ELLINGTON FINANCIAL INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

Except where the context suggests otherwise, references in this Quarterly Report
on Form 10-Q to "EFC," "we," "us," and "our" refer to Ellington Financial Inc.
and its consolidated subsidiaries, including Ellington Financial Operating
Partnership LLC, our operating partnership subsidiary, which we refer to as our
"Operating Partnership." We conduct all of our operations and business
activities through our Operating Partnership. Our "Manager" refers to Ellington
Financial Management LLC, our external manager, "Ellington" refers to Ellington
Management Group, L.L.C. and its affiliated investment advisory firms, including
our Manager, and "Manager Group" refers collectively to officers and directors
of EFC, and partners and affiliates of Ellington (including families and family
trusts of the foregoing). In certain instances, references to our Manager and
services to be provided to us by our Manager may also include services provided
by Ellington and its other affiliates from time to time.

Special Note Regarding Forward-Looking Statements


When used in this Quarterly Report on Form 10-Q, in future filings with the
Securities and Exchange Commission, or the "SEC," or in press releases or other
written or oral communications, statements which are not historical in nature,
including those containing words such as "believe," "expect," "anticipate,"
"estimate," "project," "plan," "continue," "intend," "should," "would," "could,"
"goal," "objective," "will," "may," "seek," or similar expressions, are intended
to identify "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, or the "Securities Act," and Section 21E
of the Securities Exchange Act of 1934, as amended, or the "Exchange Act," and,
as such, may involve known and unknown risks, uncertainties, and assumptions.

Forward-looking statements are based on our beliefs, assumptions, and
expectations of our future operations, business strategies, performance,
financial condition, liquidity and prospects, taking into account information
currently available to us. These beliefs, assumptions, and expectations are
subject to risks and uncertainties and can change as a result of many possible
events or factors, not all of which are known to us. If a change occurs, our
business, financial condition, liquidity, results of operations and strategies
may vary materially from those expressed or implied in our forward-looking
statements. The following factors are examples of those that could cause actual
results to vary from our forward-looking statements: changes in interest rates
and the market value of our investments; market volatility; changes in the
prepayment rates on the mortgage loans underlying the securities owned by us for
which the principal and interest payments are guaranteed by a U.S. government
agency or a U.S. government-sponsored entity; increased rates of default and/or
decreased recovery rates on our assets; our ability to borrow to finance our
assets; changes in government regulations affecting our business; our ability to
maintain our exclusion from registration under the Investment Company Act of
1940, as amended, or the "Investment Company Act"; our ability to maintain our
qualification as a real estate investment trust, or "REIT"; and risks associated
with investing in real estate assets, including changes in business conditions
and the general economy, such as those resulting from the economic effects
related to the COVID-19 pandemic, and associated responses to the pandemic.
These and other risks, uncertainties and factors, including the risk factors
described under Item 1A of our Annual Report on Form 10-K, could cause our
actual results to differ materially from those projected or implied in any
forward-looking statements we make. All forward-looking statements speak only as
of the date on which they are made. New risks and uncertainties arise over time,
and it is not possible 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.

Executive Summary

We invest in a diverse array of real-estate-related and other financial assets,
including residential and commercial mortgage loans, residential mortgage-backed
securities, or "RMBS," commercial mortgage-backed securities, or "CMBS,"
consumer loans and asset-backed securities, or "ABS," including ABS backed by
consumer loans, collateralized loan obligations, or "CLOs," non-mortgage- and
mortgage-related derivatives, debt and equity investments in loan origination
companies, and other strategic investments. We are externally managed and
advised by our Manager, an affiliate of Ellington. Ellington is a registered
investment adviser with a 27-year history of investing in the Agency and credit
markets.

We conduct all of our operations and business activities through the Operating
Partnership. As of September 30, 2022, we have an ownership interest of
approximately 99.0% in the Operating Partnership. The remaining ownership
interest of approximately 1.0% in the Operating Partnership represents the
interests in the Operating Partnership that are owned by an affiliate of our
Manager, our current and certain former directors, and certain current and
former Ellington employees and their related parties, and is reflected in our
financial statements as a non-controlling interest.

Our primary objective is to generate attractive, risk-adjusted total returns for
our stockholders. We seek to attain this objective by utilizing an opportunistic
strategy to make investments, without restriction as to ratings, structure, or
position in the capital structure, that we believe compensate us appropriately
for the risks associated with them rather than targeting a specific yield. Our
evaluation of the potential risk-adjusted return of any potential investment
typically involves weighing the potential returns of such investment under a
variety of economic scenarios against the perceived likelihood of the various

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scenarios. Potential investments subject to greater risk (such as those with
lower credit ratings and/or those with a lower position in the capital
structure) will generally require a higher potential return to be attractive in
comparison to investment alternatives with lower potential return and a lower
degree of risk. However, at any particular point in time, depending on how we
perceive the market's pricing of risk both generally and across sectors, we may
favor higher-risk assets or we may favor lower-risk assets, or a combination of
the two, in the interests of portfolio diversification or other considerations.

Through September 30, 2022, our credit portfolio, which includes all of our
investments other than RMBS for which the principal and interest payments are
guaranteed by a U.S. government agency or a U.S. government-sponsored entity, or
"Agency RMBS," has been the primary driver of our risk and return, and we expect
that this will continue in the near- to medium-term. For more information on our
targeted assets, see "-Our Targeted Asset Classes" below. We believe that
Ellington's capabilities allow our Manager to identify attractive assets in
these classes, value these assets, monitor and forecast the performance of these
assets, and opportunistically hedge our risk with respect to these assets.

We continue to maintain a highly leveraged portfolio of Agency RMBS to take
advantage of opportunities in that market sector, to help maintain our exclusion
from registration as an investment company under the Investment Company Act, and
to help maintain our qualification as a REIT. Unless we acquire very substantial
amounts of whole mortgage loans or there are changes to the rules and
regulations applicable to us under the Investment Company Act and/or to our
qualification as a REIT, we expect that we will continue to maintain some amount
of Agency RMBS.

The strategies that we employ are intended to capitalize on opportunities in the
current market environment. Subject to maintaining our qualification as a REIT,
we intend to adjust our strategies to changing market conditions by shifting our
asset allocations across various asset classes as credit and liquidity trends
evolve over time. We believe that this flexibility, combined with Ellington's
experience, will help us generate more consistent returns on our capital
throughout changing market cycles.

Subject to maintaining our qualification as a REIT, we opportunistically hedge
our credit risk, interest rate risk, and foreign currency risk; however, at any
point in time we may choose not to hedge all or a portion of these risks, and we
will generally not hedge those risks that we believe are appropriate for us to
take at such time, or that we believe would be impractical or prohibitively
expensive to hedge.

We also use leverage in our credit strategy, albeit significantly less leverage
than that used in our Agency RMBS strategy. Through September 30, 2022, we
financed the vast majority of our Agency RMBS assets, and a portion of our
credit assets, through repurchase agreements, which we sometimes refer to as
"repos," and which we account for as collateralized borrowings. We expect to
continue to finance the vast majority of our Agency RMBS through the use of
repos. In addition to financing assets through repos, we also enter into other
secured borrowing transactions, which are accounted for as collateralized
borrowings, to finance certain of our loan assets. We have also obtained,
through the securitization markets, term financing for certain of our
non-qualified mortgage, or "non-QM," loans, certain of our consumer loans, and
certain of our leveraged corporate loans. Additionally, we have issued unsecured
long-term debt.

As of September 30, 2022, outstanding borrowings under repos and Total other
secured borrowings (which include Other secured borrowings and Other secured
borrowings, at fair value, as presented on our Consolidated Balance Sheet) were
$4.6 billion, of which approximately 25%, or $1.1 billion, relates to our Agency
RMBS holdings. The remaining outstanding borrowings relate to our credit
portfolio.

As of September 30, 2022, we also had outstanding unsecured long-term debt of
$210.0 million, maturing in April 2027 and bearing an interest rate of 5.875%.
We repaid $86.0 million of unsecured long-term debt, which bore an interest rate
of 5.50%, at maturity in September 2022. Such unsecured long-term debt is
collectively referred to as the "Senior Notes." The indenture governing the
outstanding Senior Notes contains a number of covenants, including several
financial covenants. The outstanding Senior Notes are currently rated "A" by
Egan-Jones Rating Company1. See Note 11 of the notes to our condensed
consolidated financial statements for further detail on the Senior Notes.

As of September 30, 2022, our book value per share of common stock, calculated
using Total Stockholders' Equity less the aggregate liquidation preference of
outstanding preferred stock, was $15.22. Our debt-to-equity ratio was 4.1:1 as
of September 30, 2022. Our debt-to-equity ratio does not account for liabilities
other than debt financings and does not include debt associated with
securitization transactions accounted for as sales. Adjusted for unsettled
purchases and sales, our debt-to-equity ratio and recourse debt-to-equity ratio,
each excluding U.S. Treasury securities, were 4.0:1 and 2.6:1, respectively, as
of September 30, 2022.


1 A rating is not a recommendation to buy, sell or hold securities. Ratings may
be subject to revision or withdrawal at any time by the assigning rating
organization. Each rating should be evaluated independently of any other rating.

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On August 6, 2021, we commenced an "at-the-market" offering for shares of our
common stock, or the "Common ATM Program," by entering into equity distribution
agreements with third party sales agents under which we are authorized to offer
and sell up to 10.0 million shares of common stock from time to time. During the
nine-month period ended September 30, 2022, we issued 3,085,642 shares of common
stock under the Common ATM Program which provided $53.2 million of net proceeds
after $0.8 million of commissions and offering costs.

On January 20, 2022, we commenced an "at-the-market" offering for our preferred
stock, or the "Preferred ATM Program," by entering into equity distribution
agreements with third party sales agents under which we are authorized to offer
and sell up to $100.0 million of 6.750% Series A Fixed-to-Floating Rate
Cumulative Redeemable Preferred Stock, $0.001 par value per share ("Series A
Preferred Stock") and/or 6.250% Series B Fixed-Rate Reset Cumulative Redeemable
Preferred Stock, $0.001 par value per share ("Series B Preferred Stock") from
time to time. During the nine-month period ended September 30, 2022, we have
issued 20,421 shares of Series B Preferred Stock, which provided $0.5 million of
net proceeds after $23 thousand of commissions and offering costs. From
commencement of the Preferred ATM Program through November 4, 2022, we have
issued 20,421 shares of Series B Preferred Stock. Our preferred stock is rated
"A-" by Egan-Jones Rating Company1.

As of September 30, 2022, we held a 49.6% ownership interest (the "Existing
Equity Interest") in Longbridge Financial, LLC, or "Longbridge." As discussed in
Note 6 of the notes to the condensed consolidated financial statements, the fair
value of the Existing Equity Interest was $38.9 million as of September 30,
2022, which is included on the Condensed Consolidated Balance Sheet in
Investments in unconsolidated entities, at fair value. As previously disclosed,
on February 18, 2022, we entered into an agreement with Home Point Capital Inc.
("Home Point") to purchase Home Point's 49.6% ownership interest (the
"Additional Equity Interest") in Longbridge. On October 3, 2022 we paid Home
Point $38.9 million in cash to complete the purchase of the Additional Equity
Interest (the "Longbridge Transaction").

In combination, the Existing Equity Interest and the Additional Equity Interest
constitute a controlling interest in Longbridge. As a result of our acquisition
of a controlling interest in Longbridge, we will consolidate Longbridge starting
in the fourth quarter of 2022, which will impact our financial position,
financial reporting, and operations. As of September 30, 2022, Longbridge had
total assets of $7.9 billion and total liabilities of $7.8 billion, and as of
December 31, 2021, Longbridge had total assets of $6.7 billion and total
liabilities of $6.6 billion. For Longbridge's financial statements as of
December 31, 2021 and 2020, and for the years ended December 31, 2021, 2020, and
2019, see Exhibit 99.1 to our Annual Report on Form 10-K for the year ended
December 31, 2021. In addition to the effect on our financial position and
operations as a result of such consolidation, management anticipates a number of
changes to our financial reporting including reporting an additional operating
segment, new asset classes and products such as reverse mortgage loans and
reverse mortgage servicing rights, or "Reverse MSRs," and inclusion of
intangible assets on our balance sheet as a result of the acquisition, along
with various disclosures related to Longbridge's operating businesses.

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986,
as amended, or "the Code." Provided that we maintain our qualification as a
REIT, we generally will not be subject to U.S. federal, state, and local income
tax on our REIT taxable income that is currently distributed to our
stockholders. Any taxes paid by a domestic taxable REIT subsidiary, or "TRS,"
will reduce the cash available for distribution to our stockholders. REITs are
subject to a number of organizational and operational requirements, including a
requirement that they currently distribute at least 90% of their annual REIT
taxable income excluding net capital gains.

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Our Targeted Asset Classes


Our targeted asset classes currently include investments in the U.S. and Europe
(as applicable) in the categories listed below. Subject to maintaining our
qualification as a REIT, we expect to continue to invest in these targeted asset
classes. Also, we expect to continue to hold certain of our targeted assets
through one or more TRSs. As a result, a portion of the income from such assets
will be subject to U.S. federal and certain state corporate income taxes, as
applicable.
Asset Class                                                     Principal Assets
Agency RMBS                        .   Whole pool pass-through certificates;
                                   .   Partial pool pass-through certificates;
                                   .   Agency collateralized mortgage

obligations, or “CMOs,” including

                                       interest only securities, or "IOs," principal only securities, or
                                       "POs," inverse interest only securities, or "IIOs"; and

CLOs                               .   Retained tranches from CLO securitizations, including
                                       participating in the accumulation of the underlying assets for
                                       such securitization by providing capital to the vehicle
                                       accumulating assets; and
                                   .   Other CLO debt and equity tranches.

CMBS and Commercial Mortgage       .   CMBS; and
Loans                              .   Commercial mortgage loans and other commercial real estate debt.

Consumer Loans and ABS             .   Consumer loans;
                                   .   ABS, including ABS backed by consumer loans; and
                                   .   Retained tranches from

securitizations to which we have

                                       contributed assets.

Mortgage-Related Derivatives . To-Be-Announced mortgage pass-through certificates, or “TBAs”;

                                   .   Credit default swaps, or "CDS," on 

individual RMBS, on the ABX,

                                       CMBX and PrimeX indices and on other 

mortgage-related indices; and

                                   .   Other mortgage-related derivatives.

Non-Agency RMBS                    .   RMBS backed by prime jumbo, Alt-A, 

non-QM, manufactured housing,

                                       and subprime mortgages;
                                   .   RMBS backed by fixed rate mortgages, 

Adjustable rate mortgages, or

                                       "ARMs," Option-ARMs, and Hybrid 

ARMs;

                                   .   RMBS backed by mortgages on 

single-family-rental properties;

                                   .   RMBS backed by first lien and second lien mortgages;
                                   .   RMBS backed by performing and non-performing mortgages;
                                   .   Investment grade and non-investment grade securities;
                                   .   Senior and subordinated securities;
                                   .   IOs, POs, IIOs, and inverse floaters;
                                   .   Collateralized debt obligations, or "CDOs";
                                   .   RMBS backed by European residential

mortgages, or “European RMBS”;

                                   .   Retained tranches from 

securitizations in which we have

                                       participated; and
                                   .   Credit risk transfer securities, or "CRTs."

Residential Mortgage Loans         .   Non-QM loans;
                                   .   Residential "transition loans," such as residential bridge loans
                                       and residential "fix-and-flip" loans;
                                   .   Residential non-performing mortgage loans, or "NPLs";
                                   .   Re-performing loans, or "RPLs,"

which generally are loans that

                                       were modified and/or formerly NPLs 

where the borrower has resumed

                                       making payments in some form or 

amount;

                                   .   Retained tranches from 

securitizations to which we have

                                       contributed assets; and
                                   .   Reverse mortgage loans.

Strategic Investments in Loan . Strategic equity and/or debt investments in loan originators and
Originators

                            mortgage-related entities;



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Asset Class                                                     Principal Assets
(continued)
Other                             .   Mortgage servicing rights, or "MSRs";
                                  .   Real estate, including commercial and residential real property;
                                  .   Strategic equity and/or debt

investments in entities related to our

                                      business;
                                  .   Corporate debt and equity securities and corporate loans; and

                                  .   Other non-mortgage-related derivatives.


Agency RMBS

Our Agency RMBS assets consist primarily of whole pool (and to a lesser extent,
partial pool) pass-through certificates, the principal and interest of which are
guaranteed by a federally chartered corporation, such as the Federal National
Mortgage Association, or "Fannie Mae," the Federal Home Loan Mortgage
Corporation, or "Freddie Mac," or the Government National Mortgage Association,
within the U.S. Department of Housing and Urban Development, or "Ginnie Mae,"
and which are backed by ARMs, Hybrid ARMs, or fixed-rate mortgages. In addition
to investing in pass-through certificates which are backed by traditional
mortgages, we have also invested in Agency RMBS backed by reverse mortgages.
Reverse mortgages are mortgage loans for which neither principal nor interest is
due until the borrower dies, the home is sold, or other trigger events occur.
Mortgage pass-through certificates are securities representing undivided
interests in pools of mortgage loans secured by real property where payments of
both interest and principal, plus prepaid principal, on the securities are made
monthly to holders of the security, in effect "passing through" monthly payments
made by the individual borrowers on the mortgage loans that underlie the
securities, net of fees paid to the issuer/guarantor and servicers of the
securities. Whole pool pass-through certificates are mortgage pass-through
certificates that represent the entire ownership of (as opposed to merely a
partial undivided interest in) a pool of mortgage loans.

Our Agency RMBS assets are typically concentrated in specified pools. Specified
pools are fixed-rate Agency pools consisting of mortgages with special
characteristics, such as mortgages with low loan balances, mortgages backed by
investor properties, mortgages originated through the government-sponsored
"Making Homes Affordable" refinancing programs, and mortgages with various other
characteristics. Our Agency strategy also includes RMBS that are backed by ARMs
or Hybrid ARMs and reverse mortgages, and CMOs, including IOs, POs, and IIOs.

CLOs


CLOs are a form of asset-backed security collateralized by syndicated corporate
loans. We have retained, and may retain in the future, tranches from CLO
securitizations for which we have participated in the accumulation of the
underlying assets, typically by providing capital to a vehicle accumulating
assets for such CLO securitization. Such vehicles may enter into warehouse
financing facilities in order to facilitate such accumulation. Securitizations
can effectively provide us with long-term, locked-in financing on the related
collateral pool, with an effective cost of funds well below the expected yield
on the collateral pool. Our CLO holdings may include both debt and equity
interests.

CMBS


We acquire CMBS, which are securities collateralized by mortgage loans on
commercial properties. The majority of CMBS issued are fixed rate securities
backed by fixed rate loans made to multiple borrowers on a variety of property
types, though single-borrower CMBS and floating rate CMBS have also been issued.

The majority of CMBS utilize senior/subordinate structures, similar to those
found in non-Agency RMBS. Subordination levels vary so as to provide for one or
more AAA credit ratings on the most senior classes, with less senior securities
rated investment grade and non-investment grade, including a first loss
component which is typically unrated. This first loss component is commonly
referred to as the "B-piece," which is the most subordinated (and therefore
highest yielding and riskiest) tranche of a CMBS securitization. Much of our
focus within the CMBS sector has been on B-pieces, but we also acquire other
CMBS with more senior credit priority.

Commercial Mortgage Loans and Other Commercial Real Estate Debt


We directly originate and participate in the origination of commercial mortgage
"bridge" loans, which are loans secured by liens on commercial properties, and
which have shorter terms and higher interest rates than more traditional
commercial mortgage loans. Bridge loans are often secured by properties in
transition, where the borrower is in the process of either re-developing or
stabilizing operations at the property.

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We also acquire seasoned commercial mortgage bridge loans, as well as
longer-term commercial mortgage loans. Some of the seasoned commercial mortgage
loans that we acquire may be non-performing, underperforming, or otherwise
distressed; these loans are typically acquired at a discount both to their
unpaid principal balances and to the value of the underlying real estate.


Our commercial mortgage loans may be fixed or floating rate and will generally
have maturities ranging from one to ten years. We typically originate and
acquire first lien loans but may also originate and acquire subordinated loans.
As of September 30, 2022, all of our commercial mortgage loans were first-lien
loans. Commercial real estate debt typically limits the borrower's right to
freely prepay for a period of time through provisions such as prepayment fees,
lockout, yield maintenance, or defeasance provisions.

Within both our loan origination and acquisition strategies, we generally focus
on smaller balance loans and/or loan packages that are less-competitively-bid.
These loans typically have balances that are less than $30 million, and are
secured by real estate and, in some cases, a personal guarantee from the
borrower.

Consumer Loans and ABS


We acquire U.S. consumer whole loans and ABS, including ABS backed by U.S.
consumer loans. Our U.S. consumer loan portfolio consists of unsecured loans and
secured auto loans. We are currently purchasing newly originated consumer loans
under flow agreements with certain originators, as well as seasoned consumer
loans in the secondary market, and we continue to evaluate new opportunities.

MSRs


An MSR represents the right to service one or more mortgage loans in exchange
for a specified revenue stream, typically a portion of the interest payments due
on such mortgage loans together with certain other ancillary revenue. While the
owner of an MSR is ultimately responsible for servicing the underlying loans in
accordance with applicable regulations, the actual loan servicing functions are
often subcontracted out to third-party licensed subservicers.

The revenue stream associated with an MSR is often bifurcated into two
components: a "base servicing fee," representing the actual or approximate cost
of performing the loan servicing functions; and the remaining revenue, or
"Excess MSR." We may in the future acquire, from Longbridge or other mortgage
loan servicers, Excess MSRs associated with either reverse mortgage loans or
traditional mortgage loans.

Non-Agency RMBS

We acquire non-Agency RMBS backed by prime jumbo, Alt-A, non-QM, manufactured
housing, subprime residential, and single-family-rental mortgage loans. The
loans backing our non-Agency RMBS can be performing or non-performing. Our
non-Agency RMBS holdings can include investment-grade and non-investment grade
classes, including non-rated classes.

Non-Agency RMBS are generally debt obligations issued by private originators of,
or investors in, residential mortgage loans. Non-Agency RMBS generally are
issued as CMOs and are backed by pools of whole mortgage loans or by mortgage
pass-through certificates. Non-Agency RMBS generally are securitized in
senior/subordinated structures, or in excess spread/over-collateralization
structures. In senior/subordinated structures, the subordinated tranches
generally absorb all losses on the underlying mortgage loans before any losses
are borne by the senior tranches. In excess spread/over-collateralization
structures, losses are first absorbed by any existing over-collateralization,
then borne by subordinated tranches and excess spread, which represents the
difference between the interest payments received on the mortgage loans backing
the RMBS and the interest due on the RMBS debt tranches, and finally by senior
tranches and any remaining excess spread. We also have acquired, and may acquire
in the future, both Agency-issued and non-Agency-issued CRTs, which have credit
risks similar to those of subordinated RMBS tranches, as well as non-QM RMBS,
including retained tranches from non-QM RMBS securitizations in which we have
participated.

We also have acquired, and may acquire in the future, European RMBS, including
retained tranches from European RMBS securitizations in which we have
participated.

Residential Mortgage Loans


Our residential mortgage loans include newly originated non-QM loans,
residential transition loans, as well as legacy residential NPLs and RPLs. A
non-QM loan is not necessarily high-risk, or subprime, but is instead a loan
that does not conform to the complex Qualified Mortgage, or "QM," rules of the
Consumer Financial Protection Bureau. For example, many non-QM loans are made to
creditworthy borrowers who cannot provide traditional documentation for income,
such as

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borrowers who are self-employed. There is also demand from certain creditworthy
borrowers for loans above the QM 43% debt-to-income ratio limit that still meet
all ability-to-repay standards. We hold an equity investment in a non-QM
originator, and to date we have purchased the majority of our non-QM loans from
this originator, although we could potentially purchase a greater share of
non-QM loans from other sources in the future.

The residential transition loans that we originate or purchase include: (i) "fix
and flip" loans, which are made to real estate investors for the purpose of
acquiring residential homes, making value-add improvements to such homes, and
reselling the newly rehabilitated homes for a potential profit, and (ii) loans
made to real estate investors for a "business purpose," such as purchasing a
rental investment property, financing or refinancing a fully rehabilitated home
awaiting sale, or securing short-term financing pending qualification for
longer-term lower-rate financing. Our residential transition loans are secured
by non-owner occupied properties, and are typically structured as fixed-rate,
interest-only loans with terms to maturity between 6 and 24 months. Our
underwriting guidelines focus on both the "as is" and "as repaired" property
values, borrower experience as a real estate investor, and asset verification.

We are also active in the market for residential NPLs and RPLs. The market for
large residential NPL and RPL pools has remained highly concentrated, with the
great majority having traded to only a handful of large players who typically
securitize the residential NPLs and RPLs that they purchase. As a result, we
have continued to focus our acquisitions on less-competitively-bid, and more
attractively-priced mixed legacy pools sourced from motivated sellers.

Reverse Mortgage Loans and Reverse MSRs


Reverse mortgage loans are residential mortgage loans for which neither
principal nor interest is due until the borrower dies, the home is sold, or
other trigger events occur. Reverse mortgage loans can have either fixed
interest rates or adjustable interest rates. In the case of most fixed-rate
reverse mortgage loans, the borrower must draw the loan proceeds up front in one
lump sum, while many adjustable-rate mortgage loans provide the borrower with a
line of credit that can be drawn over time.

Our acquisition of a controlling stake in Longbridge in early October 2022, and
our resulting consolidation of Longbridge, will result in our acquisition of
Longbridge's existing reverse mortgage loans, as well as the reverse mortgage
loans that Longbridge continues to acquire in connection with its business.

Longbridge acquires reverse mortgage loans both through its origination
activities and through secondary market purchases. Historically, the majority of
loans acquired by Longbridge have been home equity conversion mortgage loans, or
"HECMs," which are insured by FHA and eligible for inclusion in GNMA-guaranteed
HECM-backed MBS, or "HMBS." Longbridge is an approved issuer of HMBS, and it
pools and securitizes the majority of its HECM loans into HMBS, which it then
sells in the secondary market while retaining the servicing rights on the
underlying HECM loans. Longbridge also originates and purchases non-FHA-insured
reverse mortgage loans originated under guidelines established by private
lenders, which we refer to as "proprietary reverse mortgage loans." Proprietary
reverse mortgage loans typically carry loan balances or credit lines that exceed
FHA limits, or have other characteristics that make them ineligible for FHA
insurance.

Our acquisition of a controlling stake in Longbridge in early October 2022, and
our resulting consolidation of Longbridge, will result in our acquisition of
Longbridge's existing MSRs, as well as the MSRs that Longbridge continues to
acquire in connection with its business. The vast majority of Longbridge's
existing MSRs relate to HECM loans that Longbridge pooled and securitized into
HMBS and then sold into the secondary market with servicing rights retained. In
accordance with U.S. GAAP, so long as Longbridge retains such mortgage servicing
rights and the obligations relating thereto, such HECM loans remain on
Longbridge's balance sheet and the sold HMBS securities are accounted for as
collateralized borrowings.

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Strategic Equity Investments in Loan Originators


We have made, and in the future may make additional, equity investments in loan
originators and other related entities; historically, our investments have
generally represented non-controlling interests, although we are not restricted
from holding controlling interests in such entities. We have also acquired debt
investments and/or warrants in certain of these loan originators. We have also
entered into various other arrangements, such as entering into flow agreements
or providing guarantees or financing lines, with certain of the loan originators
in which we have invested.

As previously disclosed, on February 18, 2022, we entered into an agreement with
Home Point to purchase the Additional Equity Interest in Longbridge. On October
3, 2022 we paid Home Point $38.9 million in cash to complete the purchase of the
Additional Equity Interest. In combination, the Existing Equity Interest and the
Additional Equity Interest constitute a controlling interest in Longbridge. As a
result of our acquisition of a controlling interest in Longbridge, we will
consolidate Longbridge starting in the fourth quarter of 2022, which will impact
our financial position, financial reporting, and operations. For Longbridge's
financial statements as of December 31, 2021 and 2020, and for the years ended
December 31, 2021, 2020, and 2019, see Exhibit 99.1 to our Annual Report on Form
10-K for the year ended December 31, 2021.

TBAs and Other Mortgage-Related Derivatives


In addition to investing in specified pools of Agency RMBS, we utilize TBA
transactions, whereby we agree to purchase or sell, for future delivery, Agency
RMBS with certain principal and interest terms and certain types of underlying
collateral, but the particular Agency RMBS to be delivered is not identified
until shortly before the TBA settlement date. TBAs are liquid, have quoted
market prices, and represent the most actively traded class of mortgage-backed
securities, or "MBS." TBA trading is based on the assumption that mortgage pools
that are eligible to be delivered at TBA settlement are fungible and thus the
specific mortgage pools to be delivered do not need to be explicitly identified
at the time a trade is initiated.

We generally engage in TBA transactions for purposes of managing certain risks
associated with our investment strategies. Other than with respect to TBA
transactions entered into by our TRSs, most of our TBA transactions are treated
for tax purposes as hedging transactions used to hedge indebtedness incurred to
acquire or carry real estate assets, or "qualifying liability hedges." The
principal risks that we use TBAs to mitigate are interest rate and yield spread
risks. For example, we may hedge the interest rate and/or yield spread risk
inherent in our long Agency RMBS by taking short positions in TBAs that are
similar in character. Alternatively, we may opportunistically engage in TBA
transactions because we find them attractive in their own right, from a relative
value perspective or otherwise. For accounting purposes, in accordance with
generally accepted accounting principles in the United States of America, or
"U.S. GAAP," we classify TBA transactions as derivatives.

We also take long and short positions in various other mortgage-related
derivative instruments, including mortgage-related credit default swaps. A
credit default swap is a credit derivative contract in which one party (the
protection buyer) pays an ongoing periodic premium (and often an upfront payment
as well) to another party (the protection seller) in return for compensation for
default (or similar credit event) by a reference entity. In this case, the
reference entity can be an individual MBS or an index of several MBS, such as an
ABX, PrimeX, or CMBX index. Payments from the protection seller to the
protection buyer typically occur if a credit event takes place. A credit event
can be triggered by, among other things, the reference entity's failure to pay
its principal obligations or a severe ratings downgrade of the reference entity.

Other Investment Assets


Our other investment assets include real estate, including residential and
commercial real property, strategic equity and/or debt investments in entities
related to our business, corporate debt and equity securities, corporate loans,
which can include litigation finance loans, and other non-mortgage-related
derivatives. We do not typically purchase real property directly; rather, our
real estate ownership usually results from foreclosure activity with respect to
our acquired residential and commercial loans.



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Hedging Instruments

Interest Rate Hedging

We opportunistically hedge our interest rate risk by using various hedging
strategies, subject to maintaining our qualification as a REIT. The interest
rate hedging instruments that we use and may use in the future include, without
limitation:

•TBAs;

•interest rate swaps (including floating-to-fixed, fixed-to-floating,
floating-to-floating, or more complex swaps such as floating-to-inverse
floating, callable or non-callable);

•CMOs;

•U.S. Treasury securities;

•swaptions, caps, floors, and other derivatives on interest rates;

•futures and forward contracts; and

•options on any of the foregoing.


Because fluctuations in short-term interest rates may expose us to fluctuations
in the spread between the interest we earn on certain of our investments and the
interest we pay on certain of our borrowings, we may seek to manage such
exposure by entering into short positions in interest rate swaps. An interest
rate swap is an agreement to exchange interest rate cash flows, calculated on a
notional principal amount, at specified payment dates during the life of the
agreement. Typically, one party pays a fixed interest rate and receives a
floating interest rate and the other party pays a floating interest rate and
receives a fixed interest rate. Each party's payment obligation is computed
using a different interest rate. In an interest rate swap, the notional
principal is generally not exchanged. We generally enter into these transactions
to offset the potential adverse effects of rising interest rates on short-term
repurchase agreements. Our repurchase agreements generally have maturities of up
to 364 days and carry interest rates that are determined by reference to a
benchmark rate such as LIBOR or the Secured Overnight Financing Rate, or "SOFR."
As each then-existing fixed-rate repo borrowing matures, it will generally be
replaced with a new fixed-rate repo borrowing based on market interest rates
established at that future date.

In the case of interest rate swaps, most of our agreements are structured such
that we receive payments based on a variable interest rate and make payments
based on a fixed interest rate. The variable interest rate on which payments are
received is generally calculated based on various reset mechanisms for a
benchmark rate such as LIBOR or SOFR. To the extent that the benchmark rates
used to calculate the payments we receive on our interest rate swaps continue to
be highly correlated with our repo borrowing costs, our interest rate swap
contracts should help to reduce the variability of our overall repo borrowing
costs, thus reducing risk to the extent we hold fixed-rate assets that are
financed with repo borrowings. While for the time being the majority of our
interest rate swaps are LIBOR-based interest rate swap contracts, we have
entered into interest rate swap contracts based on other benchmark rates, such
as SOFR.

Credit Risk Hedging

We enter into credit-hedging positions in order to protect against adverse
credit events with respect to our credit investments, subject to maintaining our
qualification as a REIT. Our credit hedging portfolio can vary significantly
from period to period, and can encompass a wide variety of financial
instruments, including corporate debt or equity-related instruments, RMBS- or
CMBS-related instruments, or instruments involving other markets. Our hedging
instruments can include both "single-name" instruments (i.e., instruments
referencing one underlying entity or security) and hedging instruments
referencing indices.

Currently, our credit hedges consist primarily of financial instruments tied to
corporate credit, such as CDS on corporate bond indices, short positions in and
CDS on corporate bonds; and positions involving exchange traded funds, or
"ETFs," of corporate bonds. Our credit hedges also currently include CDS tied to
individual MBS or an index of several MBS, such as CDS on CMBS indices, or
"CMBX."

Foreign Currency Hedging


To the extent that we hold instruments denominated in currencies other than U.S.
dollars, we may enter into transactions to offset the potential adverse effects
of changes in currency exchange rates, subject to maintaining our qualification
as a REIT. In particular, we may use currency forward contracts and other
currency-related derivatives to mitigate this risk.

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Trends and Recent Market Developments

Market Overview

•The U.S. Federal Reserve, or the “Federal Reserve,” continued the rapid
tightening of its monetary policy in the third quarter of 2022.


At its July meeting, citing continued elevated inflation, the Federal Reserve
raised the target range for the federal funds rate by 0.75%, to 2.25%-2.50%. In
minutes from the meeting, some members indicated that "once the policy rate had
reached a sufficiently restrictive level, it likely would be appropriate to
maintain that level for some time" to continue to combat inflation.
Additionally, the Federal Reserve announced that it would continue to reduce the
size of its balance sheet by only reinvesting principal payments that exceed
monthly caps of $30.0 billion for Treasury securities and $17.5 billion for
agency MBS, a plan that it had initiated the prior month.

At its September meeting, the Federal Reserve raised the target range for the
federal funds rate by an additional 0.75%, to 3.00%-3.25%, further noting that
it "anticipates that ongoing increases in the target range will be appropriate."
In an effort to accelerate the pace of its balance sheet runoff, the Federal
Reserve increased the monthly caps on the amount of principal payments that
would not be subject to reinvestment, to $60 billion for Treasury securities and
$35 billion for Agency MBS. Similarly, other central banks globally continued to
tighten their monetary policies during the third quarter.

After three consecutive hikes of 0.75%, the benchmark federal funds target range
reached its highest level since 2008 despite starting the year at just
0.00%-0.25%.


•Interest rates continued their sharp rise in the third quarter, particularly
short-term interest rates, which caused various segments of the yield curve to
invert. For the quarter, the 10-year U.S. Treasury yield rose by 81 basis points
to 3.82%, while the 2-year U.S. Treasury yield increased by 129 basis points to
4.25%. Meanwhile, after subsiding somewhat during the first half of the quarter,
interest rate volatility surged during the second half of August and September,
with the MOVE Index at the end of September reaching its highest level since the
COVID-related market volatility of March 2020.

•After declining in July and early August, mortgage rates rose rapidly during
the second half of the third quarter, in sympathy with long-term interest rates.
Over the course of the quarter, the Freddie Mac survey 30-year mortgage rate
increased a full percentage point to 6.70%, reaching its highest level since
July 2007. As a result, the Mortgage Bankers Association's Refinance Index
continued its rapid decline, falling an additional 36% between July 1st and
September 30th, and reaching its lowest level since 2000. Fannie Mae 30-year MBS
prepayment rates continued to drop as well, declining from 9.3 CPR in June to
6.8 CPR in September, its lowest level since March 2019.

The sharp rise in mortgage rates during the quarter continued to stress housing
affordability and put downward pressure on home prices. While rising modestly in
July and August, the National Association of Realtors Housing Affordability
Index was still down 26.6% year to date through August. Meanwhile, after
increasing by 10.7% in the first half of 2022, the S&P CoreLogic Case-Shiller US
National Home Price NSA Index reversed course in the third quarter, declining by
1.5% between June 30th and August 31st.

•LIBOR and SOFR rates also rose sharply during the third quarter. One- and
three-month LIBOR each reached their highest level since 2008, with one-month
LIBOR increasing 136 basis points to 3.14%, and three-month LIBOR rising 147
basis points to 3.75%. In anticipation of additional interest rate increases by
the Federal Reserve, the spread between one- and three-month LIBOR widened
further, finishing the quarter at 61 basis points, compared to just 11 basis
points at the start of the year. The Secured Overnight Financing Rate, or
"SOFR," increased as well; one-month SOFR rose by 136 basis points to 3.04%, and
three-month SOFR increased by 148 basis points to 3.59%. LIBOR and SOFR drive
many of our financing costs.

•After contracting for the first two quarters of 2022, real GDP expanded in the
third quarter at an annualized rate of 2.6%. Meanwhile, the unemployment rate
declined modestly, finishing the quarter at 3.5%.

•The Consumer Price Index registered a year-over-year increase of 8.2% in
September, 8.3% in August, and 8.5% in July, after recording a year-over-year
increase of 9.1% in June, its highest such increase in more than 40 years.


•For the third quarter, the Bloomberg Barclays U.S. MBS Index generated a
negative return of (4.88%), as interest rates continued to rise and yield
spreads widened further, and a negative excess return (on a duration-adjusted
basis) of (1.48%) relative to the Bloomberg Barclays U.S. Treasury Index. The
Bloomberg Barclays U.S. Corporate Bond Index generated a negative return of
(4.33%) and a negative excess return of (0.12%), while the Bloomberg Barclays
U.S. Corporate High Yield Bond Index generated a negative return of (0.55%) but
a positive excess return of 2.20%.

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•U.S. equity markets rose during the first half of the quarter but reversed
course during the second half, finishing lower overall. Quarter over quarter,
the S&P 500 declined by 5.3%, the Dow Jones Industrial Average was down 6.7%,
and the NASDAQ fell 4.1%. Similar to the MOVE index, the VIX volatility index
also declined during the first half of the quarter before spiking in the second
half. Meanwhile, London's FTSE 100 index decreased by 3.8%, and the MSCI World
global equity index fell by 6.6% quarter over quarter.

Portfolio Overview and Outlook


The following tables summarize our investment portfolio as of September 30, 2022
and June 30, 2022.

Credit Portfolio(1)
                                                               September 30, 2022                                   June 30, 2022
                                                                              % of Total Long                                 % of Total Long
($ in thousands)                                      Fair Value             Credit Portfolio           Fair Value           Credit Portfolio
Dollar Denominated:
CLOs(2)                                          $          29,533                       0.7  %       $     34,478                       0.8  %
CMBS                                                        19,552                       0.5  %             28,625                       0.7  %
Commercial Mortgage Loans and REO(4)(5)                    553,728                      12.7  %            562,154                      13.7  %
Consumer Loans and ABS backed by Consumer
Loans(2)                                                    98,841                       2.3  %             99,922                       2.4  %
Corporate Debt and Equity and Corporate
Loans                                                       14,180                       0.3  %             18,336                       0.5  %
Debt and Equity Investments in Loan
Origination Entities(3)                                     87,340                       2.0  %            115,415                       2.8  %
Non-Agency RMBS                                            197,903                       4.5  %            221,725                       5.4  %
Residential Mortgage Loans and REO(4)                    3,349,797                      76.6  %          2,996,700                      73.1  %
Non-Dollar Denominated:
CLOs(2)                                                      1,526                         -  %              1,627                         -  %

Corporate Debt and Equity                                      300                         -  %                430                         -  %
RMBS(6)                                                     19,286                       0.4  %             22,387                       0.6  %
Total Long Credit Portfolio                      $       4,371,986                     100.0  %       $  4,101,799                     100.0  %
Less: Non-retained Tranches of
Consolidated Securitization Trusts                       1,630,001                                       1,441,165
Total Long Credit Portfolio excluding
Non-retained Tranches of Consolidated
Securitization Trusts                            $       2,741,985                                    $  2,660,634


(1)This information does not include U.S. Treasury securities, interest rate
swaps, TBA positions, or other hedge positions.
(2)Includes equity investments in securitization-related vehicles.
(3)Includes corporate loans to certain loan origination entities in which we
hold an equity investment.
(4)REO is not considered a financial instrument and, as a result, is included at
the lower of cost or fair value, as discussed in Note 2 of the notes to
consolidated financial statements.
(5)Includes investments in unconsolidated entities holding small balance
commercial mortgage loans and REO.
(6)Includes an investment in an unconsolidated entity holding European RMBS.

Agency RMBS Portfolio
                                                                September 30, 2022                                     June 30, 2022
                                                                              % of Long Agency                                  % of Long Agency
($ in thousands)                                      Fair Value                  Portfolio               Fair Value                Portfolio
Long Agency RMBS:
Fixed Rate                                       $       1,078,496                        95.0  %       $  1,267,183                        94.8  %
Floating Rate                                                6,498                         0.6  %              7,489                         0.6  %
Reverse Mortgages                                           30,796                         2.7  %             35,933                         2.7  %
IOs                                                         19,525                         1.7  %             24,773                         1.9  %
Total Long Agency RMBS                           $       1,135,315                       100.0  %       $  1,335,378                       100.0  %


Our total long credit portfolio, excluding non-retained tranches of consolidated
non-QM securitization trusts, grew by 3% in the third quarter, to $2.742 billion
as of September 30, 2022. This growth was driven primarily by a larger
residential transition loan portfolio, partially offset by opportunistic sales,
paydowns, and mark-to-market losses elsewhere in the credit

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portfolio. In addition, our total long Agency RMBS portfolio decreased by 15%
quarter over quarter, to $1.135 billion, resulting from net sales, paydowns, and
net losses.

As of September 30, 2022, we had cash and cash equivalents of $175.2 million.

Credit Portfolio Performance Summary


Net interest income on our credit portfolio increased significantly quarter over
quarter, driven by the larger portfolio, while we also had strong performance
from our CLO and CMBS strategies, and significant net gains on our interest rate
hedges and retained non-QM tranches, driven by the appreciation of our non-QM
interest only securities.

On the other hand, rapidly rising interest rates, widening yield spreads and
weak securitization economics generated losses on our unsecuritized non-QM loan
portfolio and continued to pressure gain-on-sale margins and origination volumes
for our loan originator affiliates. Although both LendSure and Longbridge were
profitable in the third quarter, lower earnings for LendSure compared to prior
periods and the reduced purchase price for the Longbridge Transaction (which
reflected a discount to Longbridge's book value rather than a premium as
originally estimated, along with a lower book value) resulted in a lower
valuation for each originator quarter over quarter. As a result, we experienced
a significant net loss for the quarter on our strategic investments in these
loan originators.

During the quarter, our cost of funds on credit investments increased
significantly, driven by higher interest rates. Asset yields on our credit
investments also increased over the same period, though by a lesser amount. As a
result, the net interest margin on our credit portfolio (defined as the weighted
average asset yield less the weighted average secured financing cost of funds)
declined quarter over quarter to 2.34% from 2.75%.

Supplemental Credit Portfolio Information

The table below details certain information regarding our investments in
commercial mortgage loans as of September 30, 2022:

                                                                                                    Gross Unrealized                                                       Weighted Average
                                  Unpaid
                                Principal              Premium             Amortized
($ in thousands)                 Balance             (Discount)              Cost                Gains            Losses           Fair Value            Coupon              Yield(1)           Life (Years)(2)
Commercial mortgage
loans(3)(4)                   $   748,810          $       (101)         $  748,709          $   174            $ (2,510)         $  746,373                8.41  %              8.78  %                    1.14


(1)Excludes commercial mortgage loans in non-accrual status, with a fair value
of $31.8 million.
(2)Expected average lives of loans are generally shorter than stated contractual
maturities. Average lives are affected by scheduled periodic payments of
principal and unscheduled prepayments of principal.
(3)Includes our allocable portion of small-balance commercial loans, based on
our ownership percentage, held in variable interest entities. Our equity
investments in such variable interest entities are included in Investments in
unconsolidated entities, at fair value on the Consolidated Balance Sheet.
(4)As of September 30, 2022 all of our commercial mortgage loans were first lien
mortgages, all of which have floating rates with a rate floor.

The table below summarizes our interests in commercial mortgage loans by
property type of the underlying real estate collateral, as a percentage of total
outstanding unpaid principal balance, as of September 30, 2022:

Property Type(1)            September 30, 2022
Multifamily                             69.8  %
Office                                   7.6  %
Industrial                               6.5  %
Hotel                                    6.4  %
Retail                                   3.5  %
Commercial Mixed Use                     2.8  %
Mobile Home Community                    2.6  %
Self Storage                             0.8  %
                                       100.0  %


(1)Includes our allocable portion of small-balance commercial loans, based on
our ownership percentage, held in variable interest entities. Our equity
investments in such variable interest entities are included in Investments in
unconsolidated entities, at fair value on the Consolidated Balance Sheet.

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The table below summarizes our interests in commercial mortgage loans by
geographic location of the underlying real estate collateral, as a percentage of
total outstanding unpaid principal balance, as of September 30, 2022:


Property Location by U.S. State(1)         September 30, 2022
Texas                                                  18.4  %
Florida                                                18.1  %
Georgia                                                12.6  %
New York                                                7.1  %
Arizona                                                 5.8  %
New Jersey                                              5.0  %
All other states <5%                                   33.0  %
                                                      100.0  %


(1)Includes our allocable portion of small-balance commercial loans, based on
our ownership percentage, held in variable interest entities. Our equity
investments in such variable interest entities are included in Investments in
unconsolidated entities, at fair value on the Consolidated Balance Sheet.

The table below summarizes our interests in residential mortgage loans by loan
type and REO resulting from the foreclosure of residential mortgage loans as of
September 30, 2022:
                                                                         September 30, 2022
                                                               Unpaid Principal
Loan Type                                                           Balance              Fair Value
                                                                            In thousands
Non-QM loans                                                   $    2,683,766          $  2,437,273
Residential transition loans                                             898,303               898,108
Other residential loans                                                   15,335                13,429
Total residential mortgage loans                               $    3,597,404          $  3,348,810
Residential REO(1)                                                                              988
Total residential mortgage loans and residential REO(1)                                $  3,349,798


(1)REO is not considered a financial instrument and, as a result, is included at
the lower of cost or fair value, as discussed in Note 2 of the notes to
consolidated financial statements.

The following table provides additional details about our investments in
unconsolidated entities as of September 30, 2022:


Investment in Unconsolidated Entity                         Description                                      Fair Value
Loan Originators:                                           Entity Type                                    (In thousands)
Longbridge Financial, LLC                                   Reverse Mortgage Loan Originator             $        38,886
LendSure Mortgage Corp.                                     Residential Mortgage Loan Originator                  26,590
                                                            Residential Mortgage Loan, Commercial
                                                            Mortgage Loan, and Consumer Loan
Other                                                       Originators                                           17,742
                                                                                                                  83,218
Other Unconsolidated Entities:                              Underlying Product Type
Co-investments with Ellington affiliate(s)                  Commercial Mortgage Loans                             69,465
Equity investments in securitization-related risk
retention vehicles                                          Consumer Loans and European RMBS                      10,686
Other                                                       Various                                                8,010
                                                                                                                  88,161
                                                                                                                 171,379




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Agency RMBS Portfolio Performance Summary


After positive performance in July, Agency RMBS significantly underperformed
U.S. Treasury securities and interest rate swaps in August and September, and
for the third quarter overall, as persistently high inflation weakened market
sentiment, drove volatility higher, and led the Federal Reserve to continue the
rapid tightening of its monetary policy. The Federal Reserve increased its
target range for the federal funds rate by 0.75% in both July and September,
which left the benchmark rate at its highest level since 2008, and also
accelerated the runoff of its balance sheet in September. Interest rates rose
significantly during the quarter, particularly short-term interest rates, and
actual and implied interest rate volatility surged, with the MOVE index in
September reaching its highest level since the COVID-related market volatility
of March 2020.

Agency RMBS durations extended in response to the higher interest rates, while
the elevated volatility contributed to substantial yield spread widening during
the quarter. As a result, we had a significant net loss in the strategy for the
quarter, as net losses on our Agency RMBS exceeded net gains on our interest
rate hedges and net interest income.

Pay-ups on our specified pools increased modestly to 0.76% as of September 30,
2022
, as compared to 0.70% as of June 30, 2022.


During the quarter, we continued to hedge interest rate risk through the use of
interest rate swaps and short positions in TBAs, U.S. Treasury securities, and
futures. Similar to the prior quarter, we ended the quarter with a net short TBA
position, both on a notional basis and as measured by 10-year equivalents.

During the quarter, our cost of funds on Agency RMBS increased significantly,
driven by higher interest rates. Our asset yields on Agency RMBS also increased
over the same period, though by a much smaller amount. As a result, our net
interest margin on our Agency RMBS, excluding the Catch-up Premium Amortization
Adjustment, declined quarter over quarter to 1.00% from 1.76%.

As of September 30, 2022 and June 30, 2022, the weighted average net
pass-through rate on our fixed-rate specified pools was 3.2% and 2.9%,
respectively. Portfolio turnover for our Agency strategy, as measured by sales
and excluding paydowns, was 25% for the three-month period ended September 30,
2022.

We expect to continue to target specified pools that, taking into account their
particular composition and based on our prepayment projections, should:
(1) generate attractive yields relative to other Agency RMBS and U.S. Treasury
securities, (2) have less prepayment sensitivity to government policy shocks,
and/or (3) create opportunities for trading gains once the market recognizes
their value, which for newer pools may come only after several months, when
actual prepayment experience can be observed. We believe that our research team,
proprietary prepayment models, and extensive databases remain essential tools in
our implementation of this strategy.

The following table summarizes the prepayment rates for our portfolio of
fixed-rate specified pools (excluding those backed by reverse mortgages) for the
three-month periods ended September 30, 2022, June 30, 2022, March 31, 2022,
December 31, 2021, and September 30, 2021.
                                                                                             Three-Month Period Ended
                                          September 30, 2022            June 30, 2022            March 31, 2022            December 31, 2021          September 30, 2021
Three-Month Constant Prepayment
Rates(1)                                         9.5%                       11.6%                     12.7%                      18.5%                       21.6%

(1)Excludes Agency fixed-rate RMBS without any prepayment history.

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The following table provides details about the composition of our portfolio of
fixed-rate specified pools (excluding those backed by reverse mortgages) as of
September 30, 2022 and June 30, 2022:

                                                                         September 30, 2022                                                   June 30, 2022
                                                                                                    Weighted                                                          Weighted
                                                         Current                                  Average Loan             Current                                  Average Loan
                                 Coupon (%)             Principal            Fair Value           Age (Months)            Principal            Fair Value           Age (Months)
                                                                (In thousands)                                                    (In thousands)
Fixed-rate Agency RMBS:
15-year fixed-rate
mortgages:
                                  1.50-1.99          $     19,814          $    17,056                  23             $     20,406          $    18,682                  20
                                  2.00-2.49                20,814               18,441                  18                   53,755               50,531                  17
                                  2.50-2.99                67,233               61,367                  29                   75,088               72,277                  31
                                  3.00-3.49                29,005               27,011                  26                   31,413               30,814                  23
                                  3.50-3.99                16,017               15,269                  75                   17,073               17,104                  73
                                  4.00-4.49                 3,240                3,158                  73                    3,421                3,462                  70
                                  4.50-4.99                   401                  400                 138                    1,784                1,804                 142
Total 15-year fixed-rate
mortgages                                                 156,524              142,702                  32                  202,940              194,674                  30
20-year fixed-rate
mortgages:
                                  2.00-2.49                 2,608                2,158                  22                    2,663                2,381                  19
                                  2.50-2.99                 4,443                3,805                  23                    4,539                4,187                  20

                                  4.50-4.99                   331                  324                 106                      386                  396                 103
Total 20-year fixed-rate
mortgages                                                   7,382                6,287                  27                    7,588                6,964                  24
30-year fixed-rate
mortgages:
                                  2.00-2.49                52,680               42,889                  16                  147,302              128,586                  11
                                  2.50-2.99               298,402              252,206                  18                  407,547              369,130                  14
                                  3.00-3.49               234,425              206,077                  23                  235,927              222,056                  20
                                  3.50-3.99               113,531              103,847                  49                  117,936              115,294                  46
                                  4.00-4.49               138,977              130,588                  46                  123,141              123,432                  52
                                  4.50-4.99               141,306              135,973                  30                   70,939               72,553                  57
                                  5.00-5.49                49,287               48,603                  41                   29,882               31,107                  69
                                  5.50-5.99                 8,259                8,271                  23                    2,122                2,274                  83
                                  6.00-6.49                 1,009                1,053                 124                    1,017                1,113                 121
Total 30-year fixed-rate
mortgages                                               1,037,876              929,507                  29                1,135,813            1,065,545                  26
Total fixed-rate Agency
RMBS                                                 $  1,201,782          $ 1,078,496                  29             $  1,346,341          $ 1,267,183                  27



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Financing

The following table details our borrowings outstanding and debt-to-equity ratios
as of September 30, 2022 and June 30, 2022:

                                                                                         As of
($ in thousands)                                                       September 30, 2022           June 30, 2022
Recourse(1) borrowings:
Repurchase agreements                                                $         2,895,019          $    2,865,222
Other secured borrowings                                                          40,900                  45,455
Senior Notes, at par                                                             210,000                 296,000
Total recourse borrowings                                            $         3,145,919          $    3,206,677
Debt-to-equity ratio based on total recourse borrowings(1)                            2.7:1                   2.6:1

Debt-to-equity ratio based on total recourse borrowings
excluding U.S. Treasury securities

                                                    2.6:1                   2.6:1

Debt-to-equity ratio based on total recourse borrowings
excluding U.S. Treasury securities, adjusted for unsettled
purchases and sales(3)

                                                                2.6:1                   2.6:1

Non-Recourse(2) Borrowings:


Other Secured Borrowings, at fair value(4)                           $         1,635,829          $    1,448,182
Total Recourse and Non-Recourse Borrowings                           $      

4,781,748 $ 4,654,859
Debt-to-equity ratio based on total recourse and non-recourse
borrowings

                                                                            4.1:1                   3.8:1

Debt-to-equity ratio based on total recourse and non-recourse
borrowings excluding U.S. Treasury securities

                                         4.0:1                   3.8:1

Debt-to-equity ratio based on total recourse and non-recourse
borrowings excluding U.S. Treasury securities, adjusted for
unsettled purchases and sales(3)

                                                      4.0:1                   3.7:1


(1)As of both September 30, 2022 and June 30, 2022, excludes borrowings at
certain unconsolidated entities that are recourse to us. Including such
borrowings, our debt-to-equity ratio based on total recourse borrowings was
2.8:1 as of September 30, 2022 and June 30, 2022, respectively.
(2)All of our non-recourse borrowings are secured by collateral. In the event of
default under a non-recourse borrowing, the lender has a claim against the
collateral but not any of the Operating Partnership's other assets. In the event
of default under a recourse borrowing, the lender's claim is not limited to the
collateral (if any).
(3)For unsettled purchases and sales, assumes associated borrowings are subject
to haircuts of 5.3% and 5.1% as of September 30, 2022 and June 30, 2022,
respectively.
(4)Relates to our non-QM loan securitizations, where we have elected the fair
value option on the related debt.

Our debt-to-equity ratio based on total recourse and non-recourse borrowings
excluding U.S. Treasury securities, adjusted for unsettled purchases and sales,
increased to 4.0:1 as of September 30, 2022 as compared to 3.7:1 as of June 30,
2022. This increase was driven in part by an increase in higher non-recourse
borrowings following the non-QM securitization that we completed during the
quarter, and in part by a decrease in total equity. Our recourse debt-to-equity
ratio, excluding U.S. Treasury securities, adjusted for unsettled purchases and
sales, was unchanged at 2.6:1 quarter over quarter, however, as lower recourse
borrowings on the smaller Agency RMBS portfolio and the repayment of $86 million
of Senior Notes roughly offset higher recourse borrowings on the credit
portfolio and a decrease in total equity.

Our secured financing costs include interest expense related to our repo
borrowings and Total other secured borrowings. For the three-month period ended
September 30, 2022, the average cost of funds on our secured financings
increased significantly to 3.14%, as compared to 2.03% for the three-month
period ended June 30, 2022. The period-over-period increase was primarily driven
by higher interest rates. Our unsecured financing costs consist of interest
expense related to our Senior Notes. For the three-month period ended
September 30, 2022, the average borrowing rate on our unsecured financings was
5.86%, as compared to 5.85% for the three-month period ended June 30, 2022. Our
average cost of funds, including both secured and unsecured financings,
increased to 3.28% from 2.61% over the same period.

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Critical Accounting Estimates

Our condensed consolidated financial statements include the accounts of
Ellington Financial Inc., its Operating Partnership, its subsidiaries, and
variable interest entities, or “VIEs,” for which we are deemed to be the primary
beneficiary. All intercompany balances and transactions have been eliminated.


The preparation of our condensed consolidated financial statements in accordance
with U.S. GAAP require us to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Our critical accounting estimates are those which require
assumptions to be made about matters that are highly uncertain. Actual results
could differ from those estimates and such differences could have a material
impact on our financial condition and/or results of operations. We believe that
all of the decisions and assessments upon which our consolidated financial
statements are based were reasonable at the time made based upon information
available to us at that time. We rely on the experience of our Manager and
Ellington and analysis of historical and current market data in order to arrive
at what we believe to be reasonable estimates. See Note 2 of the notes to our
consolidated financial statements for a complete discussion of our significant
accounting policies. We have identified our most critical accounting estimates
to be the following:

Valuation: 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, management generally uses third-party valuations when
available. If third-party valuations are not available, management 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 2 of the notes to our consolidated
financial statements. Management utilizes such methodologies to assign a good
faith fair value (the estimated price that, in an orderly transaction at the
valuation date, would be received to sell an asset, or paid to transfer a
liability, as the case may be) to each such financial instrument. See the notes
to our consolidated financial statements for more information on valuation
techniques used by management in the valuation of our assets and liabilities.

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 macroeconomic
and microeconomic assumptions and/or inputs, which are generally based on
current market and economic conditions. Changes in market and/or economic
conditions could have a significant adverse effect on the estimated fair value
of our financial instruments. Changes to assumptions, including assumed market
yields, may significantly impact the estimated fair value of our investments.
Our valuations are sensitive to changes in interest rate; see the interest rate
sensitivity analysis included in Item 3. Quantitative and Qualitative
Disclosures about Market Risk in this Quarterly Report on Form 10-Q for further
information.

VIEs: We evaluate each of our investments and other contractual arrangements to
determine whether our interest constitutes a variable interest in a VIE, and if
so whether we are the primary beneficiary of such VIE. In making these
determinations we use both qualitative and quantitative analyses involving a
significant amount of judgment, taking into consideration factors such as which
interests in the VIE create or absorb variability, the contractual terms related
to such interests, other transactions or agreements with the entity, key
decision makers and their impact on the VIE's economic performance, and related
party relationships.

Purchases and Sales of Investments and Investment Income: Purchase and sales
transactions are generally recorded on trade date. Realized and unrealized gains
and losses are calculated based on identified cost.

We generally amortize premiums and accrete discounts on our fixed-income
investments using the effective interest method. For certain of our securities,
for purposes of estimating future expected cash flows, management uses
assumptions including, but not limited to, assumptions for future prepayment
rates, default rates, and loss severities (each of which may in turn incorporate
various macroeconomic assumptions, such as future housing prices, GDP growth
rates, and unemployment rates). In estimating future cash flows on certain of
our loans, there are a number of assumptions that are subject to significant
uncertainties and contingencies, including assumptions relating to prepayment
rates, default rates, loan loss severities, and loan repurchases. These
estimates require the use of a significant amount of judgment. Any resulting
changes in effective yield are recognized prospectively based on the current
amortized cost of the investment as adjusted for credit impairment, if any.

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The effective yield on our debt securities that are deemed to be of high credit
quality (including Agency RMBS, exclusive of interest only securities) can be
significantly impacted by our estimate of future prepayments. Future prepayment
rates are difficult to predict. We estimate prepayment rates over the remaining
life of our securities using models that generally incorporate the forward yield
curve, current mortgage rates, mortgage rates on the outstanding loans, age and
size of the outstanding loans, and other factors. We compare estimated
prepayments to actual prepayments on a quarterly basis, and effective yields are
recalculated retroactive to the time of purchase. When differences arise between
our previously calculated effective yields and our current calculated effective
yields, a catch-up adjustment, or "Catch-up Premium Amortization Adjustment," is
made to interest income to reflect the cumulative impact of the changes in
effective yields. For the three-month periods ended September 30, 2022 and 2021
we recognized a Catch-Up Premium Amortization Adjustment of $1.6 million and
$(2.9) million, respectively. For the nine-month periods ended September 30,
2022 and 2021 we recognized a Catch-Up Premium Amortization Adjustment of
$3.1 million and $10 thousand, respectively. The Catch-up Premium Amortization
Adjustment is reflected as an increase (decrease) to Interest income on the
Condensed Consolidated Statement of Operations.

See the notes to our consolidated financial statements for more information on
the assumptions and methods that we use to amortize purchase premiums and
accrete purchase discounts.


Income Taxes: We have elected to be taxed as a REIT for U.S. federal income tax
purposes, and are generally are not subject to corporate-level federal and state
income tax on net income we distribute to our stockholders within the prescribed
timeframes. We have elected to treat certain domestic and foreign subsidiaries
as TRSs. Our financial results are generally not expected to reflect provisions
for current or deferred income taxes, except for any activities conducted
through one or more TRSs that are subject to corporate income taxation.
Establishing a provision for income tax expense requires judgement and
interpretation of the application of various federal, state, local, and foreign
jurisdiction's tax laws. We may take positions with respect to certain tax
issues which depend on legal interpretation of facts or applicable tax
regulations. Should the relevant tax regulators successfully challenge any such
positions, we might be found to have a tax liability that has not been recorded
in the accompanying consolidated financial statements. Also, management's
conclusions regarding the authoritative guidance may be subject to review and
adjustment at a later date based on changing tax laws, regulations, and
interpretations thereof. See Note 2 and Note 12 to our consolidated financial
statements for additional details on income taxes.

Recent Accounting Pronouncements

Refer to Note 2 to our consolidated financial statements for a description of
relevant recent accounting pronouncements.

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Financial Condition


The following table summarizes the fair value of our investment portfolio(1) as
of September 30, 2022 and December 31, 2021.
(In thousands)                                                    September 30, 2022           December 31, 2021
Long:
Credit:
Dollar Denominated:
CLO(2)                                                          $            29,533          $           60,903
CMBS                                                                         19,552                      25,643
Commercial Mortgage Loans and REO(3)(5)                                     553,728                     387,165
Consumer Loans and ABS backed by Consumer Loans(2)                           98,841                     153,124
Corporate Debt and Equity and Corporate Loans                                14,180                      20,128
Debt and Equity Investments in Loan Origination
Entities(4)                                                                  87,340                     141,315
Non-Agency RMBS                                                             197,903                     191,728
Residential Mortgage Loans and REO(3)                                     3,349,797                   2,017,219
Non-Dollar Denominated:
CLO(2)                                                                        1,526                       3,092

Consumer Loans and ABS backed by Consumer Loans                                   -                         213
Corporate Debt and Equity                                                       300                          13
RMBS(6)                                                                      19,286                      25,846
Agency:
Fixed-Rate Specified Pools                                                1,078,496                   1,600,862
Floating-Rate Specified Pools                                                 6,498                       9,456
IOs                                                                          19,525                      33,288
Reverse Mortgage Pools                                                       30,796                      53,010
Government Debt:
Dollar Denominated                                                           30,483                           -
Total Long                                                      $         5,537,784          $        4,723,005
Short:
Credit:

Government Debt:
Dollar Denominated                                                         (177,604)                    (92,190)
Non-Dollar Denominated                                                      (21,938)                    (28,335)
Total Short                                                     $          (199,542)         $         (120,525)


(1)For more detailed information about the investments in our portfolio, please
see the notes to the consolidated financial statements.
(2)Includes equity investments in securitization-related vehicles.
(3)REO is not eligible to elect the fair value option as described in Note 2 of
the notes to the consolidated financial statements and, as a result, is included
at the lower of cost or fair value.
(4)Includes corporate loans to certain loan origination entities in which we
hold an equity investment.
(5)Includes investments in unconsolidated entities holding small balance
commercial mortgage loans and REO.
(6)Includes an investment in an unconsolidated entity holding European RMBS.

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The following table summarizes our financial derivatives portfolio(1)(2) as of
September 30, 2022.

                                                                                    September 30, 2022
                                                                               Notional                                      Net
(In thousands)                                             Long                  Short                  Net              Fair Value
Mortgage-Related Derivatives:
CDS on MBS and MBS Indices                            $        324          

$ (56,565) $ (56,241) $ 2,295
Total Net Mortgage-Related Derivatives

                                                                                       2,295
Corporate-Related Derivatives:
CDS on Corporate Bonds and Corporate Bond
Indices                                                      1,867              (194,282)             (192,415)                757
Total Return Swaps on Corporate Debt(3)                      2,988                     -                 2,988                 (37)

Warrants(4)                                                  1,897                     -                 1,897                 663
Total Net Corporate-Related Derivatives                                                                                      1,383
Interest Rate-Related Derivatives:
TBAs                                                        57,507              (741,598)             (684,091)             28,318
Interest Rate Swaps                                      1,370,121            (2,470,170)           (1,100,049)             76,782
U.S. Treasury Futures(5)                                     1,900               (50,100)              (48,200)                586

Total Interest Rate-Related Derivatives                                                                                    105,686
Other Derivatives:
Foreign Currency Forwards(6)                                     -               (11,400)              (11,400)                261

Total Net Other Derivatives                                                                                                    261
Net Total                                                                                                               $  109,625


(1)For more detailed information about the financial derivatives in our
portfolio, please refer to Note 8 of the notes to the consolidated financial
statements.
(2)In the table above, fair value of certain derivative transactions are shown
on a net basis. The accompanying financial statements separate derivative
transactions as either assets or liabilities. As of September 30, 2022,
derivative assets and derivative liabilities were $160.0 million and $(50.4)
million, respectively, for a net fair value of $109.6 million, as reflected in
"Net Total" above.
(3)Notional value represents the face amount of the underlying asset.
(4)Notional represents the maximum number of shares available to be purchased
upon exercise.
(5)Notional value represents the total face amount of U.S. Treasury securities
underlying all contracts held. As of September 30, 2022, a total of 19 long and
252 short U.S. Treasury futures contracts were held.
(6)Short notional value represents U.S. Dollars to be received by us at the
maturity of the forward contract.

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The following table summarizes our financial derivatives portfolio(1)(2) as of
December 31, 2021.

                                                                                     December 31, 2021
                                                                               Notional                                     Net
(In thousands)                                             Long                 Short                  Net               Fair Value
Mortgage-Related Derivatives:
CDS on MBS and MBS Indices                            $       573          

$ (15,348) $ (14,775) $ 2,015
Total Net Mortgage-Related Derivatives

                                                                                       2,015
Corporate-Related Derivatives:
CDS on Corporate Bonds and Corporate Bond
Indices                                                     2,168               (24,583)              (22,415)              (1,813)

Options                                                    30,000                     -                30,000                  278
Warrants(3)                                                 1,897                     -                 1,897                  706
Total Net Corporate-Related Derivatives                                                                                       (829)
Interest Rate-Related Derivatives:
TBAs                                                      273,223              (913,382)             (640,159)                 320
Interest Rate Swaps                                       474,741            (1,519,488)           (1,044,747)               4,895
U.S. Treasury Futures(4)                                    1,900              (221,400)             (219,500)                 403

Total Interest Rate-Related Derivatives                                                                                      5,618
Other Derivatives:
Foreign Currency Forwards(5)                                    -               (16,494)              (16,494)                (208)

Total Net Other Derivatives                                                                                                   (208)
Net Total                                                                                                              $     6,596


(1)For more detailed information about the financial derivatives in our
portfolio, please refer to Note 8 of the notes to the consolidated financial
statements.
(2)In the table above, fair value of certain derivative transactions are shown
on a net basis. The accompanying financial statements separate derivative
transactions as either assets or liabilities. As of December 31, 2021,
derivative assets and derivative liabilities were $18.9 million and $(12.3)
million, respectively, for a net fair value of $6.6 million, as reflected in
"Net Total" above.
(3)Notional represents the maximum number of shares available to be purchased
upon exercise.
(4)Notional value represents the total face amount of U.S. Treasury securities
underlying all contracts held. As of December 31, 2021, a total of 19 long and
1,965 short U.S. Treasury futures contracts were held.
(5)Short notional value represents U.S. Dollars to be received by us at the
maturity of the forward contract.

As of September 30, 2022, our Consolidated Balance Sheet reflected total assets
of $6.3 billion and total liabilities of $5.2 billion. As of December 31, 2021,
our Consolidated Balance Sheet reflected total assets of $5.2 billion and total
liabilities of $3.9 billion. Our investments in securities, loans, and
unconsolidated entities, financial derivatives, and real estate owned included
in total assets were $5.7 billion and $4.7 billion as of September 30, 2022 and
December 31, 2021, respectively. Our investments in securities sold short and
financial derivatives included in total liabilities were $250.0 million and
$132.8 million as of September 30, 2022 and December 31, 2021, respectively. As
of both September 30, 2022 and December 31, 2021, investments in securities sold
short consisted principally of short positions in U.S. Treasury securities and
sovereign bonds. We primarily use short positions in U.S. Treasury securities
and sovereign bonds to hedge the risk of rising interest rates and foreign
currency risk.

Typically, we hold a net short position in TBAs. The amounts of net short TBAs,
as well as of other hedging instruments, may fluctuate according to the size of
our investment portfolio as well as according to how we view market dynamics as
favoring the use of one hedging instrument or another. As of September 30, 2022
and December 31, 2021, we had a net short notional TBA position of $684.1
million and $640.2 million, respectively.

For a more detailed discussion of our investment portfolio, see “-Trends and
Recent Market Developments-Portfolio Overview and Outlook” above.


We use mortgage-related credit derivatives primarily to hedge credit risk in
certain credit strategies, although we also take net long positions in certain
CDS on RMBS and CMBS indices. Our CDS on individual RMBS represent "single-name"
positions whereby we have synthetically purchased credit protection on specific
non-Agency RMBS bonds. As there is no longer an active market for CDS on
individual RMBS, our portfolio in this sector continues to run off. We also use
CDS on corporate bond indices, options thereon, and various other instruments as
a means to hedge credit risk. As market conditions change, especially as the
pricing of various credit hedging instruments changes in relation to our outlook
on future credit performance, we continuously re-evaluate both the extent to
which we hedge credit risk and the particular mix of instruments that we use to
hedge credit risk.

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We may hold long and/or short positions in corporate bonds or equities. Our long
and short positions in corporate bonds or equities may serve as outright
investments or portfolio hedges.


We use a variety of instruments to hedge interest rate risk in our portfolio,
including non-derivative instruments such as U.S. Treasury securities and
sovereign debt instruments, and derivative instruments such as interest rate
swaps, TBAs, Eurodollar and U.S. Treasury futures, and options on the foregoing.
The mix of instruments that we use to hedge interest rate risk may change
materially from one period to the next.

We have also entered into foreign currency forward and futures contracts in
order to hedge risks associated with foreign currency fluctuations.


We have entered into repos to finance many of our assets. We account for our
repos as collateralized borrowings. As of September 30, 2022 indebtedness
outstanding on our repos was approximately $2.9 billion. As of September 30,
2022, our assets financed with repos consisted of Agency RMBS of $1.1 billion,
credit assets of $2.2 billion, and U.S. Treasury securities of $30.5 million. As
of September 30, 2022, outstanding indebtedness under repos was $1.1 billion for
Agency RMBS, $1.7 billion for credit assets, and $30.8 million for U.S. Treasury
securities. As of December 31, 2021 indebtedness outstanding on our repos was
approximately $2.5 billion. As of December 31, 2021, our assets financed with
repos consisted of Agency RMBS of $1.6 billion and credit assets of $1.1
billion. As of December 31, 2021, outstanding indebtedness under repos was $1.6
billion for Agency RMBS and $0.8 billion for credit assets.

In addition to our repos, as of September 30, 2022 we had Total other secured
borrowings of $1.7 billion, used to finance $1.8 billion of non-QM loans and ABS
backed by consumer loans. This compares to Total other secured borrowings of
$1.1 billion as of December 31, 2021, used to finance $1.2 billion of non-QM
loans, consumer loans and ABS backed by consumer loans, and small balance
commercial mortgage loans. In addition to our secured borrowings, we had $210.0
million and $86.0 million of Senior Notes outstanding as of September 30, 2022
and December 31, 2021, respectively.

As of September 30, 2022 and December 31, 2021, our debt-to-equity ratio was
4.1:1 and 2.7:1, respectively. Our recourse debt-to-equity ratio was 2.7:1 as of
September 30, 2022 as compared to 2.0:1 as of December 31, 2021. See the
discussion in "-Liquidity and Capital Resources" below for further information
on our borrowings.

Equity

As of September 30, 2022, our equity decreased by $142.9 million to $1.181
billion from $1.324 billion as of December 31, 2021. The decrease principally
consisted of net loss of $(97.7) million, common and preferred dividends of
$92.8 million, distributions to non-controlling interests of $16.2 million, and
$1.7 million to repurchase shares of common stock. These decreases were
partially offset by net proceeds from the issuance of shares of common stock of
$53.2 million, after commissions and offering costs, net proceeds from the
issuance of shares of preferred stock of $0.5 million, net of commissions and
offering costs, and contributions from our non-controlling interests of $10.4
million. Stockholders' equity, which excludes the non-controlling interests
related to the minority interest in the Operating Partnership as well as the
minority interests of our joint venture partners, was $1.155 billion as of
September 30, 2022.

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Results of Operations for the Three- and Nine-Month Periods Ended September 30,
2022
and 2021

The following table summarizes our results of operations for the three- and
nine-month periods ended September 30, 2022 and 2021:


                                                         Three-Month Period Ended                      Nine Month-Period Ended
                                                    September 30,         September 30,                                   September 30,
(In thousands except per share amounts)                 2022                   2021             September 30, 2022            2021
Interest Income (Expense)
Interest income                                   $       78,592          $    40,146          $      192,388             $  126,115
Interest expense                                         (42,080)             (10,604)                (82,121)               (33,111)
Net interest income                                       36,512               29,542                 110,267                 93,004
Other Income (Loss)(1)
Realized and unrealized gains (losses) on
securities and loans, net                               (183,997)               3,147                (528,525)                13,633
Realized and unrealized gains (losses) on
financial derivatives, net                                69,254                 (627)                187,190                 10,621
Realized and unrealized gains (losses) on
real estate owned, net                                      (139)                 622                     101                 (1,498)
Unrealized gains (losses) on other secured
borrowings, at fair value, net                            79,430                1,568                 202,329                  4,945
Unrealized gains (losses) on senior notes,
at fair value                                              9,135                    -                  16,485                      -
Other, net                                                   (31)               1,418                   1,022                  4,365
Total other income (loss)                                (26,348)               6,128                (121,398)                32,066

Expenses

Base management fee to affiliate (Net of
fee rebates of $444, $395, $1,705, and
$784, respectively)(2)                                     3,950                3,675                  12,206                 10,308
Incentive fee to affiliate                                     -                5,255                       -                 12,412
Other investment related expenses                          5,968                2,879                  20,472                 12,565
Other operating expenses                                   4,545                4,438                  14,454                 12,716
Total expenses                                            14,463               16,247                  47,132                 48,001
Net Income (Loss) before Income Tax Expense
(Benefit) and Earnings (Losses) from
Investments in Unconsolidated Entities                    (4,299)              19,423                 (58,263)                77,069
Income tax expense (benefit)                                 (81)              (2,009)                (14,867)                 3,149
Earnings (losses) from investments in
unconsolidated entities                                  (25,513)               2,549                 (54,284)                27,786
Net Income (Loss)                                        (29,731)              23,981                 (97,680)               101,706
Net income (loss) attributable to
non-controlling interests                                   (264)               1,476                  (1,075)                 4,809
Dividends on preferred stock                               3,823                1,941                  11,468                  5,822
Net Income (Loss) Attributable to Common
Stockholders                                      $      (33,290)         $    20,564          $     (108,073)            $   91,075
Net Income (Loss) Per Common Share                $        (0.55)         $      0.41          $        (1.82)            $     1.99


(1)Conformed to current period presentation.
(2)See Note 13 of the notes to the consolidated financial statements for further
details on management fee rebates.



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Adjusted Distributable Earnings


Beginning with the financial results for the quarter ended June 30, 2022, the
supplemental non-GAAP financial measure that we previously referred to as "Core
Earnings," we now refer to as "Adjusted Distributable Earnings." We calculate
Adjusted Distributable Earnings as U.S. GAAP net income (loss) as adjusted for:
(i) realized and unrealized gain (loss) on securities and loans, REO, financial
derivatives (excluding periodic settlements on interest rate swaps), other
secured borrowings, at fair value, senior notes, at fair value, and foreign
currency transactions; (ii) incentive fee to affiliate; (iii) Catch-up Premium
Amortization Adjustment (as defined below); (iv) non-cash equity compensation
expense; (v) provision for income taxes; (vi) certain non-capitalized
transaction costs; and (vii) other income or loss items that are of a
non-recurring nature. For certain investments in unconsolidated entities, we
include the relevant components of net operating income in Adjusted
Distributable Earnings. The Catch-up Premium Amortization Adjustment is a
quarterly adjustment to premium amortization triggered by changes in actual and
projected prepayments on our Agency RMBS (accompanied by a corresponding
offsetting adjustment to realized and unrealized gains and losses). The
adjustment is calculated as of the beginning of each quarter based on our
then-current assumptions about cashflows and prepayments, and can vary
significantly from quarter to quarter.

Adjusted Distributable Earnings is a supplemental non-GAAP financial measure. We
believe that the presentation of Adjusted Distributable Earnings provides
information useful to investors, because: (i) we believe that it is a useful
indicator of both current and projected long-term financial performance, in that
it excludes the impact of certain current period earnings components that we
believe are less useful in forecasting long-term performance and dividend-paying
ability; (ii) we use it to evaluate the effective net yield provided by our
portfolio, after the effects of financial leverage; and (iii) we believe that
presenting Adjusted Distributable Earnings assists our investors in measuring
and evaluating our operating performance, and comparing our operating
performance to that of our residential mortgage REIT peers. Please note,
however, that: (I) our calculation of Adjusted Distributable Earnings may differ
from the calculation of similarly titled non-GAAP financial measures by our
peers, with the result that these non-GAAP financial measures might not be
directly comparable; and (II) Adjusted Distributable Earnings excludes certain
items, such as most realized and unrealized gains and losses, that may impact
the amount of cash that is actually available for distribution.

In addition, because Adjusted Distributable Earnings is an incomplete measure of
our financial results and differs from net income (loss) computed in accordance
with U.S. GAAP, it should be considered supplementary to, and not as a
substitute for, net income (loss) computed in accordance with U.S. GAAP.

Furthermore, Adjusted Distributable Earnings is different from REIT taxable
income. As a result, the determination of whether we have met the requirement to
distribute at least 90% of our annual REIT taxable income (subject to certain
adjustments) to our stockholders, in order to maintain our qualification as a
REIT, is not based on whether we distributed 90% of our Adjusted Distributable
Earnings.

In setting our dividends, our Board of Directors considers our earnings,
liquidity, financial condition, REIT distribution requirements, and financial
covenants, along with other factors that the Board of Directors may deem
relevant from time to time.

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The following table reconciles, for the three- and nine-month periods ended
September 30, 2022 and 2021, Adjusted Distributable Earnings to the line on our
Condensed Consolidated Statement of Operations entitled Net Income (Loss), which
we believe is the most directly comparable U.S. GAAP measure:

                                                            Three-Month Period Ended                        Nine-Month Period Ended
                                                       September 30,          September 30,                                    September 30,
(In thousands, except per share amounts)                   2022                  2021(1)            September 30, 2022            2021(1)
Net income (loss)                                    $      (29,731)         $     23,981          $     (97,680)             $    101,706
Income tax expense (benefit)                                    (81)               (2,009)               (14,867)                    3,149
Net income (loss) before income tax expense
(benefit)                                                   (29,812)               21,972               (112,547)                  104,855

Adjustments:

Realized (gains) losses on securities and
loans, net                                                   33,247                (6,359)                51,272                    (8,627)
Realized (gains) losses on financial
derivatives, net                                            (18,995)                1,782                (89,108)                   (4,438)
Realized (gains) losses on real estate owned,
net                                                              18                    50                   (474)                       63
Unrealized (gains) losses on securities and
loans, net                                                  150,750                 3,212                477,253                    (5,006)
Unrealized (gains) losses on financial
derivatives, net                                            (50,259)               (1,155)               (98,082)                   (6,183)
Unrealized (gains) losses on real estate
owned, net                                                      121                  (672)                   373                     1,435
Unrealized (gains) losses on other secured
borrowings, at fair value, net                              (79,430)               (1,568)              (202,329)                   (4,945)
Unrealized (gains) losses on senior notes, at
fair value                                                   (9,135)                    -                (16,485)                        -
Other realized and unrealized (gains) losses,
net(2)                                                          805                   435                  2,020                     1,044
Net realized gains (losses) on periodic
settlements of interest rate swaps                            2,841                (1,069)                   640                    (1,808)
Net unrealized gains (losses) on accrued
periodic settlements of interest rate swaps                     361                   252                  1,759                       (47)
Incentive fee to affiliate                                        -                 5,255                      -                    12,412
Non-cash equity compensation expense                            369                   244                  1,019                       717
Negative (positive) component of interest
income represented by Catch-up Premium
Amortization Adjustment                                      (1,604)                2,944                 (3,101)                      (10)
Non-capitalized transaction costs and other
expense adjustments                                           2,732                   471                 11,956                     4,423
(Earnings) losses from investments in
unconsolidated entities(3)                                   25,513                (2,549)                54,284                   (27,786)
Adjusted distributable earnings from
investments in unconsolidated entities(3)                     3,271                 3,196                  8,927                     7,941
Total Adjusted Distributable Earnings                        30,793                26,441                 87,377                    74,040
Dividends on preferred stock                                  3,823                 1,941                 11,468                     5,822
Adjusted Distributable Earnings attributable
to non-controlling interests                                    508                 1,544                  1,346                     4,200
Adjusted Distributable Earnings Attributable
to Common Stockholders                               $       26,462          $     22,956          $      74,563                    64,018
Adjusted Distributable Earnings Attributable
to Common Stockholders, per share                    $         0.44          $       0.46          $        1.26              $       1.40


(1)Conformed to current period presentation.
(2)Includes realized and unrealized gains (losses) on foreign currency included
in Other, net, on the Condensed Consolidated Statement of Operations.
(3)Includes net interest income and operating expenses for certain investments
in unconsolidated entities.



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Results of Operations for the Three-Month Periods Ended September 30, 2022 and
2021

Net Income (Loss) Attributable to Common Stockholders


For the three-month period ended September 30, 2022 we had net income (loss)
attributable to common stockholders of $(33.3) million, compared to $20.6
million for the three-month period ended September 30, 2021. The reversal in our
results of operations was primarily due to net realized and unrealized losses on
our securities and loans and losses from investments in unconsolidated entities,
as compared to net gains on securities and loans and earnings from investments
in unconsolidated entities in the prior period. For the three-month period ended
September 30, 2022, such net realized and unrealized losses were partially
offset by net realized and unrealized gains on financial derivatives and an
increase in unrealized gains on other secured borrowings, at fair value and
senior notes, at fair value.

Interest Income


Interest income was $78.6 million for the three-month period ended September 30,
2022, as compared to $40.1 million for the three-month period ended
September 30, 2021. Interest income for both periods included coupon payments
received and accrued on our holdings, the net accretion and amortization of
purchase discounts and premiums on those holdings, and interest on our cash
balances, including those balances held by our counterparties as collateral.

For the three-month period ended September 30, 2022, interest income from our
credit portfolio was $66.0 million, as compared to $34.7 million for the
three-month period ended September 30, 2021. This period-over-period increase
was primarily due to the larger size of the credit portfolio for the three-month
period ended September 30, 2022, partially offset by lower average asset yields.

For the three-month period ended September 30, 2022, interest income from our
Agency RMBS was $10.8 million, as compared to $5.2 million for the three-month
period ended September 30, 2021. This period-over-period increase was due to
much higher average asset yields, partially offset by the smaller size of the
Agency portfolio, for the three-month period ended September 30, 2022.

The following table details our interest income, average holdings of
yield-bearing assets, and weighted average yield based on amortized cost for the
three-month periods ended September 30, 2022 and 2021:

                                               Credit(1)                                                       Agency(1)                                                       Total(1)
                         Interest                                                        Interest                                                        Interest
(In thousands)            Income            Average Holdings            Yield             Income            Average Holdings            Yield             Income            Average Holdings            Yield
Three-month
period ended September
30, 2022               $  66,026          $       4,379,384              6.03  %       $  10,781          $       1,397,945              3.08  %       $  76,807          $       5,777,329              5.32  %
Three-month
period ended September
30, 2021               $  34,666          $       2,168,359              6.39  %       $   5,246          $       1,474,354              1.42  %       $  39,912          $       3,642,713              4.38  %


(1)Amounts exclude interest income on cash and cash equivalents (including when
posted as margin) and long positions in U.S. Treasury securities. Also excludes
long holdings of corporate securities that represent components of certain
relative value trading strategies.

Some of the variability in our interest income and portfolio yields is due to
the Catch-up Premium Amortization Adjustment. For the three-month period ended
September 30, 2022, we had a positive Catch-up Premium Amortization Adjustment
of $1.6 million, which increased our interest income. Conversely, for the
three-month period ended September 30, 2021, we had a negative Catch-up Premium
Amortization Adjustment of $(2.9) million, which decreased our interest income.
Excluding the Catch-up Premium Amortization Adjustment, the weighted average
yield of our Agency portfolio and our total portfolio was 2.63% and 5.21%,
respectively, for the three-month period ended September 30, 2022. Excluding the
Catch-up Premium Amortization Adjustment, the weighted average yield of our
Agency portfolio and our total portfolio was 2.22% and 4.71%, respectively, for
the three-month period ended September 30, 2021.

Interest Expense


Interest expense primarily includes interest on funds borrowed under repos and
Total other secured borrowings, interest on our Senior Notes, coupon interest on
securities sold short, the related net accretion and amortization of purchase
discounts and premiums on those short holdings, and interest on our
counterparties' cash collateral held by us. Our total interest expense increased
to $42.1 million for the three-month period ended September 30, 2022, as
compared to $10.6 million for the three-month period ended September 30, 2021.
The increase in interest expense was primarily the result of significant
increases in financing rates on both our Agency and credit assets, together with
larger average secured borrowings on our credit assets and an increase in
unsecured borrowings resulting from our issuance of $210.0 million of 5.875%
Senior Notes at the end of the first quarter of 2022.

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The table below summarizes the components of interest expense for the
three-month periods ended September 30, 2022 and 2021.

                                                                       Three-Month Period Ended
(In thousands)                                              September 30, 2022         September 30, 2021
Repos and Total other secured borrowings                    $        37,195          $             8,684
Senior Notes                                                          3,917                        1,248
Securities sold short (1)                                               925                          613
Other (2)                                                                43                           59
Total                                                       $        42,080          $            10,604


(1)Amount includes the related net accretion and amortization of purchase
discounts and premiums.
(2)Primarily includes interest expense on our counterparties' cash collateral
held by us and reverse repurchase agreements with negative interest rates.

The following table summarizes our aggregate secured borrowings, including repos
and Total other secured borrowings, for the three-month periods ended
September 30, 2022 and 2021.

                                                                                  Three-Month Period Ended
                                                      September 30, 2022                                            September 30, 2021
                                                                                Average                                                       Average
Collateral for Secured                 Average             Interest             Cost of              Average             Interest             Cost of
Borrowing                             Borrowings           Expense               Funds              Borrowings           Expense               Funds
(In thousands)
Credit                              $ 3,441,741          $  31,983                  3.69  %       $ 1,577,246          $   8,060                  2.03  %
Agency RMBS                           1,229,624              5,038                  1.63  %         1,408,058                624                  0.18  %
Subtotal(1)                           4,671,365             37,021                  3.14  %         2,985,304              8,684                  1.15  %
U.S. Treasury Securities                 30,922                174                  2.23  %               441                  -                  0.10  %
Total                               $ 4,702,287          $  37,195                  3.14  %       $ 2,985,745          $   8,684                  1.15  %

(1)Excludes U.S. Treasury securities.


Among other instruments, we use interest rate swaps to hedge against the risk of
rising interest rates. If we were to include as a component of our cost of funds
the amortization of upfront payments and the actual and accrued periodic
payments on our interest rate swaps used to hedge our assets, our total average
cost of funds would decrease to 2.79% for the three-month period ended
September 30, 2022 and increase to 1.31% for the three-month period ended
September 30, 2021. Excluding the Catch-up Premium Amortization Adjustment, our
net interest margin, defined as the average yield on our portfolio of
yield-bearing targeted assets less the average cost of funds on our secured
borrowings (including amortization of upfront payments and actual and accrued
periodic payments on interest rate swaps as described above), was 2.42% and
3.40% for the three-month periods ended September 30, 2022 and 2021,
respectively. These metrics do not include costs associated with other
instruments that we use to hedge interest rate risk, such as TBAs and futures.

Base Management Fees


For the three-month period ended September 30, 2022, the gross base management
fee, which is based on total equity at the end of each quarter, was
$4.4 million, and our Manager credited us with rebates on our base management
fee of $0.4 million, resulting in a net base management fee of $4.0 million. For
the three-month period ended September 30, 2021, the gross base management fee
was $4.1 million, and our Manager credited us with rebates on our base
management fee of $0.4 million, resulting in a net base management fee of $3.7
million. For each period, the base management fee rebates related to those of
our CLO investments for which Ellington or one of its affiliates earned CLO
management fees. The increase in the net base management fee period over period
was due to a larger capital base at September 30, 2022 as compared to September
30, 2021.

Incentive Fees

In addition to the base management fee, our Manager is also entitled to a
quarterly incentive fee if our performance (as measured by adjusted net income,
as defined in the management agreement) over the relevant rolling four quarter
calculation period (including any opening loss carryforward) exceeds a defined
return hurdle for the period. No incentive fee was incurred for the three-month
period ended September 30, 2022, since our income did not exceed the prescribed
hurdle amount on a rolling four quarter basis. For the three-month period ended
September 30, 2021, we incurred an incentive fee of $5.3 million. Because our
operating results can vary materially from one period to another, incentive fee
expense can be highly variable.

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Other Investment Related Expenses


Other investment related expenses consist of servicing fees on our mortgage and
consumer loans, as well as various other expenses and fees directly related to
our financial assets and certain financial liabilities carried at fair value.
For the three-month periods ended September 30, 2022 and 2021 other investment
related expenses were $6.0 million and $2.9 million, respectively. This
period-over-period increase is primarily due to us incurring debt issuance costs
related to other secured borrowings, at fair value in the latter period as well
as an increase in investment-related expenses related to our mortgage loan and
REO portfolios.

Other Operating Expenses

Other operating expenses consist of professional fees, compensation expense
related to our dedicated or partially dedicated personnel, and various other
operating expenses necessary to run our business. Other operating expenses
exclude management and incentive fees, interest expense, and other investment
related expenses. Other operating expenses were $4.5 million for the three-month
period ended September 30, 2022 as compared to $4.4 million for the three-month
period ended September 30, 2021.

Other Income (Loss)


Other income (loss) consists of net realized and unrealized gains (losses) on
securities and loans, financial derivatives, and real estate owned, and
unrealized gains (losses) on other secured borrowings, at fair value and senior
notes, at fair value. Other, net, another component of Other income (loss),
includes rental income and income related to loan originations, as well as
realized gains (losses) on foreign currency transactions and unrealized gains
(losses) on foreign currency remeasurement.

For the three-month period ended September 30, 2022, other income (loss) was
$(26.3) million, consisting primarily of net realized and unrealized losses on
our securities and loans of $(184.0) million, partially offset by $69.3 million
of net realized and unrealized gains on our financial derivatives, $79.4 million
of net unrealized gains on our Other secured borrowings, at fair value, and $9.1
million net unrealized gains on our Senior notes, at fair value. Rapidly rising
interest rates and widening yield spreads drove net realized and unrealized
losses of $(184.0) million on our securities and loans, primarily on our Agency
RMBS, non-QM loans, non-Agency RMBS, and consumer loans and ABS backed by
consumer loans. Such losses were partially offset by net realized and unrealized
gains on short positions in U.S. Treasury securities and sovereign bonds, and
CLOs. Net realized and unrealized gains of $69.3 million on our financial
derivatives were primarily related to net realized and unrealized gains on
interest rate swaps, short positions in TBAs, futures, and forwards, which were
driven by rising interest rates during the quarter, and in the case of short
positions in TBAs, also by widening yield spreads. We recognized net unrealized
gains of $79.4 million on our Other secured borrowings, at fair value for the
three-month period ended September 30, 2022, related to borrowings on our
securitized non-QM loans. These securitized non-QM loans had net unrealized
losses of $(97.9) million, which are included in Unrealized gains (losses) on
securities and loans, net.

For the three-month period ended September 30, 2021, other income (loss) was
$6.1 million, consisting primarily of $3.1 million of net realized and
unrealized gains on our securities and loans, $3.0 million of Other, net, which
primarily comprises other non-interest income related to our loan portfolios,
and $0.6 million of net realized and unrealized gains on real estate owned.
These gains were partially offset by net realized and unrealized losses on our
financial derivatives of $(0.6) million. Net realized and unrealized gains of
$3.1 million on our securities and loans primarily resulted from net realized
and unrealized gains on CLOs and CMBS, partially offset by net realized and
unrealized losses on Agency RMBS and non-QM loans. The net realized and
unrealized gains on our CLOs and CMBS were driven by tighter yield spreads and
opportunistic sales, while the net realized and unrealized losses on Agency RMBS
were related to underperformance of lower-coupon holdings and net unrealized
losses on our non-QM loans were due to higher interest rates and wider yield
spreads during the quarter. Net realized and unrealized losses on our financial
derivatives of $(0.6) million were primarily related to net realized and
unrealized losses on TBAs and total return swaps, partially offset by net
realized and unrealized gains on interest rate swaps and futures.

Income Tax Expense (Benefit)


Income tax expense (benefit) was $(0.1) million for the three-month period ended
September 30, 2022, as compared to $(2.0) million for the three-month period
ended September 30, 2021. Income tax benefit for the three-month period ended
September 30, 2022 was related to net realized and unrealized losses on
investments held in a domestic TRS. Income tax expense for the three-month
period ended September 30, 2021 was related to net realized and unrealized gains
on investments held in a domestic TRS. As of September 30, 2022, we had a net
deferred tax asset of approximately $18.7 million, against which we took a full
allowance.



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Earnings (Losses) from Investments in Unconsolidated Entities


We have elected the fair value option for our equity investments in
unconsolidated entities. Earnings (losses) from investments in unconsolidated
entities was $(25.5) million for the three-month period ended September 30,
2022, as compared to $2.5 million for the three-month period ended September 30,
2021. The reversal in earnings from investments in unconsolidated entities
primarily relates to unrealized losses on investments in loan originators for
the three-month period ended September 30, 2022, partially offset by net
realized and unrealized gains on our investments in entities holding commercial
mortgage loans and REO, in which we co-invest with other Ellington affiliates.
Rapidly rising interest rates and widening yield spreads continued to pressure
gain-on-sale margins and origination volumes at our loan originators, which
drove the mark-to-market losses on investments in such loan originators. We also
had a mark-to-market loss on our investment in Longbridge based on the reduced
purchase price on the Longbridge Transaction, which closed on October 3, 2022.
For the three-month period ended September 30, 2021, earnings from investments
in unconsolidated entities primarily related to unrealized gains on loan
originators and unrealized gains on an equity investment in a
securitization-related risk retention vehicle.

Results of Operations for the Nine-Month Periods Ended September 30, 2022 and
2021

Net Income (Loss) Attributable to Common Stockholders


For the nine-month period ended September 30, 2022 we had net income (loss)
attributable to common stockholders of $(108.1) million, compared to $91.1
million for the nine-month period ended September 30, 2021. The reversal in our
results of operations was primarily due to realized and unrealized losses on our
securities and loans, and losses from investments in unconsolidated entities, as
compared to realized and unrealized gains on our securities and loans, and
earnings from investments in unconsolidated entities in the prior period. Such
losses for the nine-month period ended September 30, 2022 were partially offset
by an increase in net interest income, net realized and unrealized gains on
financial derivatives, an increase in unrealized gains on other secured
borrowings, at fair value, and unrealized gains on our senior notes, at fair
value.

Interest Income

Interest income was $192.4 million for the nine-month period ended September 30,
2022, as compared to $126.1 million for the nine-month period ended
September 30, 2021. Interest income for both periods included coupon payments
received and accrued on our holdings, the net accretion and amortization of
purchase discounts and premiums on those holdings, and interest on our cash
balances, including those balances held by our counterparties as collateral.

For the nine-month period ended September 30, 2022, interest income from our
credit portfolio was $159.9 million, as compared to $102.0 million for the
nine-month period ended September 30, 2021. This period-over-period increase was
primarily due to the larger size of the credit portfolio for the nine-month
period ended September 30, 2022, partially offset by lower average asset yields.

For the nine-month period ended September 30, 2022, interest income from our
Agency RMBS was $30.0 million, as compared to $23.3 million for the nine-month
period ended September 30, 2021. This period-over-period increase was due to
higher average asset yields as well as the larger size of the Agency portfolio,
for the nine-month period ended September 30, 2022.

The following table details our interest income, average holdings of
yield-bearing assets, and weighted average yield based on amortized cost for the
nine-month periods ended September 30, 2022 and 2021:

                                                Credit(1)                                                        Agency(1)                                                        Total(1)
                          Interest                                                         Interest                                                        Interest
(In thousands)             Income             Average Holdings            Yield             Income            Average Holdings            Yield             Income             Average Holdings            Yield
Nine-month
period ended September
30, 2022                $  159,876          $       3,863,208              5.52  %       $  30,028          $       1,480,110              2.70  %       $  189,904          $       5,343,318              4.74  %
Nine-month
period ended September
30, 2021                $  102,015          $       2,062,442              6.60  %       $  23,326          $       1,380,854              2.25  %       $  125,341          $       3,443,296              4.85  %


(1)Amounts exclude interest income on cash and cash equivalents (including when
posted as margin) and long positions in U.S. Treasury securities. Also excludes
long holdings of corporate securities that represent components of certain
relative value trading strategies.



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Some of the variability in our interest income and portfolio yields is due to
the Catch-up Premium Amortization Adjustment. For the nine-month periods ended
September 30, 2022 and 2021 we had a positive Catch-up Premium Amortization
Adjustment of $3.1 million and $10 thousand, respectively, which increased our
interest income. Excluding the Catch-up Premium Amortization Adjustment, the
weighted average yield of our Agency portfolio and our total portfolio was 2.43%
and 4.66%, respectively, for the nine-month period ended September 30, 2022.
Excluding the Catch-up Premium Amortization Adjustment, the weighted average
yield of our Agency portfolio and our total portfolio was 2.25% and 4.85%,
respectively, for the nine-month period ended September 30, 2021.

Interest Expense


Interest expense primarily includes interest on funds borrowed under repos and
Total other secured borrowings, interest on our Senior Notes, coupon interest on
securities sold short, the related net accretion and amortization of purchase
discounts and premiums on those short holdings, and interest on our
counterparties' cash collateral held by us. Our total interest expense increased
to $82.1 million for the nine-month period ended September 30, 2022, as compared
to $33.1 million for the nine-month period ended September 30, 2021. The
increase in interest expense was primarily the result of significant increases
in financing rates, together with larger average secured borrowings on both our
Agency and credit assets, an increase in unsecured borrowings resulting from our
issuance of $210.0 million of 5.875% Senior Notes at the end of the first
quarter of 2022, and an increase in interest expense related to our securities
sold short.

The table below summarizes the components of interest expense for the nine-month
periods ended September 30, 2022 and 2021.

                                                                        Nine-Month Period Ended
(In thousands)                                              September 30, 2022         September 30, 2021
Repos and Total other secured borrowings                    $        70,281          $            27,870
Senior Notes                                                          9,532                        3,745
Securities sold short (1)                                             2,137                          932
Other (2)                                                               171                          564
Total                                                       $        82,121          $            33,111


(1)Amount includes the related net accretion and amortization of purchase
discounts and premiums.
(2)Primarily includes interest expense on our counterparties' cash collateral
held by us and reverse repurchase agreements with negative interest rates.

The following table summarizes our aggregate secured borrowings, including repos
and Total other secured borrowings, for the nine-month periods ended
September 30, 2022 and 2021.

                                                                                   Nine-Month Period Ended
                                                      September 30, 2022                                            September 30, 2021
                                                                                Average                                                       Average
Collateral for Secured                 Average             Interest             Cost of              Average             Interest             Cost of
Borrowing                             Borrowings           Expense               Funds              Borrowings           Expense               Funds
(In thousands)
Credit                              $ 2,786,329          $  62,101                  2.98  %       $ 1,472,463          $  25,836                  2.35  %
Agency RMBS                           1,396,925              7,966                  0.76  %         1,344,165              2,034                  0.20  %
Subtotal(1)                           4,183,254             70,067                  2.24  %         2,816,628             27,870                  1.32  %
U.S. Treasury Securities                 16,619                214                  1.72  %               258                  -                  0.06  %
Total                               $ 4,199,873          $  70,281                  2.24  %       $ 2,816,886          $  27,870                  1.32  %

(1)Excludes U.S. Treasury securities.


Among other instruments, we use interest rate swaps to hedge against the risk of
rising interest rates. If we were to include as a component of our cost of funds
the amortization of upfront payments and the actual and accrued periodic
payments on our interest rate swaps used to hedge our assets, our total average
cost of funds would decrease to 2.11% and increase to 1.46% for the nine-month
periods ended September 30, 2022 and 2021, respectively. Excluding the Catch-up
Premium Amortization Adjustment, our net interest margin, defined as the average
yield on our portfolio of yield-bearing targeted assets less the average cost of
funds on our secured borrowings (including amortization of upfront payments and
actual and accrued periodic payments on interest rate swaps as described above),
was 2.55% and 3.39% for the nine-month periods ended September 30, 2022 and
2021, respectively. These metrics do not include costs associated with other
instruments that we use to hedge interest rate risk, such as TBAs and futures.

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Base Management Fees


For the nine-month period ended September 30, 2022, the gross base management
fee, which is based on total equity at the end of each quarter, was $13.9
million, and our Manager credited us with rebates on our base management fee of
$1.7 million, resulting in a net base management fee of $12.2 million. For the
nine-month period ended September 30, 2021, the gross base management fee, which
is based on total equity at the end of each quarter, was $11.1 million, and our
Manager credited us with rebates on our base management fee of $0.8 million,
resulting in a net base management fee of $10.3 million. For each period, the
base management fee rebates related to those of our CLO investments for which
Ellington or one of its affiliates earned CLO management fees. The increase in
the net base management fee period over period was due to a larger capital base
at each quarter end in 2022, as compared to the respective quarter ends in 2021.
Such increases were partially offset by the increase in the base management fee
rebates.

Incentive Fees

In addition to the base management fee, our Manager is also entitled to a
quarterly incentive fee if our performance (as measured by adjusted net income,
as defined in the management agreement) over the relevant rolling four quarter
calculation period (including any opening loss carryforward) exceeds a defined
return hurdle for the period. No incentive fee was incurred for the nine-month
period ended September 30, 2022, since for each quarter during this period, our
income did not exceed the prescribed hurdle amount on a rolling four quarter
basis. For the nine-month period ended September 30, 2021, we incurred an
incentive fee of $12.4 million. Because our operating results can vary
materially from one period to another, incentive fee expense can be highly
variable.

Other Investment Related Expenses


Other investment related expenses consist of servicing fees on our mortgage and
consumer loans, as well as various other expenses and fees directly related to
our financial assets and certain financial liabilities carried at fair value.
For the nine-month periods ended September 30, 2022 and 2021 other investment
related expenses were $20.5 million and $12.6 million, respectively. The
increase in other investment related expenses was primarily due to debt issuance
costs related to Senior notes, at fair value, that were issued during the
nine-month period ended September 30, 2022, as well as an increase in debt
issuance costs related to larger non-QM loan securitizations in the latter
period, and an increase in servicing expenses related to our larger residential
mortgage loan portfolio.

Other Operating Expenses

Other operating expenses consist of professional fees, compensation expense
related to our dedicated or partially dedicated personnel, and various other
operating expenses necessary to run our business. Other operating expenses
exclude management and incentive fees, interest expense, and other investment
related expenses. Other operating expenses were $14.5 million for the nine-month
period ended September 30, 2022 as compared to $12.7 million for the nine-month
period ended September 30, 2021. The increase in other operating expenses for
the nine-month period ended September 30, 2022 was primarily due to an increase
in compensation expense.

Other Income (Loss)

Other income (loss) consists of net realized and unrealized gains (losses) on
securities and loans, financial derivatives, and real estate owned, and
unrealized gains (losses) on other secured borrowings, at fair value and senior
notes, at fair value. Other, net, another component of Other income (loss),
includes rental income and income related to loan originations, as well as
realized gains (losses) on foreign currency transactions and unrealized gains
(losses) on foreign currency remeasurement.

For the nine-month period ended September 30, 2022, other income (loss) was
$(121.4) million, consisting primarily of net realized and unrealized losses on
our securities and loans of $(528.5) million, partially offset by $187.2 million
of net realized and unrealized gains on our financial derivatives, $202.3
million of net unrealized gains on our Other secured borrowings, at fair value,
and $16.5 million of unrealized gains on our senior notes, at fair value.
Rapidly rising interest rates and widening yield spreads drove net realized and
unrealized losses of $(528.5) million on our securities and loans, primarily
Agency RMBS, non-QM loans, non-Agency RMBS, consumer loans and ABS backed by
consumer loans. Such losses were partially offset by net realized and unrealized
gains on short positions in U.S. Treasury securities and sovereign bonds. Net
realized and unrealized gains of $187.2 million on our financial derivatives
were primarily related to net realized and unrealized gains on interest rate
swaps, short positions in TBAs, futures, and forwards, which were driven by
rising interest rates, and in the case of short positions in TBAs, also by
widening yield spreads; as well as net realized and unrealized gains on credit
default swaps on corporate bond and asset-backed indices. We recognized net
unrealized gains of $202.3 million on our Other secured borrowings, at fair
value for the nine-month period ended September 30, 2022, related to borrowings
on our securitized

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non-QM loans. These securitized non-QM loans had net unrealized losses of
$(241.1) million, which are included in Unrealized gains (losses) on securities
and loans, net.


For the nine-month period ended September 30, 2021, other income (loss) was
$32.1 million, consisting primarily of $13.6 million of net realized and
unrealized gains on our securities and loans, $10.6 million of net realized and
unrealized gains on our financial derivatives, and $9.3 million of Other, net,
which primarily comprises other non-interest income related to our loan
portfolios. Net realized and unrealized gains of $13.6 million on our securities
and loans primarily resulted from net realized and unrealized gains on CMBS and
CLOs, partially offset by net realized and unrealized losses on Agency RMBS. The
net realized and unrealized gains on our CMBS and CLOs were driven by tighter
yield spreads, while the net realized and unrealized losses in the Agency
portfolio were due to wider yield spreads. Net realized and unrealized gains of
$10.6 million on our financial derivatives were primarily related to net
realized and unrealized gains on interest rate swaps, short TBAs, futures, and
forwards, as long-term interest rates increased during the period, partially
offset by net realized and unrealized losses on CDS on corporate bond indices
and total return swaps.

Income Tax Expense (Benefit)

Income tax expense (benefit) was $(14.9) million for the nine-month period ended
September 30, 2022, as compared to $3.1 million for the nine-month period ended
September 30, 2021. Income tax benefit for the nine-month period ended
September 30, 2022 was related to net realized and unrealized losses on
investments held in a domestic TRS. Income tax expense for the nine-month period
ended September 30, 2021 was related to net realized and unrealized gains on
investments held in a domestic TRS. As of September 30, 2022, we had a net
deferred tax asset of approximately $18.7 million against which we took a full
allowance.

Earnings (Losses) from Investments in Unconsolidated Entities


We have elected the fair value option for our equity investments in
unconsolidated entities. Earnings (losses) from investments in unconsolidated
entities was $(54.3) million for the nine-month period ended September 30, 2022,
as compared to $27.8 million for the nine-month period ended September 30, 2021.
The reversal in earnings from investments in unconsolidated entities primarily
relates to unrealized losses on investments in loan originators for the
nine-month period ended September 30, 2022, partially offset by net realized and
unrealized gains on our investments in entities holding commercial mortgage
loans and REO, in which we co-invest with other Ellington affiliates. Rapidly
rising interest rates and widening yield spreads pressured gain-on-sale margins
and origination volumes at our loan originators, which drove the mark-to-market
losses on our investments in such loan originators. We also had mark-to-market
losses on our investment in Longbridge, including a mark-to-market loss based on
the reduced purchase price on the Longbridge Transaction, which closed on
October 3, 2022. For the nine-month period ended September 30, 2021, earnings
from investments in unconsolidated entities primarily related to unrealized
gains on loan originators and unrealized gains on an equity investment in a
securitization-related risk retention vehicle.

Liquidity and Capital Resources


Liquidity refers to our ability to generate and obtain adequate amounts of cash
to meet our requirements, including repaying our borrowings, funding and
maintaining positions in our targeted assets, making distributions in the form
of dividends, and other general business needs. Our short-term (the 12 months
following period end) and long-term (beyond 12 months from period end) liquidity
requirements include acquisition costs for assets we acquire, payment of our
base management fee and incentive fee, compliance with margin requirements under
our repos, reverse repos, and financial derivative contracts, repayment of repo
borrowings and other secured borrowings to the extent we are unable or unwilling
to extend such borrowings, payment of our general operating expenses, payment of
interest payments on our Senior Notes, and payment of our dividends. Our capital
resources primarily include cash on hand, cash flow from our investments
(including principal and interest payments received on our investments and
proceeds from the sale of investments), borrowings under repos and other secured
borrowings, and proceeds from equity and debt offerings. We expect that these
sources of funds will be sufficient to meet our short-term and long-term
liquidity needs.

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The following summarizes our borrowings under repos by remaining maturity:

(In thousands)                           September 30, 2022                    December 31, 2021
                                    Outstanding                           Outstanding
Remaining Days to Maturity           Borrowings         % of Total         Borrowings         % of Total
30 Days or Less                  $        497,574           17.2  %    $        557,499           22.5  %
31 - 60 Days                              471,659           16.3  %             356,594           14.4  %
61 - 90 Days                              189,745            6.6  %             251,343           10.2  %
91 - 120 Days                           1,216,722           42.0  %             164,403            6.7  %
121 - 150 Days                             93,579            3.2  %             279,268           11.3  %
151 - 180 Days                             84,819            2.9  %             159,687            6.5  %
181 - 364 Days                            340,921           11.8  %             570,694           23.1  %
> 364 Days                                      -              -  %             130,275            5.3  %
                                 $      2,895,019          100.0  %    $      2,469,763          100.0  %

Repos involving underlying investments that were sold prior to period end for
settlement following period end, are shown using their contractual maturity
dates even though such repos may be expected to be terminated early upon
settlement of the sale of the underlying investment.


The amounts borrowed under our repo agreements are generally subject to the
application of "haircuts." A haircut is the percentage discount that a repo
lender applies to the market value of an asset serving as collateral for a repo
borrowing, for the purpose of determining whether such repo borrowing is
adequately collateralized. As of September 30, 2022, the weighted average
contractual haircut applicable to the assets that serve as collateral for our
outstanding repo borrowings was 25.7% with respect to credit assets, 5.3% with
respect to Agency RMBS assets, and 18.7% overall. As of December 31, 2021 these
respective weighted average contractual haircuts were 22.4%, 5.4%, and 12.1%.
The increase in the weighted average contractual haircut on our overall
portfolio is primarily due to higher haircuts on repo borrowings related to our
Credit portfolio assets at September 30, 2022 as compared to December 31, 2021.

We expect to continue to borrow funds in the form of repos as well as other
similar types of financings. The terms of our repo borrowings are predominantly
governed by master repurchase agreements, which generally conform to the terms
in the standard master repurchase agreement as published by the Securities
Industry and Financial Markets Association as to repayment and margin
requirements. In addition, each lender may require that we include supplemental
terms and conditions to the standard master repurchase agreement. Typical
supplemental terms and conditions include the addition of or changes to
provisions relating to margin calls, net asset value requirements, cross default
provisions, certain key person events, changes in corporate structure, and
requirements that all controversies related to the repurchase agreement be
litigated in a particular jurisdiction. These provisions may differ for each of
our repo lenders.

As of September 30, 2022 and December 31, 2021, we had $2.9 billion and $2.5
billion, respectively, of borrowings outstanding under our repos. As of
September 30, 2022, the remaining terms on our repos ranged from 3 days to 355
days, with a weighted average remaining term of 106 days. Our repo borrowings
were with a total of 23 counterparties as of September 30, 2022. As of
September 30, 2022, our repos had a weighted average borrowing rate of 4.00%. As
of September 30, 2022, our repos had interest rates ranging from 0.20% to 6.89%.
As of December 31, 2021, the remaining terms on our repos ranged from 3 days to
638 days, with a weighted average remaining term of 134 days. Our repo
borrowings were with a total of 23 counterparties as of December 31, 2021. As of
December 31, 2021, our repos had a weighted average borrowing rate of 0.82%. As
of December 31, 2021, our repos had interest rates ranging from 0.10% to 3.75%.
Investments transferred as collateral under repos had an aggregate fair value of
$3.4 billion and $2.8 billion as of September 30, 2022 and December 31, 2021,
respectively.

It is expected that amounts due upon maturity of our repos will be funded
primarily through the roll/re-initiation of repos and, if we are unable or
unwilling to roll/re-initiate our repos, through free cash and proceeds from the
sale of securities.

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The following table details total outstanding borrowings, average outstanding
borrowings, and the maximum outstanding borrowings at any month end for each
quarter under repos for the past twelve quarters:

                                                  Borrowings                 Average              Maximum Borrowings
                                                Outstanding at              Borrowings            Outstanding at Any
Quarter Ended                                     Quarter End              Outstanding                 Month End
                                                                           (In thousands)
September 30, 2022                            $      2,895,019          $     2,877,500          $        2,912,264
June 30, 2022                                        2,865,222                2,590,120                   2,865,222
March 31, 2022                                       2,717,638                2,533,978                   2,717,638
December 31, 2021                                    2,469,763                2,187,363                   2,469,763
September 30, 2021                                   2,105,836                1,958,411                   2,175,918
June 30, 2021                                        1,916,749                1,971,441                   2,062,580
March 31, 2021                                       1,909,511                1,736,912                   1,909,511
December 31, 2020                                    1,496,931                1,408,935                   1,496,931
September 30, 2020                                   1,439,984                1,368,191                   1,551,147
June 30, 2020(1)                                     1,294,549                1,520,985                   1,542,577
March 31, 2020(2)                                    2,034,225                2,440,982                   2,485,496
December 31, 2019(3)                                 2,445,300                2,119,394                   2,445,300


(1)During this quarter, we continued to lower leverage and improve our liquidity
given the uncertainty as a result of the COVID-19 pandemic.
(2)In March 2020, in response to significant volatility and heightened risks in
the financial markets as a result of the spread of COVID-19, we significantly
reduced our outstanding borrowings to lower leverage and increase our liquidity.
(3)At the end of 2019 we increased the size of both our credit and Agency
portfolios which we subsequently financed through repos.

In addition to our borrowings under repos, we have entered into various other
types of transactions to finance certain of our investments, including non-QM
loans and REO, commercial mortgage loans, and consumer loans and ABS backed by
consumer loans; such transactions are accounted for as collateralized
borrowings. As of September 30, 2022 and December 31, 2021, we had outstanding
borrowings related to such transactions in the amount of $1.7 billion and $1.1
billion, respectively, which is reflected under the captions "Other secured
borrowings" and "Other secured borrowings, at fair value" on the Consolidated
Balance Sheet. As of September 30, 2022, the fair value of non-QM loans and ABS
backed by consumer loans collateralizing our Total other secured borrowings was
$1.8 billion. As of December 31, 2021, the fair value of non-QM loans, consumer
loans and ABS backed by consumer loans, and small balance commercial mortgage
loans collateralizing our Total other secured borrowings was $1.2 billion. See
Note 11 in the notes to our consolidated financial statements for further
information on our other secured borrowings.

As of September 30, 2022 and December 31, 2021, we had $210.0 million and $86.0
million outstanding of Senior Notes. The $86 million of 5.50% Senior Notes were
repaid at maturity in September 2022, and the $210 million of 5.875% Senior
Notes mature in April 2027. See Note 11 in the notes to our consolidated
financial statements for further detail on the Senior Notes.

As of September 30, 2022, we had an aggregate amount at risk under our repos
with 22 counterparties of approximately $593.3 million, and as of December 31,
2021, we had an aggregate amount at risk under our repos with 22 counterparties
of approximately $353.2 million. Amounts at risk represent the excess, if any,
for each counterparty of the fair value of collateral held by such counterparty
over the amounts outstanding under repos. If the amounts outstanding under repos
with a particular counterparty are greater than the collateral held by the
counterparty, there is no amount at risk for the particular counterparty. Amount
at risk as of both September 30, 2022 and December 31, 2021 does not include
approximately $0.6 million and $4.0 million, respectively, of net accrued
interest receivable, which is defined as accrued interest on securities held as
collateral less interest payable on cash borrowed.

Our derivatives are predominantly subject to bilateral master trade agreements
or clearing in accordance with the Dodd-Frank Act. We may be required to deliver
or receive cash or securities as collateral upon entering into derivative
transactions. Changes in the relative value of derivative transactions may
require us or the counterparty to post or receive additional collateral.
Entering into derivative contracts involves market risk in excess of amounts
recorded on our balance sheet. In the case of cleared derivatives, the
clearinghouse becomes our counterparty and the future commission merchant acts
as an intermediary between us and the clearinghouse with respect to all facets
of the related transaction, including the posting and receipt of required
collateral.

As of September 30, 2022, we had an aggregate amount at risk under our
derivative contracts, excluding TBAs, with nine

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counterparties of approximately $44.1 million. We also had $37.1 million of
initial margin for cleared over-the-counter, or "OTC," derivatives posted to
central clearinghouses as of that date. As of December 31, 2021, we had an
aggregate amount at risk under our derivatives contracts, excluding TBAs, with
eight counterparties of approximately $18.5 million. We also had $16.2 million
of initial margin for cleared OTC derivatives posted to central clearinghouses
as of that date. Amounts at risk under our derivatives contracts represent the
excess, if any, for each counterparty of the fair value of our derivative
contracts plus our collateral held directly by the counterparty less the
counterparty's collateral held by us. If a particular counterparty's collateral
held by us is greater than the aggregate fair value of the financial derivatives
plus our collateral held directly by the counterparty, there is no amount at
risk for the particular counterparty.

We purchase and sell TBAs and Agency pass-through certificates on a when-issued
or delayed delivery basis. The delayed delivery for these securities means that
these transactions are more prone to market fluctuations between the trade date
and the ultimate settlement date, and therefore are more vulnerable, especially
in the absence of margining arrangements with respect to these transactions, to
increasing amounts at risk with the applicable counterparties. As of
September 30, 2022, in connection with our forward settling TBA and Agency
pass-through certificates, we had an aggregate amount at risk with six
counterparties of approximately $6.1 million. As of December 31, 2021, in
connection with our forward settling TBA and Agency pass-through certificates,
we had an aggregate amount at risk with ten counterparties of approximately $1.0
million. Amounts at risk in connection with our forward settling TBA and Agency
pass-through certificates represent the excess, if any, for each counterparty of
the net fair value of the forward settling transactions plus our collateral held
directly by the counterparty less the counterparty's collateral held by us. If a
particular counterparty's collateral held by us is greater than the aggregate
fair value of the forward settling transactions plus our collateral held
directly by the counterparty, there is no amount at risk for the particular
counterparty.

We held cash and cash equivalents of approximately $175.2 million and $92.7
million
as of September 30, 2022 and December 31, 2021, respectively.


On June 13, 2018, our Board of Directors approved the adoption of a share
repurchase program under which we are authorized to repurchase up to 1.55
million shares of common stock, or the "Common Share Repurchase Program." The
Common Share Repurchase Program, which is open-ended in duration, allows us to
make repurchases from time to time on the open market or in negotiated
transactions, including under 10b5-1 plans. Repurchases are at our discretion,
subject to applicable law, share availability, price and our financial
performance, among other considerations. In addition to making discretionary
repurchases, we from time to time use 10b5-1 plans to increase the number of
trading days available to implement these repurchases. During the nine-month
periods ended September 30, 2022, we repurchased 128,184 common shares at an
average price per share of $12.94 and a total cost of $1.7 million. From
inception of the Common Share Repurchase Program through November 4, 2022, we
repurchased 830,149 common shares at an average price per share of $13.29 and a
total cost of $11.0 million, and have authorization to repurchase an additional
719,851 common shares.

On February 21, 2021, our Board of Directors approved the adoption of a share
repurchase program under which we are authorized to repurchase up to $30.0
million of preferred stock, or the "Preferred Share Repurchase Program." The
Preferred Share Repurchase Program, which is open-ended in duration, allows us
to make repurchases from time to time on the open market or in negotiated
transactions, including under 10b5-1 plans. Repurchases are at our discretion,
subject to applicable law, share availability, price and our financial
performance, among other considerations. We have not yet repurchased any shares
of preferred stock under the Preferred Share Repurchase Program.

We may declare dividends based on, among other things, our earnings, our
financial condition, the REIT qualification requirements of the Internal Revenue
Code of 1986, as amended, our working capital needs and new opportunities. The
declaration of dividends to our stockholders and the amount of such dividends
are at the discretion of our Board of Directors.

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The following table sets forth the dividend distributions authorized by the
Board of Directors payable to common stockholders and holders of Convertible
Non-controlling Interest Units (as defined in Note 2 of the consolidated
financial statements) for the nine-month periods ended September 30, 2022 and
2021:

Nine-Month Period Ended September 30, 2022
Declaration Date                        Dividend Per Share           Dividend Amount                Record Date                    Payment Date
                                                                     (In thousands)
2022:

September 8, 2022                      $             0.15          $       
  9,189             September 30, 2022               October 25, 2022
August 4, 2022                                       0.15                     9,186               August 31, 2022               September 26, 2022
July 8, 2022                                         0.15                     9,108                July 29, 2022                 August 25, 2022
June 7, 2022                                         0.15                     9,108                June 30, 2022                  July 25, 2022
May 2, 2022                                          0.15                     9,121                May 31, 2022                   June 27, 2022
April 7, 2022                                        0.15                     9,121               April 29, 2022                   May 25, 2022
March 7, 2022                                        0.15                     9,064               March 31, 2022                  April 25, 2022
February 7, 2022                                     0.15                     8,730              February 28, 2022                March 25, 2022
January 7, 2022                                      0.15                     8,727              January 31, 2022               February 25, 2022

2021:


September 8, 2021                                    0.15                     7,855             September 30, 2021               October 25, 2021
August 4, 2021                                       0.15                     7,691               August 31, 2021               September 27, 2021
July 8, 2021                                         0.15                     7,614                July 30, 2021                 August 25, 2021
June 7, 2021                                         0.15                     6,669                June 30, 2021                  July 26, 2021
May 6, 2021                                          0.15                     6,669                May 28, 2021                   June 25, 2021
April 4, 2021                                        0.14                     6,224               April 30, 2021                   May 25, 2021
March 5, 2021                                        0.10                     4,446               March 31, 2021                  April 26, 2021
February 5, 2021                                     0.10                     4,444              February 26, 2021                March 25, 2021
January 8, 2021                                      0.10                     4,444              January 29, 2021               February 25, 2021


On October 6, 2022, the Board of Directors approved a dividend in the amount of
$0.15 per share of common stock payable on November 25, 2022 to stockholders of
record as of October 31, 2022. On November 7, 2022, the Board of Directors
approved a dividend in the amount of $0.15 per share of common stock payable on
December 27, 2022 to stockholders of record as of November 30, 2022.

The following table sets forth the dividend distributions authorized by the
Board of Directors during the nine-month periods ended September 30, 2022 and
2021 and payable to holders of our preferred stock:

                                               Dividend Per
Declaration Date                                  Share               Dividend Amount                Record Date                   Payment Date
                                                                      (In thousands)
Series A Preferred Stock:
2022:
September 8, 2022                            $    0.421875          $          1,941             September 30, 2022              October 31, 2022
June 7, 2022                                      0.421875                     1,941                June 30, 2022                 August 1, 2022
March 7, 2022                                     0.421875                     1,941               March 31, 2022                   May 2, 2022
2021:

July 8, 2021                                      0.421875                     1,941                July 19, 2021                  July 30, 2021
April 4, 2021                                     0.421875                     1,941               April 19, 2021                 April 30, 2021
January 8, 2021                                   0.421875                     1,941              January 19, 2021               February 1, 2021

Series B Preferred Stock:
2022:
September 8, 2022                            $    0.390625          $          3,680             September 30, 2022              October 31, 2022
June 7, 2022                                      0.390625                     3,680                June 30, 2022                 August 1, 2022
March 7, 2022                                     0.390625                     3,680               March 31, 2022                   May 2, 2022



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On August 6, 2021, we commenced the Common ATM Program by entering into equity
distribution agreements with third party sales agents under which we are
authorized to offer and sell up to 10.0 million shares of common stock from time
to time. During the nine-month period ended September 30, 2022, we issued
3,085,642 shares of common stock under the Common ATM Program, which provided
$53.2 million of net proceeds after $0.8 million of commissions and offering
costs. From commencement of the Common ATM Program through November 4, 2022, we
have issued 4,635,542 shares of common stock under this program.

On January 20, 2022, we commenced the Preferred ATM Program by entering into
equity distribution agreements with third party sales agents under which we are
authorized to offer and sell up to $100.0 million of Series A Preferred Stock
and/or Series B Preferred Stock from time to time. During the nine-month period
ended September 30, 2022, we issued 20,421 shares of Series B Preferred Stock,
which provided $0.5 million of net proceeds after $23 thousand of commissions
and offering costs. From commencement of the Preferred ATM Program through
November 4, 2022, we have issued 20,421 shares of preferred stock under this
program.

As previously disclosed, on February 18, 2022, we entered into an agreement with
Home Point to purchase the Additional Equity Interest in Longbridge. On October
3, 2022 we paid Home Point $38.9 million in cash to complete the purchase of the
Additional Equity Interest.

For the nine-month period ended September 30, 2022, our operating activities
provided net cash in the amount of $70.2 million and our investing activities
used net cash in the amount of $1.586 billion. Our repo activity used to finance
many of our investments (including repayments of amounts borrowed under our
repos) provided net cash of $676.5 million. We received $872.6 million in
proceeds from the issuance of Total other secured borrowings. We used $27.1
million for principal payments on our Total other secured borrowings. Thus our
operating and investing activities, when combined with our repo financings and
Other secured borrowings (net of repayments), used net cash of $6.4 million for
the nine-month period ended September 30, 2022. We received proceeds from the
issuance of Senior notes, at fair value of $206.4 million, net of debt issuance
costs, proceeds from the issuance of common and preferred stock, net of
underwriters' discounts and commissions, agent commissions, and offering costs
paid, of $53.1 million, and contributions from non-controlling interests of
$11.9 million. We used $91.5 million to pay dividends, $16.2 million for
distributions to non-controlling interests (our joint venture partners), $86.0
million for repayment of senior notes, and $1.7 million to repurchase common
stock. As a result there was an increase in our cash holdings of $82.4 million,
from $92.8 million as of December 31, 2021 to $175.2 million as of September 30,
2022.

For the nine-month period ended September 30, 2021, our operating activities
provided net cash in the amount of $58.8 million and our investing activities
used net cash in the amount of $1.222 billion. Our repo activity used to finance
many of our investments (including repayments of amounts borrowed under our
repos) provided net cash of $620.1 million. We received $599.3 million in
proceeds from the issuance of Total other secured borrowings and we used $137.2
million for principal payments on our Total other secured borrowings. Thus our
operating and investing activities, when combined with our repo financings and
Other secured borrowings (net of repayments), used net cash of $81.4 million for
the nine-month period ended September 30, 2021. We received proceeds from the
issuance of common stock, net of underwriters' discounts and commissions and
offering costs paid, of $141.1 million, and we received contributions from
non-controlling interests of $10.7 million. We used $58.5 million to pay
dividends and $20.3 million for distributions to non-controlling interests (our
joint venture partners). As a result there was a decrease in our cash holdings
of $8.0 million, from $111.8 million as of December 31, 2020 to $103.8 million
as of September 30, 2021.

Based on our current portfolio, amount of free cash on hand, debt-to-equity
ratio, and current and anticipated availability of credit, we believe that our
capital resources will be sufficient to enable us to meet anticipated short-term
and long-term liquidity requirements. However, the unexpected inability to
finance our Agency RMBS portfolio would create a serious short-term strain on
our liquidity and would require us to liquidate much of that portfolio, which in
turn would require us to restructure our portfolio to maintain our exclusion
from registration as an investment company under the Investment Company Act and
to maintain our qualification as a REIT. Steep declines in the values of our
credit assets financed using repos, or in the values of our derivative
contracts, would result in margin calls that would significantly reduce our free
cash position. Furthermore, a substantial increase in prepayment rates on our
assets financed by repos could cause a temporary liquidity shortfall, because we
are generally required to post margin on such assets in proportion to the amount
of the announced principal paydowns before the actual receipt of the cash from
such principal paydowns. If our cash resources are at any time insufficient to
satisfy our liquidity requirements, we may have to sell assets or issue
additional debt or equity securities.

Although we may from time to time enter into financing arrangements that limit
our leverage, our investment guidelines do not limit the amount of leverage that
we may use, and we believe that the appropriate leverage for the particular
assets we hold depends on the credit quality and risk of those assets, as well
as the general availability and terms of stable and reliable financing for those
assets.

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Table of Contents

Contractual Obligations and Commitments


We are a party to a management agreement with our Manager. Pursuant to that
agreement, our Manager is entitled to receive a base management fee, an
incentive fee, reimbursement of certain expenses and, in certain circumstances,
a termination fee. Such fees and expenses do not have fixed and determinable
payments. For a description of the management agreement provisions, see Note 13
to our consolidated financial statements.

We have numerous contractual obligations and commitments related to our
outstanding borrowings (see Note 11 of the notes to our consolidated financial
statements) and related to our financial derivatives (see Note 8 of the notes to
our consolidated financial statements).

See Note 21 of the notes to our consolidated financial statements for further
detail on our other contractual obligations and commitments.

Off-Balance Sheet Arrangements


As of September 30, 2022, we did not have any material relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes. Further, we have not
guaranteed any obligations of unconsolidated entities nor do we have any
commitment to provide funding to any such entities that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or resources that would be material to an investor in our
securities. As such, we are not materially exposed to any market, credit,
liquidity, or financing risk that could arise if we had engaged in such
relationships.

At September 30, 2022 we have not entered into any repurchase agreements for
which delivery of the borrowed funds is not scheduled until after period end.

Inflation

Virtually all of our assets and liabilities are interest rate sensitive in
nature. As a result, interest rates and other factors generally influence our
performance more than does inflation. Our activities and balance sheet are
measured with reference to historical cost and/or fair market value without
considering inflation.


However, elevated, long-term inflation could adversely impact the performance of
our investment portfolio, or the prices of our investments, or both. For
example, if higher inflation is not matched by an increase in wages, inflation
could cause the real income of the borrowers on our residential and consumer
loans to decline. In addition, in the case of borrowers on our commercial
mortgage loans, net cash flow could decline if rents and/or expense
reimbursements do not increase in kind with higher inflation.

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