Q1 2021 MFA Financial Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the MFA Financial Inc. First quarter earnings 2021 conference call.
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I would now like to turn the conference over to our host Mr. Hal Schwartz. Please go ahead Sir.
Thank you operator, good morning, everyone. The information discussed on this conference call today may contain or refer to forward looking statements regarding MFA financial Inc, which reflect management's beliefs expectations and assumptions as to Mfa's future performance and operations when used stick when used statements that are not historical in nature, including those.
Words, such as will believe expect anticipate estimate should could would or similar expressions are intended to identify forward looking statements. All forward looking statements speak only as of the date on which they are made these types of statements are subject to various known and unknown risks uncertainties assumptions and other factors, including those described in the MFA.
<unk> annual report on form 10-K for the year ended December 31, 2020, and other reports that it may file from time to time with the Securities and Exchange Commission. These risks uncertainties and other factors could cause mfa's actual results to differ materially from those projected expressed or implied in any forward looking statements. It makes.
For additional information regarding MFA is use of forward looking statements. Please see the relevant disclosure in the press releases announcing Mfa's first quarter 2021 financial results and the acquisition of William on capital. Thank you for your time I would now like to turn this call over to MFA, CEO and President Craig Knutson.
Thank you.
Good morning, everyone I would like to thank you for your interest in and welcome you to MFA Financial's first quarter 2021 financial results webcast also with me today are Steve <unk>, our CFO, good Monday, Christiansen and Brian Wilson, our co chief investment officers and other members of senior management.
As we sit here today to talk about the first quarter of 2021, it's impossible not to recall, where we were a year ago and the difference between the two time periods could not be more stark tenacious defensive stance is now a spirited and determined offense today, we are reporting strong for.
<unk> results continued execution of our strategic plan that we implemented early last fall and a new exciting initiative that we announced today.
With vaccination is becoming more prevalent and the gradual easing of restrictions beginning to occur we have reason to be optimistic about an eventual return to some semblance of ordinary.
While it is undoubtedly months away, we're cherishing brief snippets of limited normalcy and it's great to see our colleagues at work in person rather than non video calls as we have for the last year.
Our strong economic outlook additional fiscal stimulus and the expectation of more government spending pushed long rates higher in the first quarter of 2021 10 year treasuries backed up 83 basis points to 174 at the end of Q1, which by the way is where they were in late January.
2020, and the curve steepened with tier twos tens widening by about 80 basis points to 158 basis points at March 31 short rates remained firmly anchored at very low levels with twos only four basis points wider during the quarter.
Interestingly, although 10 year rates at 170 are back to levels seen in late 2019, and early 2022 year rates in the low to mid teens of barely changed in the last year, but twos. We're at 160 back in late 2019, so clearly the market anticipate some inflationary pressure in the <unk>.
<unk> with six fed policy is anchoring short rates at or around current levels for 2021 and 2022.
Agency origination crowded out non conforming production from much of 2020, but even with a modest increase in agency eligible mortgage rates, we've seen an increase in production from non QM and business purpose loans in 2021.
With short rates are particularly low levels and credit spreads tight suffice to say there are no cheap assets out. There. However, these same market conditions have pushed yields on issued securities to very low levels. So while it is a difficult period for assets. It's an extremely attractive one for liabilities and MFA has taken advantage of.
This opportunity to lock in low cost term nonrecourse debt, which will substantially reduce interest expense in the future. In addition, a strong housing market together with our ability to actively manage residential mortgage credit assets has also been reflected in our financial results as we achieve.
<unk> better than expected results on credit sensitive assets, resulting in reversals of prior credit reserves and sales of Oreo properties at attractive levels.
Please turn to page four.
We reported GAAP earnings of <unk> 17 per share in the first quarter. These results were driven by continued price appreciation of loans held at fair value and by further improvement in credit leading to credit loss reserve reversals.
GAAP book value was $4 63 up 2% from December 31, and economic book value was $5 nine.
Up three 5% from December 31.
GAAP economic return for the quarter was three 6%.
But economic book value economic return was up 5% for the quarter, we repurchased $10 8 million common shares at an average purchase price of $4 14, or 80% of economic book value from March one through April 30.
Our leverage declined declined slightly over the quarter to one six to one and we paid a seven and a half cent dividend to shareholders on April 30.
Please turn to page five.
Our efforts to lower interest expenses through Securitizations at visible impact on our first quarter earnings as interest expense declined by 27% from the fourth quarter of 2020.
And the Securitizations executed in Q1 has limited impact on the full quarter because they were closed in early February and late March net.
Net interest income for the first quarter increased by $4 million versus the previous quarter and by $13 million versus Q3 of 2020. After adjusting for a large interest income contribution of $8 million from the payoff of a single non agency bond with a very low amortized cost during the first quarter.
Please turn to page six.
Sure.
Again, continuing the theme of aggressively taking advantage of available market opportunities. We have executed three additional securitizations on nearly $1 billion of <unk> at attractive levels. As you can see on this page AAA yields on bonds sold on the <unk> deal was 83 basis points and 100.
<unk> 12 basis points on the non QM, one deal with the blended cost of debt for both deals in the low ones.
The NPL deal that closed in March replaces Securitizations sold in 2018 at a blended cost of debt that's over 150 basis points cheaper than that it replaced.
Please turn to page seven.
Robust increases in housing prices and strengthening credit fundamentals provide obvious tailwind for MFA is mortgage credit exposure.
Home price increases in the last year of the largest in some cases in 20 years and housing supply is at extremely low levels. So this trend is not likely to abate soon we liquidated 177 Oreo properties in the first quarter generating $50 million in proceeds and $2 $2 million in <unk>.
James These strong housing fundamentals also support the performance of our nonperforming loans as we see more full payoffs and better prices on liquidated properties. Finally from borrowers still negatively impacted by COVID-19. We can offer modifications <unk> repayment plans to allow them to stay in there.
Homes restore their status to current and keep the equity in their homes.
Please turn to page eight.
Under our share repurchase program, we instituted a <unk> one plan in March that permits share repurchases at any time previous to instituting a <unk>. One plan, we were permitted to purchase shares only during open window periods and because our 10-K is filed later in the quarter than our 10 Qs our open window.
Period after our fourth quarter earnings call would've been very short and again from early March through April 30, we repurchased $10 8 million shares at an average price of $4 2014.
Please turn to page nine.
We saw strength, our investment portfolio and summarize our asset backed financing on this slide the investment portfolio has not changed materially since December 31, we did purchase $253 million of loans in the first quarter, Brian and good motor will discuss additional details about the loan portfolio.
So later in this presentation.
And just to review loans held at carrying value on our balance sheet are represented and three slices of this pie chart. The purple section PCB or purchase credit deteriorated loans, that's accounting speak for re performing loans and other loans included in this purple slice our seasoned performing loans the great slice.
<unk> business purpose loans, which are fix and flip and single family rental loans in the Red section, which is non QM loans on the financing side, you can see that 68% of our asset based financing is non mark to market with the non QM securitization that we closed in April it's now over 70%.
Please turn to page 10.
In addition to announcing first quarter earnings. This morning, we also announced that we are acquiring Lima, <unk> holdings, a nationwide, leading originator and servicer of business purpose loans. This transaction will significantly enhance our ability to deploy capital in the business purpose space and we believe that our capital base.
<unk> will fortify Lima ones already strong market presence, we expect that this transaction will be accretive to mfa's earnings by 8% to 12 per year.
MFA currently owns a 43% equity stake in Lima, one and we have purchased over a $1 billion of business purpose loans from Lima, one since 2017, we acquired our initial strategic minority ownership interest in Lima, one in 2018, and our partnership with Lehman one has grown over the years since.
This acquisition includes the Lima, one operating platform as well as the $1 billion servicing book, we've issued a separate press release. This morning to announce this transaction and we also provided a standalone deck to furnish more detail about <unk> and the strategic advantages of this initiative.
We're extremely excited about I would encourage listeners to review this presentation. Good motor will also present additional color about this important transaction during his prepared remarks, and I'll now turn the call over to Steve yard to discuss additional details of our financial results.
Thank you Craig.
Please turn to slide 11 for an overview of our first quarter 2021 financial results.
In reviewing our results this quarter I guess I can say, what a difference the EMA, but this simply doesn't do it justice a year ago I had the unpleasant task and talking through a myriad of negative numbers on this slide including realized and unrealized losses on securities and loans and payment charges seasonal reserves and other large and unusual items. This.
I am very pleased to be able to provide a much more positive reported.
Much of the noise reported in net net income over the past several quarters, resulting from volatile changes in asset prices and cash flow estimates driven by uncertainty related to the longer term effects of COVID-19 have dissipated and hopefully largely behind us while not fully reflecting mfa's normalized earnings for the short to medium.
Tun.
I believe that Q1 results do provide a clearer picture of what the key drivers of our earnings will be for the next several quarters specifically.
Specifically, our earnings will be driven by net interest income and gains on loans held at fair value.
This is there is also some potential for further adjustments to decrease seasonal reserves, if unemployment rates and home prices stabilize or continue to improve.
But absent any significant future macroeconomic shocks in the near term I would anticipate that seasonal reserve changes going forward will be primarily driven by net increases or decreases in our portfolio of carrying value loans.
Additionally, in anticipation of the successful completion of the acquisition as Lima, one starting in Q2, we plan to elect fair value accounting and all future hold on purchases.
This should facilitate appropriate reporting of the economics of Lima, one origination and servicing activities, while still properly captured in the performance of loans originated and held on <unk> balance sheet.
This accounting will only apply prospectively, we are not able to retrospectively apply say that youll accounting to lines that we currently report at carrying value.
So the intermediate term until the majority of this portfolio of lines runs off we expect to continue to report both GAAP and economic book value measures.
Turning now to the detail of that Q1 2021 results net income to common shareholders was $77 3 million or <unk> 17 per share.
The key items impacting our results are as follows.
Net interest income of $31 8 million was $12 4 million higher sequentially.
This included approximately $8 million of accretion on our non agency bond that we held a significant discount to par that was redeemed during the quarter.
It should be noted that gains of this nature are expected to occur somewhat less frequently going forwards as our remaining portfolio of securities that we hold at a discount to par continues to runoff.
One other point to highlight is the impact of the successful execution of securitization and other debt refinancing activity on our cost of financing.
As Craig noted interest expense this quarter fell 27% sequentially now overall cost of funds flow to nine 2% from 363% in Q4 2020.
We reduced our overall <unk> from that carrying value loans to $63 2 million.
Reflecting low estimates of future unemployment and higher home price appreciation and a credit loss modeling as well as lower loan balances.
This reversal and other net adjustments to our seasonal reserves positively impacted net income for the quarter by $22 8 million.
After the initial significant increase in <unk> reserves taken in Q1 2020, when uncertainty related to COVID-19, economic impacts throughout the highest we have reduced our CSO reserves by more than $80 million and the subsequent four quarters.
Actual charge off experience continues to remain very modest with approximately $1 2 million of net charge offs taken in the first quarter.
Once again, our loans held at fair value performed strongly this quarter net.
Net gains of $49 8 million were recorded this overall gain is unchanged from the prior quarter and its components, which include $32 $1 million of market value increases and $17 $7 million of interest payments liquidation gains and other cash income with.
Were also essentially unchanged quarter over quarter.
Finally, operating and other expenses were $22 5 million for the quarter.
This is much closer to our expected normal run rate, but was elevated primarily due to costs related to replacing warehouse financing with securitization.
I will point out that following the consummation of the labor one acquisition, our overall G&A costs as a ratio that stockholders equity will rise.
We will endeavor to provide some additional color on the potential impacts on our future earnings call.
With that I will turn the call over to Brian Wilson, who will review details of our non QM loan portfolio.
Thank you Steve.
Turning to page 12.
Housing has performed exceedingly well throughout the pandemic.
And prices have accelerated in recent months.
Zillow median home value was up 10, 6% in March from a year ago.
Demographic trends historically low rates and a severe lack of supply have all contributed to the rise in prices.
Unemployment rate continues to recover from a peak of almost 15% down to 6% as the economy reopens.
The vaccination rollout underway the pace of reopening should pick up in the coming months lowering the unemployment rate further.
All these factors combined with monetary and fiscal support have played a part in keeping mortgage credit performance strong and bode well for continued credit performance.
Turning to page 13.
Non QM origination volume increased over the quarter as rates offered to borrowers have been dropping.
We purchased over $200 million over the first quarter, which is more than double our acquisitions from the prior quarter.
Prepayment speeds remain elevated over the quarter as mortgage rates for non QM loans have come down in recent months three months average CPR for the portfolio remains around 30%.
We closed on another minority investment in an originator over the quarter raising the number of non QM originators. We are investing into three we believe our strategy of aligning our interest with select origination partners will allow us to effectively grow our portfolio over time, while ensuring loan quality.
We executed on an additional securitization at the B and in April, bringing the total amount of collateral securitized to approximately one in three quarters of $1 billion.
These securitizations have lowered our financing costs and at the same time have provided additional stability to our borrowings.
Securitization combined with non Mark to market term facility has resulted in over 80% of our non QM portfolio are financed with non mark to market leverage.
We expect to continue to be a programmatic issuer of Securitizations as it is currently the most efficient form of financing for our portfolio.
Turning to page 14.
A significant percentage of our borrowers and non core portfolio.
Have been impacted by the pandemic many of our borrowers are owners of small businesses that were affected by shutdowns across the nation.
We instituted a deferral program at the onset of the pandemic in an effort to help our borrowers manage through the crisis.
Through our Servicers, we granted almost 32 percentage of portfolio of temporary payment relief, which we believe helped put our borrowers in a better position for long term payment performance.
Subsequent to June we reverted to a forbearance program instead of a deferral as debt.
As the economy opened up.
The forbearance program instituted are largely now determined by state guidelines.
For clarity a deferral program tax non attainment Smith to the maturity of the loan as a balloon payment.
Forbearance required debt payments must be repaid at the inclusion of the forbearance period.
If those amounts are unable to be paid in one lump sum we allow for the borrower to spread the amounts owed over an extended period of time.
Over the first quarter, we saw a stable 60, plus delinquency rate as compared to the fourth quarter of seven 9%.
In addition over 25% of those delinquent loans made a payment in March many.
Many delinquent borrowers are in repayment plans, which will cause them to cure their delinquency status over the next six to 12 months.
As the economy as the economic recovery continues.
The portfolio's credit performance should continue to improve.
Our strategy of targeting lower LTV loans should mitigate losses under a scenario with elevated delinquencies and many cases borrowers, which no longer have the ability to afford their debt service will sell their home in order to get the return of their equity.
Turning to page 15.
RTL portfolio of $1 billion.
Has been impacted by the pandemic, but continues to perform well 80% of our portfolio remains less than 60 days delinquent.
Although the percentage of the portfolio is 60 days delinquent status of 20% a quarter of those borrowers continue to make payments.
Prepay speeds in the first quarter continued to rise to one months CPR of 20.
As mortgage rates continue to be historically, low and more borrowers gain equity with.
With the increase in home prices.
And while 30% of our RTL borrowers were impacted by COVID-19.
And we have worked with our servicers to provide assistance to borrowers and have seen improvement in delinquency levels over the quarter.
Turning to page 16.
Our asset management team continues to drive performance of our NPL portfolio.
The team has worked in concert with our servicing partners to maximize outcomes on our portfolio.
This slide shows the outcomes for loans that were purchased prior to the year ended 2019, therefore owned for more than one year.
37% of.
As loans that were delinquent at purchase and are either performing or paid in full.
46%, either liquidated or Oreo to be liquidated.
Our Oreo sales our Oreo properties have continued at an accelerated pace at advantageous prices selling 52% more properties over the last 12 months as compared to the year prior.
17% of selling non performing status.
Our modifications have been effective is almost three quarters are either performing or have paid in full.
We are pleased with these results as they continue to outperform our assumptions at the time of purchase.
Now I'd like to turn the call over to <unk> to walk you through our business purpose loans.
Thanks, Bryan turning to page 17.
First of all I would like to say that we're very excited about the acquisition of <unk>. The acquisition enhances our position as a long term capital provider to the business purpose lending space, which we believe continues to benefit from positive fundamental and structural trends and offers one of the most attractive options to deploy capital and the rest of <unk>.
Central mortgage credit space.
We have worked closely with Lima, one of 2017 first as a loan buyer and later as an equity investor and I've seen firsthand the quality of their loan origination and servicing operations.
From our extensive experience in the BPL space. We noted legal Lima is one of the best operators in the space and look forward to collaborate with lean with talented management team.
Lima wanted a leading nationwide originator of business purpose loans with a strong brand recognition in the BPL borrower community with over 50% of loan origination coming from repeat borrowers.
Their product offerings, our diverse serving the needs of short and long term strategies within the BPL space.
Having established track record of originating fix and flip and new construction loans, along with some rental loans and small balance multifamily value add and bridge loans.
Lima has originated over $3 billion since inception and has shown that they can reliably originate over $1 billion annually.
We believe that by combining mfa's permanent capital and capital markets expertise with Lima capabilities, we can create a differentiated platform capable of providing best in class financing options to investors with a clear path to grow well beyond $1 billion in annual volume.
This acquisition will provide MSA with a reliable access to high quality high yielding assets that are difficult to source in the marketplace.
Believe based on current market conditions and loans originated by Lima, and retained on Mfa's balance sheet will provide mid teens Roe with.
With appropriate leverage either in the form of warehouse financing, our MFA sponsored securitizations.
Now I will turn to portfolio activities in the quarter.
We continue to experienced large principal paydowns in our fixed and flip portfolio from the first quarter, a strong housing market with home prices rising on more than 10% annually has allowed many of our borrowers to successfully complete their projects and sell quickly into a strong market.
This combined with the seasoned nature of our portfolio.
Currently at a weighted average loan age of 20 months led to us receiving $144 million of principal payments in the quarter.
We expect this trend to continue in 2021.
MFA fixed income portfolio declined $117 million to $464 million in <unk> at the end of the first quarter principal Paydowns were $144 million, which is equivalent to a quarterly paydown rate of 69, CPR on an annualized basis.
The advanced about $12 million rehab draws from converted $5 million to Oreo.
We purchased 20 million <unk> fix and flip loans in the first quarter.
Purchase activity has picked up in the second quarter as we have committed to acquire over $30 million. So far in the second quarter and expect purchase volume to pick up meaningfully with the acquisition of <unk>.
The average yield on the portfolio was 493% and all of our fixed and flip financing is non mark to market debt with the remaining term of 15 months.
60, plus day delinquency declined $13 million $149 million at the end of the first quarter.
And so far in the second quarter, we continued to see positive delinquency trends.
Fix and flip loan loss reserves continue to trend down in the first quarter declining by $4 7 million, primarily due to improved economic expectations and a strong housing market.
Turning to page 18.
Seriously delinquent fix and flip loans decreased $13 million in the quarter to $149 million at the end of first quarter.
In the quarter, we saw $18 million of loans pay off in full 5 million cure to current or 30 day delinquent pay status 5 million convert to Oreo or $15 million became new 60 plus delinquency.
As mentioned previously we have continued to see positive delinquency strength in the second quarter.
Approximately half of the sales of delinquent loans are either completed projects of bridge loans for limited or no work is expected to be done meaning these properties should be generally saleable conditions.
In addition, approximately 13% of the seriously delinquent loans are already listed for sale potentially shortening the time until the resolution.
When loans pay off in full from serious delinquency, we often collect default interest extension fees and other fees of payoff.
For loans, where there is a meaningful equity in the property. These can add up since inception, we have collected approximately $3 7 million in these types of fees across our fixed simply portfolio.
The housing market continues to be extremely strong with record low mortgage rates and low levels of inventory supporting annual home price appreciation in excess of 10%.
In addition, we continue to see unemployment declining and overall economic activity improving across the country.
We believe that the efforts of our experienced asset management team combined with the recent strong economic trends and lead to acceptable outcomes on our delinquent loans.
Turning to page 19.
Our single family rental loan portfolio.
<unk> exhibited very strong performance.
Due to strong prepayment protection and solid credit profile. The portfolio yields has remained steady in the mid 5% range post COVID-19 and was 561 percentage in the first quarter.
That number does not include prepayment penalties, which are a feature of almost all of our rest of loans and are recorded in other income.
And accordingly from and including gross the single family rental portfolio yield was 633% in the first quarter.
After temporarily increasing in the fourth quarter prepayment has trended back down to the historical low mid teens range with the first quarter three months prepayment rate of 12 CPR.
60, plus day delinquencies were relatively unchanged in the quarter in a mid to high 5% area.
We acquired $20 million of rest of loans in the first quarter.
Second quarter is off to a strong start with us committing to purchase over $35 million so far in the second quarter.
We expect purchase activity to continue to accelerate with the acquisition of <unk>.
We closed our first securitization consisting solely of business brokers went to loans in the first quarter approximately $218 million of loans were securitized, we sold approximately 91% of the bonds at a weighted average coupon of 106 basis points.
This transaction lowered the funding rate of the underlying assets by over 150 basis points in.
And increased the percentage of <unk> financing that is non mark to market the 75% at the end of the first quarter.
Lima, one originator rest alone represented about two thirds of the collateral and our inaugural securitization.
Believe that MFA has experience in the capital markets can provide meaningful funding advantages lemus origination activities and will significantly improve nameless competitiveness in the BPL space.
And with that I will turn the call back over to Craig for some final comments.
Thank you good monitor.
We are pleased with the results of the first quarter of 2021, and even more excited about the future of MFA.
We are continuing to execute our strategic plan to lower and term out borrowing costs and we're beginning to see the results of this activity in our income statement. The strength of the housing industry has obvious positive implications for our mortgage credit investments, we've repurchased nearly 25 million shares of our common stock at <unk>.
Levels that are accretive to book value and earnings and today's announcement of our acquisition of Lima. One is an important initiative that will enhance our ability to deploy future capital in the BPL sector and grow our future earnings power.
<unk> would you please open up the line for questions.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press one zero on your telephone keypad.
You may withdraw your question at any time by repeating the one zero come out.
Once again, if you have a question today. Please press one zero at this time.
Our first question comes from the line of Bose George with <unk>. Please go ahead.
Hey, everyone. This is actually Mike Smith on for Bose Congrats on the acquisition. So so on that what is the pro forma breakdown.
Capital allocation to the investments business versus the originator.
I mean, it's.
It's not a large capital allocation to the originator right relative to our balance sheet, we already owned 43%.
So.
I don't I don't think its really a material change in how we allocate capital, yes, I think it's more going to be on the on the investment activities. So as we've said we expect Lima will originated between $1 2 billion and $1 3 billion from 2021, and we believe that they can sustainably originate over one 1 billion.
On an annual basis, and so based upon on that in the funding profile of the assets you can make some assumptions that.
We're deploying 20% to 25% of equity and to those types of trades that would support over time anywhere from $250 million to $300 million of equity deployed to those types of investments.
Okay, Great. That's helpful and then how much excess capital will accompany have after deploying capital into the transaction.
Well what did we show free cash of 331.
Yes, it's roughly 800 <unk> 331.
It's.
It'll be it'll be over 700 million.
Okay, great Great. That's helpful and then kind of.
On a different note thinking.
Thinking about buybacks, how do you do you look at GAAP or economic book value and kind of with that in mind youre expecting excess capital how should we think about additional buybacks from here.
Sure. So in answer to your question what do we look at we look at when we look at economic book value because.
I think something like 70% of our loan portfolio is not mark to market on our balance sheet for GAAP purposes. So it's purely economic book value and I think as the stock trades, we don't forget when we put the share repurchase plan in place I think the stock was probably around 60% of economic book value and it's now north of <unk>.
So suffice to say our appetite to repurchase stock.
Not aspiration set at above areas it was above 60.
It's still one of the it's still one of the tools that we have.
Great. That's helpful. And then just one more can you provide.
Some thoughts on how book value has trended.
During the month of April into May.
So we haven't closed the books for April yet, we're still in the process, but just from what we can say.
From a sort of daily reporting its not materially different.
Got it thank you for taking the questions.
Sure Mike.
Thank you. Our next question comes from the line of Doug Harter with Credit Suisse. Please go ahead.
Hi, This is John Keogh, John <unk> on for Doug.
Congratulations on the quarter just a.
Quick question on the Securitizations you had a few successful securitization this quarter and last quarter.
Going forward, what should we think in terms of the pace organizations and how it will affect your cost of funds.
So.
We expect to be out in the market regularly.
And we still have a good chunk of the portfolio that can be securitized.
But really once we worked through that that's just going to be the regular flow that were purchasing that is what we expect to securitize. So the majority of our financing going forward will be.
Financed through securitization.
Okay.
Great. Thank you.
Thank you. Our next question comes from Steve Delaney with JMP Securities. Please go ahead.
Hey, good morning, everyone exciting times congratulations on the acquisition I think I think it really add something to the story in your franchise value.
Craig.
Sure with the Lima deal should we can we read through that.
Because you had a lot of options I am sure.
Does this tell us that you see the BPL product to be the most attractive.
Non agency residential loan types that are that are in the marketplace.
So.
It's certainly yes, we certainly view it as a very attractive sector. I think we also view non QM and nimbleness in a similar fashion I think.
We were one.
We've obviously been very familiar with that company for a long time, there is a lot more competition to acquire these assets today and to acquire these originators than there was previously so.
So I think.
I think it was a strategic minority investment that we made in 2018 and I think.
But put us in a very good position.
To effect this transaction.
There's probably no originator that we know better than we even want right, we bought over $1 billion of loans from them.
And we've seen firsthand, how the loans performed relative to other BPL originators.
Particularly through a difficult 2020 period.
We've been to Greenville, we work closely with the management team there servicing group there accounting folks so theres a lot of very good touch points between our companies and I think.
While this is a big transaction.
It's an unusual transaction for us I think it should be a pretty seamless transaction.
Yes, you know what youre getting on so on the in QM side.
Obviously, I don't know whether its Brian can probably tell us whether it's a larger market on in QM than BPL.
That's pretty pretty good size.
But on the EQM should we assume you've got a strategic investment there as well and.
There really are two different sourcing methods. So I mean, if you wanted it would seem to me that if you wanted to do something in QM, you might need to make another acquisition of someone's specialized in that product.
We've mentioned that we've made.
We've made from other minority investment in.
Non QM originator, okay, I think interest.
It's all about sort of factoring circumstances right. What is what is the originator looking for yes.
And so I think at least for now these minority investments have worked pretty well they've helped us secure.
Loan production.
We also get to know these originators a lot better we've always said when we meet new originators and we can talk about capital needs from one of the first things. We say, we will get to know each other a whole lot better when we start buying loans.
So I think it's all a process Steven it will really depend on.
Where we stand and where these originators standard what theyre looking to do.
Sure I understand it's kind of like a marriage thing right.
<unk> got the right time in the right place, yes, absolutely.
Yes.
And you don't want to make a mistake there I can tell you from experience cost.
Just to close it out one for Steve.
So I was just trying to get you had some big items. So I was trying to get to sort of a normalized first quarter. So I take the $8 million from the day non agency MBS, great recovery, there I get <unk>, there and then the C sold.
Rivera sold $23 million to get <unk>, So I'm looking at sort of seven cents off of the 17 reported.
Is that a reasonable adjustment, Steve or am I missing something else that you would say as an unusual or abnormal.
So joining debt.
Net.
No I think certainly the.
The 8 million adjustment on the non.
Non QM bond.
Redeemed that's yes, that's simple.
A an unusual one yes, so as I said in my comments I mean.
We've released a lot of sales of reserves over the last.
12 months or so and.
There could be some potential for some more.
I don't know that it will be as dramatic as what we've seen over the last 12 months.
In terms of the rest of the income statement as I said, it's really is approaching what we think is a more normal level.
The the carrying a fair value loans have performed extremely well over the past several quarters. So.
Whether we can produce $50 million a quarter that remains to be seen depending on pricing, but if you look at the details of that at very consistently produces around $20 million of cash income each quarter.
When you look at the footnotes to the to the 10-Q, which we'll file later today so.
It's not like that's certainly going to be substantially different.
And as Craig mentioned with the prospects of.
Further economic recovery and stimulus.
Yes.
It could still continue to perform quite well.
Thank you for the comments I appreciate it.
Thanks, Steve.
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Alright. Thank you everyone for your interest in MFA financial we look forward to our next update when we announce our second quarter results in August.
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