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MFA Financial's Management Presents At The Morgan Stanley Financials Conference (Transcript)

So somewhat uniquely we think that our cost of funds on our agency portfolio will decrease over the next twelve months or so, which is somewhat unusual on our space. Now, obviously at the same time, to the expense that we replace run off on the Agencies, we are not buying new securities that yield 3.15. So we think that while the assets that we add will obviously come on at lower yield, the funding cost somewhat uniquely will decrease for us.

On the Non-Agency side, you can see that the yield in the first quarter on the Non-Agency portfolio was 6.92%, so close to 7% yield. Our average cost of funds there a little over 2% for a net interest rate spread of about 4.75%.

So on the Agency side, we have a balanced portfolio of hybrid ARMs, it were approximately 75% hybrid ARMs and about 25%, 15 year fixed. Our overall premium exposure is quite low, our average amortized cost of our agency portfolio is 102.8%, and we believe that we have limited exposure to HARP 2.0, or HARP 3.0 or 4.0 or whatever we see there. Most of the hybrid securities that we own that are HARP eligible, so that’s 3 June of 2009 are interest only. So the underlying mortgages are not amortizing principal. So the purpose really of HARP is to push these forward into a 30-year fully amortizing mortgages, and because of those 30-year mortgages are fully amortizing, in most cases the payment is actually -- even though the rate is lower, the payment is actually higher than the payment that these borrowers are making now on these interest only loans. So again, that is our observation that the payment that the borrower makes is typically more important than the interest rate associated with the mortgage.

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