Q2 2025 MFA Financial Inc Earnings Call
Speaker #1: Greetings and welcome to the MFA Financial Inc. second quarter 2025 financial results conference call and webcast. At this time, all participants are in a ening-only mode.
Speaker #1: A question and answer session will follow the formal presentation. You may be placed into question queue at time by pressing star 1 on your telephone keypad.
Speaker #1: If anyone should quire operator assistance, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It's not my pleasure to turn the call over to Al Schwartz, general counsel.
Speaker #1: Please go ahead, sir.
Speaker #2: Thank you, Kevin. 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.
Speaker #2: 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.
Speaker #2: 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 end of December 31, 2024, and other reports that it may file from time to time with the Securities and Exchange Commission.
Speaker #2: 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.
Speaker #2: For additional information regarding MFA's use of forward-looking statements, please see the relevant disclosure in the press release announcing MFA's second quarter 2025 financial results.
Speaker #2: Thank you for our time. I would like I would now like to turn this call over to MFA CEO, Craig Knutson.
Speaker #3: Thank you, Al. Good morning, everyone. And thank you for joining us for MFA Financial's second quarter 2025 earnings call. With me today are Brian Wilson, our president and chief investment officer; Mike Roper, our CFO; and other members of our senior management team.
Speaker #3: I'll begin with a high-level review of the second quarter market environment and then touch on some of our results activities and opportunities. Then I'll turn the call over to Mike to review our financial results in detail.
Speaker #3: Followed Brian, who will review our portfolio financing, LIMA 1, and risk management before we open up the call for questions. I'm sure you will all remember the market turmoil that rang in the second quarter, with liberation day on April 2nd.
Speaker #3: Two-year treasuries ended the first quarter at 388, rallied to 365 by April 4th, sold off to 396 on April 11th, and rallied again to 360 on April 30th.
Speaker #3: And then subsequently sold off to 405 on May 14th. Ten-year treasuries followed a similar trajectory rallying 20 basis points to 399 on April 4th, selling off 50 basis points to 449 on April 11th, closing the month of April at 416, and then selling off to 460 by May 21st.
Speaker #3: Fortunately, cooler heads appear to have prevailed since then, both in Washington, DC, and in bond and equity markets. At least until last Friday's employment report revisions, twos and tens had generally each settled into their own 25 basis point ranges since mid-May, and equity markets have continued to grind higher.
Speaker #3: Again, last Friday, notwithstanding. Mortgage spreads mortgage credit spreads tracked other risk assets, widening somewhat in April and then retracing back to or near levels seen at the end of Q1 by the end of the second quarter.
Speaker #3: Importantly, the market for securitized mortgage credit assets and non-QM securitizations in particular continues to deepen as liquidity increases and investor appetites remain strong. Spreads widen and tighten along with other risk assets, but deals get done and priced in a very orderly fashion.
Speaker #3: This was decidedly not the case as recently as 2023, when at times demand was weak, spreads were much more volatile, and some deals were pulled from the market.
Speaker #3: The depth and reliability of this market is a powerful testament to this durable source of financing that we utilize to finance over 80% of our loan portfolio.
Speaker #3: The economic and macro environments while never certain seem a bit more clear as the year progresses. Growth, though slower than originally expected, is remarkably resilient.
Speaker #3: The passage of the tax and spending bill has removed the market uncertainty that had been associated with that. Inflation fears have moderated, particularly as tariff negotiations begin to get resolved at less draconian levels than originally feared.
Speaker #3: Employment continues to grow, albeit at a reduced pace, although with a substantial revision in last Friday's jobs report, a strong case to be made that the jobs market is not as healthy as previously believed.
Speaker #3: Amidst the drama between the president and the Fed chair, consensus now seems to be for two rate cuts later this year. And lower short rates is always a helpful tonic for mortgage reef.
Speaker #3: Finally, housing is languishing somewhat as demand continues to fall off, due to interest rate and affordability challenges. Actual home price declines have, for the most part, been concentrated in specific geographies, where new supply has saturated these local markets.
Speaker #3: There's still a fundamental nationwide supply shortage, so it's hard to envision more than a very modest weakness in home prices nationwide. Homeowners with existing mortgages today are generally not over-levered, and years of substantial HPA coupled with prudent and sensible underwriting practices means that LTVs are low enough that even in the event of a job loss, death, or divorce, borrowers have substantial equity and will sell their property to extract their equity and pay off the lender.
Speaker #3: In the midst of this environment, our portfolio delivered total economic return of 1.5% for the second quarter and 3.4% year to date. Which includes our first two quarterly dividends, which we increased to 36 cents in the first quarter.
Speaker #3: Our economic book value in the second quarter was down very modestly by 1%. Our distributable earnings for the quarter was 24 cents per share, and were negatively affected by credit losses incurred on certain business purpose loans that were realized during the quarter.
Speaker #3: Absent these credit losses, DE would have been 35 cents. As a reminder, these credit losses do not impact DE until actually realized. And as Mike Roper has emphasized for the last few quarters, these loans were marked down in 2024 and earlier when they went delinquent.
Speaker #3: Our fair value assets are marked to market every quarter, so the economic credit loss was realized through gap earnings and a reduction in book value a long time ago.
Speaker #3: Said another way, these realized credit losses that reduce distributable earnings in the second quarter are old news. Michael provides additional color on the actual resolution amount versus the marks on these loans in his prepared remarks.
Speaker #3: We were active in the second quarter, sourcing 876 million of loans and securities, across our target asset classes. These included 503 million of non-QM loans, 131 million of agency MBS, and 217 million of business purpose loans at LIMA 1.
Speaker #3: We issued our 18th non-QM securitization in early May. We sold $38 million of newly originated SFR loans and $24 million of delinquent transitional loans.
Speaker #3: Our overall leverage at the end of the quarter was 5.2 times, and our recourse leverage was 1.8 times. Once again, the second quarter demonstrated that MFA's investment portfolio, our balance sheet composition, and our risk management approach are positioned to deliver results across multiple scenarios, whether faced with unexpected market volatility and uncertainty.
Speaker #3: And I will now turn the call over to Mike Roper to discuss financial results.
Speaker #4: Thanks, Craig, and good ning. At June 30th, Gap Book Value was $13.12 per share, an economic book value was $13.69 per share. Each down about 1% from the end of March.
Speaker #4: MFA again paid a common dividend of 36 cents and delivered total economic return of positive 1.5% for the quarter. MFA generated gap earnings of 33.2 million, or 22 cents per basic common share in second quarter.
Speaker #4: Our gap results were driven by growth in our net interest income to 61.3 million, as well as modest net mark-to-market gains. This marks the third consecutive quarter we've grown our net interest income, driven by additions of higher-yielding assets over the last several quarters.
Speaker #4: Net interest income also benefited from a non-recurring 2.6 million dollar acceleration of discount accretion on our MSR-related assets, which were redeemed during the quarter.
Speaker #4: During Q2, we continued to ake meaningful progress resolving non-performing loans. We reduced overall portfolio 60-plus day delinquency from 7.5% to 7.3% and lowered the balance of loans on non-accrual status by 33.6 million compared to last quarter.
Speaker #4: In addition to our more traditional asset management activities, we resolved approximately 24 million of some of our most challenged transitional loans via loan sale during the quarter.
Speaker #4: We expect to utilize additional loan sales in the second half of this year to continue to accelerate the resolution of underperforming assets, allowing us to unlock and redeploy capital at mid to high-teen ROEs.
Speaker #4: Importantly, because our assets are predominantly accounted for at fair value, the expected losses associated with these potential sales and resolutions have already been recorded in our gap results and in book value in prior periods.
Speaker #4: In some cases, years ago, as unrealized losses. We mark our portfolio each quarter to what we and our third-party pricing services believe are the levels at which the loans would trade in the secondary market to a level net of expected credit losses.
Speaker #4: Confirming this belief, during the quarter we resolved the raw current approximately 200 million UPB of previously non-performing loans. After reversing previously recognized fair value marks on these assets, the net impact on our gap results and our book value for the quarter was a net gain of over 3 cents per share.
Speaker #4: We believe this net gain on asset resolution highlights the quality of our an marks and of our financial reporting. Moving to our distributable earnings, DE for the quarter was 24.7 million, or 24 cents per share, a decline from 29 cents per share in the first quarter.
Speaker #4: The decline was driven primarily by credit losses on fair value loans, which totaled 10 cents per share for the quarter, approximately 6 cents higher than in Q1.
Speaker #4: As well as a 2 cent increase in the dividend rate on our Series C preferred, which began floating on March 31st. As Craig mentioned, our DE excluding credit losses was 35 cents per share, nearly in line with our common dividend.
Speaker #4: For the quarter, our consolidated G&A expenses totaled 29.9 million, a decline from 33.5 million in the first quarter. Second quarter results included severance and related transition costs of 1.2 million, the results expense reduction initiatives across both MFA and LIMA 1.
Speaker #4: We expect that once complete, these initiatives will further improve our cost structure, lowering our run rate G&A expenses by 7 to 10 percent per year from 2024 levels, or approximately 2 to 3 cents per quarter.
Speaker #4: Though we expect some short-term pressure on our distributable earnings, particularly over the next two quarters, we have confidence in both the current earnings power of the portfolio and the current level of our common dividend.
Speaker #4: We continue to expect that our DE will begin to reconverge with the level of our common dividend in the first half of 2026. Finally, subsequent to quarter end, we estimate that our economic book value has increased by approximately 1 to 2 percent since the end of the second quarter.
Speaker #4: I'd now like to turn the call over to Brian, who will discuss our investment activities in the second quarter.
Speaker #5: Thanks, Mike. We grew our estment portfolio to 10.8 billion in the second quarter. We continue to focus on our target asset classes of non-QM loans, business purpose loans, and agency securities.
Speaker #5: We sourced and purchased over 500 million of non-QM loans during the quarter. These loans carry an average coupon of 7.8% and an average LTV of 66%.
Speaker #5: We established relationships with two new originators during the quarter and will look to add more moving forward. Underwriting standards in the non-QM space remain proven in mid-high-teen ROEs remain achievable with securitization funding.
Speaker #5: The market continues to be supportive of non-QM issuance. As the total bond sold by all issuers so far this year has already nearly eclipsed the total from all of last year.
Speaker #5: We completed our 18th non-QM securitization in May, selling $291 million of bonds at an average coupon of 5.76%. As Craig mentioned, credit spreads were volatile during the quarter.
Speaker #5: Especially in April, when AAAs widened to as much as 175 basis points over Treasuries. However, spreads tightened over the remainder of the quarter back to where they were before the trade war turmoil started.
Speaker #5: On Monday of this week, we priced our 19th non-QM securitization and were able to improve pricing due to strong investor demand. We again added to our agency MBS portfolio during the quarter.
Speaker #5: Growing our position to 1.75 billion. Our focus remains on low payout securities, generally five and a half, that we were able to purchase at modest discounts to par.
Speaker #5: We plan to grow our ency position further as long as spreads remain attractive. Turning to LIMA 1. LIMA originated 217 million of business purpose loans during the quarter, a slight uptick from the first quarter.
Speaker #5: This included 167 million of single-family transitional loans with an average coupon north of 10% and 50 million of new 30-year rental loans with an average coupon of 7.5%.
Speaker #5: As a reminder, we continue to sell newly originated rental loans to third-party investors. LIMA, as a whole, contributed 6.1 million of mortgage banking income for the quarter, an increase from 5.4 million in the first quarter.
Speaker #5: LIMA again had success adding to its sales force, hiring 15 new loan officers during the quarter. Although origination volumes are down both at LIMA as well as across the industry, we expect these new hires, along with significant progress on technology initiatives, to lead growth in origination volume and profitability in the latter half of this year.
Speaker #5: Moving to our credit performance, as Mike mentioned, the 60-plus day delinquency rate for our entire loan portfolio declined to 7.3% in the second quarter.
Speaker #5: Default rates for our non-QM and rental loans remain exceptionally low at approximately 4% and fell to an all-time low in our legacy RPL/MPL book.
Speaker #5: We continue to be hard at work addressing our non-performing transitional loans. We sold 24 million of delinquent transitional loans during the quarter and expect to sell more later this year.
Speaker #5: Although the default rate percentage rose again for our single-family transitional portfolio, it's important to note that loan delinquencies actually declined by 2 million. And we received 269 million of principal repayments, up from 249 million in the first quarter.
Speaker #5: We again resolved 35 million of previously delinquent multi-family loans during the quarter and received 99 million of principal repayments. And with that, we'll turn the call over to the operator for questions.
Speaker #1: Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into the question queue, please press star 1 on your telephone keypad.
Speaker #1: A confirmation tone will indicate your line is in the question queue. You may press *2 if you'd like to move your question from the queue.
Speaker #1: Once again, that's star 1 to be placed into the question queue. Our first question today is coming from Bose George from KBW. Your line is now live.
Speaker #6: Hey, guys. Good morning. actually, first.
Speaker #3: Morning, Bose. Morning.
Speaker #6: Ask about where you see the, economic return for the portfolio. So, I mean, like you talked about, there's a 10 cents of credit. There's a couple of cents that we get from the expense side that, you know, ets us above the dividend.
Speaker #6: I mean, is that kind of the economic return, or is there sort of incremental upside as you redeploy some of the capital? You know, that's in the, trouble loans at the moment.
Speaker #3: thanks for the question, Bose. I think a couple of parts to your question there. so we, we talk about the economic return of the portfolio, regularly on these calls as well as internally.
Speaker #3: And with our board and setting dividend policy, and one of the sort of, downsides of DE and really any accounting metric is that it's backwards looking.
Speaker #3: when we think about the earnings power of the portfolio, we try to think about the go-forward earnings power. And if you think about the, sort of ROEs the portfolio is generating on a mark-to-market basis, that's really how we think about the economic earnings power of the portfolio.
Speaker #3: You know, for example, we have some loans that were purchased in 2021 that are held at a pretty significant discount, with a coupon rate of, call it, you know, 4%.
Speaker #3: Because that asset's accounted for at fair value, if you think about the total economics of that, whether it shows up in interest income or in the mark, that asset clearly is earning more than 4% today.
Speaker #3: so when take that sort of mark-to-market ROE and do the same thing on the hedges and the liabilities, and then ou, you layer in your expenses and the P&L that, that, LIMA is generating associated with their origination, platform, the, the economic earnings power is, is, you know, much closer to the 10%, dividend yield already.
Speaker #3: I think the second part of your question, as far as additional upside, I think the answer is, you know, definitely yes. I mean, we've been running with quite a bit of dry powder for some time now.
Speaker #3: our ourse leverage is, is 1.8 times and, even ignoring the, you know, 275 million of cash we have, a lot of capacity to, to turn up that, that leverage number a bit.
Speaker #3: So there's definitely some upside there. and you'll see that we've ed a, a, a large number of assets again this quarter, as we have for the last several quarters.
Speaker #1: Okay.
Speaker #3: And, Bose, just to
Speaker #3: clarify one thing when Mike said that the 10% dividend yield, he means the 10% dividend yield on our book value, not on the ock price.
Speaker #3: That's right.
Speaker #1: Yeah. So, okay. Yep. Absolutely. It makes sense. And then, in s of the, you know, the different areas where you can allocate capital, like, do you see the best, you know, ROEs at the moment?
Speaker #3: I mean, we still, we like really all three. You saw we were most active in non-QM, and all three being non-QM, HC, and business purpose loans.
Speaker #3: You know, our hope is over time to sort of grow, the business purpose loan originations, which, which have the highest sort of face, ROE.
Speaker #3: and, you know, as we've mentioned, we're iring people down in LIMA 1 and, and, you know, we, we do expect to see growth in that origination.
Speaker #3: So really, it's, you know, continuing to deploy across all those three. but, you know, if, if LIMA could do more origination, we would definitely have, you know, prefer that.
Speaker #3: over, over the other two.
Speaker #1: Okay. Great. Thank you.
Speaker #3: Thanks, Bose.
Speaker #1: Thank you. Next question today is coming from Steve Delaney from CitizensJMP. Your line is now live.
Speaker #7: Hey, good ning, everyone. Nice to be on with you today. the 15 new loan officers hired, I understand that's at LIMA 1. could ou comment on that?
Speaker #7: Are these going to be generalist producers? Is there any product specialty that you're trying to develop? And I guess most importantly, is there any new geo?
Speaker #7: Have ou opened offices in any new states as a result of the new producers? Thanks.
Speaker #8: Yeah. the focus is generally, you know, I would say west and midwest in s of the hires. we believe them to be sort of high-quality hires coming over from, you know, competitors.
Speaker #8: And, you ow, if you think about, you know, the ramp process, right, somebody comes online, it takes them a few months to, to get comfortable with, with the product and the processes that, that LIMA 1 has versus where they may have been previously.
Speaker #8: So, you know, 's sort of, you ow, we're seeing growth now, but we do expect to see, you know, much more aggressive growth sort of back half of this year in its next year.
Speaker #8: as these people really start producing.
Speaker #7: Yep. Okay. So, and, how many total producers, you may have mentioned it. I apologize. Now, as, as, as we sit today at LIMA 1?
Speaker #8: Yeah. We were, we were pushing, I ink, 50. And the, the goal is to continue growing that, I think, closer to, to 80.
Speaker #7: Wow. Okay. So there's some runway still to go there. Okay. you know, I think that's good. thank you for the clarity on the dividend coverage.
Speaker #7: I was looking at page 16 in the deck, and it's, it's helpful, but, you know, the unrealized and realized gains and losses, you ow, don't let us kind of count on our own with the deck and without Mike's help this morning, you know, really, we can't really back into coverage based on, ou know, realized losses.
Speaker #7: So just throw that out for, for consideration as far as the way you show it in the deck. But, you ow, good progress all around, you know, strategically.
Speaker #7: And I realize that the losses are a work in process, and we've got a little bit of ways to go to get all that behind us.
Speaker #7: But thank you for the, for the time this morning.
Speaker #8: Thanks, Steve. Thanks, Steve.
Speaker #7: Thanks, Steve.
Speaker #1: Thank you. Next question today is coming from Jason Stewart from JD Montgomery Scott. Your line is now live.
Speaker #9: Hey, good morning. Thank you. just to follow a little up on Bose's question, you know, you talked about growing LIMA 1, but as we think about the balance sheet, going into the easing cycle and maybe, you know, post-Steepener, on the yield curve, like, how do you vision capital allocation trending between the, businesses on the balance sheet?
Speaker #8: Yeah. I mean, really, with, if you ink about, a, a Steepener, right, LIMA 1 is still originating assets that have coupons north of 10%.
Speaker #8: So, if you have Steepener and the short end comes down, maybe that, that coupon goes from 10 to, to 9 or to, to 8 and a half or, or, or something like that.
Speaker #8: But the, the borrowing costs, against those is, is also going to come down commensurate. So, you know, right , in securitization, you know, you can get, funding, you ow, five handles.
Speaker #8: Right? So if that front end were to, were to come down, you know, you would see that, that cost of funds drop into, you know, probably the, the low fives, four handles.
Speaker #8: So it's , very sort of, accretive to us to, to originate, those loans. And, you know, when you look across, you know, non-QM, it, it, it does benefit our, our existing portfolio, and, and incremental, you ow, loans will, will fund incrementally better, but I would expect those loan prices, to be bit up, more aggressively, you know, as the curve does steepen.
Speaker #8: So it may be more competitive vironment and, and may compress yields. somewhat there.
Speaker #1: Okay. And then, you know, thinking through, you know, the, the post-Steepener, and I guess more, more specifically then on the ency, would, would that be a, a strategy you'd de-emphasize at that point in a flatter curve environment and redeploy that capital into LIMA 1 and other strategies?
Speaker #8: That's right. You know, it, it really is, we, we view these, the current spread levels as opportunistic to deploy capital in agency MBS. If those spreads were to come in, we would redeploy those, those assets, in that, you know, that portfolio into our other credit assets.
Speaker #1: Okay. That's pful. Thanks. and then just to follow up from, I ink last quarter you had said something about 40 million of, ish of discount on multi-transitional, on just comparing quarter to quarter.
Speaker #1: Would that compare to the, I think you said 33.6? What's the right comparison to look at there, quarter to quarter?
Speaker #8: Yeah. So that, that number there is effectively the discount, in terms of the mark on those assets. so I, I ink, I think 's 34 million this quarter.
Speaker #8: but, you know, if you think about those transitional loans there, very short, duration. So they are much less sensitive to moves in market interest rates.
Speaker #8: So, I think we sort of think about that discount there. And as those, you know, a buyer of these loans, as a credit discount effectively.
Speaker #1: Okay. Gotcha. So you've, ou've worked through the vast majority of that this quarter. I gotcha. Okay. Thank ou.
Speaker #8: so just to clarify, that, that discount is declined from, I think it was 40 or 45 to about 35. So, yes, we worked through a lot of it, but there's, as I said in my prepared marks, there's still some wood to chop over the next couple of quarters here.
Speaker #1: Okay. Understood. So 's 30 that I got it left over. Understood. Thank you. Thank you. Next question today is coming from Jason Weaver from Jones Trading.
Speaker #1: Your line is now live.
Speaker #10: Hi, guys. Thanks for ing my question. sort of similar to Steve's there, you know, with the, the buildup at LIMA 1, can you can you comment on the sort of distribution potential for new transitional loans if we were to see a bit more relief in rates ahead?
Speaker #10: whether you expect, you know, securitization financing or loan sales to become a more attractive option? under that, under those conditions.
Speaker #8: So on the, we've been selling the, the rental loan. So those are the term loans. Right? And, and, and part of that reasoning is, you know, when you originate, 30 or 20 million of those a month, it takes some time to, to get those ready to go into securitization.
Speaker #8: And, you know, taking on that, that spread risk for an extended period of time doesn't necessarily make sense when you have a bid on the other side that, that's very strong.
Speaker #8: So we have been taking advantage of that bid and, selling those loans to third parties. When you think the, the, the shorter-term transitional loans, pretty much all of those loans are, would be eligible to go into securitizations.
Speaker #8: And, you know, those have a revolving structure in nature. So as we sort of do more loans, right, they're really replacing old loans that are paying off.
Speaker #8: So we have four deals outstanding currently. If we were to grow, originations, which, which we expect to do, maybe you're taking from four deals to, to five or six outstanding, but you have to make sure that you have that, that volume in place to, to fill back, the, the payoffs that ou're receiving on the other side.
Speaker #8: And in terms of the split, if you were to look at that breakdown, it's probably, you know, 45 to 50 percent ground up.
Speaker #8: And then the rest being bridge and traditional fixed flip type loans.
Speaker #3: And Jason, I just add one thing. The, the 30-year, rental product, is obviously more rate sensitive than the, than the transitional loans. So, you know, lower short rates, steeper curve.
Speaker #3: It's, it's likely that volume would, would pick up on that product.
Speaker #1: Got it. Thank you. That's helpful. and, and I want to back to in the prepared remarks, you mentioned the 24 million in loan sales, and you expect to do more in the second half.
Speaker #1: talk about the relative merits there. Was, is that a, that a question of just coincidence you were able to find a, a buyer on that side, or is becoming actively more attractive than pursuing the entire sort of workout process?
Speaker #8: Yeah. It, it's just a balance, right? It, it's, you ow, you're currently, you're ing out loans and, and you would test the market to see where those bids are.
Speaker #8: If the bids are, are attractive, you know, we would look to move on. If, if the workout's the best outcome, then we'll just work the loan out ourselves.
Speaker #8: So it's just, it's just a balance, and, and we sort of look at every loan individually to ermine what's the best, outcome.
Speaker #1: All right. Fair enough. Thanks again, guys.
Speaker #3: Thanks, Jason. Thank ou.
Speaker #1: Thank you. As a reminder, that's star 1 to be placed into the question queue. Our next question is coming from Eric Hagen from BTIG.
Speaker #1: Your line is now live.
Speaker #11: Hey, thanks. Good morning, guys. on the single-family rental and single-family transitional loans, do you think developers are getting the rental income in the, like, the exit that they expected, or is there a lot range, around that outcome because of the execution risk is higher?
Speaker #11: With tariffs and other, you know, higher input costs and such.
Speaker #8: in terms of the execution, right, a, a lot our sort of development loans that we do are really, they're, they're built and, and flipped to, to sell, not necessarily rent.
Speaker #8: So, you know, it's really, the, and the, the prices that they are, achieving in the market are sort of matching the, the ARV set out in the appraisal.
Speaker #8: So, we're not really seeing a ton of pressure in regards to that as it relates to tariffs. You know, could it potentially impact things down the line?
Speaker #8: Sure. But we have yet to see, material impacts thus far, and we sort of track these month to month. so, so we're not really seeing that.
Speaker #8: in terms of, you know, the, the, if we do have rents, you know, we, we've seen they've been able to, to, to cover future debt service because these loans really get, refinanced way from us.
Speaker #8: So that's what we're seeing. I mean, we're, you know, that's what one would expect. We're not really seeing material pressure there either.
Speaker #11: Yep. Okay. That's helpful. you know, you guys break out the loan book by origination year, which is really helpful. But, you know, which of the vintages would you maybe label as having higher relative risk versus lower risk just based on when they were originated?
Speaker #8: Yeah. I an, say for, if you look at the, say, multi-family book, the, the 23 vintage was, probably, tougher for us. I mean, if ou look at the, you know, the other parts of book, right, our, our LTVs are, are, are very low, so we're not ally, you know, worried , losses, there.
Speaker #8: And when you think about, you know, on the non-QM side, where we've seen some, increased delinquencies, you know, it's really, again, 95 times out of 100.
Speaker #8: When you see delinquency, you, you see that property gets listed for sale, and the borrower just sells it, we don't really even have to go through any loss-mit activities.
Speaker #8: So, you know, the, the we're sort of, we've really vintage, agnostic as it es to the, those portfolios.
Speaker #11: Okay. if I could sneak in one more, I mean, is there a catalyst aside from lower interest rates, which could accelerate the call in the non-QM portfolio?
Speaker #11: The call ability.
Speaker #3: I mean, it's really, it's really an algebra exercise, Eric. So, you know, it's, it's, it's pretty easy for us to do. So, in a lower rate environment, yes, theoretically, there are more deals that would be callable.
Speaker #3: you ow, in addition, with lower rates, you ow, our, our preferred series C would reset to a lower coupon. so there's, you know, there's, there's marginal benefits in, in a few different ways.
Speaker #3: If you look the bulk of the floating rate borrowing, it's for the most part offset with swaps. So, you know, lower rate vironment is not necessarily going to have a big impact there.
Speaker #3: But on the, you know, on the edges, lower rates are certainly helpful.
Speaker #8: And I think, Eric, just to add, you know, there could be a, a deal, with respect to the call rates that's, you know, maybe out of the oney, but if you think about the deleveraging, embedded in some of those callable deals, it doesn't essarily have to be a lower rate to reissue it to still increase, you know, the ROE of the portfolio.
Speaker #8: Because ou're unlocking a lot of capital with the, relever.
Speaker #11: Yep. Got it. Thank you ys so much.
Speaker #3: Thanks, Eric.
Speaker #8: Thanks, Eric.
Speaker #1: Thank ou. We have reached the end of our question and answer session. I'd like to turn the loor back over for any further closing comments.
Speaker #3: Thank you, everyone, for your interest in MFA Financial. We look forward to speaking with you again in November when we announce our third quarter results.