MFA Financial, Inc. (MFA) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the MFA Financial Inc. Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I'll turn the call now over to Mr. Hal Schwartz. Please go ahead, sir.

Thank you, John, and 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 fourth quarter 2020 financial results. Thank you for your time. 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 Financial's fourth 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. 2020 was obviously a very challenging year on many levels and our team powered through the adversity and persevere. There is no quit in this group. And I think we made extraordinary progress in the second half of 2020, and particularly in the fourth quarter. So, the fourth quarter of 2020, on a macro level, was very much an extension of the third quarter. Interest rate volatility was again muted and accommodative stead monetary policy continued to provide support for risk assets with little indication that this will change materially in 2021. The short end of the curve remains firmly anchored, consistent with the lower for longer narrative. Two-year rates inched into the high teens very briefly in mid-November, but are barely in double digits so far in 2021. The yield curve does continue to surreptitiously steepen as the 10-year backed up 23 basis points in the fourth quarter and another almost 45 since year-end. With two 10's at approximately 125 basis points, this hardly qualifies as a steep yield curve by historical standards, but it has steepened by about 45 basis points since the end of the year. This is not surprising in light of political developments as the expectation of additional stimulus will continue to raise concerns about inflation. I do have to smile a little when I hear this recent chatter about higher rates, however, with 10's yielding 135 as 10s were above 3% less than 2.5 years ago. Yes, we are off the lows at least for 10 years, but let's not kid ourselves. We are still in an extraordinary and unprecedented low interest rate environment. Agency origination crowded out non-conforming production for much of 2020, but with even a modest increase in agency eligible mortgage rates, we've seen an increase in production from non-QM and business purpose loans in recent months. With rates at particularly low levels and credit spreads very tight, suffice to say, there are no cheap assets out there; however, these same market conditions have pushed yields on issued securities to all-time lows. So, while it is a difficult period for assets, it's an extremely attractive one for liabilities. And MFA has taken advantage of this opportunity to lock in low-cost, term, non-recourse debt, which will substantially reduce interest expense in the future. In addition, a strong housing market together with our ability to actively manage residential mortgage credit assets has also been reflected in our financial results, as we have achieved better than expected results on credit sensitive assets resulting in reversals of prior credit reserves and sales of OREO properties at attractive levels. Please turn to Page 4. We reported GAAP earnings of $0.08 per share in the fourth quarter. These results were driven by continued price appreciation of loans held at fair value and by further improvement in credit leading to credit loss reserve reversals. On the other hand, fourth quarter earnings were reduced by expenses related to the acceleration of discount in connection with our pay-off of the $500 million, 11% Apollo with being senior note in September and October. We also closed out the outstanding warrant position of Apollo/Athene during the fourth quarter through straight warrant repurchases and a warrant exercise via combination of cash and cashless exercise. There are no more outstanding warrants, and the overall dilution associated with these transactions was less than 4%. Obviously, our GAAP book value would have been up by approximately 2.4% for the quarter had it not been for these warrants. Economic book value, also negatively impacted by 3.9% by the warrants, was nevertheless unchanged at $4.92 during the fourth quarter, as our loans held at carrying value appreciated further. We've repurchased 14.1 million common shares for an aggregate purchase price of a little over $50 million during the quarter at an average price of less than 80% of September 30 GAAP book value and less than 75% of economic book value. We view these purchases as among the best available investments in the fourth quarter. Our leverage declined modestly over the quarter to 1.7 to 1 primarily due to the pay-off of the Apollo was being debt and we paid a $0.075 dividend to shareholders on January 29. Please turn to Page 5. Our net interest income for the fourth quarter nearly doubled versus the third quarter despite slightly lower overall interest income as our interest expense reductions begin to meaningfully drive results. Interest expense reductions are due to some repo borrowing cost spread reductions, securitizations, which replaced repo and non-mark-to-market financing with substantially cheaper funding, and the pay-off of the Apollo was within note. The impact of these efforts was not fully reflected in the fourth quarter as they were all done at varying points within the quarter. We also took advantage of a strong housing market to opportunistically liquidate OREO properties, which we own mostly through resolution of nonperforming loans purchased years ago. These sales totaled over $270 million for the year and were executed at prices well above our carrying value. We believe that the hard work that we've done since emerging from forbearance at the end of June has benefited stockholders, as our total shareholder return was 62% from June 30 to December 31. Clearly, we still have wood to chop, but we are committed to continuing to rebuild shareholder value. Please turn to Slide 6. We illustrate our investment portfolio and summarize our asset-based financing on this slide. The investment portfolio has not changed materially since September 30. We did add $111 million of loans in the fourth quarter. And Bryan and Gudmundur will discuss additional details about the loan portfolio later in this presentation. Just to review on this pie chart, the loans held at carrying value on our balance sheet are represented in three slices of the pie chart. The purple section, PCD or Purchased Credit Deteriorated loans. This is accounting speak for re-performing loans and other loans are seasoned performing loans. The gray section, Business Purpose loans, are Fix and Flip and single-family rental loans. And the red section are the non-QM loans. On the financing side, you can see that 67% of our asset-based financing is non-mark-to-market with the SFR securitization that we closed at the beginning of February. This is now over 70%. Please turn to Page 7. Again, continuing the theme of aggressively taking advantage of available market opportunities, we've executed three additional securitizations on $1.2 billion of UPB at successively tighter levels. As you can see on this page, AAA yields on bonds sold on the most recent two deals were below 1% and the blended cost of debt sold was in the low 1's, and was in some cases, almost 200 basis points lower than the cost of borrowing we replaced. Also noteworthy is that while some of the financing that we replaced with these securitizations was non-mark-to-market, the securitized debt is similarly non-mark-to-market, non-recourse and term. So, we actually increased the amount of this more durable financing while substantially lowering the cost. Bonds sold generated cash of between 91% and 94% of UPB which also produced approximately $250 million of additional liquidity. Please turn to Page 8. Page 8 provides the details of the repurchase and exercise of the previously outstanding warrant position. Through a straight repurchase of warrants on December 10 for $33.7 million and an exercise through a combination of cash and cashless exercise on December 28, we were able to limit the dilution of warrants granted, which was 7.5% at the time of grant to less than 4%. Apollo and Athene hold 12.3 million shares or about 2.7% of outstanding shares, and we continue to maintain a strong partnership with both Apollo and Athene. That said, we think that the elimination of any uncertainty around an outstanding warrant position should have a positive impact on our stock. Please turn to Page 9. We announced on our third quarter earnings call that our Board has authorized a $250 million stock repurchase program and we executed this during the open window period in the fourth quarter by purchasing 14.1 million shares at an average price of $3.61, which was accretive to GAAP and economic book value by $0.03 and $0.04 respectively. In addition, the $33.7 million warrant repurchase was included under this plan. So, all in, we deployed almost $85 million during the quarter and still have $165 million available under this authorization. Please turn to Page 10. We announced the redemption of our $100 million 8% senior notes due in 2042. These $25 par bonds were issued in 2012. This redemption, which was completed shortly after year-end, will save $8 million in annual interest expense. We did book a non-cash charge of $3.1 million in the fourth quarter for unamortized issuance expenses. These $25 par bonds were sold primarily to retail investors, similar to [payment deferral] and hence the relatively high-issuance expense. Please turn to Page 11. So, in the feel good department, and just to demonstrate that it's not solely about the numbers, I'm happy to report two significant accolades for MFA. For the second year in a row, MFA was included in the Bloomberg Gender Equality Index. We were recognized as one of 380 public companies across 44 countries and regions for our commitment to and support of gender equality. Additionally, MFA has been certified as a Great Place to Work by the Great Place to Work Institute. This award is based on anonymous employee feedback through an engagement survey that we conducted through this organization. This important validation of our culture is a testament to our people. Management does not make MFA a great place to work, our people do. But management has a role, it's simply to hire great people, and our team collectively creates our culture. In today's work-from-home world, this recognition is also an important distinction for us for hiring, as almost all recruitment is virtual these days. And I will now turn the call over to Steve Yarad to discuss additional details of our financial results.

Thanks, Craig. Please turn to Slide 12 for an overview of our fourth quarter financial results. Craig discussed in his opening remarks, since exiting forbearance in late June, MFA has been primarily focused on obtaining cheaper and more durable forms of financing. While we certainly appreciated the support of Apollo/Athene and our other financing counterparties during challenging times of forbearance in over the past six months, we are pleased to close out 2020 with a significantly more durable mix of financing and having paid off most of our high-cost debt. Fair enough, the execution of the warrant transactions has eliminated with relatively modest dilution, potential source of uncertainty in our future results. 2020 was certainly a year of significant unusual items, and while earnings have become more stable since June, there was some residual non-recurring items in Q4 that I will discuss very shortly. MFA into 2021 with all significant items related to forbearance period financing effectively behind us. Our continuing efforts to pursue securitization and other forms of non-mark-to-market financing have lowered our cost of funds and generated liquidity, while maintaining relatively low leverage. These efforts are already being included benefiting net interest spreads and we continue - and we expect this to continue for at least the short to medium term. Moving now to the detail of our Q4 results. Net income to common shareholders was $37.6 million or $0.08 per share. Net income includes $25.3 million or $0.06 per common share expenses recognized on the repayment of the senior secured term loan from Apollo/Athene. The cohort is we elected to account for this financing at fair value, GAAP required us to allocate a portion of the day one loan fair value of approximately $14 million of the associated warrants. This was recorded in shareholders' equity, while the residual loan value of approximately $481 million was recorded on our balance sheet as a liability. Due to changes in interest rates and market spreads, the fair value of this liability declined in Q3. However, as the loan was repaid at par rather than at fair value, expenses are recorded on pay off related to the reversal of prior unrealized gains and the difference between par and the previously recorded carrying value. The subsequent execution of the associated warrant transactions did not impact earnings directly, but they did result in modest book value dilution as Craig has already discussed. Away from the impact of the repayment of the senior secured debt and warrant transactions, our results for the quarter primarily reflect the ongoing recovery in residential mortgage asset valuations, a net reduction in our CECL credit loss reserves, and the previously mentioned improvement in net interest income. Specifically, the key items impacting our results are as follows. Net interest income for Q4 was $19.4 million, almost double Q3 and it reflects the following. Firstly, higher net interest spreads primarily on our residential whole loan portfolio as the impact of financing initiatives started to take hold. The pay-off of the senior secured debt resulted in higher interest income by approximately $12 million, and as Craig noted, we redeemed our 8% senior notes early in January '21. Q4 net interest expense includes a non-cash charge of $3.1 million for unamortized deferred expenses that we incurred when this debt was originally issued in 2012. In addition, future quarterly interest expense was $2 million lower as a result of this note redemption. I would also note that since exiting forbearance in June, we have lowered our cost of funds across our entire portfolio by 140 basis points to 3.1% on December 31, 2020 and this falls even further to 3.9% with the senior note redemption. Also, we reduced our overall CECL allowance in our carrying value loans to $86.8 million, primarily reflecting lower estimates of future unemployment used for credit loss modeling purposes, but also partially due to lower loan balances. This reversal and other net adjustments to our CECL reserves positively impacted net income for the quarter by approximately $16 million. After the initial significant increase in CECL reserves taken in Q1, but uncertainty related to the COVID-19 economic impacts were at the highest, we've reduced our CECL reserves by almost $16 million in the past three quarters. Actual charge-off experience to-date remains very modest with less than $2.5 million of net charge-offs taken in 2020. Nonetheless, we continue to take a cautious approach in making our estimates for credit losses given uncertainty in the US economic outlook, as the timeline to a post-COVID-19 impacted economy remains unclear and given the current political environment. Once again, our loans at fair value perform strongly this quarter. Net gains of $49.8 million were recorded, including $30.9 million of market value increases and $18.9 million of interest payments, liquidation gains, and other cash income. By the end of 2020, our fair value loan portfolio recovered over the market value declines that we recorded in the first quarter. Finally, our operating and other expenses were $20.4 million for the quarter. This reflects a lower run rate that we would normally expect, primarily due to adjustments to lower incentive compensation accruals that were finalized in the fourth quarter. We continue to estimate that annualized G&A expenses to equity should run at about 2% each quarter. With that, I will turn the call over to Bryan Wulfsohn, who will review details of our non-QM loan portfolio.

Thank you, Steve. Turning to Page 13. The fourth quarter for the non-QM space was a continuation from where the third quarter left off. Origination volume increased over the quarter and loan premiums paid have risen to levels seen prior to the pandemic. We were able to purchase approximately $80 million in the fourth quarter and are on track to purchase over $100 million in the first two months 2021. We saw prepayment speeds increase over the quarter as mortgage rates for non-QM loans have come down in recent months. The reduction in rates lag conventional loans, as non-QM originators had to rebuild capacity after reducing staff at the onset of the pandemic. We closed on a minority investment in one of our origination partners in the quarter, providing the needed capital for them to be able to grow originations. We believe the strategy of aligning our interest with select origination partners will allow us to effectively grow our portfolio over time, while ensuring loan quality. We executed on two additional securitizations in the fourth quarter, bringing the amount of collateral securitized in 2020 to approximately $1.25 billion. As Craig mentioned previously, these securitizations have lowered our financing costs, and at the same time, have provided additional stability to our borrowings. Securitization combined with non-mark-to-market term facility has resulted in over 75% of our non-QM portfolio financed with non-mark-to-market leverage, and we expect to continue to be a programmatic issuer of securitizations. Turning to Page 14. A significant percentage of our borrowers in our non-QM portfolio have been impacted by the pandemic. Many of our borrowers are owners of small businesses that were affected by shutdowns across the nation. We instituted a deferral program at the onset of the pandemic in an effort to help our borrowers manage through the crisis. Through our servicers, we granted almost 32% of the portfolio temporary payment relief, which we believe helped put our borrowers in a better position for 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 to the maturity of the loan as a balloon payment. Forbearance requires the payments missed to be repaid at the conclusion of the forbearance period. If those amounts are unable to be paid in one lump sum, we allow for the borrower to spread the amounts owed over an extended period of time. Over the fourth quarter, we saw an improvement in delinquencies compared to the third quarter, as 60-plus day delinquencies dropped almost a full percentage point. In addition, approximately 30% of delinquent loans made a payment in December. The current state of affairs is unique, as although we have seen economic stress and increased unemployment levels, home values have been improving as low levels of supply combined with low mortgage rates have supported the market. In addition, our strategy of targeting lower LTV loans should mitigate losses under a scenario with elevated delinquencies. In many cases, borrowers, which no longer have the ability to afford their debt service will sell their home in order to get the return of their equity. Turning to Page 15. Our RPL portfolio of $1.1 billion has been impacted by the pandemic, but continues to perform well. 81% of our portfolio remains less than 60 days delinquent. And although the percentage of the portfolio, 60 days delinquent in status, is 19%, over 24% of those borrowers continue to make payments. Prepayment speeds in the fourth quarter continue to rise as mortgage rates continue to be historically low. About 30% of our RPL borrowers were impacted by COVID, we have worked with our servicers to provide assistance to borrowers and have seen improvement in delinquency levels over the quarter. Turning to Page 16. Our asset management team continues to drive performance of our NPL portfolio. The team has worked through the pandemic in concert with our servicing partners to maximize outcomes on our portfolio. This slide shows the outcomes for loans that were purchased prior to the year ended 2019, therefore owned for more than one year. 36% of loans that were delinquent at purchase are now either performing or paid in full. 45% have either liquidated or REO to be liquidated. We have significantly increased our activity liquidating REO properties, selling 87% more properties as compared to a year ago. 19% are still in non-performing status. Our modifications have been effective, as almost three-quarters are either performing or paid in full. We are pleased with these results as they continue to outperform our assumptions at the time of purchase. And now, I'd like to turn the call over to Gudmundur to walk you through our business-purpose loans.

Thanks, Bryan. Turning to Page 17. The fourth quarter saw a continuation of the trend we have experienced in 2020 of large principal paydowns in our Fix and Flip portfolio. A strong housing market supported by record low mortgage rates and literally housing inventory has allowed many of our borrowers to successfully complete the projects and sell quickly into a strong market. This combined with the seasonal nature of our portfolio currently at a weighted average loan rate of 17 months left to us receiving $141 million of principal payments in the fourth quarter and a total of approximately $650 million for all of 2020. We expect this trend to continue in 2021. As I say, Fix and Flip portfolio declined $118 million to $581 million and UPB at the end of the fourth quarter. Principal paydowns were $141 million, which is equivalent to our quarterly paydown rate of 59% CPR on an annualized basis. We advanced about $11 million of rehab draws and converted $3 million to REO. We began purchasing Fix and Flip loans again in the fourth quarter and acquired approximately $15 million UPB of new loans in the quarter. Average yield for the Fix and Flip portfolio in the fourth quarter was 5.97%. All of our Fix and Flip financing is non-mark-to-market debt with the remaining term of 18 months. After declining by approximately $40 million in the third quarter, the total amount of seriously delinquent Fix and Flip loans increased $19 million in the fourth quarter to $162 million. So far in the first quarter, delinquency trends have been good, and we've seen delinquency trends down again closer to third quarter levels. Compared to the third quarter, improved economic expectations and a strong housing market contributed to a decline in Fix and Flip loan loss reserves. Loan loss reserves declined by $4 million to approximately $18 million at the end of the fourth quarter. Turning to Page 18. Seriously delinquent Fix and Flip loans increased $19 million in the quarter to $162 million at the end of the fourth quarter. In the quarter, we saw $25 million of loans pay-off in full, $3 million cured to current/30-day delinquent pay status and $3 million of loans converted to REO, while $50 million became new 60-plus day delinquent loans. Despite the increase in delinquency in the quarter, we are pleased that delinquency levels have declined from the high levels we saw in the second quarter of 2020 and with the continued robust level of full pay-offs you've seen from loans in serious delinquency. As mentioned previously, we have seen delinquencies trend down in the first quarter closer to the third quarter delinquency loans. Approximately, two-thirds of the seriously delinquent loans are either completed projects or bridge loans where limited or no work is expected to be done, meaning these properties should be in generally saleable condition. In addition, approximately 15% of the seriously delinquent loans are already listed for sale potentially, shortening the time until resolution. When loans pay-off in full from serious delinquency, we often collect default interest, extension fees, and other fees at pay-off. For loans where there is meaningful equity in the property, these can add. Since inception, we've collected approximately $2.6 million in these types of fees across our Fix and Flip portfolio. We believe that our experienced asset management team gives us a tremendous advantage in loss mitigation and the term non-to-market - non-mark-to-market financing of our Fix and Flip portfolio allows us to efficiently work through our delinquent loans. We believe the recent economic trends, in particular the strong housing market with robust home price appreciation combined with our loss mitigation efforts can lead to acceptable outcomes on our delinquent loans. Turning to Page 19. Our single-family rental loan portfolio continues to perform well in the fourth quarter. The portfolio yielded 5.27% in the quarter. That number does not include prepayment penalties with our feature of almost all of our rental loans and are recorded in other income. When including those, the SFR portfolio yield was 5.99% in the fourth quarter. Prepayments increased in the quarter to a three-month CPR of 33%. This was primarily due to pay-offs on some of our three-year balloon loans that were approaching maturity. So far in Q1, prepayments have trended back down to mid-teen CPR loans. 60-plus day delinquencies increased modestly in the quarter to 5.6%. We resumed our acquisition of rental loans in the fourth quarter and purchased $12 million of loans in the quarter. As Craig mentioned earlier, we closed our first securitization consisting solely of Business Purpose Rental Loans in the first week of February. Approximately $218 million of loans were securitized. We sold approximately 91% of the bonds with a weighted average coupon of 106 basis points. This transaction lowers the funding rate of the underlying assets by over 150 basis points, an increase as the percentage of SFR financing at its non-mark-to-market is 77%, up 54% from 23% at the end of the fourth quarter. And with that, I will turn the call over to Craig for some final comments.

Thank you, Gudmundur. I believe that MFA has made great strides since July 1 of last year. Significant asset price appreciation drove earnings and book value. We made substantial progress in moving our asset-based financing from extensive durable debt to equally durable, but materially cheaper securitized debt, paying off other expensive debt, repurchasing MFA common stock at material discounts to book, and most recently, the settlement and elimination of the outstanding warrant package. Considerable market uncertainties still exist as the country and the world continue to face challenges around the pandemic, politics, and monetary and fiscal policy. But 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. John, would you please open up the line for questions?

[Operator Instructions] And first will be the line of Eric Hagen with BTIG. Please go ahead.

Can you guys talk about any additional sources of capital and liquidity you can potentially draw from, on the existing balance sheet? I think you have some seasoned re-performing and non-performing loan securitizations that might be callable. And can you address how active you might be in securitizing the remainder of your non-QM portfolio and even other parts of the portfolio from here? Thanks.

Sure. Thanks for the question. And you're right. We had three outstanding non-rated NPL securitizations and one rated RPL. We called 2017 NPL1 already. And NPL - '18 NPL1 and '18 NPL2 are both callable, so we're certainly looking at those - the AAA levels on those two NPL deals outstanding. I think one of them is about 3.375 and the other is in the low 4's, so there is obviously significant cost savings that we could realize there. The '17 RPL1 deal, I think, there is about $130 million of that current pace outstanding, that's also callable. I think the cost of that AAA is about 260, so again pretty significant savings there and you're right, that's certainly on the radar screen, because some of those deals have recently traded at very tight levels. And as far as additional non-QM, as you can see, we've done a lot of - we've done three non-QM securitizations, but we have more collateral to go and suffice to say we're not sitting on our hands in terms of moving forward with that securitization. The market is really, really receptive to that right now, and we feel it's really almost the most important thing we can do.

That's good color. Thank you. And then, how should one think about the trajectory of the yields in the existing portfolio at this point? I think the 90-day delinquency rate in the non-QM portfolio picks up some of the loans that received forbearance last spring. Can you give us some additional color on the resolution for those borrowers? And what we should expect if the forbearance period expires for a lot of those folks?

Sure. Bryan, do you want to talk about that?

Sure. So if you look at the Page 14, right, the active forbearance for our non-QM borrowers is at 2.8%. So, the majority - I mean, almost 100%, right, of people who have been impacted by COVID and given relief have been - have moved past that relief period. And any borrower, who is in active forbearance plan and they haven't made payments, that also will show up in the delinquency. So, it's already included in those delinquency numbers. So, really what we're seeing in the 60-plus bucket are our borrowers who after they received some help, they still haven't been able to become completely current. But as I mentioned, 30% of those delinquent borrowers are still making payments. They just can't make two or three payments at a time to really get back to that current level. So there - they may be on repayment plans and the like. So, the expectation is the majority of these borrowers will come back to current, and as previously mentioned, the LTV on these are similar to the rest of the portfolio, being in the six handle. So, what will occur if they really do go down the path, but they can't - they were unable to meet their debt service, what they'll end up doing and what we have seen is the borrowers will list their property and take out their equity, they will sell their property and move to a place that's more affordable for them. And when we see that pay-off, it really comes in through just a regular prepayment, because there is no loss associated with that.

Yes, makes sense. I think you said you're on track to purchase $100 million in the first through February of non-QM loans. I assume those are newly originated loans. Can you share where the coupon is and how the borrower profile has potentially changed on those newly originated loans versus pre-COVID loans?

Sure. So, the coupon is where, for the rest of the portfolio is a six handle for newly purchased loans. It's down into the 5's. So, it's somewhere there, low 5's to mid to high 5's. And then you're seeing a wide range of rates inside there. So, you're seeing some non-QM rates get below 4% at this point, but there is still some where there is any type of risk layering, you're still seeing rates well into the 5's and even into the 6's for the spot of your credit type borrowers. But in terms of the general types of origination we're seeing from a credit perspective and other any perspective, we are at a pretty similar level to pre-COVID just with some added bells and vessels to make sure that the borrowers have current income and the ability to repay. So, right, if you were to think about coming through the pandemic, what the borrowers earning prior to March of last year in a small business is not nearly as important as what they've earned over the last six months. So, there is a little bit more focus as to how the borrower has recently been doing and their earnings potential versus looking historically where that may no longer be available.

Our next question is from the line of Steve Delaney with JMP Securities. Please go ahead.

Good morning, everyone, and congratulations on the substantial progress of the last few months. Pretty remarkable compared to where we were nine months ago. Just looking at page - you're welcome, Craig. Looking at Page 6 and 7, and Eric hit on the big thing obviously in QMs, I'm trying to get a handle on and you discuss the securitization and loan purchase activity there well with him. But looking over the RPLs or as you know [indiscernible] PCDs and the BPLs, both the single-family rental and Fix and Flip, is there embedded in there - in those two buckets, of your three transactions, two were in QM and then you did the one, I guess, the INV, I guess it's rental, the - just maybe give us a sense, is there more work to do and let's just talk about the loans you have on your books and finance today under other facilities. Is there more kind of micro securitization potential in those two buckets, which look like they represent about $1.8 billion? Thanks.

Well, you're asking about the PCD in the Business Purpose Loans. Right, Steve?

Yes, yes. Apart from the NQMs that Eric discussed. Yeah.

Sure. So, under the PCD loans, there are some re-performing loans there. And I did mention earlier that we do have '17 RPL1 that's outstanding and callable. And as we call the nonperforming deals as well, inevitably, there are loans that are performing within those deals. So, it's a little bit of an art rather than a science to move loans around to where the best execution is. But there is certainly room within that portfolio to do additional securitization or to call and then re-issue securitizations. Under Business Purpose Loans, we probably do have enough single-family rental for another small deal, and on the Fix and Flip side, that's possible. The Fix and Flip side, the securitizations aren't quite as compelling there. The structures are a little bit more complicated because of the really short-term nature of the asset. So, while that possibility exists, it's a little more difficult there and we've done three non-QM securitizations since September. And then, as I said before, suffice to say, we have more non-QM loans and we're working towards that as well. So, we think we've got securitizations sort of stacked up for at least the next three or four months

Great.

To sort of chart through some of these.

And you mentioned there is no cheap assets out there. That's probably the most honest thing anybody will say on this call this morning. But you got to where you are about some strategic relationships that have worked out for you over the last three, four, five years or so. I mean at this point, is part of your effort just continuing to search for partners out there and to try to continue to build sort of a flow pipeline? Can you get enough from your existing relationships, I guess, or do you need to sort of go out and beat the bushes a little bit for more loans?

Sure. It's a good question, Steve, and I think as we would like to say, everything's on the table every day. Bryan did mention that we had made an additional investment in an originator in the fourth quarter, so - on the non-QM side. So, the answer is yes, we continue to look at additional partners and really continue to look at all opportunities. I think anytime that yields are as low and credit spreads are as tight as they are right now. We need to just widen the aperture and consider things that maybe we haven't considered before. I think all the asset classes are on the table every day, as we like to say.

Yes, I apologize, I missed that when Bryan commented on it. Did you mention third quarter? And was that related primarily to NQM product?

We reported in the fourth quarter. Yes.

It was fourth quarter. Okay, got it. Okay, so not much to happen from there in the fourth quarter, but that's something that could contribute I guess in the first half of this year. So, thank you for the comments. I appreciate it and congrats.

Operator, do we have any more questions? John? Operator, are you there? All right. So, I apologize, I don't know that we have lost the operator. So, if people have questions that were not answered on the call, please feel free to reach out to us. Again, we apologize that we appear to have lost the operator and don't have the ability to take additional questions. So, again, thanks for your interest in MFA. And again, don't hesitate to reach out if you have questions that were not answered on this call. Thanks, everyone.