• The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to remain qualified as a REIT. • Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities. • Qualifying as a REIT involves highly technical and complex provisions of the Code. • The tax on prohibited transactions limits our ability to engage in certain transactions. • Certain financing activities may subject us to U.S. federal income tax and could have negative tax consequences for our stockholders. • Uncertainty exists with respect to the treatment of our TBAs for purposes of the REIT asset and income tests. • Dividends payable by REITs generally receive different tax treatment than dividend income from regular corporations. • New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to remain qualified as a REIT. Counterparty Risks • The soundness of our counterparties and other financial institutions could adversely affect us. • We are subject to counterparty risk and may be unable to seek indemnity or require counterparties to repurchase residential whole loans if they breach representations and warranties, which could cause us to suffer losses. • Our rights under our repurchase and derivative agreements are subject to the effects of the bankruptcy laws in the event of the bankruptcy or insolvency of us or our lenders. Investment and Market Related Risks • We may experience declines in the market value of our assets. • Investments in MSR may expose us to additional risks. • A prolonged economic slowdown or declining real estate values could impair the assets we may own. • An increase in interest rates may adversely affect the market value of our interest earning assets and, therefore, also our book value. • Actions by the Federal Reserve may affect the price and returns of our assets. • We invest in securities that are subject to mortgage credit risk. • Our investments in real estate and other securities are subject to changes in credit spreads as well as available market liquidity, which could adversely affect our ability to realize gains on the sale of such investments. • Geographic concentration exposes investors to greater risk of default and loss. • Inadequate property insurance coverage could have an adverse impact on our operating results. • Our assets may become non-performing or sub-performing assets in the future. • We may be required to repurchase residential mortgage loans or indemnify investors if we breach representations and warranties. • Our and our third party service providers’ and servicers’ due diligence of potential assets may not reveal all of the weaknesses in such assets. • When we foreclose on an asset, we may come to own the property securing the loan. • Proposals to acquire mortgage loans by eminent domain may adversely affect the value of our assets. • Subordinated tranches of non-Agency mortgage-backed securities are subordinate in right of payment to more senior securities. • Our hedging strategies may be costly, and may not hedge our risks as intended. • We are subject to risks of loss from weather conditions, man-made or natural disasters and the direct and indirect effects of climate change. Operational and Cybersecurity Risks • Inaccurate models or the data used by models may expose us to risk. • We are highly dependent on information systems and networks, many of which are operated by third parties, and any failure of these systems or networks could materially and adversely affect our business. • Cyberattacks or other information security breaches could adversely affect our business, reputation and financial condition. • We depend on third party service providers, including mortgage loan servicers and sub-servicers, for a variety of services related to our business. • Our investments in residential whole loans subject us to servicing-related risks. • The performance of loans underlying our MSR related assets may be adversely affected by the performance of the related mortgage servicer. • An increase or decrease in prepayment rates may adversely affect our profitability. • We are subject to reinvestment risk. • Competition may affect availability and pricing of our target assets. • We may enter into new lines of business, acquire other companies or engage in other strategic initiatives. • Some of our investments, including those related to non-prime loans, involve credit risk. • If we are unable to attract, motivate and retain qualified talent, including our key personnel, it could materially and adversely affect us. Other Risks • The market price and trading volume of our shares of common stock may be volatile. • We may change our policies without stockholder approval. ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1A. Risk Factors 14
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