MFA - Earnings call transcript Q2 2022

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Operator

Ladies and gentlemen, good morning, and thank you for standing by. Today’s conference assembled. Welcome to the MFA Financial Incorporated 2022 Second Quarter Earnings Call. At this time, all lines are in a listen-only mode. Later there will be an opportunity for your questions and instructions will be given at that time. a conference as being And Instructions] reminder, is today’s recorded. [Operator to time, conference it’s this turn my Mr. At host, pleasure the our over to Schwartz. Hal ahead. go Please

Hal Schwartz

[Technical Difficulty]

Operator

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Hal Schwartz

Okay.

Operator

Webcast.

Hal Schwartz

Okay.

which the are XX, XX-K uncertainties, those are on annual types subject unknown of XXXX, and and report Let future that various Financial, here. These information are containing snafu management’s described Inc., or today other contain statements materially made. which risks, forward-looking discussed ended for statements. forward-looking and statements known performance to are historical December those may MFA’s factors in time-to-time will, the and Securities including and expect, actual year and MFA’s as assumptions expectations date to on in those used, call The operations. for identify should, or conference they Form All reflect expressions not nature, me refer the including speak could risks, over file only to other Commission. it or of statements assumptions These results it differ other makes. this with words believe, Exchange forward-looking statements uncertainties start When MFA’s expressed apologies statements intended cause to similar may as the such as any forward-looking and could, anticipate, from to projected, and on reports regarding implied that in estimate, beliefs, factors would MFA from

for time. CEO over this MFA’s results. in to like of relevant second I the announcing Craig would forward-looking release and call information statements, your use now you Knutson. please disclosure For financial MFA’s additional quarter Thank XXXX to President, the regarding press MFA’s turn see

Craig Knutson

And Bryan our CFO; XXXX Steve Officers for Kristjansson Co-Chief everyone. with and and other for Financial’s today MFA call. senior you us you, Wulfsohn, management. earnings Gudmundur are Yarad, second thank morning, our quarter members joining of here Good Also Hal. Thank me Investment

down of As you nearly first and been are of possible in second all the quarter exceptionally XXX an no The all year half half investment U.S. exception first the across Index with of the bond doubt selloff challenging the classes S&P XX the asset XXXX difficult has first commodities in dollar. worst indices aware, markets years. continue its in posted XX% over over quarter to yield was markets markets. after widened an a and for XXXX. to been no Bond XX% since Fed havoc the basis and In Persistently XXXX points place experienced as thus financial about XXX tension half that have the wider by spreads far continued aggressive tightening short, Mortgage there combined inflation, did wreak not hide cycle in year. down generally with year-to-date. high has spreads were materially, of nearly have to high first credit geopolitical environment across

XX. dramatically than team clear at steps to last to Fed move capital it that of Our as beginning fourth the would duration more when year quarter our early preserve as and manage MFA became the need end taken has and XX, rates had interest again, of as duration billion expected. year position at rose We June previously swaps at to $XXX increased at we billion million $X.X rate March extended, and $X.X this and

securitizations of half same again to pace the execute in through We and first the XXXX time, also and July. into the quarter continue acquisition quarter. slowed our we loan first the second in At

by significantly higher reduced close increased risk Although, cost terming deals, billion wider financing securitization the XXXX. these spreads, we combined with of to have $X rate out in of

the rate about economically rate acquisitions difficult our increase our swap made now Fed with quarter, floating via now of swap points will securitization. We the positive leg this via interest fixed Future fixed rate additional our fixed or In receive XX% cost generate uncertainty carry increase, book as last particularly slowed of second carry fact, positive is over And leg. and asset-based increases, hedges. the exceeds created the financing securitization further. XX week’s expected, volatility as rate during pricing market widely of about Fed are of which pay non-QM basis loans

mitigated Taken together, these value steps our decline. book

MFA’s Although, worth MFA many decline peer It’s book book our to marks -- due noting to fair is immune mature portion was sheet performance or value certainly payoff that we better. until hold on diminution, has loans will likely maturity. not book a versus considerably that our also value group the relative been significant value in of on balance value

XXth, balance principal As portfolio the million. loan our approximately unpaid of June on market is discount $XXX to

and REO realized appreciation last RPO the home which for be approximately This particularly legacy fair, amount potential at the years losses each NPL loans, the has significantly marked these loans securitizations, loans, affected expected Netting loans. that have liquidations plus share, the would per are gains of we realized six are to but two million. purchase loans price over for losses assuming million and XX have $X.XX any par. value fair discounts payoff approximately $XXX are also below low, $XXX a accounted by book performing and increase that last Indeed, quarters. of be we liabilities par our at relatively these by offset value or produces Now outcomes on our on on on on

close of We also $XXX second both quarters in prioritized with ending and cash. during to million periods liquidity XXXX, first the

a to the of take a provide us of advantage also swing portion a ability the obviously arise. fences. substantial time volatile equity gives drag creates that Having cash a on opportunities in in markets, is position it this cushion holding overall liquidity ROE, to While the sizable our for not

and I’d Finally, talk like a bit credit. about housing to little residential mortgage

last This very demand them homes, of have rates. for low has housing supply. many due post-pandemic home two We outstripped homes lack formation, appreciation trends of leading added existing and to the years and increased interest to demand dramatic factors, single-family supply as over seen far price is for among household new

these Now, has interest of only influences, rate the changed. component

even construction driving recently. other factors more exist, housing fallen new and in The prices fact, still has home

generally of LTVs loans conservative. and purchased have been underwriting Additionally, standards performing low

So overall strong. home will this credit price declines hard significant price envision slow, appreciation point. mortgage are home generally at Future any but to is certainly

evidence current are more bright funny as with of premium sometimes strikes In as will close pipeline some see of $XXX approximately high-quality the million of in these MFA, a coupon with originations. time, or typical thus three. me One’s they loop Because housing that our originators percentage BPL reducing by spot generate and a market, not listing in suffered market real returns high-yielding their million have the purpose that Please be strong about as there price instant did list today we our fact, boil to business originator loan rising and reductions a an in turn some average price I shift as rates coupons. loans to experienced weakness, percentage has price to balance Lima it rate added of in at has trade is with sheet. weighted analogy to are another securitization $XXX assets simmer. attractive approximately involved we quarter Lima drag home some listings the of origination it and slide seems still as a environment a was of a continued adjust for feedback a can pipeline X%. apt would One intimately from a homes turned These

discount $X.XX $X.XX, previously is GAAP As book per par and from to and and value book that economic environment net led $X.XX debt X% respectively. for mentioned, value, again a out would both share. difficult a point loans decline securitized aforementioned of of the I

or will $XXX.X at non-agency ticked of million X.X RMBS a that form and dividend on X.X our page to years up long We investors to Distributable portfolio loans reserve in credit the accretive unrealized the would we book last we quarter, Some is of had I due value per that or many securitized primarily would increasingly you the but to Please legacy value. decline, from on common GAAP run. $X.XX now of our the primarily residential at point losses leverage loss debt. XX reported believed share second remember times million four. $XX.X be due book in that whole over to so ago Friday. earnings fair turn value of Leverage paid to in and our came times, $X.XX out analysts

One. our XX% coming As with pace I stated slowed from loan my acquisitions acquisition in introductory in quarter, remarks, Lima of second the our nearly

quarter loan Our than rather lower to slightly is due lower mostly portfolio balances. at end, although fair overall marks value was that

non-recourse durable sheet in future now levels. the that capacity securitized quarter swaps acquire that priced in July, the we We more interest in and quarter by liquidity provide debt. more also the during risk We environment. reduced three executed to financing given balance prioritized the rate and new of and $X can we create the two rate loans billion and adding of form financing transactions at in These additional liquidity interest now market at volatile have nearly securitizations we yield deploy higher are

REO portfolio of by has strong $XX management of a five. asset properties the continued $X illustrates asset-based our investment this posting Finally, million. with our gain turn of of slide to the limited million Please nature also market quarter, financing. slide net team liquidating our a components This housing supply to of take advantage and

asset shows $X.X billion of under margin we this borrowing, increases billion borrowing to borrowing our a This a occur cushion about amount. chart While of amount that before of available significant mark-to-market the that pie is creates to discount liability needs receive $X.X at call. a the decline price levering

loan financial During Steve swap margin minimal the our position the rate margin now cash turn the And very our Yarad results. will I we to reverse over generated at quarter, from on same and interest second discuss details call our of calls. to additional time, calls experienced portfolio

Steve Yarad

mark-to-market XXXX six Please overview declines. of rates combined his mitigated turn second including remarks, active of further asset portfolio adjustments by financial spread in again yield drove use management, securitization Craig Craig. across the financing. GAAP interest our further curve, was hedges this in substantially to you, results. portfolio resulted Thank and outlined with adding our MFA’s quarter opening our in increases to widening our as quarter for investment slide results on an valuation swap This the

million. QX $XXX.X consistent environment. coupons our with increased. funding or modest sequential common decline the to now $X.XX impact the was have were I Net the As negative quarter continue a to Loan negative higher common GAAP income costs, dividend. in of reflects earnings income X% will million result, and acquisitions detail. $XX.X more share. increased discuss GAAP earnings income rate relatively QX results $XXX.X value and interest per interest net interest recent The nearly interest prevailing million as cover in book distributable were declines

spread decreased impact carry interest X.XX% last quarter. the net of including X.XX% Our swap from to

carry recent net of However, with inclusive our this and Fed our should revive fund forward. position portfolio now swap spread increase, of the swap the going net is in cost a benefit

Our CECL originator mortgage write-down that losses ceased $XX.X provision for current primarily investment the and result $XX.X credit to due million a a a environment. to reserve of as zero adjustment in to recently operations million, was

In using or loan assumptions June in speed addition, over loss the due the portfolio, XXXX. carrying CECL loss said, XX prepayment That period primarily value corresponding the to ended in reserves for modestly months and charge-offs at model. increased our remain on $XXX,XXX modest credit actual XX% adjustments six to

impacted whole valuation As rate our discussed, again volatile portfolio loan was already by of environment. residential the

This value, net hedging million. is on value fair losses securitized were at at held partially debt fair million. held offset and gains economic by $XXX.X $XXX.X of loans derivatives net For

another Also mark-to-market of In origination This equity on valuation adjustment million $XX.X recorded addition mortgage reserve investment discussed equity is to and we approximately equates partner. I to Gudmundur other is investments minority in fee have XX% the adjustment investment partners income and $XX.X an that from in these XX, earlier, a performance perform reserve, believe would declined carrying obtained CECL at discuss position X.X%. mortgage the adjustment in noted of should financial in valuation is included its be to the servicing XXXX. and strongly. million navigate enough other million be Lima’s will excluding the this detail CECL of for shortly. book Lima GAAP Further, value income June the One, origination, entity we stages that and the current strong challenging economic valuation is following The in value approximately which will on that third-party. million based and origination approximately still It $XX development adjustments, to environment. remaining more its quarter continues from the $XX.X

of net four and investment both information realized the structure our operating the income earnings, over quarter, expenses $XX.X the Because of G&A On dividend expenses way is measure increase the meaning our One to results securitization set personnel certain not the the second the exceeded committed increase $XX.X these impact to recently management million, current information Bryan costs. including $X.X loan we to segments. Also Finally, Lima Distributable operating million million that, to was activities, to and in costs, and and due provide reconciliation XX. information that for all $X.X origination And previous costs XX call This the to is common This first XX, earnings, presenting following to Lima our income, higher the over quarter, on quarter reporting, were on GAAP servicing on shareholders with the certain related quarter. for was quarter we $X.XX. I Other the a from is unrealized primarily this of and One. for slide increase option second GAAP distributable current elected primarily Wulfsohn. and the portfolio quarter, million turn prior losses, gains and losses due $X.XX of quarter. financial will is of internal higher a adjustments the value securitization-related not to from we we further deals, gains exclude are fair to quarters. changes completed arrive have slide on to net and GAAP a adjusts our that primarily non-GAAP quarter capital out loan

Bryan Wulfsohn

of has over Thank a issue Steve. market in for growth higher and June. slide These to mortgage in the affordability seven, on increase would-be year-over-year quarter to home factors increased prices slight with hovering many But in supply around the again XX% the become Turn you, led in second homeowners. the increase quarter. home an rates homes prices,

remains at the slide volatility growth million purchasing percentage and totaling UPB premium housing credit pre-pandemic loans successfully in Unemployment purchases reached double-digit our of The the does weighted million with being make backdrop prices. three-month perform can of intermediate their borrowers XX Turn over of stability investments fundamental generate although of down remains rates length haven’t of for We low-to-mid employment borrowers $XXX on spreads current sold. well. on CPR to refinancing delinquencies well be for Recently, in days cautious a in continue continue mid-to-high portfolio second range over XX% the remain -- XX. was the our of from price those LTV borrowers Serious volatility to XX quarter have our status time, paid days our through $XXX million, has securitization these the greater LTV been of The RPL in have XX believe over themselves. still average we approximately our account coupon the percent home as increases to have sell XX portfolio for levels. to dropped to delinquencies XX% in Combination portfolio become on appreciation delinquent property Turn dropped normal lack a days loans to second not percentage levels between executed elevated. speeds over in factor and $XXX any portfolio as another The should loans mortgage rates. full and to first further that delinquencies of the X% quarter, remained the payment. in supply of Prepay opportunities days almost less term non-QM portfolio was quarter the Many or uncertain. as have $XXX securitization. And quarter to and we our However, to appreciation economic a slowed loans We with as unlocked XX borrowers property loan new XX% remained equity again to in slide for decreased in X.X%. delinquent delinquent ROEs and par. mortgage eight, loan now delinquent. moderate are these million post-origination. all increasingly continues to the experienced continue home of original of price below uncertainty, nine, of the the borrowers continue [ph]. and XX%, perform inventory be we as than and prospects the that strong that our the home non-QM and was to that and given potential seven-tenths many reduced

As a returns. are purchased prepaids to and constituting discount to reminder, the portfolio our were beneficial par loans at RPL

strong team our asset REO concert performance full. The or Turning portfolio. in performing either have portfolio. our maximize of paid to to worked delinquent purchase to drive liquidated. XX, with management at has now NPL that are servicing outcomes continues loans either XX% of to partners in our were or team slide be our on XX% liquidated

sell aggressively to our properties REO continue We portfolio. in

the XX XX% properties for status. $XX million, in are gain million a of sold of Over still months, net last we $XXX nonperforming

have three Our or full. been effective modifications have are paid either quarters in performing

walk they with like We the to business to our purchase. pleased I’d you these of are loans. to to the continue And as over Gudmundur purpose outperform assumptions now, through call results turn our time at

Gudmundur Kristjansson

Bryan. Thanks,

One exceptionally to expertise, Lima origination we and at the the acquisition At marked XX, strong $XXX into MFA volume estate markets page attract one-year has XX the this Lima real our possible the MFA’s continue from skilled acquisition, strategic weren’t to couldn’t was to BPL of it integration grow with the sheet executed allowed One. been the balance space. and would if approximately anniversary implemented coupled gone the on of July The XX-month trailing time million. strategic of our Lima’s have last investors Turning goals the One, of in have months. over the family which Xst have Lima business team of vision and Lima better well None best was dedicated for capital

year, Now Lima billion, improve year securitization One BPL all at more XX A of originated double the and have To months various later last nine end, Lima loans $X.X was of remains our to key months, part have securitized was what the a $X over have level and loan we that origination by earlier. products. its billion stands that than of it the financing in see established loan and to originates. approximately continue Throughout for strategy we BPL by another of BPL for the that pricing programs originated adjustments approximately we the One and One loans originators, any quarter. demand rate pipelines, $XXX Despite market managed sheet quarter products create investment for million conditions had origination challenging environment. making that Lima to proactively to strong continues attractive raising for strong in the with balance ensure MFA’s rates loan second

highest conditions. we coupons changing weighted seen to Lima’s market coupon allows long product stable. relatively some and high business have feel have rate market rates transitional which pipeline time, of As differentiator allows origination this production higher believe risen, products us This us as purpose have is of focus long-term pipeline our the product impact term seen loans towards conditions Lima’s quality product loans has in shift remained between X%. more loans remains Despite mix change. offerings we with with mix to acutely. of sensitive origination as mix, in that broad strength create term represents continue a a short- shorter shift We rates and the key longer overall volume in a to average rental primarily our Lima’s to more to across shift more the loans, approximately seamlessly due strong,

and pressure of to We as MFA’s generate credit experienced originators sales forward as great able BPL and costs allowed coupled equity an liquidity balance strong have high-teens. long-term other quality. loan expect liquidity, we significant mid- buyers have on-balance increased the interest on the assets capitalized rate Lima as XXXX. to lender, increases which manage cost lower financing spread going sheet, in than market that at originate return to stepped BPL We on throughout see One. similarly from XXXX The securitization with With sheet to while mortgage whole maintaining Lima share, our has we short- Lima to loan and are dependent loan has and loan has gain put away substantially on many whole aggregators, acquired opportunities

well Lima expect billion originate for a We and positioned to as and BPL space the years $X.X in being billion come. continue XXXX to leader in between $X see to Lima

deal challenging securitizations completed of originated loan loans. ability July. XXX% of Again, our market. in securitization single-family rental execute Finally, in fourth showed consists Lima our The a One we to we

the and in Turning and of portfolio max to approximately XXX% $XXX will is XX, and by grown originated we the where We by in million million fourth the All Flip portfolio has Lima we One discuss This growth since XX page One the Fix Lima UPB portfolio. ago. loan quarter quarter. and we $XXX added consecutive the loans amount XX% acquired months grew quarter. by the of portfolio

sufficient origination and our of transaction sources derisks originated us We continue and are well and Fix a revolving growing as of replace securitized completes rehab funding draws funds BPO loans at our a securitized. by that reinvestment paid platform. Lima Flip being all structure, on strategic highly down securitization and over and as diversifies has yields we equity. Fix two-year of bonds as of X% to our We return which within We XX% goal and they One. transaction, find $XXX allows double-digit another Flip important deploying representing In period, in asset we approximately with new five-year this securitization were closed first which attractive this ones believe April mid-to-high currently securitization million has the The developing over capital a occur. sold the in Lima plan assets, when maturity, with to expands,

and new the paid rehab funded off within liquidity quarter a loans was source the that as origination draws of securitization. securitization replaced RPL the Our were throughout

initial to in good to that and a loans see the left as The market, outcomes. of a XX-plus-day quarter. Almost approximately One One. are LTVs X% prior XXXX the declined of have at holdings of of Lima’s they Lima work delinquent our than ne about Lima decline low delinquent to XX day housing a loans lenders have originated April ratio of originated diligent are by X%, delinquency continue our X% other end strong approximately XX% the XX-plus-day Flip team rate the a activities. of were speaking the and loans quality originated to were and and them all steady We currently plus XX% XX-plus-day delinquency from Fix origination and servicing

Finally, with interest fees at loans in other expense collect serious and full payoff from payouts. fees we often delinquency, default

the meaningful and there’s where add inception, of we have types can Since Flip portfolio. up. in these million loans, across fees these collected For $X.X approximately Fix equity our in property,

to loan Turning and single-family yields portfolio XX, low exhibit our rental page delinquencies. continues strong with attractive to performance

at XX% over One. our XXX% quarter the all rate quarter. Lima remained portfolio the yield and the was the over SFR acquisition at XX%. One which XX-plus-day million of loans quarter, we portfolio the delinquency acquired is $X.X We in Second $XXX and grew This the portfolio of and Lima low the end the to by have grown since billion SFR fifth X.XX% quarter by of growth by consecutive of originated approximately

the we quarter, frequently origination mid adding rental but the at equity We third adjust cost in rate SFR our fees adjusting first attractive loan in loans fourth double-digit X% and continue market return playing an just securitization We Currently, in forward. and forward. higher going loans on low-to-mid going and priced return are rental these rate, originated our to After this the of in and $XXX consistent Markets percentage a of loan Lima reflect challenging very securitization our profile rising to the at issued financing the a on funds job securitizations yield April to securitization Approximately deals these marketing SFR July. environment loans believe on the did class. in both XX%. two between MFA’s asset that of consistently loans. non-mark-to-market July for XXX% million middle completing team transactions of and a the ability securitized we a securitization, Capital approximately is One of execute demonstrated of market were phenomenal deals

We to final And executed Craig the comments. call securitization provide long-term, to non-recourse as I continue some non-mark-to-market finance efficiently loans with to will single-family our over that, to expect rental and financing they for programmatically benefits. turn

Craig Knutson

you, to XX. Gudmundur. Please Thank page turn

quarter income excellent of prioritized despite to affordability XXXX and rates. issues the the markets, challenging company impact would and of questions? call capacity fixed market low Tom, but that leverage. a market please Lima rate period One securitizations relatively was the during quarter, MFA’s practice as management for you $X.XX achieve opportunities generated higher credit the on the We despite homebuyers a we deploy obviously due interest open rates developing adjust So raising sheet second swaps, the the in earnings arise. distributable mortgage can conditions continued exposure, continues market and and to risk lessened active balance to freed liquidity through results, strong housing for mortgage benefits our up

Operator

Bose with going question representing ahead. very from Thank Instructions] much. begin George are go KBW. Please And [Operator we you the to

Mike Smyth

Bose. is actually This Mike on guys. Hey, for Smyth

Just and capital then leverage cash level are one what the for normalized of up take a and on that some quick for deployment, in to put you what’s leverage to the work? looking excess market

Craig Knutson

have we number. mean, target we the this thanks leverage don’t before said Mike. I question, So a necessarily for

then second leverage is, when how the asset purchases, and because them, assets lever two is we the do think falls one buy sort out we we them. I things, finance of of

assets. we lot see could from we we this to in all as advance through effective a get go buy at really now look, that differing X.X a don’t somewhere of securitizations, the raise out we rate securitization. materially. I But mean, went few it it low-to-mid-Xs a at will cheap from higher quarters execute But I So bit see least quarter-by-quarter, and don’t materially typically really if I changing leverage change a the point, that little because if you that X.X., that

Mike Smyth

quarter-to-date a book helpful That’s Thanks. you update? color. value Great. And can provide then,

Craig Knutson

Sure.

numbers. So have don’t it’s estimate best about I think a of June the X% value We be very is our lot really probably would XX. up preliminary. book But since

Mike Smyth

for Great. lot Thanks the a questions. taking

Craig Knutson

Sure, Mike.

Operator

representing Next the line to of we go are Please JMP DeLaney Securities. Steve going ahead.

Steve DeLaney

securitizations Good morning, of the comments was to Was in the the both that the and mentioned everyone. you product? Lima and rental and two One for Thanks which another in the on you Flip. Fix the one sides one, post made progress quarter INVX, the on rental saw might end, there We your Craig, done have another done loans. I July. congrats think question

Bryan Wulfsohn

We Yeah. is Bryan. Yeah. Hey, completed… Steve. This

Steve DeLaney

Bryan. Hi,

Bryan Wulfsohn

We completed loans. a of securitization RPL

if So loans. one. was RPL Yeah. the you That other like

Steve DeLaney

That was the one. other

Good. Okay.

think the securitization far mentioned, the the -- you So two so rental including July? on in is one loans so Gudmundur, the total I total

Gudmundur Kristjansson

so, So we the for loans, we rental yeah, and April then… one in did --

Steve DeLaney

Yeah.

Gudmundur Kristjansson

did another we July. in correct. That’s …

Steve DeLaney

Got it.

in All right. are appreciate community the on the in terms first volatility believe your had I’d Comment you warehouse And building just Thanks. when calls, I about an we that Craig, give worried everyone midst cetera. think was us of a spoke on with the Okay. of and willingness was your of bit about cetera, just you call, all inventory call, liquidity, that warehouse et lending and you of the Thanks. securitizations? the quite ahead to lenders support that I generally back relationship quarter -- up margin and obviously update warehouse on lenders. that. et Could

Craig Knutson

securitizations that, just have lend we relationships and question. the our very that strong the would lenders. are for They money. sell securities. the Thanks us I do the ones don’t with They Steve. say Sure,

nuts it’s relationship. a soup So really to

loan on enough there to any money just would to we We that, don’t seen would portfolio various have fact, to at and able that no from certainly lenders, go around. be to lend in us parties love do but all are our we reticence like and borrowing have

half margin whatsoever. said, over have under-lever I like that because we very got I margin talked we But spare. to portion calls, So, significant a agency we sheet few think calls. if I you balances conventional balance right, massive happened think, if space, is there about these so just probably to lenders out the originators have what no about probably of mark-to-market financing, issues anything and all in the had

our million probably of the have calls think $XX we whole in quarter I the been margin swap $XX for our in netted cash quarter, loan from and million second position. might

our been manage difficult that Also also is recourse that it’s leverage ticked not liquidity. to down. So

X.X Our leverage is now just recourse times.

and over policy frequently various this it think going serve all product, and of I to -- us well often securitizing this was the So time.

Steve DeLaney

Okay. That’s comments. Thank the appreciate great. Really you.

Craig Knutson

Steve. Thanks,

Operator

And our BTIG. line Please representing Eric ahead. next the go question comes from Hagen of

Eric Hagen

Hi. guys Thanks. Hope well. doing morning. have Good you

Craig Knutson

morning. Good

Eric Hagen

minimum much to describe there a you that you the is whether getting near how what How you few from a say about assets the morning. look we value Hey. the level medium Maybe beyond to are do at few like, over and you this is the duration for benchmark term? have there? of cash, me. the the can value that Maybe over portfolio say also that a liquidity NPL of spread And million you then target point, longer would liquidity the of $XXX in me. and think might you Good kind

Gudmundur Kristjansson

it’s So, probably, the it, and -- thinking is NPL of portfolio the duration about value up. the the of really value

loans significant what to All that half to going coupon actually are prospects X% or and have the to somewhere discount the see see in waiting are is have to what right? the performing, X% you that fair HPA forward, to to we par of between and be big yield that to sort to of seen half book just for of too much need is growth expected plus value, continue continue liquidated. So purchase assets. it’s those those but given don’t and And then X% HPA of other now portfolio, on be going they minus are given

Eric Hagen

helpful. Got it. That’s

Steve Yarad

Yarad. is Steve And this Eric,

and of do referred as under on significant a quite of $XXX liquidity have at the of some on as million we to, sources addressing question your warehouse it’s Just that’s June. -- $XXX loans borrowing to warehouse much and million additional our mark-to-market end

Eric Hagen

it. Got

Craig Knutson

just So don’t, $XXX we a it’s that assets that sort or said creating way, because those in when another borrow of we discipline pledged, Eric, we another million on million self-imposed could have question. $XXX

Eric Hagen

it. Got

sorry, from get as retain any tranches say Okay. collateral of That’s securitization for you can helpful. And whether, pledged the financing?

Craig Knutson

say, we we very are to balance since the am so where a did and really is And a of those sorry, XXst, sheet, instance, June, if that discipline deals for retain would since couple retain strong bonds can pretty we again just a until There rated securities. that those. tranches. been some have typically recently, have was They that up impose of small the wide the we couple fairly wide, because pricing no. of on, some can investment the sort we on I pricing market March grade answer done the the of be have of So IG,

those, And become the if being, going -- pretty easy so, own particularly if tranche to borrow investment the to right, tranches, -- borrow we going is to time sell And that. those priced should X.X% levels or actually are lever. X%, future, those in But we at attractive. to bonds the will would grade-rated is could those because on the we rather for the

Eric Hagen

call is you Great. because That’s market itself on non-QM, the even option there de-levered can on And call look bit? and debt has the helpful. and you exercise then the a if wide debt the relatively to us, a securitized how might is option little remind the

Steve Yarad

Yeah.

call deal the whether will down and spreads So we that option, years we the today reissue. original determine two XX% UPB the say, exercise generally to of loans really the of to And will in comes have for -- of to and how at years determine deal will sooner. that far UPB, look where a call time it’s by we delevered kind whichever our it’s market three back

Eric Hagen

Thank you. the Right. appreciate comments. I

Craig Knutson

Eric. Thanks,

Steve Yarad

Thanks.

Operator

with Doug Harter We Suisse. a from have Credit question

open. are You

Doug Harter

do versus the versus on warehouse relative about as talk differential -- lines? you holding the return you securitization Can Thanks. it

Bryan Wulfsohn

securitization it’s I the Yeah. -- I I think year. widened mean, during so think,

collateral we you I have, It right, collateral general securitizing will X%. from with range non-QM are -- probably think loans type to is -- can SFR of and cost if non-QM X.X% yield. between funds of in all-in the

like LIBOR XXX, are to we probably something to that. warehouse, the On plus close XXX

the lower, points. it’s XXX, the anywhere basis from and management a still into benefits XX months. XXX with warehouse the do on provides path for of that fact moving necessarily The tremendous is it’s that’s all funds. to us, well of non-recourse. securitization But the as to have as definitely So the non-mark-to-market funds just cost more think perspective by about over from basis we about XXX obviously months not of what liquidity, cost at LIBOR probably, done We points by to we risk want to the securitization, XX think it’s tune to XX last

future, to should there a but now in us securitize expect to benefit on warehouse for continue you so, is the securitizations. And versus

Doug Harter

the challenging to then, and Got Lima it. how that do able switching that And of in level One, you become the to I profitability more second the guess what’s you view quarter and clearly sustainability generate a I guess, market? of

Gudmundur Kristjansson

No. for the you question. Thank

guess, and need way them, think think we about Lima they whole on is level the one think business about time. growth seen, and pipeline them our -- the the portfolio opposed for the our we business to credits, we going instead day. not said will have it for XX as we that see prepared last you that whether to of as give they think which quarter creating way market in forward. And months, to the we we and our terms long-term to about next, we One, the to how way the in of improve I as raised generated that’s you they is seen assets all their each And the to have ROE a new perform believe we are over going And own think that really I sheet. nurture is approximately importantly, have but that now that taken more well it’s really to we about attractive every efficiencies quarter ability really balance X% it’s and rates we dramatically have grow. and is, over coupons generate the are continue as And us has there a with rising remarks, tools we us

Craig Knutson

those paying buy we would for the be a had compete the just in would to assets. high-quality, go thing I One is, them, more one is, of Doug, assets, benefit those if more difficult lower the that and significantly it buy size would marketplace those to acquire yields out those I strategic lot it’s high-yielding Yeah. of add of and that captive be really And we for a be we assets Lima assets. would source think, assets,

these I think the a from effectively the as at thing. strategic just real We costs creating add So about it’s would I a business. a about quantify the to assets other it’s little hard that, And the but important think think roughly us. we to Lima thing -- for

kind kind would over that generate fees cycles and servicing fees, over their the the asset would think expect of G&A and we long-term. in So roughly offset fees about normal business that over and we time, course that’s that they of origination how of will it

Doug Harter

point, profitable And you would pay market? open be to to it. that have portfolio then acquire the more would just the in more to Got those maybe Craig’s

Craig Knutson

Exactly.

Gudmundur Kristjansson

difference, from basis with to usually are with down people huge that I anywhere mean, can buying be a And Fix XXX coupons XXX for loans basis points. Exactly. example, side, points Flip on and the stripped

a obviously our in that’s huge balance sheet. benefit all retain to So to us

Doug Harter

you, guys. Okay. Thank

Craig Knutson

Thanks, Doug.

Operator

participants no this there queued other speakers, time. our And at is up

Craig Knutson

announce like Tom. November. and look to Thanks, Financial to everyone for I’d in Tom. in right. quarter interest All MFA next your Thanks, forward results our update third we thank we when

Operator

you you does our Event and Thank Thank Services. very and the conference your much. for that gentlemen, Ladies using conclude today. for participation AT&T

You may disconnect. now

MFA Financial (MFA) 4 Aug 222022 Q2 Earnings call transcript