Q3 2022 MFA Financial Inc Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the MFA Financial Inc. Third quarter 2022 conference at this time all participants are in a listen only mode.
We will conduct a question and answer session and instructions will be given at that time. If you should require any assistance during todays conference. Please press Star Zero as a reminder, this conference is being recorded I would now like to turn the conference over to our host 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.
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 report 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 third quarter 2022 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 morning, everyone and thank you for joining US here today for MFA Financial's third quarter 2022 earnings call 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 third quarter of 2022 offered no respite from the extremely difficult prior two quarters and was another historically challenging period across all financial markets.
<unk> markets continue to be very volatile with rates backing up in the third quarter and agency mortgage spreads touching near all time highs not seen since the great financial crisis, which you'll recall in 2008 for a time it was not certain that Fannie or Freddie credit was good.
Equity markets experienced a particularly volatile third quarter, although the S&P 500 was down only 5% for the quarter. It was up 14% through mid August and then down 17% over the second half of the quarter inflation numbers continue to disappoint with stubbornly high Prince despite considerable action already taken by.
The fed although the fed has been consistently clear that their sole focus is on inflation market participants seem to seize on random and sometimes tenuous signals to anticipate a pivot or a pause driving yields down in stocks up for a short period until it becomes obvious that this temporary euphoria was <unk>.
<unk> at which point, we retrace levels in stocks and bonds with a war still raging in Ukraine, and recent financial stresses in the UK and Japan. This market volatility is not likely to subside soon.
As a result financial market investors have generally remained on the sidelines, even as spreads and yields have moved in many cases to historically wide levels now admittedly the conspicuous absence of the fed has an active buyer in the market today as they have been for nearly all of the last 15 years.
Calls into question any notion of what an average or normal spread is or what was observed over that time period, but even looking back prior to 2007. Many of the levels that we see in the market today look quite attractive recent agency mortgage spreads as wide as plus 190 versus 10 year Treasury.
<unk> effectively puts a floor on non agency RMB.
Which explains even wider spreads on credit products today and.
In fact, there were only four times in the last 36 years that agency MBS spreads have been wider 1986, 1998, 2000, and 2008 and except for 1986, all these periods coincide with systemic and unique financial market crises.
And all four times overlap with periods of falling rates, whereas the dislocation. We see today is largely a function of rapidly rising rates are.
I refer to 1994 during our first quarter earnings call earlier this year when the fed raised rates six times for a total of 250 basis points and then another 50 basis points in February of 1995. During this time 10 year yields rose 240 basis points from $563.
Prior to the first increase to a peak of 803 eight.
Agency mortgage spreads widened from 72 basis points.
Just prior to the first fed action to a peak of 116, that's a 44 basis point widening in late April of 94, and then agency MBS rallied through the summer and finished the year in the low hundreds contrast, this with today when similar fed tightening and almost identical increases in 10 year yields have led to over 100.
Third 30 basis points of agency spread widening from the beginning of the year types in the 50.
A more recent rising rate widening for agency MBS would be the taper tantrum in 2013 agency mortgage spreads had widened early in 2013 from plus 41 in January and were about 70% versus 10 before share Bernanke. These announcements that the fed would begin tapering asset purchases.
<unk> at some future date set off the taper tantrum, which we all remember set off a sell off in treasuries and pushed mortgage spreads wider 10 year yields rose from 192, just before the announcement to 3% in early September and agencies widened, but only by 25 basis points to plus 95 in early <unk>.
July and they were back inside of plus 70 by September some of my recollection of the taper tantrum was much more dramatic than these actual numbers suggest and again this puts today's spread environment in context.
While the magnitude of fed hikes.
Has exceeded some expectations the direction was foreseeable our team at MSA to accept to preserve capital and manage our duration beginning in the fourth quarter of last year. When it became clear that the fed would need to move more dramatically than previously expected, we had $900 million of interest rate swaps at year end last year and <unk>.
As rates rose and duration extended we increased disposition to $2 4 billion at March 31, and again to $3 2 billion at June 30. The swap book has a weighted average fixed pay rate of $1 69. So not only does this lock in what is now considered a cheap funding cost, but we also benefit from.
A positive carry from the floating rate receive leg, which is now approximately 200 basis points with yesterday's fed action priced in we've deliberately slowed our loan acquisition pace beginning in the first quarter of the year and at the same time, we've continued to execute securitizations throughout the year nine securitizations and over $2.
$7 billion of <unk>.
Through our swap position in these securitizations, we have now effectively locked in 99% of our asset based financing costs taken together. These steps mitigated our book value decline, although MFA was certainly not immune to book value diminution or relative book value performance versus many in the peer group was.
Considerably better.
It's also worth noting that a significant portion of Mfa's book value decline is due to fair value marks on loans on our balance sheet. The vast majority of which we will likely hold until pay off or maturity as of September 30, the market discounts to unpaid principal balance on our $6 8 billion of purchase.
Forming loan portfolio is approximately $668 million.
We have securitization Theyre also marked below par by approximately $325 million netting. These two discounts produces a potential book value increase of approximately $343 million or $3 37 per share assuming the loans and liabilities all pay off at par.
This amount would be offset by any realized losses on loans, but expected losses are relatively low, particularly on our purchase performing loan portfolio.
We have also prioritized liquidity for all of 2022, and we ended the third quarter was approximately $434 million in cash while holding a substantial portion of our equity and cash obviously creates a drag on overall Roe.
This is not the time to swing for the fences, having a sizable liquidity position provides a cushion in volatile markets and gives us the ability to take advantage of opportunities that arise.
We've also fortified our balance sheet as we show on pages six and seven of our presentation. We've increased non mark to market financing as of September 30, 71% of our financing is non mark to market and our recourse leverage was only one seven times at quarter end.
Our loan financing agreements are term financings and 65% of this financing has a maturity date greater than six months, the borrowing spreads and haircuts on existing loan financing is fixed for the term of the financing agreement.
Typically we extend these agreements for another year, a couple of months before their term expires and despite market volatility financing is available for multiple counterparties and we continue to field calls from other significant bank lenders eager to provide financing.
Finally, I'd like to talk a little bit about housing and residential mortgage credit clearly the selloff in rates and widening in mortgage spreads has had a profound impact on mortgage rates and housing activity has slowed dramatically. We're beginning to see some modest home price declines at least month over month in some parts of the country. After a dru.
<unk> after the dramatic home price appreciation over the last two years this should not be a surprise. However, as we show on page eight our loan portfolio has considerable embedded HPA, which combined with amortization has lowered the current ltvs in most cases to the mid <unk>.
So to summarize how MFA is positioned we continue to maintain substantial liquidity, we have fortified our balance sheet with non mark to market financing fixed rate financing through swaps and securitizations and term financing agreements for our loan products and our loan portfolio has benefited from seasoning and home price depreciation.
Jason and has a low LTV, so borrowers have substantial equity in their properties.
And I will now turn the call over to Steve yard to discuss additional details of our financial results.
Thank you Craig.
On slide four the company update presentation, we present, a snapshot of our Q3 2022 results.
Mfa's GAAP earnings when negative $63 $4 million.
<unk> <unk> per common share.
Distributable earnings with $28 2 million or <unk> 28 per common share.
Net interest income for the third quarter was $52 $3 million.
Book value declined modestly during the quarter with GAAP book value down six 8% to $15 31 per common share while economic book value was down eight 3% to $15 92.
We ended the quarter with a leverage ratio of three six times <unk>.
Recourse leverage which excludes securitized debt was one seven times at September 32022.
And with that I'll turn the call over to good Monday.
Thanks, Steve.
Turning to portfolio acquisitions loan.
Loan acquisitions declined modestly to $710 million in the quarter as we continued to be selective in our investment activities and to require higher yields on the capital that is deployed.
You continue to find the best opportunities and business purpose loans organically sourced through our leading nationwide EPL originator the Milan.
We funded $520 million of new originations and rehab draws in the quarter.
We also selectively acquired $179 million of non QM loans during the quarter.
The new acquisitions are an attractive yield of approximately 8% and with a strong credit characteristics with average LTV at about 67% and average FICO score above 743.
In portfolio size was relatively unchanged at portfolio as portfolio, Runoffs and asset valuation declines largely offset acquisition volumes.
Lima, one continues to thrive under Mfa's ownership and has established a reputation as a leading nationwide BPL originator with strong origination volume excellent credit performance and prudent underwriting.
<unk> trailing 12 months of origination volume is approximately $2 5 billion compared to $900 million at the time of the acquisition on July one 2021.
Lima originated approximately $640 million maximum loan amount in the third quarter modestly up from approximately $600 million in the second quarter.
But three quarters of the third quarter origination with short term RTL loans, continuing the trend we have seen throughout the year, a stronger demand for short term products versus the more rate sensitive longer term rental loans.
The credit performance of Lima originated loans owned by MSA continues to be excellent with 60, plus day delinquent loans of less than 2%.
All year long, we've been focused on the impact of higher rates tighter monetary policy and potentially softer economic conditions on our portfolio.
To get ahead of that we have throughout the year for actively managed the risk reward profile of lemus BPL originations by tightening underwriting standards, increasing risk based price adjustments and increasing loan coupons in general.
As a result, the credit quality of our portfolio, which was excellent before has improved further in the year, while our average origination coupon has increased as.
As an example, the average FICO score on Lima, 2022, RTL vintage of approximately 750 have increased by about 10 basis points and 20 basis points compared to the 2021 and 2020 vintage respectively.
And the average coupon in our origination pipeline has increased by over 400 basis points. This year and is currently over 10%.
At the same time smaller BPL originators in a day.
Dependent on whole loan sales to third parties have been impaired by the market volatility, which has created an opportunity for lima to grow market share, while maintaining prudent credit standards.
There's also been a fairly steady pipeline of increased credit quality.
We are starting to see some softening in borrower demand due to higher rates and tightening of underwriting standards and expect origination volume to decline in the fourth quarter.
We continue to be focused on liquidity and availability of financing to support our BPL origination and to that end expanded our RTL financing capacity in the quarter by approximately $650 million of which about 65% is a non mark to market terms.
In addition, our TL loan pay downs of about $148 million exceeded draws of about $107 million in the quarter.
I will now turn the call over to Brian will discuss mfa's securitization activities and portfolio credit performance.
Thanks, Chris.
We have made significant progress in our plan to obtain a greater share of our financing through securitization.
Over the last 12 months, we have issued 3 billion nonrecourse securitized debt through 12 Securitizations.
The securitization issued covered many of our loan types of non QM and <unk> to <unk> and RTL.
2022, and it's been a challenging year to be an issuer of spreads required from bond investors.
Have pushed wider materially.
Start the year non QM SSR AAA spreads were in the low one hundreds and 150 basis points wider by June .
In August and September there was a short lived.
We took advantage of the issue of non QM securitizations.
With AAA spreads in the high one hundreds just before spreads widened out again to the mid two hundreds.
As Craig has previously mentioned.
Every time, we would feel disappointed about our execution spreads would proceed to leak, even wider and subsequent peaks, which in hindsight made our levels look great.
We will continue to be a regular issuer in the market as we believe non mark to market securitization financing provides significant benefits to our portfolio.
Moving to our portfolio's credit performance.
Delinquencies continue to improve across the portfolio over the third quarter.
The percentage of loans 60, plus days delinquent in September for the non QM MSR portfolios was 2% RTL portfolio was 6%.
<unk> portfolio exhibited 18% with almost half of those loans delinquent.
<unk> payments.
And the portfolio of loans purchased Npls, 41% of the remaining loans are 60 plus days delinquent. However.
About 30% of those borrowers are making payments.
We are laser focused on our remaining nonperforming loans as momentum has shifted and home prices. Our asset management team is working to make sure our timelines to resolution remain as short as possible as protracted timelines can be costly.
As of mid again, our portfolio maintains a low LTV aided by the significant HPA experience over the past two years, which helped limit potential losses.
Relating to modifications, we have adjusted our loss mitigation waterfall to take into account the current mortgage interest rate landscape to.
To receive a modification borrowers in most cases will now see an increase to the mortgage rate, which was not the case in the years following the financial crisis.
Lastly, we have been successful in reducing our Oreo portfolio by 141 properties to 412 since the beginning of the year, taking $20 million of net gains as we remain aggressive moving properties and an increasingly tricky housing market.
And with that I will turn the call over to the operator for questions.
Ladies and gentlemen, if you would like to ask a question on today's conference. Please press. One then zero on your telephone keypad, you may remove yourself from that queue at any time by repeating the one zero command. If you are using a speaker phone. We ask that you. Please pick up the handset before pressing the numbers once again, if you'd like to ask a question. Please press one then zero.
At this time.
And we will begin the Q with Bose George with <unk>. Please go ahead. Your line is open.
Hey, guys. This is actually Mike Smith on for Bose, Thanks for taking the questions.
Hey, Mike first one given where you can aggregate and securitized loans.
We're levered Roes on new investments and then kind of as a follow up how are you thinking about kind of the balancing act between.
Buying back stock and maintaining liquidity.
So Brian and good Monday to talk about the ROE is on securitized and then ill talk about use of cash.
Yes so.
As Brian pointed out.
<unk> execution has gotten more challenging throughout the year.
But what we've done as I explained throughout the year as raised our coupons and our yield requirements and so right now.
On the on the <unk> side.
We are you originating coupons around eight 5% to 9%.
So the yields that we're targeting.
Mid eights securitization execution is mid to high 7% in terms of cost. So when you do the math in terms of.
The amount of bonds you can sell you can say that the ROE is probably low double digits.
We're around 10%, but the thing is.
Also being quite cautious in the way we approach it we need to make sure that we're pulling in loans with high enough yield to basically be able to absorb some of the volatility in spreads and that's really how we're thinking about it on the RTL side, the shorts and BPL loans.
The coupons were originating range from 10% to 12% probably around <unk>.
10%. So you can think about yields thereof, you've seen tenants and a half.
The securitization of execution. There is also quite challenging and if you were to do a deal that probably cost you about eight 5% to 9%, so you're earning about 100 basis points of spread probably but your asset yields 10% and so the ROI on that is probably mid double digits.
Importantly, if you think about the RTL execution.
We said on the call, obviously that we expanded our financing capacity.
In terms of warehouse setups and expanded also non mark to market component of that so we do have the ability to hold those loans on a warehouse where the cost of funds is substantially lower.
You think warehouse cost of funds are probably anywhere from swaps plus 250 to $2 80.
We like that and then so for right now.
275, the cost of funds there is close to six 5%.
And.
So if you are creating loans and yields 10, 10% you've got decent.
Decent amount of spread there and then you can just do the math that the fed hikes, another 100 basis points to cost of funds goes to seven 5% still.
Still quite attractive spreads relative to the asset that we have so we think we'll continue to do securitization as Brian pointed out from a from a liquidity and risk management perspective.
But clearly at the time being there is more agitation is especially in the shortage products to hold on warehouse. If you do have those non mark to market term facilities and just the last piece on there kind of on the financing side of that just want to emphasize that as Craig pointed out in his remarks, we have $3 2 billion of interest rate swaps and that also.
100% offset.
The variable funding.
On our warehouse facilities and so as the.
As the index that increases with sulfur we're going to receive on the floating side on those swaps on the opposite side.
Great. Thanks.
Thanks.
And then Mike in terms of.
How are we thinking about deploying cash.
We're obviously cautious right with the volatility that we've seen this year.
And this is the first earnings call you've heard that on because I've listened to a bunch of them too.
So we're prioritizing liquidity, we're shoring up the balance sheet.
Everything's on the table every day, so as we deploy cash it could be into assets it.
It could be into buying stock, but I think we're probably more focused on liquidity than necessarily rushing to make investments. These days.
Great.
Good color and then maybe just one on BPL.
Obviously that sounds pretty short duration, just wondering who is providing in the permanent financing to a lot of these borrowers and have you seen any changes in credit availability on that front.
When you say, you're thinking about our counterparties that we borrow from.
No I mean like the underlying borrower for like a lemur one loan unlike tab.
Who is providing the apparel on that.
You mean, the take out when they sell when they flipped the property, yes exactly.
Oh, okay, Okay sorry.
Yes.
Just the same as always been.
You have an experience for most it keep in mind most of the people we deal with.
Our borrowers to Lima, one are highly experienced experienced real estate investors and they will have strategies around repositioning properties, whether its single family multifamily there'll be doing.
Low construction low rehab medium or Matt a lot of it we have some of that strategy will be around selling the property.
Do we have other strategies will be around renovating and then refinance into a rental property rental strategy and so the exit there can be a few different things if it's a sale of a property and there is an end buyer and that buyer, maybe get maybe borrowing Fannie Freddie loan to acquire the property.
If the if the strategy of the real estate investor is to retain the property and add to his Russell portfolio. He will most likely refinance that into a some sort of a rental strategy loan and Lima also makes those loans. So we tend to do some of those refinancing in house. It could also be away from us from some of the competitors out there.
But it is those that financing is widely available.
Prices, obviously higher than it has been in years past, but but there is widely available.
Great. Thanks for taking the questions.
Sure.
We will now go to the line of Steve Delaney with JMP Securities. Please go ahead. Your line is open.
Good morning, Greg and team thanks for taking the question.
I'd like to start with the interest spread it looks like it went up nicely to 164 basis points.
Compared to about 130 in the second quarter.
I'm just trying to reconcile that.
With your distributable EPS coming in at 28 cents versus <unk> 46, and now you are keeping a lot more cash that probably implies lower leverage but is there anything else in there that I'm missing anything that was more onetime in nature, given the improvement in spread and versus the.
The decline in distributable EPS. Thanks.
So let's say one thing this is Steve yard one thing Steve is the spread includes the impact of the swap benefit, whereas the net interest expense that we report for GAAP doesn't.
That's one of the replacing the Youre seeing the full benefit of the swap.
<unk> seen a net receipt position now reflected in that cost of funds and therefore spread whereas the net interest expense that we're required to report GAAP dollar value of that doesn't show that said, there's somewhat of a geography issue on our income statement. So thats one thing I'd point out here that might help to reconcile that that is very helpful.
Just because the.
Yes, if you're getting that you're getting that in GAAP, but youre not getting.
Youre not getting that benefit from the swap and your distributable is what youre, saying.
Well.
That's not quite right you are getting the.
Carry on the swaps in the distributable.
Yes.
It's a geography issue in the income statement.
Okay, well my follow up with that.
Afterwards, Steve if you don't mind.
<unk> I just wanted to be clear I heard I.
I think you did 500 million in originations in the third quarter, if I heard comments that that will likely go down.
Can you make any estimated range of where you would think that would be quarterly going forward over the next two to three quarters.
Yeah, Thanks, Steve Yeah, that's right.
As I said based upon our proactive approach to managing our pipeline.
<unk> been raising rates throughout the year, and tightening underwriting, reducing ltvs or things of that nature.
Frankly, we were surprised how well the pipeline held up through the third quarter, because again, we were raising rates aggressively in pulling in some high coupons.
But we're seeing some softening in the pipeline and I think I said that so on a maximum loan amount Lima originate at about $640 million in the third quarter. So that includes like total total amount that is that as such.
The substance of draws and things of that nature.
For the fourth quarter I would expect originations.
Originations, probably did decline to like probably in the four hundreds maybe low four hundreds based on what we're seeing.
Okay, So still some business, there and coupons north of 8%, but just <unk>.
Slower slower pace.
While the coupons now as I said as Craig mentioned and I mentioned in the current pipeline.
Weighted average coupon is over 10%.
And so so we so our view is yes. These are great loans to make but we're very cognizant of the fact that.
The volume is coming down because rates are higher but also because we're being more selective in terms of the credit exposure you take.
Got it got it and Greg just to go back I think Mike was trying to touch on this I mean it seems.
You guys have done a great job reacting to this 99% fixed rate financings I don't see how you can have your balance sheet in any better position in your credit metrics are holding up the <unk>.
Markets.
Not rewarding of this I think a lot of that is macro and not specific to MSA at all but in any event you are trading 60% booked the yield is 18%.
Trying to maintain liquidity liquidity can you share with us any thoughts as to.
How you and the board or are looking at this in terms of the balance of how you are delivering value to shareholders and what's the best way to do that and I guess my point is or all three of those things important factors in kind of on the table for discussion.
The.
The dividend, if you will and the liquidity how does all that come out.
And when you look looking at things going forward. Thank you.
Sure, Steve and I appreciate you recognizing what we've done on the balance sheet and on the right hedging side.
In terms of.
How we deploy capital as I said to a prior question.
All things are on the table every day I mean, we are somewhat limited in how much stock we could buyback right under under our plan. There is there is a limit a daily limit right.
But clearly that's one of the things that.
We think about and by the way we have bought over $100 million worth of stock back this year and it obviously.
It Hasnt helped a whole lot.
Which is a little frustrating.
Terms of in terms of dividends.
There was this notion of liquidity.
At the end of the day, our our cash position on September 30 was about $435 million.
The current dividend level, we can pay that dividend for two and a half years with that cash so it's not.
Dividends are not a liquidity issue, it's more of an earnings issue.
And obviously, our distributable earnings in the third quarter were below the current dividend level, although our distributable earnings in the aggregate.
We have covered the dividend over the last four quarters, despite the lower Q3 print.
Lower distributable earnings should not necessarily come as a surprise given the rate environment that we're living through.
And given this backdrop, we've prudently reduced our asset acquisition pace, given recent and persistent rate volatility.
So maintaining a substantial liquidity position has been a priority for us and so we could've made we could've made more investments right. So while marginal investments might look cheap and we've seen that over and over this year that module investments that look cheap.
Get cheaper and they get cheaper again, so it's difficult to make the case that this will change in the near future.
But if we had invested let's just say we invested $150 million at the beginning of the third quarter and would say that we levered at four times and let's say that we could earn a 15% ROE we might have added five or six to our distributable earnings, but our book value would likely be down three times that much on the.
Those same investments.
So I think.
It's great to have sort of 2020 hindsight, but I think that's been part of our thought process. This year is.
As cheap as things look.
It's difficult to really have conviction.
And I think.
I've heard that across.
Almost all the other earnings calls I've listened to yes things look really cheap.
But in this market environment liquidity and a strong balance sheet are really the.
And at least in our opinion.
Those are the most important things so I don't know if that helps Steve. It does you came through loud and clear. So thanks for the comments look forward to seeing you guys at our conference in a couple of weeks. Thank you.
Thanks, Steve.
And as a reminder, if you'd like to place yourself in the queue for a question you May press. One then zero at this time, we will now go to the line of Eric Hagen. Please go ahead. Your line is open.
Hey, good morning, guys hope you're doing alright.
I'm curious on two two non QM related questions. What are the triggers that would maybe support you having to buy loans out of the securitization trusts.
Or I guess, non QM or BPL and how do you think the funding for delinquent loans. Once you bring them back onto your balance sheet on a warehouse line for example could could differ versus a performing loan.
And then a lot of non QM loans have prepayment penalties.
But it almost seems counterintuitive in a market like this to enforce a penalty.
Are there prepayment penalties for non QM loans.
Are you guys thinking about the turnover.
And the.
Kind of ability for borrowers to.
Potentially refinance that they needed to or wanted to thank you.
Sure. Thanks, Thanks for the question, Eric So so for one and our non QM securitizations.
If loans go delinquent they don't come out of the securitization. They stay there. So the only reason that loans will be required to be bought out of a securitization is it somehow there was like an underwriting defects found.
Which which then we would have the right to put that loan back to whomever the originator could be breached Ryan because we'd have so by performance loans don't have to be bought out and thats sort of the same for BPL securitization as well.
And to your question about prepay penalties, yes, the loans made to investors do have prepayment penalties and you are correct.
As loans are <unk>.
<unk> that at a.
<unk> right why would you necessarily if that if that's the sole reason that kept the borrower from prepaying alone why would you enforce that prepayment penalty.
And the answer is you can sort of look at it selectively but that's not really those prepaid penalties aren't at a level, where they would really restricts the borrower from from making that refinance or sale of a property decision, but if that if a borrower came to us and said I would make this move but for the.
This prepayment penalty, we would evaluate that at that time.
Got it that's helpful. Can you describe any sort of servicing advance obligation for the non QM securitizations and just how that.
Obligations for servicing.
Supporting the trust.
Just kind of works in general.
Yeah sure so our securitization don't have advancing for P&I.
Alright, so the only advances that would take place would be protective advances in the case of if alone where to go delinquent so that would be sort of taxes and insurance and property preservation and that sort of comes off that.
Would come off the waterfall and if not sort of.
Direct expense you would say of MSA.
Got it got it that's helpful. Thank you guys very much.
Thanks, Alright. Thanks.
Okay.
Yes.
And with that we have exhausted all questioners in queue. Please continue.
Yes.
Alright exhausted everyone. Thanks very much. Thank you very much for your interest in MFA financial we look forward to our next update when we announce fourth quarter results in February that'd be holidays to everyone.
Ladies and gentlemen, this does conclude our conference for today. Thank you for your participation and for using AT&T event conferencing you may now disconnect.