MFA Financial (MFA) risk factors, FY2025 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 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. 10We 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
9. 11The 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
10. 12We 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
11. 13The 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
12. 14Valuations 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
13. 15Our 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
14. 16Mortgage 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
15. 17Our investments in residential whole loans subject us to servicing-related risks, including those associated with foreclosure and liquidationNew
16. 18The 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 obligations20% rewritten
17. 19Our ability to sell REO on terms acceptable to us or at all may be limited
18. 20We 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
19. 21Our ownership of Lima One and investments in mortgage loan originators expose us to additional risks
20. 22Business purpose loans involve a high degree of business and financial risk65% rewritten
21. 23Business purpose loans we own will likely be impaired, potentially materially. Accordingly, deterioration in a borrower’s financial condition and prospects may be accompanied by deterioration in the collateral for the loanNew
22. 24Prepayment 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. 31Maintaining 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. 32We are dependent on information systems and their failure (including in connection with cybersecurity incidents) could significantly disrupt our business
5. 33We may utilize artificial intelligence, which exposes us to liability and affects our businessNew
6. 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
7. 35A lack of liquidity in our investments may materially adversely affect our business
8. 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
9. 37We operate in a highly regulated industry and continually changing U.S. federal, state and local laws and regulations could materially adversely affect our business, financial condition and results of operations and our ability to pay dividends to our stockholders71% rewritten
10. 38Maintaining our exemption from registration under the Investment Company Act imposes significant limits on our operations

Risks Related to Our Use of Leverage

1. 25Our 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 condition23% rewritten
2. 26which would be dependent on the level of reduction in assets and liabilities as well as the sale prices for which the assets were soldNew
3. 27An increase in our borrowing costs relative to the interest we receive on our investments may materially adversely affect our profitability
4. 28The impact of inflation may adversely affect our financial performance45% rewritten
5. 29Certain of our current lenders require, and future lenders may require, that we enter into restrictive covenants relating to our operations
6. 30Reliance 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. 39Our use of hedging strategies to mitigate our interest rate exposure may not be effective
2. 40We 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. 41The characteristics of hedging instruments present various concerns, including illiquidity, enforceability, and counterparty risks, which could adversely affect our business and results of operations
4. 42Clearing 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. 43If 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. 44Our failure to maintain our qualification as a REIT would cause our stock to be delisted from the New York Stock Exchange (or NYSE)
3. 45REIT distribution requirements could adversely affect our ability to execute our business plan
4. 46Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow
5. 47If 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. 48Complying with REIT requirements may cause us to forgo otherwise attractive opportunities
7. 49Our use of TRSs may cause us to fail to qualify as a REIT
8. 50We 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. 51The 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. 52The “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. 53We 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. 54Our 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. 55Over time, accounting principles, conventions, rules, and interpretations may change, which could affect our reported GAAP and taxable earnings, and stockholders’ equity
14. 56The 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. 57Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities
16. 58We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them
17. 59The interest apportionment rules may affect our ability to comply with the REIT asset and gross income tests
18. 60Dividends paid by REITs do not qualify for the reduced tax rates available for “qualified dividend income.”
19. 61We 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. 62New 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. 63Our ownership limitations may restrict business combination opportunities
2. 64Provisions of Maryland law and other provisions of our organizational documents may limit the ability of a third-party to acquire us
3. 65Our 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. 66Our Board may approve the issuance of capital stock with terms that may discourage a third-party from acquiring us
5. 67Future issuances or sales of shares could cause our share price to decline
6. 68The authorization, 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. 69We 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. 70We 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
3. 71Litigation may adversely affect our business and financial resultsNew