgage loans, $0.8 million related to refinancing our fixed-rate long-term financing arrangements, $0.9 million related to our acquisition of an additional 21.4% interest in AG Arc, and $0.4 million of legal expenses on our Legacy WMC Commercial Loans.

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Equity in earnings/(loss) from affiliates

The below tables summarize the components of the "Equity in earnings/(loss) from affiliates" line item on our consolidated statements of operations (in thousands).

(1) Effective August 1, 2025, our allocation of AG Arc’s earnings is 66.0%. For all prior periods, our allocation of AG Arc’s earnings was 44.6%.

The below table breaks out the components in the "Equity in earnings/(loss) from affiliates" line item on our consolidated statements of operations (in thousands).

(1)Represents items included in Earnings Available for Distribution. Refer to the “Earnings Available for Distribution” section below for further detail.

(2)Primarily represents earnings/(loss) from our investment in MATT Non-QM Securities.

(3)Net operating income/(loss) from AG Arc represents income/(loss) related to Arc Home's lending and servicing operations, net of operating expenses and related current tax expense or benefit. Other income/(loss) from AG Arc represents realized and unrealized changes in the fair value of Arc Home's mortgage servicing rights, transaction related expenses, and other asset impairments, net of related tax expense or benefit.

(4)As of December 31, 2025, the fair value of our investment in Arc Home was calculated using a valuation multiple of 1.025x of book value, which increased from 0.95x of book value as of December 31, 2024. As of December 31, 2024, the valuation multiple of 0.95x of book value, which increased from 0.89x of book value as of December 31, 2023.

(5)The earnings recognized by AG Arc do not include our portion of gains recorded by Arc Home in connection with the sale of residential mortgage loans to us. Refer to Note 10 to the "Notes to Consolidated Financial Statements" for more information on this accounting policy.

Income tax expense

Income tax expense for the year ended December 31, 2025 resulted from an increase in taxable income within our taxable REIT subsidiary primarily related to gains on residential mortgage loan securitization activity. During the year ended December 31, 2024, tax expense represented minimum state and local tax filing fees.

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Dividends on Preferred Stock

Holders of our Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock are entitled to receive cumulative cash dividends at their respective rates per annum on the $25.00 per share liquidation preference for each series. Our Series A Preferred Stock and Series B Preferred Stock have fixed rates of 8.25% and 8.00%, respectively. The initial dividend rate for our Series C Preferred Stock from issuance through September 16, 2024 was 8.000%. On and after September 17, 2024, dividends on the Series C Preferred Stock accumulate at an annual floating rate of three-month CME Term SOFR (plus a tenor spread adjustment of 0.26161%) plus a spread of 6.476%.

Earnings Available for Distribution

One of our objectives is to generate net income from net interest margin on our portfolio, and management uses EAD, as one of several metrics, to help measure our performance against this objective. Management believes that this non-GAAP measure, when considered with our GAAP financial statements, provides supplemental information useful for investors to help evaluate our financial performance. However, management also believes that our definition of EAD has important limitations as it does not include certain earnings or losses our management team considers in evaluating our financial performance. Our presentation of EAD may not be comparable to similarly-titled measures of other companies, who may use different calculations. This non-GAAP measure should not be considered a substitute for, or superior to, Net Income/(loss) available to common stockholders or Net income/(loss) per diluted common share calculated in accordance with GAAP. Our GAAP financial results and the reconciliations from these results should be carefully evaluated.

We define EAD, a non-GAAP financial measure, as Net Income/(loss) available to common stockholders excluding (i) (a) unrealized gains/(losses) on loans, real estate securities, derivatives and other investments, inclusive of our investment in AG Arc and Arc Home's net mortgage servicing rights, and (b) net realized gains/(losses) on the sale or termination of such instruments, (ii) any transaction related expenses incurred in connection with the acquisition, disposition, or securitization of our investments, (iii) the income tax effect on non-EAD income/(loss) items, and (iv) certain other nonrecurring gains or losses. Items (i) through (iv) above include any amount related to those items held in affiliated entities. EAD includes the net interest income and other income earned on our investments on a yield adjusted basis, including the net interest component of interest rate swaps, TBA dollar roll income/(loss), or any other investment activity that may earn or pay net interest or its economic equivalent. Additionally, EAD includes the net operating income/(loss) from Arc Home.

Transaction related expenses are primarily comprised of costs incurred prior to or at the time of executing our securitizations and acquiring or disposing of residential mortgage loans. These costs are nonrecurring and may include underwriting fees, legal fees, diligence fees, and other similar transaction related expenses. Recurring expenses, such as servicing fees, custodial fees, trustee fees and other similar ongoing fees are not excluded from earnings available for distribution. Management considers the transaction related expenses and income taxes related to non-EAD income/(loss) items to be similar to realized losses incurred at the acquisition, disposition, or securitization of an asset and does not view them as being part of its core operations.

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A reconciliation of "Net Income/(loss) available to common stockholders" to EAD for the years ended December 31, 2025 and 2024 is set forth below (in thousands, except per share data).

(1)The following table presents additional detail related to transaction related expenses excluded from EAD (in thousands). The interest expense line item relates to the amortization of deferred financing costs and the income tax expense line item relates to taxes incurred on items excluded from EAD, as defined above.

(2)The following table presents additional detail related to EAD from equity method investments (in thousands). Refer to the “Equity in earnings/(loss) from affiliates” section within the “Results of Operations” above for additional detail.

Investment activities

Investment activities

We aim to allocate capital to investment opportunities with attractive risk/return profiles in our target asset classes. Our investment activities primarily include acquiring and securitizing newly-originated residential mortgage loans. We finance our acquired loans through various financing lines on a short-term basis and securitize the loans to obtain long-term, non-recourse, non-mark-to-market financing as market conditions permit. We may also invest in Agency RMBS to utilize excess liquidity. Our investment and capital allocation decisions depend on prevailing market conditions and compliance with Investment Company Act and REIT tests, among other factors, and may change over time in response to opportunities available in different economic and capital market environments. As a result, in reacting to market conditions and taking into account a variety of other factors, including liquidity, duration, and interest rate expectations, the mix of our assets changes over time as we deploy capital. We actively evaluate our investments based on factors including, among others, the characteristics of the underlying collateral, geography, expected return, expected future prepayment trends, supply of and demand for our investments, costs of financing, costs of hedging, expected future interest rate volatility, and the overall shape of the U.S. Treasury and interest rate swap yield curves.

Net interest margin and leverage ratio

Net interest margin and leverage ratio are metrics that management believes should be considered when evaluating the performance of our investment portfolio. Net interest margin provides investors visibility into our profitability of interest

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income versus interest expense including the net effect of our interest rate swaps for insight into earnings available for distribution.

GAAP net interest margin and non-GAAP net interest margin, a non-GAAP financial measure, are calculated by subtracting the weighted average cost of funds from the weighted average yield for our GAAP investment portfolio and our investment portfolio, respectively. The weighted average yield represents an effective interest rate on our cost basis, which utilizes all estimates of future cash flows and adjusts for actual prepayment and cash flow activity as of quarter-end. The calculation of weighted average yield is weighted on amortized cost at quarter-end. The weighted average cost of funds is the sum of the weighted average funding costs on total financing arrangements outstanding at quarter-end, including all non-recourse financing arrangements, and our weighted average hedging cost or benefit, which is the weighted average of the net pay or receive rates on our interest rate swaps. GAAP and non-GAAP cost of funds are weighted by the outstanding financing arrangements on our GAAP investment portfolio and our investment portfolio, respectively, and the amortized cost of securitized debt and senior unsecured notes at quarter-end.

Our leverage ratio is determined by our portfolio mix as well as many additional factors, including the liquidity of our portfolio, the availability and price of our financing, the available capacity to finance our assets, and anticipated regulatory developments. See the "Financing activities" section below for more detail on our leverage ratio.

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Investment portfolio

The following table presents a summary of our Investment Portfolio, inclusive of net interest margin and leverage ratios, as of December 31, 2025 and a reconciliation of these metrics on our Investment Portfolio to their respective metrics on our GAAP Investment Portfolio ($ in thousands).

NM - Not Meaningful

(a)Excludes any net TBA positions.

(b)The weighted average yields are calculated based on the amortized cost of the underlying loans and securities.

(c)The cost of funds related to the financing on our investment portfolio inclusive of the benefit of 0.03% from our interest rate hedges was 5.35%. When including our Senior Unsecured Notes, the total cost of funds was 5.41%.

(d)Allocated equity represents the investment fair value less the associated securitized debt fair value and financing arrangements, where applicable.

(e)The leverage ratio on each asset class and on our investment portfolio represents Economic Leverage as defined below in the "Financing Activities" section and is calculated by dividing each investment type's total recourse financing arrangements less any cash posted as collateral by its equity invested inclusive of any cash collateral posted on financing arrangements. The Economic Leverage Ratio excludes any fully non-recourse financing arrangements and includes any net receivables or payables on TBAs. The leverage ratio on our GAAP Investment Portfolio represents GAAP leverage as defined below in the "Financing Activities" section.

(f)The financing arrangements on Non-Agency Loans includes financing arrangements on other assets.

(g)We expect to either hold the Legacy WMC Commercial Investments until maturity or opportunistically exit these investments.

(h)The Legacy WMC Commercial Loans are on non-accrual or cost-recovery status

(i)There are Legacy WMC CMBS with an unpaid principal balance of $23.5 million and a fair value of $6.3 million which are on non-accrual or cost recovery status.

(j)Cash and cash equivalents may include a portion of cash invested in money market funds. The net interest margin represents the interest earned on money market funds as of period end.

(k)Interest rate swaps represents the sum of the net fair value of interest rate swaps and the margin posted on interest rate swaps as of period end. Net interest margin on interest rate swaps represents the weighted average net receive/(pay) rate as of period end. The impact of the net interest component of interest rate swaps on the cost of funds is included within the respective investment portfolio asset line items.

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Securitized Non-Agency Loans and Home Equity Loans

As noted above, our investment activities primarily include acquiring and securitizing newly-originated residential mortgage loans. Non-Agency VIEs are collateralized by Non-Agency and Agency-Eligible Loans. Home Equity VIEs are collateralized by revolving lines of credit and closed-end loans secured primarily by a second lien on a residential mortgaged property. Refer to Notes 2 and 3 to the “Notes to Consolidated Financial Statements” for additional information on the assets and liabilities of our consolidated Non-Agency VIEs and Home Equity VIEs.

In each securitization transaction, a pool of loans is transferred into a newly formed securitization trust. The securitization trust issues various classes of mortgage pass-through certificates backed by the cash flows from the underlying residential mortgage loans (the "Certificates"). When we sponsor a residential mortgage loan securitization, we are generally required to retain at least 5% of the fair value of the Certificates issued in the securitization ("Risk Retention Rules"). We can retain either an "eligible vertical interest" (which consists of at least 5% of each class of securities issued in the securitization), an "eligible horizontal residual interest" (which is the most subordinate class of securities with a fair value of at least 5% of the aggregate credit risk) or a combination of both totaling 5% (the "Required Credit Risk"). We typically sell the senior classes of Certificates to unrelated third parties. When we choose to retain an eligible horizontal residual interest, we generally purchase the most subordinated classes of Certificates and the excess cash flow Certificates. When we choose to retain an eligible vertical interest, we purchase a 5% interest in each class of Certificates issued. We also may purchase the Certificates entitled to excess servicing fees and other Certificates not required to meet Risk Retention Rules.

If we are determined to be the primary beneficiary of these securitization transactions, we consolidate the respective VIE created to facilitate the transaction and record "Securitized residential mortgage loans" and "Securitized debt" on the consolidated balance sheets in accordance with U.S. GAAP. However, our equity at risk represents certain Certificates from each securitization which we retain.

The following table summarizes our Securitized residential mortgage loans and Securitized debt, as well as the economic interest on retained Certificates related to our Non-Agency VIEs and Home Equity VIEs as of December 31, 2025 (in thousands).

(1)Interest Only securities have no principal balances and bear interest based on a notional value. The notional value is used solely to determine interest distributions on the interest only classes of securities. The Securitized debt in the Non-Agency VIEs and Interest Only/Excess Servicing Bonds line items include interest only classes with a notional value of $3.7 billion and $11.2 billion, respectively. The Securitized debt in the Home Equity VIEs and Interest Only/Excess Servicing Bonds line items include interest only classes with a notional value of $295.4 million and $579.3 million, respectively.

(2)For Non-Agency VIEs, represents the fair value of real estate owned within the VIEs. We record real estate owned at the lower of cost or fair value less estimated costs to sell. We recorded real estate owned within our Non-Agency VIEs at $2.1 million as of December 31, 2025. For Home Equity VIEs, represents cash held in reserve accounts within the Home Equity VIEs and included within our restricted cash.

(3)Maximum loss exposure from our involvement with VIEs pertains to the fair value of the Certificates retained from the VIEs. We generally have no obligation to provide any other explicit or implicit support to the securitization trusts. Refer to Note 12 to the "Notes to Consolidated Financial Statements" for commitments related to the undrawn portion of a borrowers' home equity line of credit for which the Company may be required to fund.

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(4)Our equity at risk included bonds in our Non-Agency VIEs and Home Equity VIEs with a fair value of $414.2 million and $48.1 million, respectively, held in order to comply with Risk Retention Rules. We are generally required to hold the Required Credit Risk until the later of (i) the fifth anniversary of the securitization closing date and (ii) the date on which the aggregate unpaid principal balance of the mortgage loans has been reduced to 25% of the aggregate unpaid principal balance of the mortgage loans as of the securitization closing date, but no longer than the seventh anniversary of the closing date.

(5)A portion of our equity at risk includes bonds exposed to the first loss of the securitization in the Non-Agency VIEs and Home Equity VIEs with a fair value of $102.5 million and $57.1 million, respectively.

(6)Excludes net other asset/(liabilities) held within the Non-Agency VIEs and Home Equity VIEs of $9.5 million and $3.6 million, respectively.

(7)As the sponsor and depositor of each securitization, we may purchase all of the outstanding Certificates (an "Optional Redemption") following the earlier of (1) an applicable anniversary date (typically two or three years) of the respective securitization or (2) the date at which the unpaid principal balance of the applicable collateral has declined below a certain percentage (typically 10% to 30%) of the principal balance originally contributed to the securitization. As of December 31, 2025, there were 9 Non-Agency securitizations with an unpaid principal balance of $2.0 billion that met the criteria for an Optional Redemption.

Securitized residential mortgage loans and Residential mortgage loans

The following table presents information regarding collateral characteristics of our residential mortgage loans as of December 31, 2025 ($ in thousands).

(1)Loan count and weighted average excludes the Re- and Non-Performing Loans subcategory of Residential mortgage loans above as there may be limited data available regarding the underlying collateral of these residual positions.

(2)Amounts are weighted based on unpaid principal balance.

(3)Represents the original LTV or, for Re- and Non-Performing Loans and Non-Agency Loans acquired from WMC, the LTV at acquisition. For Home Equity Loans, represents the combined LTV, which considers the loan balances on a borrower’s first mortgage and related Home Equity Loan.

(4)Weighted average current FICO excludes borrowers where FICO scores were not available. Data is based on the latest available information.

(5)Weighted average life is based on projected life. Typically, actual maturities are shorter than stated contractual maturities. Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal, and prepayments of principal.

See Note 3 to the "Notes to Consolidated Financial Statements" for additional information on credit quality and a breakout of geographic concentration of credit risk within loans we include in the "Securitized residential mortgage loans, at fair value" and "Residential mortgage loans, at fair value" line items on our consolidated balance sheets.

Legacy WMC Commercial loans

As of December 31, 2025, the borrowers of the Legacy WMC Commercial loans were in maturity default. The lender parties (including us) are evaluating with the borrowers consensual sales of the underlying properties collateralizing the loans and/or transferring title of all or certain of the properties to the lender parties via a deed-in-lieu of foreclosure. See Note 3 to the "Notes to Consolidated Financial Statements" for information on the status of the Legacy WMC Commercial loans, as well as coupons, weighted average life, geographic concentration, collateral characteristics, LTV, and maturities of the loans we include in the "Commercial loans, at fair value" line item on our consolidated balance sheets.

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Non-Agency RMBS and Legacy WMC CMBS

The following table presents the fair value, coupon, and weighted average life of our Non-Agency RMBS and Legacy WMC CMBS portfolios as of December 31, 2025 ($ in thousands).

(1)Equity residual investments with a zero coupon rate are excluded from this calculation.

(2)Weighted average life is based on projected life. Typically, actual maturities are shorter than stated contractual maturities.

(3)Interest Only securities have no principal balances and bear interest based on a notional value. The notional value is used solely to determine interest distributions on the interest only classes of securities. The notional value of interest only classes included in the Non-QM Loans, Agency-Eligible Loans, Home Equity Loans, and Re- and Non-Performing Loans line items was $289.0 million, $40.4 million, $249.1 million, and $0.7 million, respectively.

(4)There are Legacy WMC CMBS with an unpaid principal balance of $23.5 million and a fair value of $6.3 million which are on non-accrual or cost recovery status.

The following table presents the fair value of our Non-Agency RMBS and Legacy WMC CMBS by credit rating as of December 31, 2025 (in thousands).

(1)Represents the minimum rating for rated assets of S&P, Moody's, Morningstar, and Fitch credit ratings, stated in terms of the S&P equivalent.

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The following table presents the geographic concentration of the underlying collateral for our Non-Agency RMBS and Legacy WMC CMBS portfolios as of December 31, 2025 ($ in thousands).

Agency RMBS

Although our investment activities primarily include acquiring and securitizing newly-originated residential mortgage loans, from time to time we invest excess liquidity into Agency RMBS. The following table presents the fair value, constant prepayment rate (“CPR”), coupon, and weighted average life of our Agency RMBS portfolio as of December 31, 2025 ($ in thousands).

(1)Represents the weighted average monthly CPRs published during the year for our in-place portfolio.

(2)Weighted average life is based on projected life. Typically, actual maturities are shorter than stated contractual maturities.

Financing activities

We use leverage to finance the purchase of our investment portfolio. Our leverage has primarily been in the form of repurchase agreements and facilities used to finance residential mortgage loans (which we refer to collectively as financing arrangements). We also utilize securitized debt to finance our loan portfolio. In addition, we may obtain financing through the issuance of senior unsecured notes.

Financing Arrangements

Repurchase agreements involve the sale and a simultaneous agreement to repurchase the transferred assets or similar assets at a future date. The amount borrowed generally is equal to the fair value of the assets pledged less an agreed-upon discount, referred to as a "haircut." The size of the haircut reflects the perceived risk associated with the pledged asset. Haircuts may change as our financing arrangements mature or roll and are sensitive to governmental regulations. Interest rates for our financing arrangements are determined based on prevailing rates (typically a spread over a base rate) corresponding to the terms of the borrowings, and interest is paid on a monthly basis or, for shorter term arrangements, at the end of the term. Repurchase agreements typically have a term of up to one year for loans and a term of 30 to 90 days for securities. Repurchase agreements are generally mark-to-market with respect to margin calls and recourse to us. We also have certain financing arrangements collateralized by residential mortgage loans which are recourse to us, but are not subject to mark-to-market margin calls. We had outstanding financing arrangements with six counterparties as of December 31, 2025.

Our financing arrangements generally include customary representations, warranties, and covenants, but may also contain more restrictive supplemental terms and conditions. Although specific to each financing arrangement, typical supplemental terms include requirements of minimum equity and liquidity, 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. To the extent that we fail to comply with the covenants contained in these financing arrangements or are otherwise found to be in default under the terms of such agreements, the counterparty has the right to accelerate amounts due under the associated agreement. As of December 31, 2025, we are in compliance with all of our financial covenants.

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Securitized Debt

As explained in the “Investment Activities” section above, our investment strategy focuses on acquiring and securitizing newly originated residential mortgage loans. In each securitization transaction, a pool of loans is transferred into a newly formed securitization trust. This trust issues Certificates, and we typically sell the senior classes of these Certificates to unrelated third parties. We record “Securitized debt" on our consolidated balance sheet in accordance with U.S. GAAP when we determine that we are the primary beneficiary of the securitization transaction. The proceeds from securitization transactions are used to repay any outstanding financing arrangements initially employed to acquire newly originated residential mortgage loans, replacing recourse financing with mark-to-market margin calls with securitized debt. Securitized debt is generally long-term in nature, non-recourse to us and is not subject to mark-to-market margin calls. Additionally, generally the holders of the securitized debt have no recourse to the general credit of the Company and we have no obligation to provide any other explicit or implicit support to the securitization trusts.

Senior Unsecured Notes

During 2024, we issued senior unsecured notes which consist of $34.5 million principal amount 9.500% Senior Notes due February 2029 and $65.0 million principal amount 9.500% Senior Notes due May 2029. See Note 6 to the "Notes to Consolidated Financial Statements" for additional information on the Senior Unsecured Notes.

Leverage

We use leverage to increase potential returns to our stockholders. Our financing strategy is designed to increase the size of our investment portfolio by borrowing against the fair value of the assets in our portfolio. As discussed above, financing arrangements are generally recourse to the Company whereas securitized debt used to finance our Non-Agency VIEs, Home Equity VIEs, and RPL/NPL VIEs is generally non-recourse to the Company. In addition to disclosing GAAP leverage, we also disclose Economic Leverage, which excludes non-recourse financing. Management believes that this non-GAAP measure, when considered with our GAAP financial statements, provides supplemental information useful for investors to help evaluate our use of leverage and the related risk associated with our leverage profile. Our presentation of Economic Leverage may not be comparable to similarly-titled measures of other companies, who may use different calculations. This non-GAAP measure should not be considered a substitute for, or superior to, GAAP leverage calculated in accordance with GAAP. Our GAAP financial results and the reconciliations from these results should be carefully evaluated.

We define GAAP leverage as the sum of (1) Securitized debt, at fair value, (2) Financing arrangements, net of any restricted cash posted on such financing arrangements, (3) Senior Unsecured Notes, and (4) the amount payable on purchases that have not yet settled less the financing remaining on sales that have not yet settled. We define Economic Leverage, a non-GAAP metric, as the sum of our GAAP leverage, exclusive of any fully non-recourse financing arrangements, and our net TBA position (at cost), if any. Our leverage does not include any financing utilized through AG Arc.

The calculations in the table below divide GAAP Leverage and Economic Leverage by our GAAP stockholders’ equity to derive our leverage ratios. The following table presents a reconciliation of our Economic Leverage ratio to GAAP Leverage ($ in thousands).

(1) Securitized debt, at fair value is non-recourse to the Company.

(2) Financing arrangements and senior unsecured notes are recourse to the Company.

Hedging activities

Subject to maintaining our qualification as a REIT and our Investment Company Act exemption, to the extent leverage is deployed, we may utilize derivative instruments in an effort to hedge the interest rate risk associated with the financing of our portfolio. Specifically, we may seek to hedge our exposure to potential interest rate mismatches between the interest we earn on

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our investments and our borrowing costs caused by fluctuations in short-term interest rates. We may utilize interest rate swaps, swaption agreements, and other financial instruments such as short positions in to-be-announced securities. In utilizing leverage and interest rate derivatives, our objectives are to improve risk-adjusted returns and, where possible, to lock in, on a long-term basis, a spread between the yield on our assets and the costs of our financing and hedging. Derivatives have not been designated as hedging instruments for GAAP. See Note 7 in the "Notes to Consolidated Financial Statements" for more information.

Dividends

Federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT ordinary taxable income, without regard to the deduction for dividends paid and excluding net capital gains and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income. 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 on our financing arrangements and other debt payable. 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 required cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.

As described above, our distribution requirements are based on taxable income rather than GAAP net income. Differences between taxable income and GAAP net income include (i) unrealized gains and losses associated with investment and derivative portfolios which are marked-to-market in current income for GAAP purposes, but excluded from taxable income until realized or settled, (ii) temporary differences related to amortization of premiums and discounts paid on investments, (iii) the timing and amount of deductions related to stock-based compensation, (iv) temporary differences related to the recognition of realized gains and losses on sold investments and certain terminated derivatives, (v) taxes, and (vi) differences between GAAP income or losses in our TRSs and taxable income resulting from dividend distributions to the REIT from our TRSs. Undistributed taxable income is based on current estimates and is not finalized until we file our annual tax return for that tax year, typically in October of the following year. As of December 31, 2025, we had estimated undistributed taxable income of approximately $0.12 per common share.

During the year ended December 31, 2025, the Company declared common stock dividends of $0.85 per share. During the same period, the Company declared and paid preferred stock dividends on its Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock of $2.06252, $2.00, and $2.784149, respectively.

Liquidity and capital resources

Our liquidity determines our ability to meet our cash obligations, including distributions to our stockholders, payment of our expenses, financing our investments and satisfying other general business needs.

Our principal sources of cash consist of borrowings under securitized debt and financing arrangements, principal and interest payments we receive on our investment portfolio, cash generated from our operating results, proceeds from the sale of investments, and proceeds from capital market transactions. We typically use cash to repay principal and interest on our securitized debt, financing arrangements and senior unsecured notes, to purchase loans, real estate securities, and other real estate related assets, to make dividend payments on our capital stock, to repurchase our capital stock, and to fund our operations. We may also generate liquidity when restricted cash that was pledged as collateral for clearing and executing trades, derivatives, and financing arrangements becomes unrestricted when the related collateral requirements are exceeded or at the maturity of the derivative or financing arrangement. Refer to "—Margin requirements" below discussing instances where we may use liquidity to meet margin requirements. As of December 31, 2025, we pledged Home Equity Loans with a fair value of $69.7 million and an unpaid principal balance of $66.8 million, in which we have no outstanding financing but have the ability to borrow at an advance rate of 87.5% of unpaid principal balance pledged as collateral. Of this available financing, $50 million is contractually committed. At December 31, 2025, we had $108.7 million of liquidity, which consisted of $57.8 million of cash and cash equivalents, $50.0 million of available committed financing on certain Home Equity Loans, and $0.9 million of unencumbered Agency RMBS available to support our liquidity needs.

Margin requirements

The fair value of our loans and real estate securities fluctuate according to market conditions. When the fair value of the assets pledged as collateral to secure a financing arrangement decreases to the point where the difference between the collateral fair value and the financing arrangement amount is less than the haircut, our lenders may issue a "margin call," which requires us to post additional collateral to the lender in the form of additional assets or cash. Under our repurchase facilities, our lenders have full discretion to determine the fair value of the securities we pledge to them. Our lenders typically value assets based on recent transactions in the market. Lenders also issue margin calls as the published current principal balance factors change on the pool

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of mortgages underlying the securities pledged as collateral when scheduled and unscheduled paydowns are announced monthly. We experience margin calls in the ordinary course of our business. In addition to our cash and cash equivalents, we may hold unpledged Agency RMBS and maintain available committed financing on certain residential mortgage loans to effectively manage the margin requirements established by our lenders. We refer to this position as our "liquidity." The level of liquidity we maintain to meet margin calls is directly affected by our leverage levels, our haircuts and the price changes on our assets. Typically, if interest rates increase or if credit spreads widen, then the prices of our collateral (and our unpledged Agency RMBS that constitute a portion of our liquidity) will decline, we will experience margin calls, and we will need to use our liquidity to meet the margin calls. There can be no assurance that we will maintain sufficient levels of liquidity to meet any margin calls. If our haircuts on existing financing arrangements increase, our liquidity will proportionately decrease. We intend to maintain a level of liquidity in relation to our borrowings that enables us to meet reasonably anticipated margin calls but that also allows us to be substantially invested in the residential mortgage market. We may misjudge the appropriate amount of our liquidity by maintaining excessive liquidity, which would lower our investment returns, or by maintaining insufficient liquidity, which may force us to liquidate assets into potentially unfavorable market conditions and harm our results of operations and financial condition.

Similar to the margin calls that we receive on our borrowing agreements, we may also receive margin calls on our derivative instruments when their fair value declines. This typically occurs when prevailing market rates change adversely, with the severity of the change also dependent on the terms of the derivatives involved. We may also receive margin calls on our derivatives based on the implied volatility of interest rates. Our posting of collateral with our counterparties can be done in cash or assets, and is generally bilateral, which means that if the fair value of our interest rate hedges increases, our counterparty will be required to post collateral with us. Refer to the "Liquidity risk – derivatives" section of Item 3 below for a further discussion on margin.

Cash flows

The table below details changes to our cash, cash equivalents, and restricted cash for the years ended December 31, 2025 and 2024 (in thousands).

(1)Cash provided by operating activities is primarily attributable to net interest income less operating expenses for the year ended December 31, 2025.

(2)Cash used in investing activities for the year ended December 31, 2025 was primarily attributable to purchases of residential mortgage loans and real estate securities, offset by principal repayments on our investment portfolio and proceeds from the sale of certain investments.

(3)Cash provided by financing activities for the year ended December 31, 2025 was primarily attributable to the proceeds from the issuance of securitized debt, offset by principal repayments on securitized debt, net repayments of repurchase agreements, and dividend payments.

Stock repurchase programs

On August 3, 2022, our Board of Directors authorized a stock repurchase program (the "2022 Repurchase Program") to repurchase up to $15.0 million of our outstanding common stock. The 2022 Repurchase Program does not have an expiration date and permits us to repurchase our shares through various methods, including open market repurchases, privately negotiated block transactions and Rule 10b5-1 plans. We may repurchase shares of our common stock from time to time in compliance with SEC regulations and other legal requirements. The extent to which we repurchase our shares, and the timing, manner, price, and amount of any such repurchases, will depend upon a variety of factors including market conditions and other corporate considerations as determined by management, as well as the limits of the 2022 Repurchase Program and our liquidity and business strategy. The 2022 Repurchase Program does not obligate us to acquire any particular amount of shares and may be modified or discontinued at any time. As of the date of this filing, approximately $1.5 million of common stock remained

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authorized for future share repurchases under the 2022 Repurchase Program. There were no shares repurchased during the years ended December 31, 2025 and 2024.

On May 4, 2023, our Board of Directors authorized a stock repurchase program (the "2023 Repurchase Program") to repurchase up to $15.0 million of our outstanding common stock on substantially the same terms as the 2022 Repurchase Program. As of the date of this filing, the full $15.0 million authorized amount remains available for repurchase under the 2023 Repurchase Program. This authorization is in addition to the amount remaining under the 2022 Repurchase Program.

On February 22, 2021, our Board of Directors authorized a stock repurchase program (the "Preferred Repurchase Program") pursuant to which our Board of Directors granted a repurchase authorization to acquire shares of our Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock having an aggregate value of up to $20.0 million. No share repurchases under the Preferred Repurchase Program have been made since its authorization.

Shares of stock repurchased by us under any repurchase program, if any, will be cancelled and, until reissued by us, will be deemed to be authorized but unissued shares of our stock as required by Maryland law. The cost of the acquisition by us of shares of our own stock in excess of the aggregate par value of the shares first reduces additional paid-in capital, to the extent available, with any residual cost applied against retained earnings.

Equity distribution agreements

On November 6, 2024, we entered into separate equity distribution agreements (the "2024 Equity Distribution Agreements") with each of BTIG, LLC, JonesTrading Institutional Services LLC, Keefe, Bruyette & Woods, Inc. and Piper Sandler & Co. (collectively, the "2024 Sales Agents"), pursuant to which we may sell up to $75.0 million aggregate offering price of shares of our common stock from time to time through an "at-the-market" equity offering program under which the 2024 Sales Agents will act as sales agent. Prior to entering into the 2024 Equity Distribution Agreements, we terminated the equity distribution agreements related to our prior at-the-market program. We did not issue any shares of common stock under any of our equity distribution agreements then in effect during the years ended December 31, 2025 and 2024.

Acquisition of additional interest in AG Arc

On August 1, 2025, in connection with the acquisition of an additional 21.4% interest in AG Arc, we issued 2,027,676 restricted shares of common stock (the “Holder Shares”) to certain funds managed by an affiliate of TPG (the “Holders”) as consideration. Refer to Note 10 of the "Notes to Consolidated Financial Statements" for additional information. Pursuant to the registration rights agreement we entered into with the Holders, in August 2025, we filed a resale shelf registration statement on Form S-3 registering the resale of all the Holder Shares (the “Resale Shelf”), which was declared effective by the Securities and Exchange Commission in August 2025.

Forward-looking statements regarding liquidity

Based upon our current portfolio, leverage and available borrowing arrangements, we believe the net proceeds of our common equity offerings, preferred equity offerings, senior unsecured note issuances, and private placements, combined with cash flow from operating activities, financing activities, and our available borrowing capacity will be sufficient to enable us to meet our anticipated liquidity requirements, including funding our investment activities, paying fees under our management agreement, funding our distributions to stockholders, funding financing maturities, and paying general corporate expenses.

Contractual obligations

Management agreement

The management agreement, as amended, provides for payment to the Manager of a management fee, an incentive fee, and reimbursements of certain expenses incurred by the Manager or its affiliates on behalf of us.

In connection with the closing of the WMC acquisition, the MITT Management Agreement Amendment became effective, pursuant to which (i) our Manager’s base management fee was reduced by $0.6 million for the first four quarters following the Effective Time, beginning with the fiscal quarter in which the Effective Time occurred (i.e., resulting in an aggregate $2.4 million waiver of base management fees), and (ii) our Manager waived its right to seek reimbursement from us for any expenses otherwise reimbursable by us under the management agreement in an amount equal to approximately $1.3 million, which was the excess of $7.0 million over the aggregate per share additional merger consideration paid by our Manager to the holders of WMC Common Stock under the merger agreement.

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Management fee

The management fee is calculated and payable quarterly in arrears in an amount equal to 1.50% of our Stockholders’ Equity, per annum. For purposes of calculating the management fee, "Stockholders’ Equity" means the sum of the net proceeds from any issuances of equity securities (including preferred securities) since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance, and excluding any future equity issuance to the Manager), plus our retained earnings at the end of such quarter (without taking into account any non-cash equity compensation expense or other non-cash items described below incurred in current or prior periods), less any amount that we pay for repurchases of our common stock, excluding any unrealized gains, losses or other non-cash items that have impacted stockholders’ equity as reported in our 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 our independent directors and after approval by a majority of our independent directors. Stockholders’ Equity, for purposes of calculating the management fee, could be greater or less than the amount of stockholders’ equity shown on our financial statements. The below table details the management fees incurred during the years ended December 31, 2025 and 2024 (in thousands).

(1)For the year ended December 31, 2024, the Manager agreed to waive its right to receive management fees of $1.8 million pursuant to the MITT Management Agreement Amendment executed in connection with the WMC acquisition.

As of December 31, 2025 and 2024, we recorded management fees payable of $2.3 million and $2.3 million, respectively. The management fee payable is included within the "Due to affiliates" item within the "Other liabilities" line item on the consolidated balance sheets.

Incentive fee

The Manager is entitled to an annual incentive fee with respect to each applicable fiscal year, which will be equal to 15% of the amount by which our cumulative adjusted net income from November 22, 2021 exceeds the cumulative hurdle amount, which represents an 8% return (cumulative, but not compounding) on an equity hurdle base consisting of the sum of (i) $341.5 million and (ii) the gross proceeds of any subsequent public or private common stock offerings by us. The annual incentive fee will be payable in cash, or, at the option of our Board of Directors, shares of common stock or a combination of cash and shares. During the years ended December 31, 2025 and 2024, we did not incur any incentive fee expense.

Termination fee

Upon the occurrence of (i) our termination of the management agreement without cause or (ii) the Manager’s termination of the management agreement upon a breach by the Company of any material term of the management agreement, the Manager will be entitled to a termination fee equal to three times the average annual management fee during the 24-month period prior to such termination, calculated as of the end of the most recently completed fiscal quarter. As of December 31, 2025 and December 31, 2024, no event of termination of the management agreement had occurred.

Expense reimbursement

Our Manager uses the proceeds from its management fee in part to pay compensation to its officers and personnel, who, notwithstanding that certain of them also are our officers, receive no compensation directly from us. We are required to reimburse our Manager or its affiliates for operating expenses incurred by our Manager or its affiliates on our behalf, including certain salary expenses and other expenses relating to legal, accounting, due diligence and other services. Our reimbursement obligation is not subject to any dollar limitation; however, reimbursements are subject to an annual budget process which combines guidelines from the management agreement with oversight by our Board of Directors and discussions with our Manager.

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The below table details the expense reimbursement incurred during the years ended December 31, 2025 and 2024 (in thousands).

(1)For the year ended December 31, 2024, our Manager agreed to waive its right to receive expense reimbursements of $1.1 million pursuant to the MITT Management Agreement Amendment executed in connection with the WMC acquisition.

As of December 31, 2025 and 2024, we recorded a reimbursement payable to our Manager or its affiliates of $2.1 million and $1.7 million, respectively. The reimbursement payable to the Manager or its affiliates is included within the "Due to affiliates" line item within the "Other liabilities" line item on the consolidated balance sheets.

Equity Incentive Plans

On May 5, 2025, following approval by stockholders at our annual stockholders meeting, our 2025 Equity Incentive Plan (the “2025 Equity Incentive Plan”) became effective. The maximum number of shares of our common stock that could be issued under the 2025 Equity Incentive Plan was 800,000 shares of common stock, plus 220,781 shares of common stock (which reflects the number of shares that remained available for issuance under the equity incentive plan approved in 2020 (the “2020 Equity Incentive Plan”) as of May 4, 2025), plus 130,000 shares of common stock that remained subject to outstanding awards under the 2020 Equity Incentive Plan but only to the extent that such shares become forfeited or otherwise lapse. As a result of the adoption of the 2025 Equity Incentive Plan, no additional awards will be granted under the 2020 Equity Incentive Plan (although awards previously made under the 2020 Equity Incentive Plan will remain in effect subject to the terms of the 2020 Equity Incentive Plan and the applicable award agreement).

Since inception of the 2025 Equity Incentive Plan and through December 31, 2025, we have granted an aggregate 25,401 shares of restricted common stock and 870 dividend equivalent units to its independent directors, all of which have vested. As of December 31, 2025, there were 994,510 remaining shares available to be issued under the 2025 Equity Incentive Plan.

As of December 31, 2025, we have 12,981 restricted stock units and 2,919 associated dividend equivalent units outstanding, all of which are fully vested and held by one of our independent directors. These units will be settled on a one-for-one basis in shares of our common stock upon the director's separation from service with us.

Manager Equity Incentive Plans

The AG Mortgage Investment Trust, Inc. 2021 Manager Equity Incentive Plan (the "2021 Manager Plan"), which became effective on April 7, 2021 following the approval of our stockholders at our 2021 annual meeting of stockholders, provides for a maximum of 573,425 shares of common stock that may be subject to awards thereunder to our Manager. As of December 31, 2025, there were no shares or awards issued under the 2021 Manager Plan. Following the execution of the Third Amendment to our management agreement in November 2021 related to the incentive fee, our compensation committee no longer expects to continue its historical practice of making periodic equity grants to the Manager pursuant to the 2021 Manager Plan.

Unfunded commitments

See Note 12 of the "Notes to Consolidated Financial Statements" for detail on our commitments as of December 31, 2025.

Off-balance sheet arrangements

Our investments in debt and equity of affiliates primarily consist of real estate securities and our interest in AG Arc. Investments in debt and equity of affiliates are accounted for using the equity method of accounting. Certain of our investments in debt and equity of affiliates securitize residential mortgage loans and retain interests in the subordinated tranches of the transferred assets. These retained interests are included in the MATT Non-QM Securities and Re/Non-Performing Securities line items of our investment portfolio. See Note 10 to the "Notes to Consolidated Financial Statements" for a discussion of investments in debt and equity of affiliates.

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We record TBA purchases and sales on the trade date and present the purchase or receipt net of the corresponding payable or receivable until the settlement date of the transaction. Refer to Note 7 to the "Notes to Consolidated Financial Statements" for additional detail on TBAs as of December 31, 2025, if applicable.

For additional information on our commitments as of December 31, 2025, refer to Note 12 of the "Notes to Consolidated Financial Statements." We do not expect these commitments, taken as a whole, to be significant to, or to have a material impact on, our overall liquidity or capital resources or our operations.

Critical accounting policies and estimates

We prepare our consolidated financial statements in conformity with GAAP, which requires the use of estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. These estimates are based, in part, on our judgment and assumptions regarding various economic conditions that we believe are reasonable based on facts and circumstances existing at the time of reporting. We believe that the estimates, judgments and assumptions utilized in the preparation of our consolidated financial statements are prudent and reasonable. Although our estimates contemplate conditions as of December 31, 2025 and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in arriving at those estimates, which could materially affect reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the periods presented.

Our most critical accounting policies include (i) Valuation of financial instruments, (ii) Accounting for loans, (iii) Accounting for real estate securities, (iv) Interest income recognition, (v) Financing arrangements, and (vi) Investment consolidation. For additional information related to our significant accounting policies, see Note 2 to the "Notes to Consolidated Financial Statements." Our critical accounting estimates are those which require assumptions to be made about matters that are highly uncertain. The following is a description of our critical accounting estimates that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations:

Valuation of financial instruments

We have elected the fair value option for the vast majority of our assets and liabilities for which such election is permitted, as provided for under ASC 825, Financial Instruments ("ASC 825"). For financial instruments that are traded in an "active market," the best measure of fair value is the quoted market price. However, many of our financial instruments are not traded in an active market. Therefore, our Manager generally uses third-party valuations when available. If third-party valuations are not available, our Manager uses other valuation techniques, such as the discounted cash flow methodology.

Summary descriptions, for various categories of financial instruments, of the valuation methodologies management uses in determining fair value of our financial instruments are detailed in Note 5 to the "Notes to Consolidated Financial Statements." Because of the inherent uncertainty of valuation, the estimated fair value of our financial instruments may differ significantly from the values that would have been used had a ready market for the financial instruments existed, and the differences could be material to our consolidated financial statements.

The determination of estimated fair value of those of our financial instruments that are not traded in an active market requires the use of both asset level characteristics and macroeconomic assumptions and/or inputs, which are generally based on current market and economic conditions. Changes in the market environment and other events that may occur over the life of our investments may cause the gains or losses ultimately realized to be different than the valuations currently estimated. The significant unobservable inputs used in the fair value measurement of our financial instruments are market-implied discount rates, default rates, delinquency rates, prepayment rates and loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates. The significant unobservable input used in the fair value measurement of our investment in Arc Home is the book value multiple. Significant increases (decreases) in the multiple applied would result in a significantly higher (lower) fair value measurement.

Our valuations are sensitive to changes in interest rates. Refer to the interest rate sensitivity analysis included in Item 7A. Quantitative and Qualitative Disclosures about Market Risk in this Annual Report on Form 10-K for further information.

Refer to Note 5 to the "Notes to Consolidated Financial Statements" in Part II, Item 8 of this Annual Report on Form 10-K, for additional information on our assets and liabilities accounted for at fair value at December 31, 2025, including the significant

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inputs used to estimate their fair values and the impact the changes in their fair values had to our financial condition and results of operations.

Interest income recognition

Interest income on our loan and securities portfolio is accrued based on the actual coupon rate and the outstanding principal balance of such loans or securities. We have elected to record interest in accordance with ASC 835-30-35-2, "Imputation of Interest," using the effective interest method for all loans and securities accounted for under the fair value option in accordance with ASC 825, "Financial Instruments." As such, premiums and discounts are amortized or accreted into interest income over the lives of the loans or securities.

To record interest income using the effective interest method, we reassess the cash flows on our investments on at least a quarterly basis. In estimating these cash flows, there are a number of assumptions made that are uncertain and subject to judgments and assumptions based on subjective and objective factors and contingencies. These include the rate and timing of principal and interest receipts (including assumptions of prepayments, repurchases, defaults and liquidations), the pass-through or coupon rate and interest rate fluctuations. In addition, interest payment shortfalls due to delinquencies on the underlying mortgage loans have to be estimated.

An increase in the prepayment rate, as measured by the CPR, will typically accelerate the amortization of purchase premiums, thereby reducing the yield or interest income earned on such assets. An increase in the prepayment rate will similarly accelerate the accretion of purchase discounts, conversely increasing the yield or interest income earned on such assets. A decrease in the prepayment rate will have a directionally opposite impact on the yield or interest income.

As further discussed in Note 2 of the "Notes to Consolidated Financial Statements," differences between previously estimated cash flows and current actual and anticipated cash flows caused by changes to prepayment or other assumptions are adjusted retrospectively through a "catch up" adjustment for the impact of the cumulative change in the effective yield through the reporting date for securities accounted for under ASC 320-10 (generally, Agency RMBS) or adjusted prospectively through an adjustment of the yield over the remaining life of the investment for securities accounted for under ASC 325-40 and mortgage loans accounted for under ASC 310-10.

Investment consolidation

When we have a variable interest in an entity, we are required to determine whether the entity is a variable interest entity ("VIE") or a voting interest entity ("VOE"), the classification of which will determine the consolidation model that we are required to follow when determining whether we should consolidate the entity. When an entity does not possess the characteristics of a VIE, we will determine whether we have a controlling financial interest and meet the criteria for consolidation under the voting interest entity model.

An entity is a VIE if the equity investors (i) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support, (ii) are unable to direct the entity’s activities or (iii) are not exposed to the entity’s losses or entitled to its residual returns. VIEs within the scope of ASC 810-10, "Consolidation" are required to be consolidated by their 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 from the VIE that could potentially be significant to the VIE.

Determining the primary beneficiary of a VIE requires judgment. We determined that for the securitizations we consolidate, our ownership provides us with the obligation to absorb losses or the right to receive benefits from the VIE that could be significant to the VIE. In addition, we have the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance, or power, such as rights to replace the servicer without cause.

The securitization trusts are structured as entities that receive principal and interest on the underlying collateral and distribute those payments to the security holders. The assets held by the securitization entities are restricted in that they can only be used to fulfill the obligations of the securitization entity. Our risks associated with our involvement with these VIEs are limited to our risks and rights as a holder of the security we have retained as well as certain risks which may occur when we act as either the sponsor and/or depositor of and the seller to the securitization entities.

Our interest in the assets held by consolidated securitization vehicles, which are consolidated on our consolidated balance sheets, is restricted by the structural provisions of these trusts, and a recovery of our investment in the vehicles will be limited by each entity’s distribution provisions. The liabilities of the securitization vehicles, which are also consolidated on our

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consolidated balance sheets, are non-recourse to us, and can only be satisfied using proceeds from each securitization vehicle’s respective assets.

The assets of securitization entities are comprised of residential mortgage loans.

We perform ongoing reassessments of whether changes in the facts and circumstances regarding our involvement with a VIE causes our consolidation conclusion to change.

Recent accounting pronouncements

Recent accounting pronouncements impacting us include (i) Income Taxes and (ii) Expense Disaggregation. For additional information related to these recent accounting pronouncements and their impact on our consolidated financial statements, see Note 2 to the "Notes to Consolidated Financial Statements."

REIT Qualification

We have elected to be treated as a REIT under Sections 856 through 859 of the Internal Revenue Code of 1986, as amended (the "Code"). Our qualification as a REIT depends upon our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our shares. We believe that we are organized in conformity with the requirements for qualification and taxation as a REIT under the Code, and that our manner of operation enables us to meet the requirements for qualification and taxation as a REIT.

We generally need to distribute at least 90% of our ordinary taxable income each year (subject to certain adjustments) to our stockholders in order to qualify as a REIT under the Code. Our ability to make distributions to our stockholders depends, in part, upon the performance of our investment portfolio.

As a REIT, we generally are not subject to U.S. federal income tax on our REIT taxable income that we distribute currently to our stockholders. If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we lost our REIT qualification. Accordingly, our failure to qualify as a REIT could have a material adverse impact on our results of operations and our ability to pay distributions, if any, to our stockholders. Even if we qualify for taxation as a REIT, we may be subject to some U.S. federal, state and local taxes on our income or property. In addition, any income earned by a domestic taxable REIT subsidiary, or TRS, will be subject to corporate income taxation.

Investment Company Act Exemption

We conduct our business so as to maintain our exempt status under, and not to become regulated as an investment company for purposes of, the Investment Company Act. Under Section 3(a)(1)(A) of the Investment Company Act, a company is an investment company if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities. Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an investment company if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire "investment securities" having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis (the "40% Test"). "Investment securities" do not include, among other things, U.S. government securities, and securities issued by majority-owned subsidiaries that (i) are not investment companies and (ii) are not relying on the exceptions from the definition of investment company provided by Section 3(c)(1) or 3(c)(7) of the Investment Company Act (the so called "private investment company" exemptions).

We conduct our operations such that we will not be considered an investment company under Section 3(a)(1) of the Investment Company Act by complying with the 40% Test and not engaging primarily (or holding ourselves out as being engaged primarily) in the business of investing, reinvesting, or trading in securities. Rather, through wholly-owned or majority-owned subsidiaries, we are primarily engaged in the non-investment company businesses of these subsidiaries, namely the real estate finance business of purchasing or otherwise acquiring mortgage loans and other interests in real estate.

We currently have several subsidiaries that rely on the exclusion provided by Section 3(c)(7) of the Investment Company Act, each a "3(c)(7) subsidiary." In addition, we currently have several subsidiaries that rely on the exclusion provided by Section

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3(c)(5)(C) of the Investment Company Act, each a "3(c)(5)(C) subsidiary."

While investments in 3(c)(7) subsidiaries are considered investment securities for the purposes of the 40% Test, investments in 3(c)(5)(C) subsidiaries are not considered investment securities for the purposes of the 40% Test, nor are investments in subsidiaries that rely on the exclusion provided by Section 3(a)(1)(C). Therefore, our investments in 3(c)(7) subsidiaries and other investment securities cannot exceed 40% of the value of our total assets (excluding U.S. government securities and cash) on an unconsolidated basis.

Section 3(c)(5)(C) of the Investment Company Act exempts from the definition of "investment company" entities primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. The SEC staff generally requires an entity relying on Section 3(c)(5)(C) to invest at least 55% of its portfolio in "qualifying assets" and at least another 25% in additional qualifying assets or in "real estate-related assets" (with no more than 20% comprised of miscellaneous assets). Both the 40% Test and the requirements of the Section 3(c)(5)(C) exclusion limit the types of businesses in which we may engage and the types of assets we may hold, as well as the timing of sales and purchases of assets. For example, these restrictions limit our and our 3(c)(5)(C) subsidiaries’ ability to invest directly in Agency RMBS that represent less than the entire ownership in a pool of mortgage loans or debt and equity tranches of Non-Agency RMBS (in each case to the extent such interest are not retained interest in securitizations consisting of mortgage loans that were owned by us and such securitizations were not sponsored by us in order to obtain financing to acquire additional mortgage loans), certain real estate companies and assets not related to real estate.

The determination that we qualify for this exemption from being regulated as an investment company depends on various factual matters and circumstances. We closely monitor our holdings to ensure continuing and ongoing compliance with these tests. If we failed to comply with the 40% Test or another exemption under the Investment Company Act and became regulated as an investment company, our ability to, among other things, use leverage would be substantially reduced and, as a result, we would be unable to conduct our business as described in this report.