Cherry Hill Mortgage Investment Stock

Cherry Hill Mortgage Investment Corporation operates as a residential real estate finance company.

The company focuses on acquiring, investing in and managing residential mortgage assets in the United States. The company is externally managed by Cherry Hill Mortgage Management, LLC.

The company operates its business through the following segments: Investments in RMBS; Investments in Servicing Related Assets; and All Other.

Investments in RMBS

As of December 31, 2022, the company’s investments in RMBS consist solely of Agency RMBS. The company’s investments in RMBS may also include, from time to time, any of the following: Collateralized mortgage obligations (CMOs), which are either loss share securities issued by Fannie Mae or Freddie Mac; or non-Agency RMBS, sometimes called private label MBS, which are structured debt instruments representing interests in specified pools of mortgage loans subdivided into multiple classes, or tranches, of securities, with each tranche having different maturities or risk profiles and different ratings by one or more nationally recognized statistical rating organizations (NRSRO). All of the company’s RMBS are classified as available-for-sale and are, therefore, reported at fair value).

Investments in Servicing Related Assets

MSRs

Aurora’s portfolio of Servicing Related Assets consists of Federal National Mortgage Association (Fannie Mae) and Freddie Mac MSRs.

Targeted Asset Classes

The company’s primary targeted asset classes consist of residential mortgage-backed securities (RMBS), including Agency RMBS (RMBS issued by an Agency or for which an a U.S. Government agency, such as Government National Mortgage Association (Ginnie Mae), or a GSE (Agency) guarantees payments of principal and interest on the securities), residential mortgage pass-through certificates, CMOs (collateralized mortgage obligation) and TBAs (to-be-announced); and Servicing Related Assets consisting of mortgage servicing right (MSRs) and Excess MSRs (an interest in an MSR, representing a portion of the interest payment collected from a pool of mortgage loans, net of a basic servicing fee paid to the mortgage servicer).

Strategy

The key elements of the company’s strategy include allocating a substantial portion of its equity capital to the acquisition of Servicing Related Assets; the creation of intercompany Excess MSRs from MSRs acquired by its mortgage servicing subsidiary, Aurora; acquiring RMBS on a leveraged basis; and opportunistically mitigating its prepayment and interest rate and, to a lesser extent, credit risk by using a variety of hedging instruments and, where applicable and available, recapture agreements.

The primary focus of the company’s Servicing Related Asset strategy is the acquisition of MSRs from servicers on a bulk and/or flow purchase basis on terms to be negotiated in the future. The company expects that its investments in Excess MSRs will be through the creation of intercompany Excess MSRs from the MSRs so acquired.

The company’s RMBS strategy focuses primarily on the acquisition and ownership of Agency RMBS that are whole-pool, residential mortgage pass-through certificates. However, from time to time, it invests in CMOs, including IOs and inverse IOs, primarily to take advantage of particularly attractive prepayment-related or structural opportunities in the RMBS markets. In addition to investing in specific pools of Agency RMBS, the company utilizes TBAs. Pursuant to these TBA transactions, the company agrees 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.

The company’s RMBS strategy includes selective investments in current issue, private label non-Agency RMBS and GSE risk-sharing securities. GSE risk-sharing securities are general obligations of Fannie Mae and Freddie Mac that provide credit protection with respect to defaults on reference pools of loans. The extent of its investments in GSE risk-sharing securities is limited by the gross income and asset tests applicable to REITs. The company also may invest opportunistically in legacy non-Agency RMBS issued during or after 2010. Non-Agency RMBS are subject to risk of default, among other risks, and could result in greater losses.

The company’s overall strategy, and each category of assets within that strategy, is adaptable to changing market environments, subject to compliance with the asset, income and other tests and conditions that it must satisfy to maintain its qualification as a REIT and maintain an exception to the definitions of an investment company under the Investment Company Act (or otherwise not fall within those definitions).

Tax Status

The company has elected to be taxed as a real estate investment trust (REIT) under the Internal Revenue Code of 1986, as amended (the Code). The company expects to continue to qualify to be treated as a REIT. The U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pays tax at regular corporate income tax rates to the extent that it annually distributes less than 100% of its taxable income. The company’s taxable REIT subsidiary, CHMI Solutions, Inc. (Solutions), and its wholly-owned subsidiary, Aurora, are subject to the U.S. federal income taxes on their taxable income.

History

Cherry Hill Mortgage Investment Corporation was founded in 2012. The company was incorporated in Maryland in 2012 and commenced its operations in 2013.