Our Business

Investment Strategy

We utilize an opportunistic strategy to seek to provide investors with attractive current yields and risk-adjusted total returns by:

  • allocating a majority of our equity capital, on an unleveraged basis, to the acquisition of Excess Mortgage Servicing Rights (or MSRs) through flow purchases from or bulk purchases with mortgage servicers;
  • taking advantage of opportunities in the Agency RMBS market by acquiring Agency RMBS on a leveraged basis;
  • over time, as the market for prime jumbo mortgage loans grows, taking advantage of opportunities in this market by purchasing these assets from, or potentially in partnership with, Freedom Mortgage; and
  • opportunistically mitigating our prepayment, interest rate and, to a lesser extent, credit risk by using recapture agreements and a variety of hedging instruments.

Our strategy is adaptable to changing market environments, subject to compliance with the income and other tests that we must satisfy to qualify as a REIT and maintain our exclusion from regulation as an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act. As a result, although we intend initially to focus on the acquisition and management of Excess MSR assets on an unleveraged basis and Agency RMBS on a leveraged basis, our acquisition and management decisions will depend on prevailing market conditions and our targeted asset classes may vary over time in response to market conditions.

Targeted Investments

Our asset acquisition strategy focuses on acquiring a diversified portfolio of residential mortgage assets that attempts to balance the risk and reward opportunities. We expect to allocate a majority of our equity, on an unleveraged basis, to the acquisition of Excess Mortgage Servicing Rights (or MSRs). We also intend to acquire Agency Residential Mortgage Backed Securities (or RMBSs) on a leveraged basis and, as the market for prime jumbo loans grows, we expect our portfolio to include this asset class as well. In addition, we may also invest opportunistically from time to time in other residential mortgage assets.

Hedging & Risk Management Strategy

We opportunistically manage our interest rate risk by using various hedging strategies. Subject to qualifying and maintaining our qualification as a REIT and maintaining our exclusion from regulation as an investment company under the Investment Company Act, we may utilize certain derivative financial instruments and other hedging instruments to mitigate interest rate risk we expect to arise from our repurchase agreement financings associated with our Agency RMBS.

The interest rate hedging instruments that we use include interest rate swaps (floating-to-fixed, fixed-to-floating, or more complex swaps such as floating-to-inverse floating, callable or non-callable); CMOs; TBAs; U.S. treasury securities; swaptions, caps, floors and other derivatives on interest rates; futures and forward contracts; and options on any of the foregoing.

Our asset acquisition strategy focuses on acquiring a diversified portfolio of residential mortgage assets that attempts to balance the risk and reward opportunities. We expect to allocate a majority of our equity, on an unleveraged basis, to the acquisition of Excess Mortgage Servicing Rights (or MSRs). We also intend to acquire Agency Residential Mortgage Backed Securities (or RMBSs) on a leveraged basis and, as the market for prime jumbo loans grows, we expect our portfolio to include this asset class as well. In addition, we may also invest opportunistically from time to time in other residential mortgage assets.

We opportunistically manage our interest rate risk by using various hedging strategies. Subject to qualifying and maintaining our qualification as a REIT and maintaining our exclusion from regulation as an investment company under the Investment Company Act, we may utilize certain derivative financial instruments and other hedging instruments to mitigate interest rate risk we expect to arise from our repurchase agreement financings associated with our Agency RMBS.

The interest rate hedging instruments that we use include interest rate swaps (floating-to-fixed, fixed-to-floating, or more complex swaps such as floating-to-inverse floating, callable or non-callable); CMOs; TBAs; U.S. treasury securities; swaptions, caps, floors and other derivatives on interest rates; futures and forward contracts; and options on any of the foregoing.