CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Related Party Transactions
Subservicing Agreement with Freedom Mortgage
Freedom Mortgage, which is owned and controlled by Mr. Middleman, directly serviced approximately half of our company’s portfolio of mortgage servicing rights in 2018 pursuant
Pursuant to a subservicing agreement
that we entered into on June 10,
2015.2015 with Freedom Mortgage,
has given notice of terminationFreedom Mortgage directly serviced during 2019 all of the
subservicingloans underlying the Ginnie Mae mortgage servicing rights (“MSRs”) included in our portfolio of MSRs. Although Freedom Mortgage terminated this agreement without cause
which termination will be effective in
October 2018, the
second or third quarter ofagreement was reinstated in June 2019. During the year ended December 31, 2019,
and the subservicing of the affected mortgage loans is in the process of being transferred to one of our company’s other subservicers. In 2018, our company paid
$4.8$4.6 million in customary fees to Freedom Mortgage for specified services under the subservicing agreement.
Joint Marketing Recapture Agreement
In June 2016, our mortgage servicing subsidiary, Aurora Financial Group, Inc (“Aurora”), entered into a joint marketing recapture agreement with Freedom Mortgage. Pursuant to this agreement, Freedom Mortgage refinanced certain mortgage loans sub-serviced by Freedom Mortgage and underlying
Aurora’sour portfolio of
mortgage servicing rights (“MSRs”),MSRs, as directed by Aurora. This agreement
will terminate upon the termination ofremains in effect while the subservicing agreement with Freedom
Mortgage.Mortgage described above is in effect. During the year ended December 31,
2018,2019, MSRs on
9819 loans with an aggregate unpaid principal balance of approximately
$21.5$4.4 million had been received from Freedom Mortgage which generated approximately
$32,000$5,200 in fees due to Freedom Mortgage.
We are a party to a management agreement with our Manager pursuant to which our Manager provides for the day-to-day management of our operations. Our Manager is an SEC-registered investment adviser established by Stanley Middleman. Our Manager is a party to a services agreement with Freedom Mortgage, which is owned and controlled by Mr. Middleman. Our Manager is owned by a “blind trust” for the benefit of Mr. Middleman.
The management agreement requires our Manager to manage our business and affairs in conformity with the policies and investment guidelines approved and monitored by our Board. The management agreement has an initial term that expires on October 22, 2020 and will be automatically renewed for one-year terms thereafter unless terminated by either us or our Manager. Under certain circumstances, our Manager is entitled to receive a termination fee from us in an amount equal to three times the average annual management fee amount earned by our Manager during the two four-quarter periods ending as of the end of the most recently completed fiscal quarter prior to the effective date of termination or, in the case of non-renewal, the expiration of the term.
Our Manager, through its services agreement with Freedom Mortgage, provides us with our officers and appropriate support personnel in order to deliver the management services called for under the management agreement. We reimburse our Manager for
theour allocable share of the salary and benefits paid to our Chief Financial Officer (who also serves as our Treasurer and Secretary), our controller and our general counsel, based on agreed upon percentages originally based on the working time and effort spent on matters related to our company. The amount of the salary and benefits reimbursed with respect to these officers is subject to the approval of our Compensation Committee,
ofbut our
Board. Our Compensation Committee does not determine the amount of cash compensation paid to any of our officers.
Under the management agreement, we pay our Manager an annual management fee. The management fee is payable quarterly in arrears in cash in the amount equal to 1.50% per annum of our stockholders’ equity, with stockholders’ equity being calculated, as of the end of any fiscal quarter, as (a) the sum of (1) the net proceeds from any issuances of our common stock or other equity securities issued by us or our operating partnership (without double counting) since our inception, plus (2) our and our operating partnership’s (without double counting) retained earnings calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), at the end of the most recently completed fiscal quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less (b) any amount that we or our operating partnership have paid to repurchase shares of our common stock or other equity securities issued by us or our operating partnership since inception. For purposes of the management agreement, “stockholders’ equity” excludes (1) any unrealized gains, losses or other non-cash items that have impacted stockholders’ equity as reported in our financial statements prepared in accordance with GAAP, regardless of whether such items are