MFA Financial(US:MFA)2022-11-03 17:40Financial Data and Key Metrics Changes - MFA Financial reported a GAAP loss of $63.4 million or $0.52 per common share for Q3 2022, while distributable earnings were $28.2 million or $0.28 per common share [29] - The book value declined by 6.8% to $15.31 per common share, and economic book value decreased by 8.3% to $15.82 [30] - The leverage ratio at the end of the quarter was 3.6 times, with recourse leverage at 1.7 times [30] Business Line Data and Key Metrics Changes - Loan acquisitions decreased to $710 million in Q3 2022, with a focus on higher yield investments [32] - Business purpose loans (BPL) sourced through Lima One accounted for $520 million in new originations and rehab draws [32] - The average loan-to-value (LTV) for new acquisitions was about 67%, with average FICO scores around 743 [32] Market Data and Key Metrics Changes - Agency mortgage spreads reached as wide as plus 190 basis points versus 10-year treasuries, indicating a challenging market environment [11] - The market discount to unpaid principal balance on MFA's $6.8 billion purchase performing loan portfolio was approximately $668 million [20] - The company ended Q3 2022 with approximately $434 million in cash, prioritizing liquidity amid market volatility [22] Company Strategy and Development Direction - MFA Financial is focused on maintaining substantial liquidity and has fortified its balance sheet with non-marked to market financing [27] - The company has increased its interest rate swaps position to $3.2 billion to manage duration and mitigate book value decline [16][19] - The strategy includes selective loan acquisitions and a cautious approach to capital deployment, prioritizing liquidity over aggressive investments [62][88] Management's Comments on Operating Environment and Future Outlook - The management noted that the financial markets remain volatile, with inflation numbers disappointing and market participants cautious [8][9] - There is an expectation of continued market volatility due to geopolitical tensions and financial stresses in other countries [9] - Management emphasized the importance of liquidity and a strong balance sheet in the current environment, indicating that maintaining these priorities is crucial for future stability [88] Other Important Information - The company has executed nine securitizations totaling over $2.7 billion, effectively locking in 99% of its asset-based financing costs [18] - The credit quality of the loan portfolio has improved, with delinquency rates remaining low [45] - MFA has reduced its real estate owned (REO) portfolio by 141 properties, achieving $20 million in net gains [49] Q&A Session Summary Question: What are the levered ROEs on new investments? - Management indicated that ROEs on securitized loans are around 10% for SFR and mid-double digits for RTL loans, with a focus on maintaining high yield loans to absorb volatility [53][56] Question: How is the company balancing stock buybacks and maintaining liquidity? - Management stated that while stock buybacks are considered, the priority remains on liquidity and shoring up the balance sheet due to market volatility [62][88] Question: What is the outlook for loan originations going forward? - Management expects loan originations to decline to the low $400 million range in Q4 due to higher rates and tighter underwriting standards [77] Question: How does the company handle delinquent loans in securitizations? - Management clarified that delinquent loans remain in the securitization trust unless there is an underwriting defect, and prepayment penalties exist but are evaluated on a case-by-case basis [92][93]