Portfolio

Creating a Diversified Portfolio of Residential Mortgage Assets

At Chimera Investment Corporation, our primary business objective is to provide attractive returns to our shareholders over the long term. Engaging in securitization transactions is at the core of how we build our diverse portfolio.

Our Portfolio Asset Types

Residential Mortgage Loans

A large portion of our GAAP portfolio is residential mortgage loans. We use securitizations to finance the acquisition of residential mortgage loans by selling senior notes to third parties and retaining subordinate notes issued in such transactions. Credit performance of our residential mortgage loan portfolio has been stable given home price appreciation and the fully seasoned nature of our loans.

As of September 30, 2024

Percentage of Total Portfolio

RMBS

We invest in RMBS issued by third-parties or issued or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac (Agency RMBS). We intend to manage this portion of the portfolio for both return on equity as well as for added liquidity to support our credit portfolio. Our allocation to this segment will vary based upon our opinion of relative value and liquidity.

CMBS

Our Agency CMBS assets are primarily Ginnie Mae Construction Loan and Ginnie Mae Permanent Loan Certificates with prepayment protection. This protection prolongs the asset duration and allows for us to more easily manage interest rate risk compared to RMBS.

Our Funding Strategy

We have a funding strategy to enhance potential returns on our investment portfolio. We borrow money, or use leverage, to finance the acquisition of mortgage assets. To do this, we use several funding sources to finance our investments including repurchase agreements (repo), warehouse lines and convertible debt, and most importantly, asset securitization.

Securitization Transactions as a Funding Strategy

A significant portion of our funding relies on securitization transactions, which provide long-term stable financing and structural leverage to enhance returns and mitigate risk.

In these transactions, we create senior and subordinate notes. We sell the senior bonds to a third party and we retain the subordinate bonds. Our subordinate bonds include the first-loss bonds that are usually subject to the risk retention rules.

We also generally retain a call option, which we may exercise to liquidate the original securitization trust. This allows us to receive the remaining collateral and securitize the remaining collateral in a new securitization to reduce the related financing costs or to increase the structural leverage.

View Consolidated Loan Securitization

The hypothetical diagram below shows the typical structure of our securitization transactions.

$100MM Non<span>&#8209;</span>Agency Mortgage Bond or Loans next step Deposit
CIM buys $100MM Non-Agency mortgage bonds or loans from dealer.
$100MM Trust (Non-Agency RMBS Collateral) next step Principal & Interest
next step Losses & Interest

CIM deposits the bond or loans into a trust.

The trust issues bonds backed by the cashflow of the underlying bond or loads.

$75MM Senior A Note Sold to 3rd Party
$25MM Subordinate B Note Retained by CIM next step Recourse Financing

The Senior A note receives all principal from the collateral and interest on its $75MM bond until the bond is paid off.

The Subordinate B note receives interest on its $25MM bond, absorbs losses and starts to receive principal only after the Senior A note is paid in full.

3x Non-Recourse Leverage.

$15MM Repo Financing pf Subordinate B Note
$10MM Equity of Subordinate B Note

60% of the Subordinate B note is financed through a repurchase agreement.

The remaining 40% of the Subordinate B note is equity.

1.5x Recourse Leverage.

Our Five Securitization Programs

"R" Program

The "R" program is our most active securitization program. This program securitizes seasoned reperforming mortgage loans in a Real Estate Mortgage Investment Conduit ("REMIC") transaction. These securitizations are subject to the Risk Retention Rules and we retain subordinate securities to meet risk retention obligations.

"J" Program

The "J" program securitizes jumbo prime residential mortgage loans. The securities issued in this program are rated by one or more nationally recognized statistical ratings organizations. The loans in this program are "qualified mortgage loans" and we typically do not retain securities related to this program.

"INV" Program

The "INV" program securitizes Agency-eligible investor mortgage loans. The securities issued in this program are rated by one or more nationally recognized statistical ratings organizations. These securitizations are subject to the Risk Retention Rules and we retain subordinate securities to meet risk retention obligations.

"NR" Program

The "NR" program securitizes seasoned residential mortgage loans that are not eligible to be securitized in REMIC transactions.

"I" Program

The "I" program securitizes Non-QM loans including Debt Service Coverage Ratio ("DSCR") loans. The securities issued in this program are rated by one or more nationally recognized statistical ratings organizations. These securitizations are subject to the Risk Retention Rules and we retain subordinate securities to meet risk retention obligations.