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MFA Financial's Management Presents At Credit Suisse Financial Services Forum (Transcript)

The next column is the Non-Agency MBS portfolio. So this is a portion of the company that we've grown really, we timed it right, we got in the bottom at the end of ’08, I believe. The leverage is two to one and we've used different forms of leverage overtime. So when we reentered the Non-Agency space we’ve financed all the assets just with equity. And eventually as the market became available and as we became more comfortable, we added some repo financing.

Again we waited for the market to become more efficient and we added secularization financing, and what we’re going to tell you today in this presentation is, we’ve actually added three-year term structured financing of $500 million. So we continue to diversify our funding sources of longer-term funding for a Non-Agency MBS. And why is that interesting to us? Well, the unlevered loss-adjusted yield our Non-Agencies as of the third quarter was 7.29%.

And today we’re going to tell you what loss-adjusted means. Our funding cost was 1.61, so the spreads were 5.68 and with two times leverage, the ROE there is in the mid-teens. We own cash and cash doesn't earn much for you and lowers your returns somewhat, but we will always own cash, because of all the uncertainties in the world. So the spread across the whole company was 3.5 times leverage was 2.9.

On the agency side, we’re about 75% hybrids, in case you don't know a hybrid might be fixed for an initial term and then become a one-year adjustable. And 25% of the portfolio or so is 15-year fixed rate.

Our amortized cost basis is 102.6, I think that would compare very nicely to other [reach] you may be familiar with. We believe we have limited exposure to HARP 2.0. So, really, it seems the goal of HARP 2.0 is to get people to refi from high-cost mortgages into new lower cost 30-year, amortizing fixed rate mortgages.

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