Cherry Hill Mortgage Investment (CHMI) risk factors, FY2024 10-K

Risks Related to Our Business

1. 01We may not be able to continue to generate sufficient revenue to make or sustain distributions to our stockholders
2. 02Difficult conditions in the mortgage and residential real estate markets as well as general market concerns may adversely affect the value of the assets in which we invest, and these conditions may persist for the foreseeable future
3. 03We are dependent on mortgage servicers to service the mortgage loans relating to our Servicing Related Assets, and any failure by these mortgage servicers to service the mortgage loans relating to our Servicing Related Assets could have a material and adverse effect on us
4. 04the transfer of servicing to another party
5. 05any agreement between us and the mortgage servicer being rejected in a bankruptcy proceeding
6. 06Our ability to own and manage MSRs is subject to terms and conditions established by the GSEs, which are subject to change
7. 07We may be subject to representation and warranty risk in our capacity as an owner of MSRs and our sales of MSRs and other assets
8. 08The performance of loans underlying our MSRs may be adversely affected by the performance of the related mortgage servicer
9. 09Our ability to invest in, and dispose of, our investments in Servicing Related Assets is subject to the receipt of third-party consents
10. 10We cannot predict the impact future actions by the Federal Reserve will have on our business, and any such actions may negatively impact us
11. 11The value of our Servicing Related Assets may vary substantially with changes in interest rates
12. 12If delinquencies on mortgage loans increase, the value of our Servicing Related Assets may decline significantly
13. 13Prepayment rates can change, adversely affecting the performance of our assets
14. 14Interest rate mismatches between our assets and any borrowings used to fund purchases of our assets may reduce our income during periods of changing interest rates
15. 15Interest rate caps on the ARMs and hybrid ARMs that may back our RMBS may reduce our net interest margin during periods of rising interest rates
16. 16We rely on analytical models and other data to analyze potential asset acquisition and disposition opportunities and to manage our portfolio. These models are based on assumptions and actual results may differ significantly from the modeled expectations
17. 17Valuations of some of our assets will be inherently uncertain, may be based on estimates, may fluctuate over short periods of time and may differ from the values that would have been used if a ready market for these assets existed
18. 18An increase in interest rates may cause a decrease in the volume of certain of our target assets, which could adversely affect our ability to acquire target assets that satisfy our investment objectives and to make distributions to our stockholders
19. 19We are highly dependent on information systems and third parties, and systems failures or cybersecurity incidents could disrupt our business
20. 20The lack of liquidity of our assets may adversely affect our business, including our ability to sell our assets
21. 21Adverse market developments generally will cause our lenders to require us to pledge cash as additional collateral. If our assets were insufficient to meet these collateral requirements, we might be compelled to liquidate particular assets at inopportune times and at unfavorable prices
22. 22Our use of repurchase transactions gives our lenders greater rights in the event that we file for bankruptcy, which may make it difficult for us to recover our collateral in the event of a bankruptcy filing
23. 23Hedging against interest rate changes and other risks may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders
24. 24Our hedging transactions, which are intended to limit losses, may actually adversely affect our earnings, which could reduce our cash available for distribution to our stockholders
25. 25We operate in a highly competitive market
26. 26We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations
27. 27Our ability to make distributions to our stockholders depends on our operating results, our financial condition and other factors, and we may not be able to make regular cash distributions at a fixed rate or at all under certain circumstances
28. 28We face possible risks associated with the effects of climate change and severe weather
29. 29Increasing attention to ESG matters may impact our business
30. 30Our risk management policies and procedures may not be effective
31. 31The development and use of AI technology could lead to legal or regulatory actions, harm our reputation, or have a significant negative impact on our business

Risks Related to the Termination of our Management Agreement with CHMM

1. 32We may not be able to fully realize the expected benefits of our transition to a self-managed company or the ability to realize such benefits may take longer than anticipated
2. 33Potential legal matters related to the termination of the management agreement with CHMM could adversely affect our business, results of operations, and our financial condition

Risks Related to Our Organizational Structure

1. 34Maintenance of certain exceptions from (or otherwise not falling within) the definitions of “investment company” under the Investment Company Act imposes significant limitations on our operations
2. 35The ownership limits in our charter may discourage a takeover or business combination that may have benefited our stockholders
3. 36Our stockholders’ ability to control our operations is severely limited
4. 37Certain provisions of Maryland law could inhibit a change in our control
5. 38Our authorized but unissued common and preferred stock may prevent a change in our control
6. 39Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interest
7. 40active and deliberate dishonesty by the director or officer that was established by a final judgment and is material to the cause of action
8. 41Our charter contains provisions that make removal of our directors difficult, which could make it difficult for our stockholders to effect changes to our management

Risks Related to Our Common Stock

1. 42The market price and trading volume of our common stock may be volatile
2. 43Future sales of our common stock or securities convertible into or exercisable as exchangeable for our common stock could cause the market value of our common stock to decline and could result in dilution of your shares
3. 44We have not established a minimum distribution payment level with respect to our common stock, and we cannot assure you of our ability to make distributions in the future

Risks Related to U.S. Federal Income Tax

1. 45Our failure to qualify as a REIT would subject us to U.S. federal, state and local income taxes, which could adversely affect the value of our common stock and would substantially reduce the cash available for distribution to our stockholders
2. 46Complying with REIT requirements may cause us to forego or liquidate otherwise attractive investments
3. 47Failure to make required distributions would subject us to tax, which would reduce the cash available for distribution to our stockholders
4. 48any undistributed taxable income from prior years
5. 49Despite qualification as a REIT, we may face other tax liabilities that reduce our cash flows
6. 50We may lose our REIT qualification or be subject to a penalty tax if the U.S. Internal Revenue Service, or IRS, successfully challenges our characterization of our investments in Excess MSRs
7. 51The failure of RMBS subject to a repurchase agreement to qualify as real estate assets would adversely affect our ability to qualify as a REIT
8. 52Uncertainty exists with respect to the treatment of our TBAs for purposes of the REIT asset and income tests
9. 53Complying with REIT requirements may limit our ability to hedge effectively
10. 54Our ownership of and relationship with our TRSs (and any future TRSs that we may form) will be limited and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax
11. 55Our ownership limitation may restrict change of control or business combination opportunities in which our stockholders might receive a premium for their common stock
12. 56Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends
13. 57We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock
14. 58Our recognition of “phantom” income may reduce a stockholder’s after-tax return on an investment in our common stock
15. 59Liquidation of our assets may jeopardize our REIT qualification