Ladies and gentlemen, thank you for standing by. Welcome to the MFA Financial, Inc. Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, today’s call is being recorded. I would now like to turn the call over to Hal Schwartz. Please go ahead, sir.

Thank you, Kevin. 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. 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. 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 ended December 31, 2019, and other reports that it may file from time-to-time with the Securities and Exchange Commission. 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. For additional information regarding MFA’s use of forward-looking statements, please see the relevant disclosure in the press release announcing MFA’s third quarter 2020 financial results. Thank you for your time. And I would now like to turn this call over to MFA’s CEO and President, Craig Knutson.

Thank you, Hal. Good morning, everyone. I would like to thank you for your interest in and welcome you to MFA Financials third quarter 2020 financial results webcast. Also dialed in with me today are Steve Yarad, our CFO; Gudmundur Kristjansson; and Bryan Wulfsohn, our Co-Chief Investment Officers; and other members of senior management. Before we begin, I want to again recognize our entire MFA team. This is obviously been a very challenging year. And despite what the world has thrown at us, our team continues to persevere regardless of the circumstances. Their dedication and commitment has been extraordinary. From a financial results standpoint, the third quarter of 2020 was unquestionably the most normal quarter of 2020. But that’s not really saying very much. Financial markets continue to be awash in liquidity, and interest rate environment continues to feature historically low rates and muted volatility. Yet the third quarter of 2020 was also very much the story of market uncertainty between the looming election still not two sided, government stimulus measures or not a second wave of COVID-19 diagnoses and the possibility of future lockdowns, shutdowns for other economically restrictive measures, it is clear that we are not out of the woods, and it seems almost impossible to fathom what the upcoming holiday season will be like given this backdrop. Recall that MFA entered the third quarter of 2020, only four days out of forbearance with a fortified balance sheet and substantial liquidity. Given our experience over the prior four months, we were understandably not inclined to immediately and aggressively pursue new investments and to add leverage. But that decision was even easier given the investment environment, which is challenging both in terms of investment availability, and relative cheapness. However, as we mentioned in our second quarter earnings call, we…

Thank you, Craig. As Craig mentioned earlier on this call, results for third quarter started to normalize and included fewer and less sizable unusual items. Our net income to common shareholders of $79 million, or $0.17 per share primarily reflects the continued recovery in residential mortgage asset valuations, a net reduction in our CECL credit loss reserves, and lower operating and other expenses as we have put forbearance negotiations behind it. However, our results continue to include some items that we don’t expect to reoccur each period for this reason we continue not to present a core earnings metric. Please turn to Slide 10, where we present the key items impacting our results in more detail. Net interest income for the quarter was $10.1 million and reflects the following. Firstly, higher net interest rates for both residential whole loan and securities portfolios. The net interest spread on our loan total carrying value rose to 1.24% for the quarter as our overall cost to fund declined post forbearance, and due to the positive impact of the non-QM securitization transaction that caused in early September. It should also be noted that interest income for the quarter is impacted by an increase in the amount of nonaccrual loans. In particular at September 30, 2020, non-QM loans with the UPB at approximately $175 million were on non-accrual status. Under our nonaccrual accounting policy, we stopped recognizing interest income in the period with loans become 90-days delinquent, and reverse any income recognized in a prior period. Accordingly, no interest income was recognized on these loans in the third quarter. In addition, as loans with the UPB of approximately $145 million, became 90-days liquid during the third quarter. Interest income was adjusted by approximately $1.7 million to reverse income accrued on these loans in prior periods.…

Thank you, Steve. Turning to Page 11. Non-QM origination volume is gaining momentum and market demand for paper is strong. This increased demand, partially due to improved execution in the securitization market in addition to the overall low yield environment. We were able to purchase approximately 40 million in the third quarter and have a growing acquisition -. We successfully closed our first non-QM securitization in the third quarter and a second plus subsequent to quarter end. In total, nearly $1 billion of a non-QM portfolio has been securitized to-date. Financing of our non-QM portfolio is very stable and over three quarters of our non non-QM borrowing and our financed with multiyear non-mark-to-market leverage. We will continue to be a programmatic issuer of securitizations, which will further increase the percentage of our non-mark-to-market funding, providing stability and in addition to lowering our costs of funds. Turning to Page 12. A significant percentage of borrowers in our non-QM portfolio has been impacted by the pandemic. Many of our borrowers are owners of small businesses that were affected by shutdowns across the nation. The instituted deferral program at the onset of the pandemic in an effort to help our borrowers managed through the crisis. Through our servicers we granted almost 32% for the portfolio, temporary payment relief, which we believe helped put our borrowers in a better position with long-term payment performance. Subsequent to June, we reverted to a forbearance program instead of a deferral as the economy opened up. Forbearance program instituted are largely now determined by state guidelines. For clarity, deferral program, tax on the payments missed, the maturity of the loan as a balloon payment. Forbearance requires the payments missed to be repaid at the conclusion of the forbearance period. Those amounts are unable to be paid in one-month…

Thank you, Bryan. Turn to Page 15. We saw an improvement in delinquencies and an increase in paid outs on the Fix and Flip portfolio in the third quarter. As a strong housing market supported by record low mortgage rates and large monitoring and fiscal stimulus, positively influenced home sales and credit conditions in the quarter. MFA’s Fix and Flip asset portfolio declined $164 million to $699 million and UPB at the end of the third quarter. Principal pay downs were $175 million as project completions and the pace of home sales increased in the quarter. The quarterly paid down is equivalent to about 59 CPR on an annual basis. We advanced about $18 million for rehab draws and converted $7 million to REO to make new investments in the quarter. The average yields on the Fix and Flip portfolio in the quarter was 5.41%. And importantly, all of our Fix and Flip financing is non-mark-to-market debt for the remaining term of 21-months. The total amount of seriously delinquent Fix and Flip loans declined $39 million in the quarter due to lower delinquencies. Lower Fix and Flip holdings in general and improved credit conditions, loan loss reserves on the Fix and Flip portfolio declined $7 million in the quarter. We are maintaining strong relationships and an ongoing dialogue with originating partners throughout the pandemic and started acquiring new Fix and Flip loans in the month of October. Turning to Page 16. As previously noted, services delinquent Fix and Flip loans declined 39 million in the quarter as is 51 million of loans either pay off in full or pure to current or 30-day delinquent pay status. While we completed foreclosure and seven million of loans and 19 million became new 60 plus day delinquent loans. We are pleased with improvement…

Thank you Gudmundur. I believe that MFA has made great strides since July 1st of this year. Significant asset price appreciation which drove earnings and book value, substantial progress in moving our asset based financing from expansible durable debt to equally durable but materially cheaper securitized debt, and most recently the payoff of $500 million of 11% debt. Considerable market uncertainty still exists, and the world, continue to face challenges around the pandemic, politics and monetary in fiscal policy. MFA is well positioned to weather these uncertainties, respond to opportunities as they arise and we are taking proactive steps to further position our Company to thrive in the future. Kevin, would you please open up the line for questions?

Thank you. [Operator Instructions] Our first question from the line of Doug Harter from Credit Suisse.

Hey guys. This is actually Josh on for Doug. I’m wondering if you can talk about the pace of share repurchases. And maybe more generally, how are you thinking about the tradeoff between buybacks and incremental investments? Just given where the stock is trading and the incremental yields you are seeing on new purchases? Thanks.

Sure Josh. Thanks for the question. The stock repurchase plan is a 10b 18 plan. And so I think we are limited as to how much we can purchase, I think it is about 25% of the last four weeks average daily trading volume. So it is still pretty significant. But you are absolutely right. I think the weigh repurchasing stock with other investment opportunities, because in essence, that is an investment opportunity. So I think, it will properly depend on where the stock is trading relative to book and also what other investment opportunities exist out there. So, it is clearly a trade off, but I think our eyes are wide open. But just to be clear at the level where the stock is trading versus book value, we do see that as an attractive option.

Great, it makes sense. And then I’m not sure, if I missed this. But can you give us an update on where you are seeing value performance quarter-to-date? Thank you.

Yes, so we didn’t mention it. We actually don’t even have loan marks for the end of October yet. Because it takes a week or two to process those. I would guess that we are flat and maybe up a little bit, I think loan marks arguably could be up a little bit, particularly non-QM loans given where recent sales have executed. So flattish to maybe up a little is I guess the best I can give you.

Great. I appreciate the comments.

Sure. Thanks Josh.

Thank you. [Operator Instructions]. At this time, we have no further questions in queue.

Alright. Well, I would like to thank everybody for their interest in MFA Financial, and we look forward to our next update when we announce year-end results in February.

Thank you. Ladies and gentlemen, that does conclude your conference. We do thank you for joining. You may now disconnect. Have a good day.