Arlington Asset Investment Management Discusses Q2 2012 Results - Earnings Call Transcript

These loan characteristics significantly reduced the economic incentive to the borrower to refinance or constrain the borrower's ability to refinance. And because the loans underlying our agency portfolio on average were originated in the last 12 months, borrowers were able to take advantage of already low rates and consequently may have less incentive to refinance now when compared to loans originated in the earlier years.

Over the last year, our agency portfolio demonstrated the value of asset selection, which has resulted in low portfolio CPRs in the range of 4% to 7%. That trend continued this quarter with a portfolio CPR of 4.4% versus CPRs of 26% on the Fannie Mae 4.5% universe.

For Arlington, the concentration of our portfolio in prepayment-protected mortgage-backed securities below CPRS has a significant positive impact on the consistency of our asset yield and spread income as well on the preservation of book value.

Prices for assets with these particular characteristics have risen sharply as the positive impact of the prepayment performance has become apparent. As our agency assets have appreciated, we have selectively taken the opportunity to further improve our asset profile as well as expected CPR performance and resulting spread income from the portfolio.

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