Company: ADAMM
Filing Date: 2025-02-21
Form Type: 10-K
Source: 0001273685-25-000028
Chunk: 49

Company: ADAMAS TRUST, INC.
Filing Date: 2025-02-21
Form: 10-K
Item: Item 16
Chunk 49
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 our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Fair value measurements of Residential Loans held by the Company and residential loans held by securitization trusts

As described further in Notes 2 and 3 to the financial statements, the Company's residential loans, at fair value includes residential loans held by the Company and residential loans held by securitization trusts (“Residential Loans”). These consist of performing, re-performing and non-performing residential loans and business purpose loans, which are recorded at fair value, using a fair value option election on a recurring basis. The Company determines the fair value measurement after considering valuations obtained from a third party that specializes in providing valuations of residential loans. We identified the fair value measurement of Residential Loans as a critical audit matter.

The principal considerations for our determination that the fair value measurement of Residential Loans was a critical audit matter are that the assets are priced using unobservable inputs. As such, the fair value measurement requires management to make judgments in order to identify and select the appropriate model and significant assumptions, which may include forecast prepayment rates, default rates, discount rates and rates for loss upon default and collateral values, among others. In addition, the fair value measurements of Residential Loans are highly sensitive to changes in the significant assumptions and underlying market conditions and are material to the financial statements. As a result, obtaining sufficient appropriate audit evidence related to the fair value measurement required significant auditor subjectivity.

F-2

Our audit procedures related to the fair value measurement of Residential Loans included the following, among others. We tested the design and operating effectiveness of relevant controls performed by management relating to the fair value measurement of Residential Loans. We involved valuation specialists to test the reasonableness of property values used by management under the liquidation model for certain loans and we also involved valuation specialists to independently determine the fair value measurement of the Residential Loans and compared them to management’s fair value measurement for reasonableness.

Fair value measurements of certain interest only and first loss subordinated securities issued by Freddie Mac-sponsored residential loan securitization entities (“Consolidated SLST”) holding residential loans

As described further in Notes 2 and 3 to the financial statements, the Company owns investment securities, including interest only and first loss subordinated securities which