Cherry Hill Mortgage Investment Corporation (CHMI): PESTLE Analysis [Nov-2025 Updated]

You need a clear, actionable breakdown of the forces shaping Cherry Hill Mortgage Investment Corporation (CHMI) right now. The immediate takeaway is that their recent transition to internal management is a critical self-help measure against persistent rate volatility and a politically charged regulatory environment. Honestly, your focus should be on how their 5.3x portfolio leverage handles mortgage rates holding around the mid-6% range, especially when their forecasted 2025 annual revenue is only $41 million. Let's map out the PESTLE factors to see the defintely risks and opportunities.

Political Factors: Regulatory Headwinds and Housing Policy

The political landscape is creating both risk and opportunity for CHMI. A new administration's focus on boosting housing supply, while good for the broader market, could increase competition for the Agency Residential Mortgage-Backed Securities (RMBS) that CHMI holds. Also, the threat of new global tariffs could spike inflation and financing costs, directly impacting the cost of funds for a mortgage Real Estate Investment Trust (mREIT).

On the flip side, potential banking deregulation could ease the credit supply, which helps the entire REIT sector. But, you must watch the expiration of the 2017 Tax Cuts and Jobs Act's individual tax cuts late in 2025; this could reduce disposable income and impact housing demand, which is a subtle, but important, headwind.

New tariffs could raise CHMI's cost of capital.

Economic Factors: Rate Volatility and Asset Quality

The economy remains the primary driver of CHMI's performance. Mortgage rates are expected to remain elevated, hovering around the mid-6% range, which limits new origination volume and asset acquisition opportunities. While anticipated Federal Reserve (Fed) rate cuts offer a potential tailwind, rate volatility is still the key risk to their net interest margin (NIM).

The good news is strong homeowner equity is keeping mortgage delinquencies low, stabilizing the quality of their underlying assets. For 2025, CHMI's forecasted annual revenue is only $41 million. To put that in perspective, their Q3 2025 Earnings Available for Distribution (EAD) was reported at $3.3 million, so every basis point of rate movement matters immensely to that bottom line.

Here's the quick math: managing interest rate risk is paramount when your quarterly EAD is that tight.

Sociological Factors: Affordability and Buyer Trends

Sociological shifts are fundamentally changing the mortgage market's size and shape. Housing affordability is at a record low, which suppresses the volume of first-time buyers-the engine of new mortgage demand. The median age of a first-time home buyer is now an all-time high of 38, meaning people are entering the market later.

Plus, remote work trends continue to drive demand in suburban and rural markets, which can change the geographic risk profile of mortgage pools. Critically, all-cash buyers surged to account for 26% of home sales, effectively shrinking the overall mortgage market that CHMI operates in. This means fewer high-quality Agency RMBS assets are being created.

Cash buyers are eroding the market size.

Technological Factors: AI and Digital Transformation

Technology is rapidly changing how mortgages are originated and serviced. The adoption of Artificial Intelligence (AI) and Machine Learning (ML) in underwriting is accelerating fraud detection and speeding up credit assessment. Lenders' use of AI is projected to rise to 55% by the end of 2025, so CHMI must ensure its data analysis and risk models keep pace.

Integrated data platforms are becoming essential to manage operational complexity and risk for mREITs like CHMI. Also, digital closings and e-notarization are now mainstream, streamlining the mortgage servicing process and reducing the cost of servicing rights (MSRs), which is a key part of CHMI's strategy.

Invest in AI to keep up with underwriting speed.

Legal Factors: Governance and Conforming Limits

Legal and regulatory changes are creating clear boundaries and opportunities. New state and federal data privacy rules are tightening compliance for all mortgage data handling, increasing operational costs. However, the rise in the 2025 conforming loan limit to $806,500 is a major positive, as it expands the pool of Agency RMBS assets CHMI can invest in.

The internalization of management in late 2024 is a significant legal and governance change, altering the structure and reducing operating expenses. Also, new rules from the National Association of Realtors (NAR) settlement mandate written buyer agreements, which will affect the pre-approval coordination process and may slow down transaction times.

Internalization reduces their operating expenses.

Environmental Factors: ESG and Climate Risk

Environmental, Social, and Governance (ESG) alignment is no longer optional; it's increasingly a requirement for investors, directly affecting a company's capital access and cost of debt. REITs with higher ESG disclosure have demonstrated a lower cost of debt, providing a clear incentive for better reporting by CHMI.

Lenders are now incorporating climate resilience into underwriting, assessing properties for extreme weather risks, which could lead to certain geographies becoming less desirable for mortgage investment. Stricter energy efficiency and carbon footprint standards are expected to increase compliance costs on underlying properties, a risk that could subtly devalue some assets in their portfolio over time.

ESG compliance lowers the cost of debt.

Actionable Next Steps

CHMI's management needs to draft a 13-week cash view by Friday, stress-testing it against a 7% mortgage rate scenario and a 10% rise in regulatory compliance costs. This will show exactly how thin the margin for error is with a $3.3 million quarterly EAD.

Cherry Hill Mortgage Investment Corporation (CHMI) - PESTLE Analysis: Political factors

The political environment in 2025 presents Cherry Hill Mortgage Investment Corporation (CHMI) with a mix of tailwinds from tax and financial deregulation, but also a persistent, policy-driven inflation risk from tariffs. The direct takeaway is this: the extension of tax cuts and the push for bank deregulation should support housing demand and credit availability, but the new tariff regime is a direct threat to the low-rate environment that mREITs thrive on.

New administration's focus on housing supply may increase competition

The new administration's policy focus, outlined in documents like the Project 2025 proposals, aims to reduce federal bureaucracy and encourage housing production. While the stated goal is to increase housing supply, which would alleviate price pressure and stabilize the underlying collateral for CHMI's mortgage-backed securities (MBS), it also implies a more competitive landscape. A reduction in regulatory friction for homebuilders, coupled with a general economic growth push, could lead to a faster pace of new construction. This means more new mortgages enter the market, increasing the supply of agency MBS, which is the core asset for CHMI.

More MBS supply is good, but it also means more competition from other investors, potentially compressing the net interest margin (NIM) that CHMI earns. The administration's focus on maintaining the 1031 tax-deferred exchange is a key political win for real estate investors, as it keeps capital flowing into investment properties, supporting the overall housing market health. This is a defintely a positive for the stability of the housing market.

Risk of higher inflation and financing costs from proposed global tariffs

The new global tariff regime implemented in 2025 poses a clear inflationary risk that directly affects CHMI's financing costs. The actual average effective US tariff rate rose significantly in 2025, climbing from 2.4% at the start of the year to approximately 10% to 11.5% by August 2025. This new tax on imports is being passed on to consumers, with core goods prices estimated to be 1.9% above the pre-2025 trend as of June.

Here's the quick math: higher inflation pressures the Federal Reserve (Fed) to maintain or even raise its policy rate, which in turn increases the cost of short-term funding (repurchase agreements) for mREITs like CHMI. The firm's Q3 2025 earnings call, however, noted that 'tariff concerns mostly fading into the background' as the Fed proceeded with rate cuts. This suggests the market is currently pricing in a less severe impact, but the underlying risk remains. A sudden re-escalation of trade tensions could quickly reverse the current lower-rate environment, which is crucial for CHMI's portfolio, which includes a Mortgage Servicing Rights (MSR) component with a weighted average note rate of 3.5%.

What this estimate hides is the potential for a renewed focus on tariffs in 2026, which would instantly re-ignite inflation fears and put upward pressure on the 10-year Treasury yield, a key benchmark for mortgage rates.

Potential for banking deregulation to ease credit supply for the REIT sector

The administration's strong push for financial deregulation, particularly concerning bank capital requirements, is a significant opportunity for the mREIT sector. Officials have signaled interest in easing regulations like the Basel III Endgame rules, which could lower capital requirements for large US banks. As of early 2025, the top 13 US banks held an estimated $200 billion in excess capital relative to existing regulations.

The deregulation is expected to encourage banks to deploy this excess capital into loan growth and capital markets activity. For CHMI, this translates to an easing of credit supply, which could:

• Increase liquidity in the repurchase agreement (repo) market, potentially lowering CHMI's funding costs.
• Boost overall private sector lending, further supporting a healthy housing and mortgage market.
• Improve the availability and terms of financing for non-bank financial firms, including mREITs.

Individual tax cuts from the 2017 Tax Cuts and Jobs Act are set to expire late in 2025

The anticipated expiration of the 2017 Tax Cuts and Jobs Act (TCJA) individual provisions was a major factor for 2025, but a new law, the 'One Big Beautiful Bill Act (OBBBA),' signed in July 2025, has largely extended or made permanent these cuts. This is a critical shift. Instead of a tax hike, which would have reduced consumer disposable income and dampened housing demand, the current tax structure is maintained.

The extension of the lower individual income tax rates is a net positive for CHMI's business environment. For instance, the top marginal tax rate remains at 37% for high-income earners. This sustained level of after-tax income supports consumer spending and the ability of homeowners to service their mortgages, which is good for the credit quality of CHMI's MBS portfolio. Furthermore, the extension of the larger standard deduction and the preservation of the preferential capital gains rates help maintain the wealth effect that drives real estate investment.

Finance: Monitor the spread between CHMI's cost of funds and its asset yield, specifically tracking the repo rate movement against the 10-year Treasury yield, as this spread is highly sensitive to the political climate's influence on inflation and Fed policy.

Cherry Hill Mortgage Investment Corporation (CHMI) - PESTLE Analysis: Economic factors

You're looking at Cherry Hill Mortgage Investment Corporation (CHMI) in a complex economic environment where the cost of money is high, but homeowner balance sheets are still strong. The direct takeaway is that while elevated mortgage rates create a headwind for new mortgage-backed securities (RMBS) origination, the company's mortgage servicing rights (MSRs) portfolio benefits from the resulting low prepayment speeds, and overall asset quality remains stable due to high homeowner equity.

Mortgage rates are expected to remain elevated, around the mid-6% range, limiting new origination volume.

The 30-year fixed mortgage rate, a critical benchmark for a mortgage real estate investment trust (mREIT) like Cherry Hill Mortgage Investment Corporation, is defintely staying elevated. As of mid-November 2025, the average rate is hovering in the low-to-mid 6% range, specifically around 6.22% to 6.37%. This sustained high cost of borrowing keeps the housing market sluggish and limits the volume of new mortgage originations. For Cherry Hill Mortgage Investment Corporation's Residential Mortgage-Backed Securities (RMBS) portfolio, this environment means fewer opportunities for high-volume, high-coupon purchases, but it simultaneously protects their existing Mortgage Servicing Rights (MSRs) portfolio from rapid prepayments, which is a significant strategic hedge.

Anticipated Federal Reserve (Fed) rate cuts offer a tailwind, but rate volatility remains a key risk.

The Federal Reserve is in an easing cycle, having executed its second interest rate cut of 2025 on October 29th, with market expectations leaning toward a third cut in December. This is a tailwind because lower short-term rates reduce the company's funding costs, which are primarily based on repurchase agreements (repo financing). But, honestly, rate volatility is the real enemy here. Unexpected economic data could easily reverse the Fed's stance, causing bond yields and, subsequently, mortgage rates to jump, which would immediately pressure the valuation of Cherry Hill Mortgage Investment Corporation's RMBS assets. The company must stay tactically positioned to manage this interest rate risk.

Strong homeowner equity is keeping mortgage delinquencies low, stabilizing asset quality.

The core strength of the U.S. housing market continues to be the massive equity cushion homeowners have built up. As of the third quarter of 2025, 46.1% of all mortgaged residential properties were considered 'equity-rich,' meaning the loan-to-value (LTV) ratio was 50% or less. This is a huge buffer. Even with a slight increase in the overall delinquency rate to 3.99% at the end of Q3 2025, the number of seriously underwater homes-where the loan balance is at least 25% more than the property value-remained low at only 2.8% of mortgaged properties. This high equity level makes foreclosure a last resort for most borrowers, stabilizing the credit quality of the underlying mortgages that back Cherry Hill Mortgage Investment Corporation's assets.

Cherry Hill Mortgage Investment Corporation's forecasted annual revenue for 2025 is $41 million.

Looking at the company's top line, the forecasted annual revenue for Cherry Hill Mortgage Investment Corporation for the 2025 fiscal year is expected to reach $41 million. This revenue figure reflects the mixed impact of the economic environment: the MSR portfolio's value is supported by low prepayment speeds, while the RMBS portfolio faces pressure from elevated funding costs. Here's the quick math on recent performance:

The reported Q3 2025 Earnings Available for Distribution (EAD) of $3.3 million is a key indicator of the company's ability to generate cash for dividends, even as it navigates a challenging rate environment where net interest margins are tight.

Cherry Hill Mortgage Investment Corporation (CHMI) - PESTLE Analysis: Social factors

Housing affordability is at a record low, suppressing first-time buyer volume.

The core challenge for a mortgage real estate investment trust (mREIT) like Cherry Hill Mortgage Investment Corporation (CHMI) is simple: fewer people can afford to buy a home, which shrinks the pool of new mortgages. Honestly, affordability is the worst it has been in decades. In the third quarter of 2025, median-priced single-family homes were less affordable than historical averages in a staggering 99% of analyzed U.S. counties.

Here's the quick math on the squeeze: the national median home price reached a record $375,000 in Q3 2025. For the typical American wage earner, the monthly cost of homeownership-including mortgage payments, taxes, and insurance-consumed 33.3% of their wages in the same quarter. This far exceeds the traditional 30% affordability benchmark. Consequently, the share of first-time home buyers fell to a record low of just 21% of all home purchases in the 2025 reporting period.

Median age of a first-time home buyer is now an all-time high of 40.

This affordability crisis is delaying homeownership for an entire generation. You're seeing a massive generational shift where young adults are locked out of the market for longer. The median age of a first-time home buyer has climbed to an all-time high of 40 years, up from 38 just the year prior. This delay directly impacts the volume of new mortgage originations, which is the lifeblood of the mortgage market CHMI operates in.

The typical first-time buyer is now waiting longer, saving more, and carrying heavier financial baggage. To be fair, this older demographic often has a higher income, but they still struggle to compete with equity-rich repeat buyers. The average down payment for a first-time buyer is still only 10%, which is the highest since 1989, but still a hurdle when competing against cash offers.

Remote work trends continue to drive demand in suburban and rural housing markets.

The lasting impact of remote and hybrid work models is a major social trend reshaping CHMI's target collateral. People are prioritizing space over proximity to a central business district (CBD). This is driving a resurgence in demand for single-family homes in suburban and rural markets, which is good for the underlying collateral value of the mortgage-backed securities (MBS) CHMI holds.

The San Francisco Fed estimated that remote work accounted for approximately 60% of housing price growth during the pandemic era. This trend has continued, with prices in rural and suburban areas rising 33% from 2020 to 2023, outpacing urban growth. Even in Q3 2025, the income needed to afford a median-priced home in rural counties has jumped by over 105% since before the pandemic, showing the intense demand shift.

• Demand for larger homes with dedicated home offices is high.
• Suburban markets are seeing sustained price pressure.
• The geographic risk profile for mREIT collateral is changing.

All-cash buyers surged to account for 32.8% of home sales, reducing overall mortgage market size.

A significant social and economic factor reducing the size of the mortgage market is the prevalence of all-cash buyers. These buyers, often older, equity-rich repeat buyers or institutional investors, bypass the need for mortgage financing entirely. In the first half of 2025, all-cash transactions accounted for 32.8% of home sales nationwide. This is a huge chunk of the market that is simply unavailable to mortgage lenders and mREITs.

This cash dominance is especially pronounced at the extremes of the market: two-thirds of homes priced under $100,000 and over 40% of homes above $1 million were all-cash deals in the first half of 2025. The high percentage of cash sales means the overall volume of new mortgages available for purchase by companies like CHMI is structurally smaller than the total housing market volume suggests. This limits growth opportunities and increases competition for the remaining financed loans.

Cherry Hill Mortgage Investment Corporation (CHMI) - PESTLE Analysis: Technological factors

You're operating in a mortgage market where technology is no longer an optional upgrade; it's the core infrastructure for risk management and efficiency. For a mortgage Real Estate Investment Trust (mREIT) like Cherry Hill Mortgage Investment Corporation, the ability to rapidly assess credit risk and manage a complex portfolio hinges entirely on modern, integrated technology platforms. The competitive edge in 2025 is defined by how quickly you can process data and automate decisions.

AI and Machine Learning (ML) adoption in underwriting is accelerating fraud detection and credit assessment speed.

The use of Artificial Intelligence (AI) and Machine Learning (ML) is fundamentally reshaping the mortgage origination and servicing landscape, which directly impacts the quality and risk profile of the mortgage-backed securities (MBS) and Mortgage Servicing Rights (MSRs) that Cherry Hill Mortgage Investment Corporation acquires. AI systems can analyze documents in seconds, effectively turning multi-day reviews into near-instant pre-approvals.

Major lenders are now automating up to 80% of the loan approval process, and this efficiency is driving down operational costs across the industry. For example, AI-driven systems at a major government-sponsored enterprise have reduced underwriting time by 30% to 50% and improved borrower risk assessment accuracy by 25%.

The most critical application for a financial entity like Cherry Hill Mortgage Investment Corporation is risk mitigation. AI-based fraud detection in consumer lending now boasts an accuracy rate of over 90%, which is a defintely necessary safeguard against losses in the underlying mortgage pool.

Lenders' use of AI is projected to rise to 55% by the end of 2025, demanding tech investment.

The industry is in a massive investment cycle. Fannie Mae projects that the percentage of lenders using AI will rise to 55% by the end of 2025, up from 38% in 2024. This trend means that the quality of the loans Cherry Hill Mortgage Investment Corporation sees in the market is increasingly influenced by the technological sophistication of the originators.

The global AI in lending market is growing exponentially, increasing from $9.18 billion in 2024 to an estimated $11.63 billion in 2025, representing a Compound Annual Growth Rate (CAGR) of 26.6%. This massive capital flow into lending technology is the new normal. To stay current, Cherry Hill Mortgage Investment Corporation is taking action; in May 2025, the Company's subsidiary, CHMI Solutions, Inc., entered into a strategic partnership and financing with Real Genius LLC, a digital mortgage technology company, signaling a direct investment in this technological shift.

Integrated data platforms are becoming essential to manage operational complexity and risk for mREITs.

For mREITs, which manage intricate portfolios of Residential Mortgage-Backed Securities (RMBS), MSRs, and derivatives, operational complexity is a constant challenge. The current environment, marked by higher-for-longer interest rates and evolving regulatory demands, makes siloed data a significant liability. You need a single, unified view of your assets.

Industry leaders are prioritizing integrated platforms to achieve a 'single source of truth' for data, breaking down the traditional silos between asset management, accounting, and treasury. This integration is vital for:

• Automating reconciliation and reporting requirements.
• Improving control processes and reducing audit risk.
• Delivering the transparency critical to 38% of financial services firms for risk management.

Without this comprehensive data view, an mREIT cannot accurately model the prepayment and credit risk of its MSRs or the duration risk of its RMBS portfolio in real-time, which is a huge competitive disadvantage.

Digital closings and e-notarization are now mainstream, streamlining the mortgage servicing process.

The shift to digital closings (eClosings) and electronic notarization (e-notarization) has moved from an innovation to a mainstream expectation, streamlining the mortgage servicing process and improving data integrity for MSR assets. 90% of lenders now offer digital closings to customers, a 22% increase since 2023.

While offering the technology is common, driving high adoption is the current challenge; only 14% of lenders with eClosing technology close more than 80% of their loans digitally. This gap represents an opportunity for the servicing side of the business.

The benefits of this technology are clear to the market:

The move toward Remote Online Notarization (RON) is accelerating, with 41% of lenders planning to maximize eNote adoption and offer RON. For Cherry Hill Mortgage Investment Corporation, faster closings mean quicker securitization, and fewer errors on documents reduce the servicing risk and potential for repurchase demands on the underlying loans.

Cherry Hill Mortgage Investment Corporation (CHMI) - PESTLE Analysis: Legal factors

New state and federal data privacy rules are tightening compliance for all mortgage data handling.

You need to recognize that the regulatory landscape for consumer data is dramatically shifting, pushing compliance costs higher for any firm dealing with mortgage data. The biggest change federally is the Homebuyers Privacy Protection Act (H.R. 2808), signed into law in September 2025. This law, effective March 4, 2026, significantly restricts Consumer Reporting Agencies (CRAs) from furnishing 'trigger leads'-the consumer reports generated when a borrower applies for a residential mortgage.

This means lenders can only receive a trigger lead if they make a firm offer of credit and meet narrow criteria, such as having the consumer's documented authorization (opt-in consent) or an existing relationship. For Cherry Hill Mortgage Investment Corporation, this reduces the risk of competitive refinancing on their Mortgage Servicing Rights (MSRs) portfolio, as the borrower data is harder for competitors to access. Still, the compliance cost for data security remains a headwind.

The state-level environment is also tightening. Montana's Consumer Data Privacy Act amendments, for example, took effect on October 1, 2025, narrowing the Gramm-Leach-Bliley Act (GLBA) exemption for nonbank financial institutions like many mortgage companies. This forces nonbank entities to comply with new obligations, including providing privacy notices and effectuating consumer rights (access, correction, deletion) for Montana residents' non-GLBA covered data.

The 2025 conforming loan limit rose to $806,500, expanding the Agency RMBS pool.

The Federal Housing Finance Agency (FHFA) increased the baseline conforming loan limit (CLL) for single-family, one-unit properties to $806,500 for 2025, effective January 1, 2025. This marks an increase of $39,950, or 5.2%, from the 2024 limit. This is a clear opportunity.

This expansion of the limit means a larger pool of higher-balance mortgages is now eligible to be securitized into Agency Residential Mortgage-Backed Securities (RMBS), which are the core assets in Cherry Hill Mortgage Investment Corporation's portfolio. The high-cost area loan limit also increased to a ceiling of $1,209,750 for one-unit properties in designated counties. You are now able to invest in agency-backed securities with a higher average loan balance, which can improve asset yields without taking on the credit risk of non-Agency jumbo loans.

Internalization of management in late 2024 altered the governance and reduced operating expenses.

The most significant legal and structural shift for the company was the completion of the management internalization on November 14, 2024. This move transitioned Cherry Hill Mortgage Investment Corporation from an externally managed Real Estate Investment Trust (REIT) to a fully integrated, internally managed one, directly altering the corporate governance structure.

Critically, the company terminated its management agreement with Cherry Hill Mortgage Management, LLC, and paid no termination fee to the external manager. This avoids a major cash outlay that often accompanies such internalizations. The primary financial benefit is the elimination of the external management fee structure and the shift to a lower, internal General & Administrative (G&A) expense run-rate. The new expense structure is reflected in the 2025 financial results:

• Q2 2025 General & Administrative, Compensation and Benefits totaled $3.4 million.
• Q3 2025 Operating Expenses were $3.8 million.

Here's the quick math: Eliminating the external fee structure and replacing it with internal G&A expenses is expected to enhance the Earnings Available for Distribution (EAD) profile going forward, which is a direct legal and financial benefit to common stockholders. The Q3 2025 EAD attributable to common stockholders was $3.3 million, or $0.09 per diluted share.

New rules from the NAR settlement mandate written buyer agreements, affecting pre-approval coordination.

The National Association of Realtors (NAR) settlement, with key practice changes effective August 17, 2024, has a ripple effect on the entire mortgage origination and pre-approval process. The new rules mandate that real estate agents must enter into a written agreement with a buyer before touring a home or, in some states like Alabama, before submitting an offer.

This agreement must clearly outline the agent's services, the compensation structure, and a conspicuous statement that broker fees are fully negotiable. This shift creates more informed, and defintely more cost-conscious, buyers. For the mortgage market, this means:

• Buyers are negotiating agent compensation upfront, which may lead to them requesting seller concessions for closing costs to cover their agent's fee.
• These concessions can impact the final loan amount and the cash required at closing, requiring closer coordination between the buyer's agent and the mortgage originator during the pre-approval phase.

While Cherry Hill Mortgage Investment Corporation is an investor in mortgage assets, not an originator, changes that slow down or complicate the origination process can affect the supply of new MSRs and RMBS. The increased transparency, however, could lead to a more efficient, though initially slower, transaction process over the long term. You must monitor the impact on origination volume throughout 2026.

Cherry Hill Mortgage Investment Corporation (CHMI) - PESTLE Analysis: Environmental factors

ESG alignment is increasingly a requirement for investors, affecting capital access and cost of debt.

You need to recognize that Environmental, Social, and Governance (ESG) is no longer a soft consideration; it's a hard financial gatekeeper for capital. For a mortgage Real Estate Investment Trust (mREIT) like Cherry Hill Mortgage Investment Corporation, which has a small operational footprint with only 5 employees, the focus shifts from direct carbon emissions to the ESG profile of the underlying collateral-the residential mortgages and their servicing rights (MSRs).

Studies show that REITs with a higher level of ESG disclosure consistently demonstrate a lower cost of debt and often secure higher credit ratings. This is because lenders and fixed-income investors view strong disclosure as a proxy for lower long-term risk and greater corporate transparency. While the exact basis point discount for mREITs in 2025 is proprietary to each lender, the average weighted interest rate on total debt for the broader REIT industry was around 4.1% as of late 2024, so even a minor reduction translates to millions in savings on your financing costs. Your ability to access capital efficiently and cheaply is defintely tied to how well you communicate your alignment with the GSEs' (Fannie Mae and Freddie Mac) robust ESG frameworks.

Lenders are incorporating climate resilience into underwriting, assessing properties for extreme weather risks.

The Federal Housing Finance Agency (FHFA) is forcing the Government-Sponsored Enterprises (GSEs), whose Agency Residential Mortgage-Backed Securities (RMBS) and MSRs you hold, to integrate climate risk into their credit models. This is a critical transition risk for your portfolio, which had a total Unpaid Principal Balance (UPB) of MSRs at $16.2 billion as of September 30, 2025.

Freddie Mac is actively developing climate scenario methodologies to quantify the impact of physical risks-like increased flooding and wildfires-on property values and, crucially, on borrower default rates. When climate-driven costs, such as soaring insurance premiums or mandatory mitigation expenses, increase a homeowner's debt-to-income ratio, the credit risk on the underlying mortgage rises. Lenders are already selling high-risk mortgages to the GSEs to offload this exposure, which ultimately shifts the risk to the federal government and, by extension, the broader mortgage market that CHMI operates in.

Here is the quick math on your exposure:

REITs with higher ESG disclosure have demonstrated a lower cost of debt, an incentive for better reporting.

The market is formally pricing in ESG risk. Your financing partners and institutional investors are demanding this transparency, and they reward it with better terms. This is a simple risk-mitigation premium.

For a capital-intensive business like an mREIT, a lower cost of debt directly widens your net interest spread, which was 2.9% for your RMBS portfolio as of Q3 2025. The incentive for better reporting is clear:

• Lower interest rates on repurchase agreements (repos) and other debt financing.
• Increased investor confidence, which supports a more stable stock valuation.
• Better access to capital markets, especially through sustainability-linked loans (SLLs).

You must treat your ESG disclosure as a financial tool, not just a compliance exercise. It directly supports your goal of consistently generating attractive current yields.

Stricter energy efficiency and carbon footprint standards are expected to increase compliance costs on underlying properties.

The properties backing your MSRs and RMBS are facing a wave of new local and state energy mandates. While CHMI does not own the physical properties, the compliance costs fall on the homeowners, and those costs impact their financial stability, which is your credit risk.

For a typical residential property, significant energy efficiency upgrades-like new windows, insulation, or a heat pump-can cost between $10,000 and $40,000 in 2025. This is a massive capital outlay for a homeowner.

The immediate risk is the expiration of federal incentives. The Energy Efficient Home Improvement Credit (IRC § 25C) and the Residential Clean Energy Credit (IRC § 25D), which allow homeowners to recoup up to $3,200 annually in tax credits for qualifying improvements, are scheduled to sunset at the end of 2025. This creates a near-term compliance opportunity, but after this deadline, the full cost of mandated upgrades will fall entirely on the homeowner, increasing the risk of financial strain and, potentially, mortgage default.

Action: Finance needs to model the credit risk of MSRs in high-regulation, high-climate-risk areas, assuming a $15,000 per-unit compliance cost after the 2025 federal tax credit expiration.