Q4 2021 MFA Financial Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the MFA Financial Inc. Fourth quarter 2021 earnings call.
At this time all lines are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given to you at that time.
If you need assistance during the call Press Star and then zero and an operator will assist you offline and as a reminder, today's conference call is being recorded.
I would now like to turn the conference over to Mr. House Warts. Please go ahead.
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, which reflect management's beliefs expectations and assumptions as to Mfa's future performance and operations when used statements that are not historical in nature, including those containing <unk>.
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 MF.
<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.
Asian regarding Mfa's use of forward looking statements. Please see the relevant disclosure in the press release announcing Mfa's fourth quarter 2021 financial results. Thank you for your time I would now like to turn this call over to Mfa's, CEO and President Craig Knutson.
Thank you good morning, everyone I'd like to thank you for your interest in and welcome you to MFA Financial's fourth quarter 2021 financial results webcast also with me today are Steve <unk>, our CFO , good monitor Christiansen and Brian Wilson, our co chief investment officers and other members of senior management.
The fourth quarter of 2021 was a stark wakeup call for the fixed income market after languishing and a 15 to 25 basis point range for nearly 18 months since late March of 2022 year Treasuries Rose 50 basis points from the end of September to the end of December .
The curve flattened significantly as 10 years ended the quarter essentially unchanged from September 30. The first six weeks of 2022 have been even more volatile with twos higher by 75 basis points <unk> by 55% and turns by 40.
The rate environment had an inevitable negative impact on our fair value assets, but MFA. Nevertheless turned in a respectable fourth quarter and a very strong 2021, we added so for interest rate swaps in the fourth quarter and have continued to manage our duration exposure into this year, we are certainly not immune to interest rate risk.
We're still waiting for that vaccine.
But between our relatively short duration assets, our successful execution of $2 6 billion of Securitizations last year, and our nimble hedging response to dramatic rate moves more recently, we think we've weathered the storm reasonably well that said this is no time for complacency with inflation seemingly raging the fed on the move.
And a very tense geopolitical environment, making it impossible to predict interest rate movements, particularly in the short term.
Away from rates Mfa's focus on residential mortgage credit serves as a terrific offset to interest rate risk as continued very strong housing trends bolster the value of the underlying assets securing the mortgages, we own and lower Ltvs robust housing prices have also created a strong tailwind for.
<unk> mortgages and Oreo properties as these trends lead to improved resolutions and outcomes. Please turn to page four.
We reported GAAP earnings of $35 9 million or <unk> <unk> per share for the fourth quarter. These results were driven largely by $42 6 million of unrealized and noncash net losses on fair value loans Lima, one had a strong contribution to our earnings for the second consecutive quarter.
Despite the volatile quarter book value was relatively stable with GAAP book value down less than 1% and economic book value down less than 2%.
Economic return for the quarter was one 5% for GAAP and essentially flat on economic book value.
Please turn to page five.
We acquired $1 4 billion of loans in the fourth quarter and we grew our loan portfolio by 830 to $7 9 billion. After portfolio run off these purchases included $950 million of non QM loans and $500 million of business purpose loans, we completed three securitization.
<unk> totaling $937 million during the fourth quarter, including two agency eligible investor loan deals in one single family rental loan deal.
Our net interest income increased versus Q3 by 13% to $70 1 million in the fourth quarter. We continue to make excellent progress in liquidating Oreo properties as we capitalize on strong housing trends selling over $50 million of Oreo properties for a net gain of over $10 million.
And finally, we've opportunistically continue to repurchase MFA common shares, adding $8 5 million shares at an average price of $4 42 during the fourth quarter.
Please turn to page six.
To briefly review the full year 2021, we achieved extraordinary portfolio growth, particularly considering the paucity of investments available in the early part of the year our purchase of Lima, one was a transformational and timely transaction as we fortified our ability to source attractive assets.
We completed eight securitizations totaling $2 6 billion.
Locking in very attractive fixed rate term financing as we've pointed out every quarter. We continued to grow our net interest income increasing this important and reliable earnings driver by 47% for the year to $242 million and $70 million in the fourth quarter.
Mortgage investors rarely talk about let alone brag about their Oreo portfolios, while we sold almost $190 million of Oreo properties in 2021 for a net gain of $23 5 million as the rule Oreo property resolutions tend to be the least desirable and profitable outcomes when working out nonperforming.
Loans, but our asset management team turned this into a profit generating enterprise in 2021.
Our book value increased by about 5% during the year 2021, despite a rough fourth quarter in rates and our economic returns for the year. We're also very respectable. We also purchased just over 20 million shares during the year at an average price of $4 26.
Please turn to page seven.
This slide illustrates the components of our investment portfolio and also the nature of our asset based financings.
The liability Pie chart shows $2 6 billion.
Of Mark to market borrowing about half of this borrowing is at a significant discount to our available borrowing amount. This under levering creates a cushion that increases the amount of asset price decline that would need to occur before we receive a margin call. So while this borrowing is technically mark to market our <unk>.
<unk> borrowing practice produces a considerable synthetic margin buffer.
Please turn to page eight.
So finally in the feel good department and just to demonstrate that it's not solely about the numbers I am happy to report three significant accolades for MSA for the third year in a row MFA was included in the Bloomberg gender equality index, we were recognized as one of 418 public companies.
<unk> 45 countries and regions for our commitment to and support of gender equality. Additionally, MFA has been certified for the second consecutive year is a great place to work by the great place to work Institute. This award is based on anonymous employee feedback through an engagement survey that we conducted through this organization.
This important validation of our culture is a testament to our people management does not make MSA a great place to work our people do if management has a role it's simply to hire great people and our team collectively creates our culture.
In today's work from home World. This recognition is also an important distinction for hiring as recruitment is virtually all virtual these days and lastly, MFA has again been recognized by $50 50 women on boards and we have achieved their highest rating level for gender balance and now I would like to turn the call over to Steve yard.
To discuss additional details of our financial results.
Thank you Craig.
Please turn to slide nine for an overview of our fourth quarter 2021 financial results.
<unk> results for the fourth quarter was solid overall, particularly given the challenging rate environment.
We continue to see the impact of the successful execution of our asset aggregation strategy and financing initiatives with another quarter of loan portfolio and net interest income growth.
In addition, a second consecutive record quarter for originations at Lima, one resulted in another meaningful contribution to our overall results.
Earnings of <unk> <unk> per common share were impacted by valuation changes on lines, partially offset by gains on hedges and securitized debt held at fair value as well as a significant gain on the minority investment.
After removing the impact of these items in the quarterly results. The residual net income of $47 3 million or 10 eight cents per common share is in line with our fourth quarter dividend of <unk> 11 per common share.
I will now provide some additional details of the key components of our Q4 results which include.
Net interest income of $70 1 million was $8 3 million or 13% higher sequentially.
Residential whole loan net interest income again increased this quarter by 7% again, reflecting portfolio growth and the ongoing impact of securitization, which has lowered the cost of financing.
Our net interest spread came in at $2 nine 8% unchanged from the prior quarter.
Our overall seasonal allowance in our carrying value loans decreased for the seventh quarter in a row and at December 31 was $39 $5 million down from $44 1 million at September 30, and less than half where it began the year.
The decrease reflects continued run off of our carrying value loan portfolio and adjustments to macroeconomic and loan prepayment speed assumptions used in our credit loss modeling.
This reversal and other net adjustments to assay, so reserves positively impacted net income for the quarter by $3 $5 million.
Actual charge off experience continues to be relatively low for the full year charge offs were $3 4 million.
In 2020 charge offs with $2 4 million.
Pricing across our residential whole loan portfolio was impacted by the volatile rate environment.
One is held at fair value net losses of $42 6 million, we recorded it.
It should be noted that for the full year loans held at fair value generated $16 7 million of net guidance.
Further in the fourth quarter unrealized losses on the fair value loan portfolio were partially offset by $7 2 million of.
Gains on TBS swap hedges and securitized debt held at fair value.
Included in this quarter's results as a $24 million gain on a minority investment in one of our residential whole loan origination partners.
During the quarter. This company successfully completed a capital transaction with a third party unaffiliated to MSA.
As a result of this transaction GAAP required that we revisit the carrying value of a minority stake.
We recorded a significant impairment write downs investment back in Q1 of 2020, when Covid related uncertainties with very high and origination companies were essentially shut down.
Based on the terms of this new capital investment, which included a $4 million principal repayment to MSA, we adjusted the carrying value of our investment to the fair value implied by the transaction.
This resulted in a significant reversal of prior impairment as well as a gain for the amount of principal repayments received.
<unk> also contributed $13 million of origination servicing and other fee income during the quarter, reflecting a second consecutive record quarter for origination volumes. Good Monday will discuss this in more detail shortly.
Finally, operating and other expenses, excluding amortization of <unk> intangible assets were $41 million for the quarter.
This includes approximately $13 $7 million of expenses, primarily compensation related Atlanta one.
Lima utilizes a sales commission structure, where incentives increase as cumulative production targets are achieved.
This will typically result in higher incentive compensation in Q3, and Q4, each year, particularly given the record production volumes achieved by the <unk> acquisition.
MFA only G&A expenses were approximately $15 million for the quarter, which is in line with the prior quarter.
Other loan portfolio related costs, meaning that it is not related to Lehman, one loan origination and servicing with $12 3 million.
Which is higher than our typical quarterly run rate as it includes approximately $5 $2 million of securitization deal related expenses.
Because we have elected the fair value option on recently completed securitization deals.
GAAP does not permit us to capitalize these costs.
And with that I'll now turn the call over to Brian Wilson.
Thank you Steve.
Turning to page 10.
2021 was one of the hottest years for home prices in over two decades.
Prices increased year over year rate of almost 20% fueled by historically low rates coupled with limited supply.
In recent months, we have seen rates move higher with a 30 year conforming mortgage rate hovering around 4%.
Increased mortgage rates should have a dampening effect on home prices. However, the severe lack of supply may still continue to push prices higher, albeit at a reduced rate.
Labor market is strong unemployment is at 4% and wages are rising at some of the fastest levels in recent history.
Mfa's focus on mortgage credit continues to perform well and benefit from the current economic tailwind.
Turning to page 11.
MFA was active in the fourth quarter and a $950 million of non QM loans to the portfolio. We grew our base of originators over the quarter and strengthen existing relationships.
We are currently in the market with the securitization and although we have seen a widening in spreads we expect to continue to be a programmatic issuer of securitizations as it is still the most efficient form of non mark to market term financing.
The credit on our portfolio has improved significantly from the onset of Covid in 2020.
60, plus day delinquencies are now down to three 5% and we have yet to suffer a credit loss on our non QM portfolio as a few loans taken to Oreo was subsequently sold for gains.
Many loans that experienced delinquencies end up being paid in full as our borrowers have equity in the property to sell their property themselves.
The weighted average original LTV for borrowers that are 90, plus days delinquent 65, and that does not account for any potential home price depreciation post origination.
Turning to page 12.
After September announcement.
FHFA in treasury to suspend the 7% cap on investment investor loan purchases for Fannie Mae Freddie Mac or at least one year.
Pricing for agency eligible investor loans became less attractive and we significantly slowed purchases in the fourth quarter.
We utilized TBA hedges against this portfolio.
Protect against rate moves and spread widening over the quarter.
We executed on our second securitization of this collateral in the fourth quarter of 2021 and expect to execute a third in the coming months.
We do not expect further growth to this segment of the portfolio at a more favorable environment relating to loan pricing and our securitization execution.
Okay.
Turning to page 13.
Our RPM portfolio of approximately $900 million continues to perform well.
81% of our portfolio remains less than 60 days delinquent.
Although the percentage of the portfolio is 60 days delinquent in status was 19% almost 30% of those borrowers continue to make payments.
Prepay speeds in the fourth quarter increased further to a three month CPR of 18. The combination of the length of time of ours have remained current on their mortgage and home price appreciation is unmarked refinancing opportunities for many of our borrowers.
We have a small amount of borrowers still receiving COVID-19 assistance and believe that any impact from COVID-19 will be minimal on the RTL portfolio going forward.
Turning to page 14.
Our asset management team continues to drive strong performance of our NPL portfolio.
The team has worked in concert with our servicing partners to maximize outcomes on our portfolio.
38% of loans that were delinquent at purchase are now either performing or paid in full.
49% have either liquidated or oreo to be liquidated.
Our sales of Oreo properties have continued at an accelerated pace at advantageous prices over.
Over the quarter, we again sold almost three times as many properties as the number of loans converting to Oreo.
14% are still in nonperforming status.
Our modifications have been effective it's 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.
And now I'd like to turn the call over to good Monday to walk you through our business purpose loans.
Thanks, Bryan turning to page 15.
We closed the acquisition of Lima, one on July one 2021 and realized an immediate impact on Mfa's results in the second half of the year as Lima, one originated approximately $1 billion of high yielding business purpose loans in the second half of 2021, all of which were absorbed onto mfa's balance sheet.
Fourth quarter activity was particularly robust with over $600 million originate in in the fourth quarter, a 50% increase over third quarter origination and a record quarter for the company.
First quarter is usually the slowest months in the BPL space, where we've maintained strong momentum into 2022 with approximately $200 million originated in January .
A key benefit of the acquisition is <unk> ability to provide MSA with a reliable flow of high quality high yielding assets that are difficult to source in the marketplace.
When we announced the transaction in May we mentioned that we believe that <unk> has the potential to grow substantially beyond the run rate at the time of $1 2 billion in annual originations.
That has played out faster than we expected as Lima originated over $1 6 billion in 2021 about 33% more than we expected at the time of acquisition.
This tremendous result is in many ways due to the time and energy we spent around the deal closing to develop a clear strategic plan will allow <unk> business, including short and long term goals for the management team as well as exceptional execution by the management team throughout the second half.
We have improved financing costs and expanded financing options by adding multiple new warehouse lines and issuing securitization.
We pass some of those efficiencies onto lemus borrowers and more competitive pricing across most of the <unk> product offerings.
This has allowed lima to be more competitive and grow volumes across all of our loan product offerings.
With Lima track record increased volume and strategic marketing efforts, we continue to see lemus brand in the BPL space grow they are widely recognized as one of the nation's leading BPL lenders and a uniquely offer a diverse set of detailed product for short and long term investment strategies.
The increased volume would not be possible without the strong operational infrastructure Nemo. One is built which is shown unimpressive ability to scale up origination volume quickly, while maintaining origination quality.
We are excited about the progress we have made this year with Lima, one and continue to see great opportunities to grow the origination footprint and gain market share.
As he mentioned earlier the first quarter is off to a great start and we expect origination volume in 2022 to exceed 2021.
In addition to the benefit of adding assets to our balance sheet remains a profitable company.
<unk> generated $10 2 million of net income from origination and servicing activities in the quarter, representing an annualized return on allocated equity of approximately 30%.
And finally, we closed our second business purpose vessel loan securitization in the fourth quarter with approximately 90% of the collateral consisting of Lima, one originated loans.
With increased Russell loan acquisition volume from the <unk> acquisition, we expected to our third business purpose rental loan securitization in the first half of 2022.
Turning to page 16.
Here, we will discuss the fix and flip portfolio.
The portfolio grew by $137 million or 23% in the quarter.
Loan acquisition activity remained elevated due to the <unk> acquisition as we added approximately $220 million <unk> with over $370 million Max loan amounts in the fourth quarter and.
And have added over 110 million Max loan a month in January .
As a reminder, fix and flip loans financed the acquisition rehabilitation and construction of homes typically a certain amount of the loan is held back in the form of a construction holdback, which explains the difference between <unk> on day, one and the Max loan amount, which represents a fully funded loan at the completion of projects.
With a persistent increase in fixed and flip acquisition activity. We are actively exploring securitization options for our fixed uplift portfolio and expect to make securitization a consistent part of our fixed and flip financing strategy.
The <unk> of 60, plus day delinquent loans were relatively unchanged at $109 million in the fourth quarter, but declined significantly in 2021 as it dropped by over $50 million.
60, plus day delinquencies as a percentage of <unk> declined 3% to 15% at the end of the fourth quarter.
A few things to note here is that.
All of the loans that are 60, plus days delinquent accept one were originated prior to April 2020, and are simply working their way through the appropriate loss mitigation activities.
And Lima, one originated fix and flip loans held by MSA have only about 4% 60, plus day delinquency speaking to the quality of the origination and servicing.
The strong housing market generally favorable economic conditions and the efforts of our BPL and asset management teams have lots of good progress on seriously delinquent loans, we continue to see a sizable amount of loans pay off and call out a serious delinquency.
When loans pay off in full from serious delinquency, we often collect default interest extension fees and other fees of payout.
For loans, where there is meaningful equity in the property. These can add up since inception, we have collected approximately $6 5 million and these types of fees across our fixed income portfolio.
Turning to page 17.
Our single family rental loan portfolio continues to deliver attractive yields and exhibit strong credit performance with 60, plus day delinquencies declining, 9% 90 basis points in the quarter to two 6% in fourth quarter portfolio yield of 516%.
Purchase activity remained elevated in the fourth quarter as we added approximately $250 million of single family rental loans in the quarter.
As a result, our portfolio group was 29% in the quarter to over $920 million at the end of the year.
Acquisition activities have remained robust in the first quarter as we've already added over $80 million in the month of January .
The acquisition of <unk> has significantly boosted our ability to source single family rental loans and believe in we believe that we will continue to grow our single family rental loan portfolio in the near future.
We issued our second restaurant loan securitization in the fourth quarter and.
The deal was backed by approximately 284 million of loans, we sold bonds, representing about 91, 5% of loan UBB with a weighted average coupon of approximately two 5%.
Approximately 75% of our single family rental portfolio is financed with non mark to market financing and almost 60% through securitizations.
We've done two single family rental securitization.
And expect to continue to progress programmatically execute securitizations to efficiently finance the single family rental loans.
And with that I will turn the call over to Craig for some final comments.
Thank you good wonder.
We believe that we produced solid results in a difficult fourth quarter of 2021, and we're very pleased with our results and the successful execution of our strategic initiatives for the year, our portfolio growth coupled with securitization financing should enable us to continue to produce consistent net interest income are thriving.
One we will continue to provide us with the means to generate high quality assets at attractive yields.
In Mfa's focus on residential mortgage credit should position us well as we enter a year that will surely challenge investment strategies that are dependent solely on rates.
<unk> would you please open up the line for questions.
Okay.
Certainly and ladies and gentlemen, if you wish to ask a question. Please press <unk>, one and then zero on your Touchtone phone.
You will hear a tone, indicating that you've been placing Q you may remove yourself from queue by pressing the same one the orkin man.
We will take our first question from the line of Bose, George with K B W.
Man.
And your line is open. Please go ahead.
All right.
Yes.
Okay.
Well, we have a hard time hearing you I don't know if its your phone sorry is that better.
So much better and.
This is actually Mike Smith on for Bose I was just wondering if you could provide some color on the volatility in the securitization markets have you seen some of the older inventory cleared and how long do you think the.
The volatility could persist for.
Sure Brian you want to talk about non QM, yes sure yes.
Yes, I mean, we've seen.
A significant amount of supply come to market over the past several months and that's continued through the beginning of the year.
We've seen spreads move around.
Approximately 50 to 60 basis points at the at the AAA level.
And really the only thing that sort of tours that is time, we think that due to this rate move in and what we've seen on the origination side of things in the <unk> space things have been slowing down. So if that continues sort of that supply demand imbalance will will correct itself.
But that's sort of the only way we sort of see that happening is through the passage of time there is not really.
A catalyst that we see that's going to.
Stack spreads back or anything like that.
Got you that's helpful color and then have you seen any changes in loan prices to reflect the widespread in the securitization market.
We've seen some movement in loan pricing, but not to the extent of spread movement that we've seen on the securitization side and this is historically, what we've seen in loan pricing whenever we see movement in spreads on securitization and sort of there. There is some move but if not the full extent of the move so a few here.
Thinking that spreads might have moved on securitization 50.
50 to 60 basis points, it might be 20% to 25 basis points and on loan pricing.
That's helpful color and then just one more from me.
What do you incremental returns on new investments look like and how do you view this versus potentially buying back the stock at a 10 plus percent dividend yield.
So I think.
We always look at that.
I always look at the stock price, we bought back stock consistently through the year.
Discounts to book.
I think it's an either or type of proposition that either we make investments or we buy back stock.
We bought back 20 million shares, but at the end of the day.
It's not a liquidity constrained decision.
A decision I think.
On the asset side were still looking at probably worst case at high single digit low double digit returns and on.
On business purpose loans or some of the fix and flip loans where were those securitizations, even though those are again more expensive these days.
Those are probably closer to 20% type ROE so there's there's still attractive.
ROE to be had as Brian said, we haven't seen loan prices completely adjust to current market levels, and so that probably puts a little bit of a damper on enthusiasm to purchase loans until until the prices do correct to reflect.
Securitization execution now, but I think that will certainly happen in time, yes, I think and if you think in terms of attractive of investments and returns that we're making in 2021 was unusually attractive year given the fact that rates were so low.
And.
Securitization execution, so efficient so as we now move into Q1 of 2022, I think we're seeing more of a normalization of the environment, where there is a better balance between.
The yields you can earn on the asset versus the cost of funds. So we view. The current environment has continued to be attracted to execute securitization.
Go forward is different what happens to rates you've got to be mindful of how we managed from interest finished and so on and so forth. While we continue to find good opportunities.
Great I appreciate you taking my questions. Thanks again guys.
Thanks, Mike Thanks, Mike.
Next we will go to the line of Eric Hagen with BP.
Your line is open.
Hey, Thanks, good morning.
A couple from me.
Can you say, how much stock you've repurchased to date and what your book value is number two what would you say is the yield on newly issued non QM loans like how does it compare to the 385 that you show for the existing portfolio.
Sure Steve do you want to.
Alright, thanks for the questions. So.
If you look at our press release, you can see that on page two we give an update as to what the stock repurchases have been through the 18th of February .
And.
You can read that for yourself.
We've got about $45 million left under the current authorization for stock repurchases and we've been we've been actively repurchasing stock so far since the end of the year in terms of book value.
January we closed the books with January obviously, we Havent really started closing the books for February yet we've been very pleased with the way the portfolio has held up through January .
Added swaps in January and.
As a result of that and the other hedging activities that we had in place.
We started in the fourth quarter, we haven't seen any meaningful decline in book value through the end of January with sort of flattish to just marginally Dan even just even taking into account an accrual of a dividend, which we don't we don't record the dividend until its declared so very pleased with that performance through January and into February we've we've added.
More swaps as well to date, so I think in the press release, we talk about at duration being one three right now it's closer to one <unk>.
Given the additional hedging that we've done.
Brian you want to talk about yield levels on non QM, yes sure.
Our new investments today, I would say the yields are somewhere in the order of.
Plus or minus 4%.
After this rate move.
Got it.
Then within the rehab portfolio can you say, how many loans make up that portfolio and then should we expect the unfunded commitments I think it's like $285 million.
To be had over the course of the year or is the timeline something can you just describe the timeline for those unfunded commitments.
Yes, So let me ill deal with the unfunded commitments first I mean on average fix and flip loans outstanding for anywhere from yes.
Six to 12 months and probably.
The average license will pay off for our loans tends to be around 10% to 11 months.
So as you think about that usually like this thank you Pablo we just focus on a single loan and has drawn down over time. So it probably would take it until nine to 10 months to be fully drawn than its market and sold an underlying property I think that's the right way to think about that the undrawn commitment amount to be drawn down over the course of anywhere from 9% to 10.
10 months.
In terms of the number of loans I do not have that in front of me, but the average loan size.
It is in the context of I think about $300000 something like that and so if you use that as a proxy you can get to the loan count.
You can also follow up with you if that's important to you.
No that's helpful. Thank you.
Thank you.
Our next question comes from the line of Doug Harter.
Credit Suisse. Your line is open.
Good morning, guys. This is Josh Bolton on for Doug.
Curious your kind of high level thoughts around.
Aggregation risk as you're putting.
Getting these loans in the door and then planning on securitizing, just how much how.
How much risk is there how long does it take in the different buckets to get the size to securitize and how do you how do you manage manage through that risk of holding those loans until.
The pricing of the deal can can happen.
Sure. So thanks for the question I think.
It varies by by product so non QM is probably the.
The largest size of most prolific and until the until the fourth quarter of last year managing that accumulation period was not really all that difficult because interest rates and spreads didn't really change very much.
I think you can you can see what we did hedging the portfolio in the fourth quarter and then as Steve said into January and February .
Look at our book value would see basically said was flat in January .
So I think we are managing that risk.
And the securitization market as Brian said was a little bit crowded at the end of the year. So work and Brian you had mentioned before we're out with the securitization so.
Not waiting to securitize to wait for spreads to come back in is it still makes sense to do it as attractive as it was early last year no but in all honesty every time, we sold AAA bonds at less than a 1% yield we pinched ourselves to make sure that we were awake.
So and we recognize it for what it was it was a great opportunity last year, but that's probably not the norm going forward.
But also as Steve pointed out earlier.
Coming at the end of last year into Q1, we have significantly increased interest rate hedges because.
Rates have become more volatile and the outlook for rate is more uncertain. So we are mindful of that gap between acquisition into a securitization and we expect to continue to headset efficiently and Brian alluded to before in terms of the agency investor deals, we utilized TBA shorts, because those price more closer to agency products versus.
Versus rates in general and so that's an important.
Mix.
We manage that but we are in the market with deals every single quarter and it's part of our business model to execute those.
Great I appreciate the comments thanks guys.
So Josh thank.
Thank you.
And allowing a few moments I am showing no further questions in queue.
Okay, well, we want to thank everyone for your interest in MFA financial and we look forward to our next update when we announce first quarter results in may.
Thank you, ladies and gentlemen that does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service you may now disconnect.
Okay.