Company: CHMI-PB
Filing Date: 2025-03-06
Form Type: 10-K
Source: 0001140361-25-007454
Chunk: 21

Company: Cherry Hill Mortgage Investment Corp
Filing Date: 2025-03-06
Form: 10-K
Item: Item 5
Chunk 21
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                    Critical Accounting Policies and Use of Estimates

                    Our financial statements are prepared in accordance with US GAAP, which requires the use of estimates that involve the exercise of judgment and the use of assumptions as to future
                      uncertainties. Our most critical accounting policies involve decisions and assessments that could affect our reported amounts of assets and liabilities, as well as our reported amounts of revenues and expenses. We believe that the
                      decisions and assessments upon which our financial statements are based were reasonable at the time made and based upon information available to us at that time. Our critical accounting policies and accounting estimates may change
                      over time as we diversify our portfolio. The material accounting policies and estimates that we expect to be most critical to an investor’s understanding of our financial results and condition and require complex management judgment
                      are discussed below. For additional information on our material accounting policies and estimates, see “Item 8. Consolidated Financial Statements and Supplementary Data—Note 2. Basis of Presentation and Significant Accounting
                      Policies.”

                    Investments in MSRs

                    We have elected the fair value option to record our investments in MSRs in order to provide users of our consolidated financial statements with better information regarding the
                      effects of prepayment risk and other market factors on the MSRs. Under this election, we record a valuation adjustment on our investments in MSRs on a quarterly basis to recognize the changes in fair value of our MSRs in net income as
                      described below. Although transactions in MSRs are observable in the marketplace, the valuation includes unobservable market data inputs (prepayment speeds, delinquency levels, costs to service and discount rates). The change in fair
                      value of MSRs is recorded within “Unrealized gain (loss) on investments in Servicing Related Assets” on the consolidated statements of income (loss). Fair value is generally determined by discounting the expected future cash flows
                      using discount rates that incorporate the market risks and liquidity premium specific to the MSRs and, therefore, may differ from their effective yields. In determining the valuation of MSRs, management uses internally developed
                      pricing models that are based on certain unobservable market-based inputs. The Company classifies these valuations as Level 3 in the fair value hierarchy. For additional information on our fair value methodology, see “Item 8.
                      Consolidated Financial Statements and Supplementary Data—Note 9. Fair Value.”

                    Revenue Recognition on Investments in MSRs

                    Mortgage servicing fee income represents revenue earned from the ownership of MSRs. The servicing