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MFA Financial's CEO Hosts JPMorgan SMid Cap Conference (Transcript)

So we've been able to get the kind of returns without upping the leverage. You can see the spread returns for yourself and Bill probably go into some greater detail.

So, with that moment I turn it over to Bill.

Bill Gorin – President

Okay, thanks. Great. So, staying on this slide, you can see how we allocate our equity and why we allocate the way we do. So, the first column is our ADC MBS portfolio, if you see the debt to equity ratio is 6.76, which is probably generally in line with mortgage REITs that focus principally on agencies. What’s interesting is the yields on our agency portfolio is 3.37, which I believe is at the high end, and we achieve that without owning any 30-year fixed rates. Obviously, you have a high yield in 30-year fixed rates, but if you could add too much interest rate risk. So, we are very happy with the yield on our agency assets.

Our cost of funds for agencies is 1.74 and that’s we are not happy with. We are probably in the high end of cost of funds for the agencies and the spread is 1.63. Now, the good news is our asset lives are a lot longer than our liability lives. This cost of funds on the agencies is trending down and it reflects the fact that five years ago we put on slop that costs us 4% and they are rolling off pretty regularly this year.

So, well we do believe that agency investment opportunities might lower your average yield, so you probably see people are investing in agencies that yield 2.25%, 2.3%, which would drive down the average yield. We uniquely will have our cost of funds going down almost in line with that. So, we see less compression on our spread going forward.

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