MFA Financial (MFA) risk factors, FY2024 10-K

Risks Related to Our Business and Industry

1. 01Credit and Other Risks Related to Our Investments
2. 02Prepayment and Reinvestment Risk
3. 05General economic developments and trends and the performance of the housing, real estate, mortgage finance, broader financial markets and other factors that are out of our control may adversely affect our business operations
4. 06Our investments in residential whole loans (including BPLs), residential mortgage securities, MSR-related assets and commercial mortgage loans involve credit risk, which could materially adversely affect our results of operations
5. 07We may change our investment strategy, operating policies and/or asset allocations without stockholder consent, which could materially adversely affect our results of operations
6. 08Our investments are subject to changes in credit spreads and other risks
7. 09We may be adversely affected by risks affecting borrowers or the asset or property types in which certain of our investments may be concentrated at any given time, as well as from unfavorable changes in the related geographic regions
8. 10borrowers may be required to pay for any repairs themselves. Under these circumstances, borrowers may decide not to repair the damaged property or may stop paying the mortgage, either of which could cause defaults and credit loss severities to increase
9. 11We are subject to counterparty risk and may be unable to seek indemnity or require counterparties to repurchase residential whole loans if they breach representations and warranties, which could cause us to suffer losses
10. 12The due diligence we undertake on potential investments may be limited and/or not reveal all of the risks associated with such investments and may not reveal other weaknesses in such assets, which could lead to losses
11. 13We have experienced and may experience in the future increased volatility in our GAAP results of operations due in part to the increasing contribution to financial results of assets and liabilities accounted for under the fair value option
12. 14The use of models in connection with the valuation and credit losses of our assets subjects us to potential risks in the event that such models are incorrect, misleading or based on incomplete information
13. 15Valuations of some of our assets are subject to inherent uncertainty, 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
14. 16Our investments in residential whole loans are difficult to value and are dependent upon the borrower’s ability to service or refinance their debt. The inability of the borrower to do so could materially and adversely affect our liquidity and results of operations
15. 17Mortgage loan modification and refinancing programs and future legislative action may materially adversely affect the value of, and the returns on, our MBS and residential whole loan investments
16. 18We rely on third-party servicers to service and manage the mortgages underlying our residential whole loans. We do not interface with borrowers under the mortgage loans in which we invest or otherwise service the mortgage loans in which we invest
17. 19The expanding body of federal, state and local regulations and investigations of mortgage loan originators and servicers may increase costs of compliance and the risks of noncompliance, and may adversely affect servicers’ ability to perform their servicing obligations
18. 20Our ability to sell REO on terms acceptable to us or at all may be limited
19. 21We have experienced, and may in the future experience, declines in the market value of certain of our investment securities resulting in our recording impairments, which have had, and may in the future have, an adverse effect on our results of operations and financial condition
20. 22Our investments in MSR-related assets expose us to additional risks
21. 23Our ownership of Lima One and investments in mortgage loan originators expose us to additional risks
22. 24Business purpose loans involve a high degree of business and financial risk
23. 25Prepayment rates on the mortgage loans underlying certain of our residential mortgage assets may materially adversely affect our profitability or could require us to sell assets in unfavorable market conditions

Cybersecurity Risks

1. 03Risks Associated with Adverse Developments in the Mortgage Finance and Credit Markets and Financial Markets Generally
2. 04Regulatory Risks and Risks Related to the Investment Company Act of 1940
3. 32Maintaining cybersecurity and data security is important to our business and a cybersecurity incident could result in serious harm to our reputation and have a material adverse impact on our business and financial results
4. 33We are dependent on information systems and their failure (including in connection with cybersecurity incidents) could significantly disrupt our business
5. 34Market conditions for mortgages and mortgage-related assets as well as the broader financial markets may materially adversely affect the value of the assets in which we invest
6. 35A lack of liquidity in our investments may materially adversely affect our business
7. 36Actions and regulations by the U.S. Government designed to stabilize or reform the mortgage finance markets may not achieve their intended effect or otherwise benefit our business, and could materially adversely affect our business
8. 37We operate in a highly regulated industry and continually changing U.S. federal, state and local laws and regulation could materially adversely affect our business, financial condition and results of operations and our ability to pay dividends to our stockholders
9. 38mortgage lenders and servicers, which could result in increased regulatory scrutiny and potentially increased penalties assessed for determinations of non-compliance with applicable requirements
10. 39Maintaining our exemption from registration under the Investment Company Act imposes significant limits on our operations

Risks Related to Our Use of Leverage

1. 26Our business strategy involves the use of leverage, and we may not achieve what we believe to be optimal levels of leverage or we may become overleveraged, which may materially adversely affect our liquidity, results of operations or financial condition
2. 27global finance market or weak economic conditions in Europe could cause the conditions described above to have a more pronounced effect on our European lending counterparties
3. 28An increase in our borrowing costs relative to the interest we receive on our investments may materially adversely affect our profitability
4. 29The impact of inflation may adversely affect our financial performance
5. 30Certain of our current lenders require, and future lenders may require, that we enter into restrictive covenants relating to our operations
6. 31Reliance on certain types of financing structures expose us to risks, which could result in losses to us

Risks Related to Our Use of Hedging Strategies

1. 40Our use of hedging strategies to mitigate our interest rate exposure may not be effective
2. 41We may enter into hedging instruments that could expose us to contingent liabilities in the future, which could materially adversely affect our results of operations
3. 42The characteristics of hedging instruments present various concerns, including illiquidity, enforceability, and counterparty risks, which could adversely affect our business and results of operations
4. 43Clearing facilities or exchanges upon which our hedging instruments are traded may increase margin requirements on our hedging instruments in the event of adverse economic developments

Risks Related to Our Taxation as a REIT and the Taxation of Our Assets

1. 44If we fail to remain qualified as a REIT, we will be subject to tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our stockholders
2. 45Our failure to maintain our qualification as a REIT would cause our stock to be delisted from the New York Stock Exchange (or NYSE)
3. 46REIT distribution requirements could adversely affect our ability to execute our business plan
4. 47Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow
5. 48If our foreign TRS is subject to U.S. federal income tax at the entity level, it would greatly reduce the amounts those entities would have available to pay its creditors and distribute to us
6. 49Complying with REIT requirements may cause us to forgo otherwise attractive opportunities
7. 50Our use of TRSs may cause us to fail to qualify as a REIT
8. 51We may generate taxable income that differs from our GAAP income on our Non-Agency MBS and residential whole loan investments purchased at a discount to par value, which may result in significant timing variances in the recognition of income and losses
9. 52The tax on prohibited transactions may limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, that would be treated as sales for U.S. federal income tax purposes
10. 53The “taxable mortgage pool” rules may increase the taxes that we or our stockholders may incur and may limit the manner in which we effect future securitizations
11. 54We have not established a minimum dividend payment level, and there is no guarantee that we will maintain current dividend payment levels or pay dividends in the future
12. 55Our reported GAAP net income may differ from the amount of REIT taxable income and dividend distribution requirements and, therefore, our GAAP results may not be an accurate indicator of future taxable income and dividend distributions
13. 56Over time, accounting principles, conventions, rules, and interpretations may change, which could affect our reported GAAP and taxable earnings, and stockholders’ equity
14. 57The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to remain qualified as a REIT
15. 58Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities
16. 59We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them
17. 60The interest apportionment rules may affect our ability to comply with the REIT asset and gross income tests
18. 61Dividends paid by REITs do not qualify for the reduced tax rates available for “qualified dividend income.”
19. 62We may in the future choose to make distributions in our own stock, in which case you could be required to pay income taxes in excess of any cash distributions you receive
20. 63New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to remain qualified as a REIT

Risks Related to Our Corporate Structure

1. 64Our ownership limitations may restrict business combination opportunities
2. 65Provisions of Maryland law and other provisions of our organizational documents may limit the ability of a third-party to acquire us
3. 66Our bylaws provide that we are not subject to the “control share” provisions of the MGCL. However, our Board may elect to make the “control share” statute applicable to us at any time, and may do so without stockholder approval
4. 67Our Board may approve the issuance of capital stock with terms that may discourage a third-party from acquiring us
5. 68Future issuances or sales of shares could cause our share price to decline
6. 69The declaration, amount and payment of future cash dividends on shares of our common stock are subject to uncertainty due to disruption in the mortgage, housing or related sectors

Other Business Risks

1. 70We are dependent on our executive officers and other key personnel for our success, the loss of any of whom may materially adversely affect our business
2. 71We operate in a highly competitive market for investment opportunities and competition may limit our ability to acquire desirable investments, which could materially adversely affect our results of operations