Company: ABR-PF
Filing Date: 2025-10-31
Form Type: 10-Q
Source: 0001253986-25-000022
Chunk: 3

Company: ARBOR REALTY TRUST INC
Filing Date: 2025-10-31
Form: 10-Q
Item: Part I, Item 2
Chunk 3
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 has so far lowered the federal funds rate twice totaling a 50-basis point reduction. General consensus is that the Federal Reserve may continue to lower rates in the near term. This high-interest rate environment, that has persisted longer than anticipated, could persist even longer if certain key economic indicators fail to align with the Federal Reserve’s expectations. Although short-term interest rates have declined, long-term interest rates remain highly volatile since the announcement of the current administrator’s imposition of increased tariffs and macroeconomic uncertainty. Analysts currently hold mixed expectations regarding the future trajectory of long-term rates for the remainder of 2025 due to the uncertainty regarding long-term inflation, fiscal policy, increased federal spending and larger deficits as a result of the recent enactment of the One Big Beautiful Bill Act (“OBBBA”), as described below.

As a result of the significant volatility in rates and the unpredictable impact of the tariff negotiations and the OBBBA, it is very difficult to predict where short and long-term rates will settle for the remainder of the year.

This elevated and unpredictable rate environment has resulted in, and may continue to result in, increased payment delinquencies and defaults, increased loan modifications and foreclosures and declining real estate values of certain asset classes, all of which have impacted, and may continue to impact, our future results of operations, financial condition, business prospects and ability to make distributions to our stockholders. Additionally, this high-interest rate environment has limited our ability to resolve delinquent loans, leading to additional foreclosures and REO assets on our balance sheet, all of which could have a further material adverse effect on our future results of operations, financial condition, liquidity and ability to make distributions to our stockholders.

We employ rigorous risk management and underwriting practices to proactively maintain the quality of our loan portfolio and work very closely with borrowers to mitigate potential losses, while safeguarding the integrity of our portfolio, which may include modifying original loan terms. Given the current elevated interest rate environment, we cannot guarantee that our loan portfolio will continue to perform under the current loan terms.

In general, a rising or high-interest rate environment positively impacts our net interest income since our structured loan portfolio exceeds our corresponding debt balances, and the vast majority of our loan portfolio is floating rate based on SOFR. Additionally, since a sizable portion of our debt consists of fixed-rate instruments (such as senior unsecured notes), as compared to our structured loan portfolio, the increase in interest income from high interest rates tends to outpace the rise in interest expense on our debt. Furthermore