Slide 1: Forward Looking Statements
Forward Looking Statements When used in this presentation or other written or oral communications, statements which are not historical in nature, including those containing words such as “will,” “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “could,” “would,”
Slide 2: Executive summary
Executive summary • MFA’s GAAP EPS in the fourth quarter of 2018 was $0.13, due largely to lower marks on assets impacted by high market volatility, particularly CRT securities and Agency MBS held at fair value. • For the year 2018, MFA acquired over $5.7 billion of assets, increasing its portfolio
Slide 3: Executive summary (cont'd.)
Executive summary (cont’d.) Fourth quarter investment activity was very robust as we purchased approximately $1.6 billion of assets and increased our portfolio by more than $550 million during the quarter. • • We added over $1 billion of residential whole loans, including approximately: •$700 millio
Slide 4: Executive summary (cont'd.)
Executive summary (cont’d.) Loan portfolio growth from newly originated loans increased interest income in 2018: • Loans held at carrying value1 produced $101 million of interest income in 2018, almost three times as much as this asset class produced in 2017 ($36 million). •$56 million of this $101
Slide 5: Investment strategy
Investment strategy Continue to grow investment assets •Newly originated loans should provide recurring (and increasing) portfolio growth. •Opportunistic growth in other asset classes Optimize existing portfolio •Strategic sales of Legacy Non-Agency MBS •Re-balance CRT securities to lower basis and
Slide 6: Market conditions and investment activity
Market conditions and investment activity • Significant change in the posture of the Fed regarding future rate hikes (if any). • Recent headlines advertising a “housing slump” can be misleading. • Expand investment opportunities in the form of newly originated whole loans. Acquiring these assets is
Slide 7: Q4 2018 net income per common share of $0.13
Q4 2018 net income per common share of $0.13 Q4 Net income drivers Higher net interest income, reflecting continued growth in Purchased Performing Loans. Market volatility, resulting in: • Lower unrealized gains on CRT securities as credit spreads widened during the quarter; and •While rates rallied
Slide 8: Fourth quarter 2018 investment flows
Fourth quarter 2018 investment flows • Continued robust investment activity with asset acquisitions of approximately $1.6 billion. Investment portfolio grew by $565 million in the fourth quarter as we continue to expand our new loan initiatives. Opportunistic sales of nearly $200 million of resident
Slide 9: 2018 investment flows
2018 investment flows • Strong portfolio growth and additions of new loan products • • Grew investment portfolio by approximately $2.2 billion or 22% Doubled our holdings of residential whole loans and REO to approximately $5 billion •Started acquiring Non-QM, Fix and Flip and Single Family Rental l
Slide 10: MFA's yields and spreads remain attractive
MFA’s yields and spreads remain attractive • Despite Fed Funds increasing by 225bp in the last three years, MFA’s interest rate spread is relatively unchanged and remains attractive. • During this period yield on interest earning assets has risen. MFA’s credit sensitive investments have benefited fr
Slide 11: Fourth quarter 2018 yields and spreads by asset type
Fourth quarter 2018 yields and spreads by asset type Net Spread Allocated (millions) Return Funds Equity Ratio (1) (2) Net of 10 bps of servicing costs. These residential whole loans produce GAAP income/loss based on changes in fair value in the current period, and therefore results will vary on a q
Slide 12: MFA's net interest rate sensitivity remains low
MFA’s net interest rate sensitivity remains low at 0.96 • • • Excluding hedges, our asset duration remains relatively low at 1.64. Our assets continue to be primarily sensitive to mortgage credit fundamentals. In addition, our leverage remains low, with a debt-to-equity ratio of 2.6x. Duration Risk
Slide 13: Strategy limits quarterly book value fluctuations
MFA’s strategy continues to fluctuations limit quarterly book value Quarterly change in MFA's Book Value (left axis) and MFA's Asset Duration by Quarter (right axis) • Through asset selection and risk management MFA has consistently limited quarterly book value fluctuations. Since 2014 MFA’s average
Slide 14: Continued positive fundamentals for residential mortgage credit
Continued positive fundamentals National HPA-YoY As of December 2018 for residential mortgage U-3 Unemployment Rate As of December 2018 credit 10% 8% 4% 1% Source: Zillow Source: NY FED # of Units (millions) Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 S
Slide 15: Residential whole loan portfolio
Residential whole loan portfolio • • We added over $1 billion of residential whole loans in the fourth quarter of 2018. We continue to grow our portfolio of Non-QM, Fix & Flip and Single Family Rental loans adding origination partners and strengthening our existing relationships. Our seasoned loan p
Slide 16: RPL portfolio delinquency characteristics as of 12/31/2018
RPL portfolio delinquency characteristics as of 12/31/2018 • 86% of our RPL portfolio is less than 60 days delinquent. • On average, 28% of the 60+ days delinquent loans are making payments. • Prepayment speeds have outperformed expectations maintaining a range between 6% and 14%. 17
Slide 17: Non-Performing loan performance
Non-Performing1 Performance of loans purchased before 12/31/17 •Measured by UPB at purchase, 32% (or approximately 2,500) of loans that were non-performing at purchase are either performing or have paid in full as of December 2018. • Through diligent asset management we continue to improve outcomes
Slide 18: Non-QM investments
Non-QM investments • We are purchasing loans made to creditworthy borrowers who have limited conventional mortgage finance options. Since inception we have purchased over $1.8 billion UPB (including approximately $400 million since 12/31/18). Currently working with several origination partners. Able
Slide 19: Business purpose loans - Rehabilitation and SFR Loans
Business purpose loans - Rehabilitation and Single Family Rental (SFR) Loans We continue to grow our holdings of Rehabilitation and SFR loans as we expand our existing originator relationships and develop new ones. Since inception we have acquired (including undrawn commitments) over $900 million of
Slide 20: Summary
Summary Continued robust investment activity, growing the portfolio for the fifth • consecutive quarter.During 2018, we purchased over $5.7 billion of assets and grew our portfolio by $2.2 billion. • Growth in acquisitions of newly originated performing whole loans has resulted in significantly high
Slide 21: Summary
Summary Continued robust investment activity, growing the portfolio for the fifth consecutive quarter. During 2018, we purchased over $5.7 billion of assets and grew our portfolio by $2.2 billion. Growth in acquisitions of newly originated performing whole loans has resulted in significantly higher
Slide 22: Book value changes primarily due to lower unrealized gains on Non-Agency MBS
Book value changes were primarily due to lower unrealized gains on Non-Agency MBS and dividends exceeding GAAP net income (0.08) (0.28) MBS that results in a reduction of unrealized gains 23 Qtr endedYear ended 12/31/1812/31/18 Book value per common share at the beginning of the period$7.46$7.70 Net
Slide 23: Book value per common share reconciliation
tended Year ended 12/31/18 /18 IBook value per common share at the beginning of the period $7.46 $7.70 INet income available to common shareholders 0.13 0.68 |common dividends declared (0.20) (0.80) INet change attributable to Agency MBS 0.02 (0.03) Impact of Discount Accretion and realization of ga