MFA Financial (MFA) 23 Feb 232022 Q4 Earnings call transcript

Ladies and gentlemen, thank you for standing by and welcome to the MFA Financial Announcement Fourth Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, today's conference is being recorded.

I would now like to turn the conference over to our host, Harold Schwartz.

Thank you, operator and good morning, everyone.

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

information results. additional in disclosure quarter press For statements, forward-looking MFA's you of Thank the for XXXX regarding please MFA's relevant see time. release fourth financial announcing the use your

turn over to like now this CEO would to and Craig call I Knutson. President, MFA's

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

XXXX off in the November XX XX-year for the agency to crisis. rates fourth at ended but X-year weak with income Rates This fixed before cash and year back unchanged the mortgages straight. XXX. The at only ride mortgage even to XXX close Agency a late quarter were anything mortgage in another MBS years early ever September widening in than sold the quarter dysfunctional, and [Indiscernible] at treasuries not XXX, they the October great the the widest of of but yet particular. flows in rallying fourth securitization punctuate financial in quarter year to out XXX of is slightly path back while wild than for before RMBS hit was for difficult XXX began quite what out was to most one After fourth market, higher technically the the market AAA rallying volatility almost more were at market markets, late with treasuries widening at XXX. October high the level since spreads. quarter in beginning the year the closed, the

for a to fixed breathtakingly was As mortgage not surprise income participants, was total bad MSA. at XXXX it as and us

XXXX with stated quarter ongoing year and that at the geopolitical rate I tense move the the Fed expected earnings a On call ago, on our a we volatility fourth inflation environment. ranging time,

similar a quarter XXX For our I felt of raised to rates XXXX Fed total remarked XXXX the XXXX when Xx earnings call, for points. basis first how

did a rates. in XXXX but not early Now we took higher ball and preparing for have in perfect crystal late steps to we prepare we began XXXX certainly from XXXX additional

year-end protect seems way, during by ago. XXXX. As is we We XXX a market action forces. market at swaps expectations million funds like basis XXXX. MFA Fed were long It had of to for rate And further expectations, in changed took XXXX, increases time $XXX for point the on interest market this when

our rated time, we end securities despite later swap and when in complemented securitizations year we the execute the we margin a book the swap XXXX to on We billion when the exposure future same of The numerous were There increased the disappointed $X.X quarter warehouse printed repo At by rates same year we and somewhat and effectively and, to of our or week interest funding our securitization the reduced $X.X that higher to to rate ecstatic occasions costs May. securitizations that continue did. our sold. of calls priced end fixing on with the time, during deal we billion first were had spreads execution X the and higher by the funding. at the we positions our by throughout

of you cost funding is effectively Our We securitizations costs historically of or quarter MFA's swaps. third fourth in funds, look management particularly asset-based rate of our were call of that at when interest through XX% either fixed evident our XXXX. on our stated the financing earnings cost quarter

by XX the was quarter. X.X% Fed points Our increase Many others third basis points in cost in December they XX. funds points and our meeting the in 'XX funding their were in it basis in basis June in fact this the rates, XXX points costs the the the between XXX of And rates that our in fourth only more quarter raised only than than XX in or and the fourth quarter. points more funding saw basis basis quarter in which space quarter XXX raised were basis costs the since fourth points is fourth higher Fed And was by despite and the fact, quarter XXX September. second

rate result fixed rate average a XXX we pay our when entered As was of at December swaps, into our interest XX. weighted

of as interest Given points further. and will rates swap carry Fed positive positive of level further funds close increase increase our the book to XXX now current generates this SFR, rate carry a basis

net we of as yield, higher spread -- X interest added in last assets the added our at increased increasingly has quarters. we both Finally,

down economic little our modestly was quarter and a XX% GAAP the book down return Our and year XX% and value. the economic for very on down the book year was XX% fourth in for over on value was

year XX%. that our rather XX% and to is down proactive decline than fundamentals. weakening of to While value in due for the value our others some and book this book as the book between for the limited saw it's MFA, liability is and year rising overwhelmingly returns economic for declines to management, disappointing important hedging note XX% value And a to credit decline XX% rates result

share. $XXX fact, par $X.XX loan is In per marked portfolio our or million below

is at loans par securitized at million our by the Now marked and debt $XXX netting that to also par, securitized we potential Page $X.XX book the this we off our of earnings credit with par assuming be or share. off that share. X lays pay support of economic our pay case, debt our together fundamentals in per a below that loan But out and X strong upside per fair, $X.XX deck our have portfolio. the value

early through So and as been this of became to looking to thus the queue more and but February, numbers further inflation rally. anything January has XXXX, rallied this came ahead dog that bond highs and trends month market Rates far. that back more participants followed bond we boring that the confident year rally Fed the Fed conference announcement they basis treasury January. expectations X, on November up which end by once provided retail learned The cheaper. employment and report diminished. tightening the and cheap suddenly of CPI a bond but improving we're hot And particularly looked February fuel mortgages of route sales yields. to out doesn't Then mean press Agency became in on and a attractive, again, historical further mortgages look were near at can't on get January

of game rate It rates. not clear or and for total pretty at a we've were restricted tighter at over. of spreads Not basis $XXX considerably November. not in middle been printing But of We in fourth one that us the how definitely these further that with of thus executed in not than the quarter, Fed innings points just in seems inflation. long After million Credit only about but sell-off clear far on they certain securitization is on is XXXX the securitizations we're more spreads million whether can markets least the over to AAA nor levels were order deals but need priced X in to to in they loans. $XXX constructive they ninth securitization hold already year break the will this before we're the these increases it neither over have is loans XXX debate clear were inning. the in tighter to of magnitude us rates recent

in loans costs. it our we'll market since market to rates last conform pricing strategy second of purchases continue asset on liquidity. yields to and rate the prioritize has as and and funding Our year. We'll to adjust We'll securitize to place remains been quarter continue

in Finally, last in rates a anyone. X selloff country. Clearly, month-over-month We're to beginning little years, mortgage appreciation widening and rates talk over has surprise residential modest of the mortgage dramatic a like bit the has mortgage I'd credit. about be home had the this After declines and activity home spreads some slowed housing impact in least and should price some on not parts to dramatically. to price at housing see profound the a

the Page to which X, on with embedded show most LTVs current combined has cases, in has However, amortization, loan as again mid-XXs. considerable we lowered our HPA portfolio the

have across improve In our continued addition, to trends portfolio. delinquency

to now I'd about like the to turn call activity our Lima and Gudmundur One. portfolio to over talk

Thanks, Craig.

to turn credit asset loans higher long not high-quality with our in XXXX. combination you've coupon source to basis XXXX added about average was higher QX XXX investments the a the compared higher average and perspective, XXX rates QX of than us To time ability never loans purpose basis coupons about acquisitions. perhaps on purchased assets to and quarter, that coupon non-QM The points business unique of let's and to seen add into First, allowed the that over X.X%. loans fourth and put in points

and acquisitions credit LTV with average remains XX% of above average the Importantly, of quality excellent XXX. our FICO

in Lima these efficiently in about One, the cost process. from below continue acquired originated remainder loans. XX% million loans for being loans We in third the acquisitions of opportunities of our non-QM find can of of accounted loan were quarter to the fourth purpose selective credit where purchase control acquisitions These business and by assets $XXX the the and substantially we the quarter best with parties sourcing

and under balance originated create for importance credit Lima XXXX a market and year believe months acquisitions the as X/X for just about space. space. BPL in the and a XXXX. record XX% talented of to when progress planning excellent of in market and loans strong as $X.X billion strategic teams to the over Lima in have a we're have collaboration tirelessly creative getting due human yielded XX The last benefits BPL execute team vision and forward continue has to the in full Lima opportunities a XXXX, share first MSA The was I strategic origination between going started sheet originated over ownership the and Limon One year to accounted tremendous leading will in and showed the clear worked and operating the BPL increase MFA and volatility loan grow XXXX at prudent to XXXX volume, MSA's and its Lima resources. our underwriting. emerged made with great originator performance MSA's nationwide Lima was

has with X% One them management delinquency very and Lima XX-plus servicing among risk on which combined on One low underwriting and led as focus and our under a Lima has disciplined of portfolio many December is quality in-house strengths. to our levels management strong has XX. construction delinquency teams Key BPL day credit which of

In Lima addition, our of concentrations. makes purpose Lima Lima's No or no state XX% and origination does up portfolio. have our excessive exposure BPL than geographic X% loans borrower One is more of business not borrower more One than

to rate volumes product strong offerings allows of economic is interest long-term and real origination cycles. which both financing strength estate important through and maintain investors solutions various Lima's to broad short-term us Another experience

our of visible middle the One of has been of has purpose securitizations billion benefits our the loans. acquisition area MFA Lima in over where business been originated XXXX. since $X.X loans of securitized the collaboration our has very One

and purpose investors closing as alignment securitization one now risk Great of transition XXXX swiftly and X We execute declined have securitized and both platform revolving and management nonrated all beginning and this where over months. was securitized of over asset roof. well in and securitization second in business This XXXX. closed market the about blew types of $XXX over differentiated loan are alone the been origination, a $XXX long-term out. second under in securitization our of credit loans the interest control of resonated We get reopened created and has outstanding. to rates servicing, spreads transitional short this and has million credit bond are million marketed in first transitional with February which to loans retention us process spreads have half these the of market our team These this effectively and securitizations helped

underwriting tightened portfolio. loan general on risks, on Throughout our coupons last higher we impact rates, To XXXX, increased potentially we economic conditions policy softer focused were adjustments tighter the and standards, of year. those throughout address in pricing monetary and risk-based

volume softening Lima's towards loan X/X result, QX we with million. of to last year about saw a $XXX origination the end As demand down

are QX We higher expect One on financing market expect volumes remainder volumes higher volatility and bullish and origination to XXXX grow as year the soft but share. the BPL to costs origination to remain throughout volume market Lima allow origination trend of for

We be we our our on financing $XXX origination focused far of end, and quarter fourth another expanded continue availability the BPL of so to financing and that in RPL million XXXX. in to support $XXX to capacity liquidity and warehouse million by

the over will more in credit performance who securitization Wulfsohn, discuss call turn activity Bryan now and to will I detail. MSA portfolio

aggressiveness X the treasuries bonds be around the basis loan debt securitized for issuance. different X be quarter, successfully while one in on the to to first and year in We navigated proved MFA AAA to points. issuing active us very those patient across quarters XXXX back issuing of additional Gudmundur. the Thanks, securitizations issuing challenging year over XXX billion for market spread our types. the of first nonrecourse securitization conditions, $X.X that the only were allowed a wise through of the securitization in moved year to

For XXX short a spreads summer started non-QM SFR pushing and in XXXX only low respite before the on the year moved the reference, throughout higher AAA again. in wider with and

X in sold. XXXX points quarter totaling in on as bonds issued off tightened basis billion The the XXX exhibited patients $X.X we over early over in have fourth already AAAs another spreads and in paid securitizations

a benefits to will significant in be regular We securitization the we non-mark-to-market financing to believe our issuer market portfolio. provides as continue

performing delinquent X% And the loans loan delinquent and a stable remaining remained delinquent. In from transitional improved of improved non-QM payments. of further December the loans Moving prior. The over portfolio of NPLs, XXXX marked the X%. performance. days a purchase portfolio had to borrowers SFR to and with portfolio of The RPL performance portfolio. XX% we XX-plus X% exhibited our X those credit and between XX-plus of credit the portfolio X%. XX% positive the days loans XX% as year XX-plus purchased percentage portfolios on for to year for Delinquencies in our making

However, XX% of those are borrowers making payments.

a had REO successful properties liquidating We from once again quarter, the portfolio.

we the Over million, properties $X.X or resulting sold quarter, gains. XX $XX in million in

prices. in in remain as $XX XXX sold our gains. for shifted $XXX full home remaining the on has Over properties million, we year, loans resulting momentum We million focused nonperforming in

Our team sure management make line is remain be as protracted working as our time time asset resolution lines to to costly. short as possible can

time LTV extended well is potential to our helps credit portfolio environment. which economic the mitigant we believe experience positioned a losses. the Overall, a in maintained over the current years past X As uncertain by lines, aided for low HPA limit portfolio our the significant

call over with for And the turn we'll to that, operator the questions.

from Steve [Operator Instructions] Delaney. come JMP of the first Our question line will and Securities

put the improvement we quarter, from third to Again, in I'm EPS of the your at look more If at distributable close look as you distributable a -- a the at strong rate. to obviously, $X.XX. and trying -- look it it puts return a book XX% quarter on that Congratulations XXXX. look XX.X% value the a $X.XX if it but economic not we XX big to at annualizing and just us a of on around in quarter-to-quarter

reasonably what are a value economic it the seeing sustainable up than deals you're in of returns of return they terms fourth the quarter? in the that 'XX. distributable executed economic As current put that of in about anybody. your Are consistent talked being reflect ROEs with the book kind quarter that on see you an first that level? with better you you as Gudmunder business know securitizations Do your Does in

Sure.

was think would couple the that helpful? on Steve And that we've the securitizations of I most can I'll or things the So a Gudmunder be talk Bryan maybe by $X.XX let that -- of influenced static Is sort securitizations that that the address. then recent done. ROEs about

Thanks, Steve. Yarad. This Stephen is

recurring $X.XX in that have it large periods. that quarter future of quarter, items in we did the occurred fourth be in the benefit some necessarily So up fourth won't the the that put

there had the the $X.X interest the income On redemption did interest fourth net And note MSR we [indiscernible]. for line, income add to have million an that quarter. was

Was X.X%? that

Yes.

We or is that past now in the these year have lot redemptions was X but ago. than portfolio had smaller of types a a it

We fourth also quarter. delinquent had another payoffs a couple of of added the $X.X in large net -- for loans million about to that first income the interest

that's Bryan And that $X.X of about the mentioned we REO On gains quarter property. liquidations did sort the have REO in a quarter. that one expect level that particularly individual added on one that particularly a I a REO have necessarily you have as the liquidation was consistently large REO to wouldn't but million of large -- we in but fourth and property as said, have gain side, any we routinely single of

talked the about and we and than some little the this rate quarter bit of at than MFA the and at finally also, number expenses was our $X that our year-end And lower G&A at bonus an that a press compensation Lima regular our to previous volume million our this benefit in release, both lower to, Lima. about One. commission get due that in sales a finalization Lima was paid origination on Gudmundur impact and accrual had at And quarter reps alluded the was run little as

on as So that a well. lower little side

helpful of a of are try normal us to for something type number. [Indiscernible] rate to to more very run adjust

thank for that detail. So you

to is it, to so double-digit securitization little talking where investments, about as execute and is can our new on to do low speak. we and acquiring call mid-teens, general, levels assets returns, obviously, it approach, this just at Steve, And our returns to we're start of so bit in kind adding a loans

to it factors and if a that we just currently. have loans press the in in that little originating And are XX% coming release, the the mean, the takes aggregate for warehouse time some loans so it, in things of math, over and you said had simple them I on nature. in pipeline or think about Lima a One as around XX% at And coupon

equity just about of piece that So earns XX%. the

mid-teens leverage, do kind that gets us as range. into securitization with So of the we that

kind to And whether about seeing transitional on on high-teens targeting securitization, or in are the of the And in returns. and securitization the equity ROE we of of loans, so execution of on warehouse are the is then returns single-family it's or mid- warehouse that what kind or to it's execution. mid-teens execution low terms it's non-QM probably and general, the rental whether on kind

next Then Suisse, Harter. from Credit Douglas

Gudmundur, give me Lima the of on the you at hoping third in party, one the some hopefully, could One about comments clarity hoping little to cost made that kind that acquire you versus the a originate could comment? around details of you more to put cost

I mean, Yes. simplistically, for loans loans. are question. parties, I longer-term loans, Thanks think loans paying for premiums you resto RPL you're or if acquiring your for those are those third whether

returns And X, there as of running goal run origination way is those largely XXX cost kind fees the things activities. create possible where can the cost that running -- for can the boost as of then balance lower it and on origination that by can as returns loans but your working accelerate collect significant And is fees be other create in on these the that depending be not close relates and vary than they you of us fees yourself. that basis sheet. Lima hoping and points but then sheet. the or of the And to creating is a the terms the we nature going be than conditions. in to your high we is as we your to to it of offset to Lima balance adding have business yield and loans coupon to order as you're But the fees try which that have So magnitude lower on origination of market

guess, guess clear, be And today. [Indiscernible] kind to your I where are And relative goal then, given expectations just for what I volumes are volumes... of that to

a bit up little beginning, could you repeat question? the the So in you're cutting

Sure.

Just would of the expectations then that where on are the be what of year? origination volumes current you of having cover costs? the today And this on fees goal for volumes kind kind

Yes.

other early I have think offset we're gaining run that are in so in volumes we increasing long to and track the of kind were efficiency. as -- kind midyear, XXXX, on of each

one And running in in kind and But highly out probably from money gain that increasing the -- particularly leverage lot coming As see from have portfolio happens, down as of attract dramatically stronger the share to better share the take borrowers. will we're able puts we our QX continued that into bit and or dependent kind and so borrowers the the increases because costs out and going the happening, originators the the demand. volumes for of we XXXX weaker cost But XXXX, you up that substantially borrower thinly our been of volatility right? is that bullish into to, example, make pipeline alluded there. the we the volumes or as to seeing in fees. market necessarily we higher business to even Lima than delinquency cheap QX financing market on we of XXXX, other pressure XXXX work. and as reasons therefore, is capitalized players a we're in that XXXX. itself a to in move in on had performance as And income And excess fact quality on see, and versus in market we that origination into came not and is of a expect that's already terms in we head a pick expand product that that as bit, and throughout why think we're And think we're initially to

tremendously And will benefit us in so things I also think XXXX. those

Next from KBW, Bose George.

portfolio your question up [indiscernible]. in-place returns on Actually returns. I just How Just to your current Steve's the wanted portfolio? look on on follow do

mean release, asset the table could increased -- right? interest-earning cost the that's average and press out assets average will I at the in allocation I that will bottom guess yield And you show at of break on we look $X.X that funds the as have type. product by that billion basically basis But number only there points. leverage XX and it out I And will then had referenced well. break the by

capture right? the because have your accretion, is the the you securities right? back will terms also that into of that of is I doesn't The that discount you $X-plus mean, to of discount be the referred that ROE, kind in guess I sort rolling in your portfolio?

do value Well that going a will that's but And earnings and losses. yes, GAAP yes. distributable They for really through of unrealized book flow to thing, any it we're out right? but those earnings gains back

potential that So value may number that's loans that $X as even below at on off we longer and on to debt might the accretion get we the if par, book but really securitized $X.XX get the pay off than all comes obviously, back at dollar though amortization far on par. be par, securities, mortgages paid still get any thought that's market, still through the that comes is through at pay the at because to par them have upside. we take they Because really a rates off people well. the originally And those

but generates. the what's does return the the I value? sense. also, that Where just of stand book trying No, the portfolio quarter-to-date? They're That then makes of yes. economic said And that's this fair. think don't that sort know if But you to

expect, we the it So was January number but that up-to-date at but X% the February end in to the that January. back have a was month given number. It I'd -- was in end given about had of that don't lot that a what have at on but an up I we rates of what February have January of X% to we've the of number good in know done

BTIG, Eric from Hagen. next Then

got I think few of them. I've a

non-QM of Like Looking what agency and the was the the to forward? being levered at prepayment say on loans a loan at pulled last even what room one a non-QM on non-QM there speeds one look relative of are non-QM Is originated the more non-QM sort then kind on loans that to securitized to the compare like returns what you resolution the were non-QM? older the getting does year priced nonperforming securitized there. the and aggregators to to case solutions the loan squeezed portfolio line But up portfolio like that that by mentioned, how And there? is are level, Like in like can right time now? the you're of portfolio to? share bull is maybe would NPL for speed any strategy? are portfolio, especially also get like you you to lot Another financing how fundamentals, characterized freshly

sure. Yes,

In terms like, over guess, agency, to the the relating I we've have where if to versus to non-QM qualify of loan seen like borrower the if and dropped opportunity agency than little get speeds year speeds past conforming probably able cobble a they're documentation bit -- that significantly of type to mortgage. an still for they're a non-QM may because the have non-QM together more

dropped might speed. on over the been our -- still see the X% on So of the we've sort speeds portfolio could seen on CPR, out-of-the-money agency to have book sort X% of but the last you it was where all closer quarter,

still rate you have of So to sort is the a that turnover natural expected bit be higher.

Moving about versus old like new sort of returns you're returns. to talking

to of to volatility, prices and uncertainty are given $XXX out non-QM that for to sort the speed. are somewhat $XXX pools par sort given pretty around outcomes range high. non-QM of close loans there's there, of -- depending opportunities the On so for rate much bid because on out close is spreads Prices rates

to at the of given availability high naturally spreads level. stay that that So has

spread and fair originated that moments and clip of amount around the of returns a low few securitization, Gudmundur a XXXs. AAs as spread Spreads excess on seen we've right? So there $XXX new -- potentially probably because in $XXX is are million for is still mentioned ago. then loans and AAAs sort on the mid-teens and there, potential still newly loans those on the There's ROE on As XXXs in loans the to the to lower to that mid

And doing line these our we've to over X relating sort to that that with, mean, that And are people book, past stays work we make the to servicers nonperforming goes with everything dedicated our to that we and in-house built of can experience time of sure years. bankruptcy short. foreclosure that, sort out of And have we're sort good network I we loans a situations. back again, really the

at been portfolio, to years. don't And And making We for extend. asset have we loans doing sort while. than haven't that lines remember, added this we're probably this in that think have better managers this we most many of portfolio a sure time

So concentration, portfolio geographic there's in the more longer at just shifted are look you towards states -- been the where the judicial right, lines. time if of the general

you of those end lines. But eventually, time the reach

getting position where still we're see loans of just And on of you full the payoffs into lot we've the given REO end up and a we So getting moving of a activity had closer. situation loan. can equity because of lot times any LTV

no the Then in there this at other queue time. are questioners

[ph]. Okay. Thanks, Paul

in to our interest for we Financial look quarter when update next we everyone first to in and MFA I May. their thank want results So forward announce

[Operator through using you for midnight. available Conferencing our Service. does Ladies Thank today Time for Event today. participation will gentlemen, conference May XX conclude after conference Instructions] at be your running That noon and Eastern for replay AT&T this and for the XX

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