Q1 2022 MFA Financial Inc Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the MFA financial incorporated first quarter earnings Conference call. At this time all participant lines are in a listen only mode. Later, we will conduct a question and answer session. If you have any question you May press, one then zero on your Touchtone.
Phone you may remove yourself from the queue at any time by pressing one zero again, if you should require assistance during the call. Please press Star then zero as a reminder, this conference is being recorded.
I'd now like to turn the conference over to Hal Schwartz. 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 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 Mfa's annual rich.
Port on Form 10-K for the year ended December 31, 2021, 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's use of forward looking statements. Please see the relevant disclosure in the press release announcing Mfa's first quarter 2020 to 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 Hal good.
Everyone I would like to thank you for your interest in and welcome you to MFA Financial's first quarter 2022 financial results webcast 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.
The first quarter of 2022 was a very challenging period for fixed income investors and exceptionally so for mortgage investors, although a fed tightening cycle has been anticipated since the fourth quarter of 2021, the expectations of the timing and magnitude of this tightening have undergone mass.
Brook visions.
Short rates leaked wider in October and again in December with two year Treasury yields rising about 50 basis points during the fourth quarter market consensus at the end of last year was generally for 325 basis point fed increases during 2022, but these expectations essentially blew up as we entered 2020.
Two with persistently bad inflationary data a continued very strong labor market and increasingly hawkish dialogue from fed officials and other market participants the brewing consensus adjusted quickly and two year treasuries sold off by 40 basis points in January and another 40 basis points.
In February before the Russian invasion into Ukraine temporarily pushed to your yields lower in the last few days of February the bond market route intensified in March with two years backing up 60 basis points and that was before the first fed increase on March 16, and then another 52 basis points over the last half of March.
<unk>.
The magnitude and speed of this rate selloff, particularly in the short end of the yield curve was the most dramatic witnessed in over 30 years eclipsing even the rate increases in early 1994 and in a strange way there are some striking similarities between 1994 in 2022 and February of 1994.
Sure the fed began a tightening cycle in which they raise the fed funds rate six times during 1994 for a total of 250 basis points.
Erie similarity is that expectations today are quite similar that is for approximately a 250 basis point increase in fed funds during the year 2022.
However in 1994, the bond market only began to adjust to this fed tightening expectation. After the first fed funds increase on February 4th of that year today, the bond markets move much more quickly and price and fed expectations. Indeed by March 16th which was the date of the fed announced its first 20.
Five basis point increase two year rates were already at 194% or 170 basis points higher than they were in September .
In addition to materially higher rates in the first quarter. The volatile rate environment also led to significant spread widening across the mortgage market.
While agency MBS were probably the most visible casualty this spread widening also impacted loan pricing as securitization spreads widened.
Although housing fundamentals are still strong given the strained supply picture. This spread widening was much more about rate moves then credit is mortgage cash flows extended and rate volatility is never cut into mortgages.
We actively manage this rate risk, adding interest rate swaps last year in the fourth quarter and again early in the first quarter to manage our duration exposure, but even with the net duration of just a little over one year and relatively low leverage market forces had an inevitable negative impact on our fair value assets.
<unk> was a continued bright spot for MFA as they turned in another record quarter with over $600 million of originations because we are intimately involved in the securitization market. We have an instant feedback loop with our business purpose loan originator and can adjust rates in real time, thus greatly reducing the.
Typical drag suffered by originators in a rising rate environment as their pipeline spill with sub market coupons.
<unk> current origination pipeline has a weighted average coupon today of over 7%.
Finally mortgage credit remains solid despite higher rates and reduced affordability as the housing market remains strong with supply constrained and likely to remain so for the foreseeable future. Please turn to slide three.
We reported a GAAP loss of $91 1 million or <unk> 86 per share for the first quarter. These results were driven primarily by net losses on fair value loans, which Steve will discuss in more detail net interest income for the first quarter was $63 $1 million, which is down from $70 million reported in <unk>.
Q4, but the Q4 interest income was bolstered by $8 2 million due to the payoff of the MSR bond that had been impaired in 2020.
Our distributable earnings for the first quarter was $66 million or <unk> 62 per share. Steve will also explain this earnings measure in more detail, but it is intended to eliminate various noncash and unrealized gains and losses.
That impact GAAP earnings, but do not necessarily influence dividend determination.
We expect the distributable earnings will be one of several inputs considered by our board in the future and setting dividend policy going forward.
Our GAAP book value was down $1, 28, or six 7% and our economic book value was down $1 77, or eight 6% our leverage increased slightly to three one times and our recourse leverage at March 31 was one nine times.
Please turn to slide four.
We acquired $1 2 billion of loans in the first quarter and grew our loan portfolio by $330 million to $8 4 billion after portfolio runoff.
These purchases included about $600 million of non QM loans and $590 million of business purpose loans.
We completed two non QM securitizations in the first quarter selling $514 million of bonds and we completed two additional securitizations of business purpose loans in early April selling $463 million <unk> above our team did a fabulous job in a very difficult securitization market.
Selling nearly $1 billion of bonds. These transactions at durable nonrecourse financing create additional liquidity and provide more balance sheet capacity that we can deploy in the future to acquire new loans that are now priced at significantly higher yield levels.
Our asset management team has continued to take advantage of a strong housing market with limited supply by liquidating Oreo properties, posting a net gain of $8 $7 million in the first quarter and finally, we have repurchased stock below book value $3 2 million shares in the first quarter at an average price.
Of $17 15.
And an additional $2 8 million shares in April at an average price of $14 48.
Please turn to slide five.
This slide illustrates the components of our investment portfolio and all of that and also the nature of our asset based financing while the liability Pie chart shows two $9 billion of Mark to market borrowing about $1 8 billion of this borrowing is that a significant discount.
Two 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 using rough numbers loan prices would need to drop by more than 10 points from today's pricing before we would receive a margin call or said.
Another way, we could also borrow more than $200 million more against this existing pledged collateral. So while this borrowing is technically mark to market our conservative borrowing practice renders this borrowing functionally much more like non mark to market borrowing.
And I would now like to turn the call over to Steve yard to discuss additional details of our financial results.
Thanks, Craig.
Please turn to slide six for an overview of our first quarter 2022 financial results.
As Craig outlined in his opening remarks msas results for the quarter were impacted by the prevailing interest rate environment is a dramatic increase in interest rates across the yield curve combined with spread widening resulted a net valuation declines in our investment portfolio. Despite significant additions to our swap hedges that we proactively made early in the first quarter.
As a reminder, we elected the fair value option for all loans that we have acquired since the second quarter of 2021.
Consequently valuation changes on these loan acquisitions. In addition to loans that were purchased previously as nonperforming loans flow directly through our income statement we.
We have also elected the fair value option on liabilities issued in connection with loan securitization, where we also use fair value accounting on the underlying loan collateral in order to provide some metric accounting on the financing.
Valuation changes for these liabilities in addition to swaps and short TBA positions, which are also subject to fair value accounting provided a partial offset to the decline in loan values.
These valuation changes created significant volatility in our Q1 earnings as Craig also noted we are introducing distributable earnings this quarter, which is a non-GAAP measure that adjusts GAAP earnings to exclude fair value changes in certain expense items.
I will discuss distributable earnings in more detail shortly but first I'll discuss the most significant drivers of our Q1 GAAP results.
GAAP earnings were negative $91 1 million or negative <unk> 86 per common share.
Net interest income of $63 $1 million was $6 $8 million lower than the prior quarter.
Merrily because the prior quarter included $8 $2 million of income from an MSR bond redemption.
Residential whole loan net interest income marginally increased.
Non interest income increased $9 $2 million, but this was largely offset by higher financing costs.
Our net interest spread in the first quarter, including the impact of 35 basis points of net swap expense came in at 196%.
The overall seasonal allowance in our carrying value loans decreased for the eighth quarter in a row and at March 31, with $35 $5 million down from $39 5 million at December 31, 2021.
This reversal and other net adjustments to our CSO reserves positively impacted net income for the quarter by $3 $5 million.
Actual charge offs remained modest in the $523000 for the quarter.
Pricing across our residential whole loan portfolio was impacted by the volatile rate environment.
For loans held at fair value net losses, primarily valuation driven with $288 4 million and as discussed earlier. These were partially offset by net gains on economic hedging derivatives and securitized debt held at fair value of $158 2 million.
Also included in other income is $14 $5 million of origination servicing and other fee income from Lima, one which continues to perform strongly.
Good Monday, we'll discuss <unk> performance for the quarter in more detail shortly.
Finally, our operating and other expenses, excluding amortization of <unk> intangible assets with $38 $7 million for the quarter, a $2 $3 million decline from the fourth quarter.
This includes approximately $12 2 million of expenses, primarily compensation related at Lima, one down from $13 7 million last quarter.
As discussed in our last earnings call 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.
MSA <unk> G&A expenses were approximately $16 million for the quarter, which is in line with our expected quarterly run rate.
Other loan portfolio operating cost, meaning that is not related to Lima, one loan origination and servicing with $10 4 million.
A $1 $9 million decrease from the prior quarter.
The decrease is primarily due to lower securitization related expenses in the current quarter.
Because we have elected the fair value option on recently completed securitization deals GAAP does not permit us to capitalize these costs.
Turning now to slide seven where we provide a reconciliation of GAAP earnings to distributable earnings a new measure of Mfa's financial performance.
As I discussed earlier, the increased use of fair value accounting has resulted in additional volatility in our GAAP earnings primarily due to unrealized valuation changes in our investments.
In addition, our GAAP results over the past several quarters have included various episodic events related to items, such as the acquisition accounting for lunar one and capital transactions at certain of our loan origination partners.
It resulted in significant unrealized gains in GAAP earnings.
Distributable earnings adjust GAAP reported earnings to generally remove unrealized gains and losses related to our investments associated financing liabilities and economic hedges that are accounted for at fair value through earnings.
In addition, GAAP earnings is also adjusted to remove certain expense items, including noncash expenses for amortization of intangibles and stock compensation related expense.
Securitization related transaction costs also added back.
While these expenses are cash based they are excluded as they would typically be capitalized and amortized to interest expense as the liabilities of pay down.
But in this case GAAP requires the expensing upfront due to our election of the fair value option on the associated securitization.
We believe that distributed distributable earnings will provide stakeholders with a more consistent measure of our performance over time.
On slide seven we show distributable earnings for the current and immediately prior quarter as you can see distributable earnings increased on a sequential quarter basis.
Also on Slide 18, we show at distributable earnings for each quarter back to Q1 2021.
Distributable earnings has increased each quarter. During this period, primarily reflecting the impact of loan portfolio growth on our net interest income the contribution of Lima, one since the third quarter of 2021 and the impact of reductions in seasonal reserves over this period.
And with that I'll now turn the call over to Brian Wilson.
Thank you Steve.
Turning to slide eight.
Home prices continued their upward trend in the first quarter year over year home price growth hitting over 20% in March.
The lack of housing inventory continues to be a major driver of these increases as we are at historic lows and supply.
The unemployment picture or the employment picture remains strong and delinquencies remained low.
That said.
Rates have repriced rapidly since the beginning of the year and are now 200 basis points higher.
The increase in mortgage rates combined with HPA has significantly impacted the affordability of housing.
The typical principal and interest payment for a prospective purchase money borrower is almost 40% higher than the beginning of the year.
Overall, we are comfortable with the credit in our portfolio, but given the dramatic rise in interest rates. We believe it is prudent to be cautious over the intermediate term.
Economic prospects become increasingly uncertain.
Turning to slide nine.
The first quarter volatility to the non QM market.
We saw spreads widen approximately 100 basis points on the AAA rated part of the capital structure. In addition to the move higher in rates.
Due to the increased uncertainty we slowed purchases of non QM loans in the first quarter by approximately one third or $300 million less than the previous quarter.
We successfully executed two securitizations over the quarter in a challenging market totaling over $500 million sold.
Serious delinquencies continue to decrease in the non QM portfolio as a percentage of loans 60 days delinquent or greater dropped two tenths of a percent to three 3%.
The weighted average original LTV for borrowers that are 60 days delinquent, 65% and that does not account for any potential home price appreciation post origination.
Many loans that experienced delinquencies end up being paid in full and our borrowers have equity in the property and sell the property themselves.
Turning to slide 10.
Yes.
Our <unk> portfolio with approximately 875 million continues to perform well.
81% of our portfolio remains less than 60 days delinquent.
Although the percentage of the portfolio 60 days delinquent in status is 19% almost 34% those borrowers continue to make payments.
Prepay speeds moderated in the first quarter, but remained elevated at three months CPR of <unk> com.
Combination of the length of time, our borrowers have remain current on their mortgage and home price appreciation and unlock refinancing opportunities for many of our borrowers.
As a reminder, the loans consistent constituting our scale portfolio were purchased at discounts to par and Prepays are beneficial to returns.
Turning to slide 11.
Our asset management team continues to drive strong performance of our NPL portfolio.
Team has worked in concert with our servicing partners to maximize outcomes on our portfolio.
39% of loans that were delinquent at purchase are now either performing or paid in full.
49%, either liquidated or Oreo to David.
Our sales of Oreo properties have continued at an accelerated pace at advantageous prices over the last 12 months, we sold $179 million of properties for a net gain of $30 million.
And 12% are still in nonperforming status.
Our modifications have been effective is over three quarters are either performing or have paid in full.
And 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 lender to walk you through our business purpose loans.
Thanks, Bryan turning to page 12.
Despite the move higher in rates. This year, leaving one has continued to see strong demand for its BPL products and the first quarter was a third consecutive record quarter for originations with over $660 million originated.
<unk> continues to benefit from its reputation as a leading lender for real estate investors and its diverse product offerings of short and long term transitional and vessel loans backed by single and multifamily properties.
Both of which contribute to approximately 50% of loan volume coming from repeat borrowers.
Loan demand has remained strong in the second quarter with originations exceeding $200 million in April .
We had high hopes for <unk> when we acquired them in July of 2021, but the results have exceeded our expectations as Lima has originated over $1 6 billion of high yielding high quality BPL loans for Msa's balance sheet over the last three quarters, we expect origination volumes to continue to benefit from strong loan demand.
The BPL space and expect <unk> to originated in excess of $2 billion in 2022.
The first quarter was a challenging quarter for most originators as rates rose rapidly in FES and securitization has widened in the quarter.
During 2022, we have appreciated the benefits of a fully integrated origination platform as we have been able to raise the origination rates quickly in response to changing market conditions, raising the average coupon of Lima origination pipeline by over 100 basis points to over 7% currently.
In addition, our strong balance sheet allows lima to operate smoothly in the quarter for many originators struggled with managing their loan sales and warehouse lines.
And puts Lima in an excellent position to take advantage of higher rates going forward.
You completed two business purpose loan securitizations in the month of April our third single family rental loan securitization and our first fix and flip securitization, both consisting of 100% of Lima, one originated loans.
We are pleased with our ability to execute securitizations across various products during a very challenging time in the marketplace and believe it is a testament to the quality of our loans and Mfa's in Lima reputation in the marketplace.
Importantly, we have now established securitization programs from both short and long term BPL loans, which we believe will continue to support and strengthen Lima, one going forward.
In addition to the benefit of adding assets to our balance sheet Lima is a well run and profitable business in a challenging quarter for originators Lima generated $4 million of net income from origination and servicing activities in the quarter, representing an annualized return on allocated equity of approximately 10%.
Turning to page 13.
We will discuss the fix and flip portfolio.
Loan acquisition activity to remain robust with the added approximately $210 million of UCB with over $330 million Max loan amounts in the quarter all of which were originated by Lima one.
And grew the portfolio by over 20% in the quarter.
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 the <unk> on day, one and the Max loan Amman, which represents a fully funded loan at the completion of projects.
This hold back as funded overtime when borrowers are reimbursed, where we get work already completed.
As these funds get dispersed upcs alone increases from.
From a liquidity perspective. This is a non event first our multi principal paydowns have historically been around 50, CPR, while our rehab funding amounts had been equivalent to around 25, CPR, meaning our portfolio organically generates a lot of cash every month that significantly exceeds we are funding needs.
Second rehab fundings are financeable in the normal course of business on our warehouse lines and in our new securitization as they occur. Therefore, we don't believe the undrawn commitment amount has a meaningful impact on our liquidity.
We closed our first fix and flip securitization in April is to securitize approximately $265 million of assets all of which were originated <unk> alone we sold bonds, representing 98% of acid securitizing. The securitization is a five year maturity and as a revolving structure, which allows us to replace loans and pay down.
With new ones over a two year reinvestment period as well as funds rehab for us within the securitization as they occur.
We believe this expands de risks and Diversifies, our BPL funding sources and completes another important goal in our strategic plan of developing and growing lemus efficient origination platform.
The yields on the loan secure tax as well as the loans. We are currently acquiring is in the low to mid 7% range.
The return on equity on the securitization is therefore in excess of 20%.
We continue to see a steady decline of 60 plus day delinquent loans is a strong housing market low initial ltvs.
And the diligent work of our BPL team has led to good outcomes the <unk>.
<unk> of 60, plus day delinquent loans declined 19 declined by $19 million as a percent of UCB to 60, plus declined from 15% to 10% in the first quarter.
Almost all of the loans that are 60, plus days delinquent were originated prior to April 2020, and over 75% of them, 75% of them were originated by lenders other than Lima one.
<unk> originated loans are currently about 90% of our fixed and flip holdings and they have a 60% 60, plus day delinquency rate of approximately 3% speaking to the quality of lemurs origination and servicing activities.
Finally, when loans pay off in full from serious delinquency, we often collect default interest extension fees and other fees of payout for.
For loans, where there is meaningful equity in the property. These can add up since inception, we have collected approximately $7 $6 million in these types of fees across our fixed income portfolio.
Turning to page 14.
Our single family rest of the loan portfolio continues to deliver attractive yields and exhibit strong credit performance with 60, plus day delinquencies declining 80 basis points in the quarter to one 8% in the first quarter and the first quarter portfolio yield of five 2%.
We acquired over $290 million of <unk> loans in the quarter all of which were originated by <unk> and grew the portfolio by 27% to approximately $1 2 billion at the end of the quarter.
As we have said before the acquisition of <unk> and boosted our ability to source single family rental loans would also increase our ability to control pricing and absorb changes in yields and loan prices. Since we are acquiring these loans have cost and generating fee income in the origination process.
We adjusted to rising rates and higher cost of funds in the securitization market in the quarter by frequently adjusting origination rates and fees to reflect.
An attractive return profile going forward.
Currently we are adding as if our loans at low to mid 6% yield.
Implying a mid double digit return on equity on these loans going forward.
We issued our third vessel loan securitization after the quarter end in early April .
<unk> backed by approximately $260 million of loans, and then a very challenging market environment demonstrated our ability to consistently execute on securitization for this asset class.
The deal consists of 100% of Lima, one originated loans and continues to demonstrate the benefit of combining strong balance sheet and capital markets expertise with an elite BPL originator.
After completing the April securitization the percentage of <unk>, our financing that is non mark to market is approximately 70%.
We expect to continue to programmatically execute securitizations to efficiently finance, our single family rental loans as they provide long term nonrecourse and non mark to market financing benefits.
And with that I will turn the call over to Craig for some final comments.
Thank you <unk>.
So the first quarter of 2022 was obviously a challenging period in the fixed income and mortgage markets, but our active risk management practice lessened the impact on MFA through interest rate swaps securitizations and relatively low leverage. In addition, we increased liquidity and freed up balance sheet capacity.
We can now deploy as market opportunities arise we move one continues to achieve excellent results, despite raising rates to adjust to market conditions and a continued strong housing market benefits, our mortgage credit exposure, despite developing affordability issues for homebuyers due to higher rates.
<unk> would you please open up the line for questions.
Thank you, ladies and gentlemen, once again, if you would like to ask a question you May press one.
On your telephone keypad.
Our first question comes from the line of Bose George with <unk> W. Please go ahead.
Hey, guys. This is actually Mike Smith on for Bose I am just wondering if you might provide some more color on.
Hey, Greg how its gone.
Wondering if you could provide some color on the volatility in the securitization markets just kind of wondering if some of the older inventory is cleared or at the worst is behind you or do you expect some of the volatility to persist and then as a follow up have you seen any changes to loan prices too.
Reflect some of the wider spreads in the securitization market.
I'm sorry, the last part of the question.
Have you seen any changes to loan prices to reflect the wider spreads in the market.
Sure. So looking at the securitization market, we definitely saw major volatility in the first quarter AAA.
AAA spreads were wider by 100 basis points.
Since the end of the quarter, we have seen some retracement levels. So spreads are probably 30 ish basis points inside of the wide now it's still a very uncertain time, but it seems like the market has found its footing. So it is.
More beneficial than it was to securitize.
As it relates to loan prices, we have seen pricing adjust there is still an overhang of loans that were originated at lower coupons that originators.
Unable to move as quickly as they would otherwise like so those still need to work their way through the market, but we have seen coupons adjust to the new prevailing rates and spreads.
And we do think that.
The current pricing does make sense, but as we mentioned previously there is still a lot of uncertainty around.
Rates and where spreads will go from here.
Great Great. That's very helpful color and then just one on the buyback just kind of wondering how you're thinking about the balancing act between incremental investments in buying back the stock at 11 or 12% dividend yield.
I'm, just trying to get a sense for when they go forward cadence there.
Sure well, so we still have a little over $200 million of stock buyback authorization under the board's recent increase.
And as I indicated on the call. We've already bought this year nearly $100 million worth of stock back. So clearly, we're we're not afraid to buy back stock, but as you correctly pointed out we evaluate stock repurchases alongside other investment opportunities and also with consideration to available liquidity.
Great.
Helpful. And then just one more have you seen any changes to your book value So far in the second quarter.
So just to caution you, it's an estimate because we don't even have all the remittance reports from from loans for the month of April .
And never mind loan marks we don't we don't have those either but I guess just looking at rate moves in Q3s and fives, we would estimate that book value was probably down approximately 3% plus or minus for the month of April.
Great. Thank you so much for taking the questions.
Sure Mike.
And our next question is from Steve Delaney with JMP Securities. Please go ahead. Thanks.
Hi, good morning, everyone.
Thanks for the thanks for the questions.
So good.
Made some comments about on your initial I guess it was your fix and flip securitization that it kind of modeled out to a 20% Roe.
And then I think.
Brian May have mentioned that.
Asset bar D or excuse me that was good monitor as well, but you mentioned a 15% ROE I'm just curious about so it sounds like the business.
Lima products. The BPL are kind of hip adjusted enough to where they are not just a source of financing but also.
Factive structure for earnings.
Very attractive Roe.
About the <unk> market it sounds like.
Maybe that's just been a little slower to catch up to the repricing and Recalibration I'm just curious if.
And QM rates narrow I think Brian may have mentioned over 6% coupons, how do you view the.
The efficiency.
<unk> QM securitization today and is it is it viable.
In today's market.
Yes for new assets being purchased today, we would probably view it as a low to mid double digit Roe execution.
So we do think and looking at BPL fixed split, it's a little bit more attractive for us, but it's still it's still viable now. The question is right. There is still time that it takes that youre exposed to spread movements. When you commit to buy loans and you settle and you get them into a deal. So just given the uncertainty right.
When we say low to mid or we're talking about if you bought alone today than you did a securitization today now you are somewhat exposed to that spread rates over time, which is why we sort of slowed down purchases in the first quarter and we just wanted to make sure we're prudent going forward in terms of additional assets.
And that lag time to get to the market to securitize the assets.
Okay, and obviously I guess, you could hedge some coupons a bit but it sounds like the.
The BPL and Lima acquisition is paying huge dividends because.
As we sit today that that market is a little more transparent to you in a little more approachable than <unk>, and <unk>, where youre out there in a very competitive market, having to having to bid for those loans is that a fair statement.
Yes ill say destiny.
That's right that's right, Steve as I mentioned right we have this <unk>.
<unk> feedback loop with Lima, one because we're involved in the market with Securitizations almost every single day and so it's just.
I can't emphasize enough how important that is to be able to adjust coupons on the origination side in real time, because that's how you avoid the age old problem that originators always have.
In a rising rate environment.
They get stuck with pipelines with sub market coupons. So we're really happy about that Steve.
Also one additional component to this.
Yes, since we control the originator, we are acquiring loans at cost lever as originating them a cost to us we're not going out in the secondary market and paying premiums for them. So in a volatile market that does give us a little bit of additional kind of spread will yield to play with to absorb some of the volatility as opposed to if you are paying premiums.
Competing for those assets.
Your room for error. So to speak is less I think it's also a very important thing to keep in mind and in Lima by itself.
When you look at the cost and the income they generate from <unk>.
Fees and origination fees and servicing fees and other fees like we almost think about them as breaking even from a cost perspective, and so we're creating then these assets essentially at cost which is very powerful.
Yeah, great and.
Thank you for the comments all of you and props to management and the board on the buybacks that's greatly appreciated and these these challenging times.
At 80% of book or something I think it's a great use of your capital.
Thanks, a lot Steve.
And we have no other questions you may continue.
Okay, well. Thank you everyone for your interest in MFA financial and we will look forward to our next update when we announced second quarter results in early August .
Thank you ladies and gentlemen, this conference is available for digitized replay after 12 P. M. Eastern time today through August 4th at Midnight, you May access the digitized replay service by dialing 18662071041 and enter the <unk>.
This code for 874177 again that dial in number is 806 2071041 with the access code of 4874177 and that does conclude your conference for today. Thank you for your participation and for using.
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