MFA Financial, Inc. (MFA) Q3 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the MFA Financial, Inc. Third Quarter 2022 Conference. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will be given at that time. [Operator instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Hal Schwartz. Please go ahead.

Thank you, operator 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 end of December 31, 2021, 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 2022 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 and thank you for joining us here today for MFA Financials' third quarter 2022 earnings call. Also with me today are Steve Yarad, our CFO; Gudmundur Kristjansson and Bryan Wulfsohn are Co-Chief Investment Officers and other members of senior management. The third quarter of 2022 offered no respite from the extremely difficult prior two quarters and was another historically challenging period across all financial markets. Bond markets continued to be very volatile with rates backing up in the third quarter and agency mortgage spreads touching near all-time highs, not seen since the great financial crisis, which you'll recall in in 2008 for a time it was not certain that Fannie or Freddie credit was good. Equity markets experienced a particularly volatile third quarter although the S&P 500 was down only 5% for the quarter, it was up 14% through mid-August and then down 17% over the second half of the quarter. Inflation numbers continue to disappoint with stubbornly high prints despite considerable action already taken by the Fed. Although the Fed has been consistently clear that their sole focus is on inflation market participants seem to seize on random and sometimes tenuous signals to anticipate a pivot or a pause driving yields down and stocks up for a short period until it becomes obvious that this temporary euphoria was ill advised at which point we retrace levels in stocks and bonds with a war still raging in Ukraine and recent financial stresses in the UK and Japan, this market volatility is not likely to subside soon. As a result, financial market investors have generally remained on the sidelines even as spreads and yields have moved in many cases to historically wide levels. Now admittedly, the conspicuous absence of the Fed as an active buyer in the market today as they have been for nearly all of the last 15 years, calls into question any notion of what an average or normal spread is or what was observed over that time period. But even looking back prior to 2007, many of the levels that we see in the market today look quite attractive. Recent agency mortgage spreads as wide as plus one 90 versus 10-year treasuries effectively puts a floor on non-agency RMBS, which explains even wider spreads on credit products today. In fact, there were only four times in the last 36 years that agency MBS spreads have been wider, 1986, 1998, 2000 and 2008, and except for 1986, all these periods coincided with systemic and unique financial market crises and all four times overlapped with periods of falling rates whereas the dislocation we see today is largely a function of rapidly rising rates. I referred to 1994 during our first quarter earnings call earlier this year when the Fed raised rates six times for a total of 250 basis points and then another 50 basis points in February of 1995. During this time, 10-year yields rose 240 basis points from 563 just prior to the first increase to a peak of 803. Agency mortgage spreads widened from 72 basis points just prior to the first fed action to a peak of 116. That's a 44 basis point widening in late April of '94, and then agency MBS rallied through the summer and finished the year in the low hundreds. Contrast this with today, when similar fed tightening and almost identical increases in 10-year yields have led to over 130 basis points of agency spread widening from the beginning of the year tights in the fifties. A more recent rising rate widening for agency MBS would be the taper tantrum in 2013. Agency mortgage spreads had widened early in 2013 from plus 41 in January and were about plus 70 versus tens before Chair Bernanke's announcement that the Fed would begin tapering asset purchases at some future date set off the taper tantrum, which we all remember set off a selloff and treasuries and push mortgage spreads wider. 10-year yields rose from 192 just before the announcement to 3% in early September and agencies widened but only by 25 basis points to plus 95 in early July, and they were back inside of plus 70 by September. Somehow my recollection of the taper tantrum was much more dramatic than these actual numbers suggest, and again, this puts today's spread environment in context. While the magnitude of fed hikes has exceeded some expectations, the direction was foreseeable. Our team at MFA took steps to preserve capital and manage our duration beginning in the fourth quarter of last year when it became clear that the Fed would need to move more dramatically than previously expected. We had $900 million of interest rates swaps at year end last year, and as rates rose and duration extended, we increased this position to $2.4 billion at March 31 and again to 3.2 billion at June 30. This swap book has weighted average fixed pay rate of 1.69. So not only does this lock in what is now considered a cheap funding cost, but we also benefit from a positive carry from the floating rate receive leg, which is now approximately 200 basis points. With yesterday's fed action priced in, we deliberately slowed our loan acquisition pace beginning in the first quarter of the year, and at the same time, we've continued to execute securitizations throughout the year nine securitizations and over $2.7 billion of U PB through our swap position and these securitizations we have now effectively locked in 99% of our asset-based financing costs taken together. These steps mitigated our book value decline. Although MFA was certainly not immune to book value, diminution or relative book value performance versus many in the peer group was conservatively better. It's also worth noting that a significant portion of MFA's book value decline is due to fair value marks on loans in our balance sheet. The vast majority of which we will likely hold until payoff or maturity. As of September 30, the market discount to unpaid principle balance on our $6.8 billion of purchase performing loan portfolio is approximately $668 million. We have secured issues that are also marked below par by approximately $325 million netting. These two discounts produces a potential book value increase of approximately $343 million or $3.37 per share. Assuming the loans and liabilities all pay off at par, this amount would be offset by any realized losses on loans. But expected losses are relatively low, particularly on our purchase performing loan portfolio. We have also prioritized liquidity for all of 2022 and we ended the third quarter with approximately $434 million in cash while holding a substantial portion of our equity in cash, obviously creates a drag on overall roe. This was not the time to swing for the fences. Having a S sizeable liquidity position provides the cushion and volatile market and gives us the ability to take advantage of opportunities that arise. We've also fortified our balance sheet as we show on pages six and seven of our presentation. We've increased non-market to market financing as of September 30th. 71% of our financing is non-marked to market and our recourse leverage was only 1.7 times at quarter end. Our loan financing agreements are term financings and 65% of this financing has a maturity date greater than six months. The borrowing spreads and haircuts on existing loan financing is fixed for the term of the financing agreement. Typically, we extend these agreements for another year, a couple of months before their term expires, and despite market volatility, financing is available from multiple counterparties and we continue to field calls from other significant bank lenders eager to provide financing. Finally, I'd like to talk a little bit about housing and residential mortgage credit. Clearly the sell-off and rates and widening and mortgage spreads has had a profound impact on mortgage rates and housing Activity has slowed dramatically. We're beginning to see some modest home price declines at least month over month in some parts of the country after a dramatic after the dramatic home price appreciation over the last two years. This should not be a surprise. However, as we show on page eight, our loan portfolio has considerable embedded HPA, which combined with amortization has lowered the current LTVs in most cases to the mid-fifties. So to summarize how MFA is positioned, we continue to maintain substantial liquidity. We have fortified our balance sheet with non-mark the market financing, fixed rate financing through swaps and secure licenses and term financing agreements for our loan products. And our loan portfolio has benefited from seasoning and home price appreciation and has a low LTV. So borrowers have substantial equity in their properties. And I'll now turn the call over to Steve Yarad to discuss additional details of financial results.

Thank you, Craig. On slide four of the company update presentation, we present a snapshot of our Q3 2022 results. MFA's gap earnings were negative $63.4 million or $0.52 per common share distributed. All earnings were $28.2 million or $0.28 per common share. Net interest income for the third quarter was $52.3 million. Book value declined modestly during the quarter was gap book value down 6.8% to $15.31 per common share. While economic book value was down 8.3% to $15.82, we ended the quarter with a leverage ratio of 3.6 times recourse leverage, which excludes securitized debt was 1.7 times at September 30, 2022. And with that, I'll turn the call over to Gudmundur.

Thanks Steve. Turning to portfolio acquisitions, loan acquisitions decline modestly to 710 million in the quarter as we continue to be selective in our investment activities and to require higher yields on the capital that is deployed. You continue to find the best opportunities in business purpose loans organically sourced through our leading nationwide BPL originator Lima One where we funded 520 million of new originations and rehab draws in the quarter. We also selectively acquired 179 million of non KM loans in the quarter. The new acquisitions were at attractive yields of approximately 8% and with a strong credit characteristics with average LTV of about 67% and average FCO score of about 743. The portfolio site was relatively unchanged at portfolio as portfolio runoffs and asset valuation declines, largely acquisition volumes. Lima One continues to thrive under MFA's ownership and has established a reputation as a leading nationwide BPL originator with strong origination volume, excellent credit performance and prudent underwriting. Lima trailing 12 month origination volume is approximately 2.5 billion compared to 900 million at the time of acquisition on July 1st, 2021. Lima originated approximately 640 million maximum loan amounts in the third quarter modestly up from approximately 600 million in the second quarter. About three quarters of the third quarter origination was short term RTL loans. Continuing the trends we have seen throughout the year of stronger demand for short term products versus the more rate sensitive, longer term rental loans. The credit performance of Lima originated loans owned by MFA continues to be excellent with 60-plus state delinquent loans of less than 2% all year long. We have been focused on the impact of higher rates, tighter monetary policy and potentially softer economic conditions on our portfolio. To get ahead of that, we have throughout the year proactively managed the risk reward profile of Lima's BPL originations by tightening underwriting standards, increasing risk based price adjustments and increasing loan coupons in general. At the result, the credit quality of our portfolio, which was excellent before, has improved further in the year while our average origination coupon has increased. As an example, the average FCO score on Lima's 2022 RTL vintage of approximately 750 has increased by about 10 phases points and 20 basis points compared to the 2021 and 2020 vintages respectively. And the average coupon in our origination pipeline has increased by our 400 basis points this year and is currently over 10%. At the same time, smaller BPL originators that are dependent on whole loan sales. So third parties have been impaired by the market volatility, which has created an opportunity for LIMA to grow market share or maintaining prudent credit standards. The result has been a fairly steady pipeline of increased credit quality. We are starting to see some softening in borrower demand due to higher rates and tightening of underwriting standards and expect origination volume to decline in the fourth quarter. We continue to be focused on liquidity and availability of financing to support our BP P origination. And to that end expanded our RTL financing capacity in the quarter by approximately 650 million off, which about 65% is on non-mark to market terms. In addition, RTL loan paydowns of about $148 million exceeded draws of about $107 million in the quarter. I will not turn the call over to Brian. We'll discuss MFA's securitization activities and portfolio credit performance.

Thanks, Gudmundur. We have made significant progress in our plan to obtain a greater share of our financing through securitization. Over the last 12 months, we have issued 3 billion of non-recourse securitized debt through 12 securitizations. The securitizations issued covered many of our loan types from non-QM and SFR to RPL and RTL 2022 has been a challenging year to be an issuer as spreads required from bond investors has have pushed wider materially to start the year. Non-QM and SFR Triple A spreads were in the low 100 s and moved 150 basis points wider by June. In August and September there was a shortlived respite, which we took advantage of to issue an ONM securitization with AAA spreads in the high 100s just before spreads widened out again to the mid-200. As Craig has previously mentioned, every time we would feel disappointed about our execution spreads would perceived to leak even wider in subsequent weeks, which in hindsight made our levels look great. We will continue to be a regular issuer in the market as we believe non marked to market securitization financing provides significant benefits to our portfolio. Moving to our portfolio's, credit performance delinquencies continued to improve across the portfolio over the third quarter. The percentage of loans 60 plus days delinquent in September for the nine QM and X four portfolios was 2%. The RTO portfolio was 6%. The RPL portfolio exhibited 18% with almost half of those loans delinquent making payments in the portfolio of loans purchases. NPLs, 41% of the remaining loans are 60 plus days delinquent. However, about 30% of those borrowers are making payments. We are laser focused on our remaining non-performing loans. As momentum has shifted in home prices, our asset management team is working to make sure timelines to resolution remain as short as possible, as protracted timelines can be costly. As amid our portfolio maintains a low LTV aided by the significant HPA experience over the past two years, which helps limit potential losses relating to modifications. We have adjusted our loss mitigation waterfall to take into account the current mortgage interest rate landscape to receive a modification. Borrowers in most cases will now see an increase to the mortgage rate, which was not the case in the years following the financial crisis. Lastly, we have been successful in reducing our REO portfolio by 141 properties to 412 since the beginning of the year, taking $20 million of net gains as we remain aggressive moving properties in an increasingly tricky housing market. And with that, we'll turn the call over to the operator for questions.

[Operator instructions] And we will begin the queue with Bose George with KBW. Please go ahead. Your line is open.

Hey guys, this is actually Mike Smith on for Bose. Thanks for taking the questions. It's my first one given where you can aggregate and securitize loans, where are levered ROEs on new investments? And then kind of as a follow up, how are you thinking about kind of the balancing act between offense, buying back stock and maintaining liquidity?

So I'll let Bryan to talk about the ROEs on securitized and then I'll talk about use of cash.

Yeah, so as Bryan pointed out, securitization and execution has gotten more challenging throughout the year. But, what we have done as I explained throughout the year, is raised our group funds and our yield requirements. And so right now on the SFR side, we are originating coupons around, 8.5% to 9%. So the yield that we're targeting there is probably around mid-eight. Securitization execution is, mid to high 7% in terms of cost. So when you do the math and in terms of the amount of bonds you could sell, you could say that the ROE is probably low double digit or around 10%. But, the thing is, you, we are also being quite cautious in a way where we approach it. We need to make sure that we're pulling in loans with high enough yields to basically be able to absorb some of the volatility and spreads. And that's really how we're thinking about it. On the RTL side, the short, some BPL loans the coupons we're originating range from, 10% to 12%, probably around high 10%. So you can think about a yield thereof. You've seen 10% and 10.5% the securitizations execution there is also quite challenging. And, if you were to do a deal, it probably cost you about 8.5% to 9%. So you're earning about, 100 basis points of spread probably, but you add the deal 10%. And so, the ROE on that is probably, mid double digits. But, importantly, if you think about the RTL execution, we sat on the call obviously that we expanded our financing capacity in terms of warehouse setups and expanded also the non-marked market component of that. So we do have the ability to hold those loans on warehouse where the cost of funds is substantially lower. You think warehouse cost of funds are probably anywhere from swaps so for plus 250 to 280 something like that. And then with sulphur right now at 375, the cost of funds there is close to 6.5%. And so if you're creating loans that yields 10%, you got decent amount of spread there. And then you can just do the math. If the Fed hikes another a hundred basis points, the cost funds goes to 7.5%still a quite attract spread relative to the asset that we have. So, we think we'll continue to do securitization as Bryan pointed out from a liquidity and risk management perspective. But clearly at the time being there is, it's more agitation, especially in the shorter products to hold on warehouse if you do have those non-market to market term facilities. And just the last piece on the kind of the financing side of that, just want to emphasize that as Craig pointed out in his remarks, we have $3.2 billion of interest rate swaps and that almost a hundred percent offset the variable funding on our warehouse facilities. And so as the as the index there increases with sulphur, we're going to receive on the floating side, on those swaps on the opposite side.

Great. That's really, Thanks.

And Mike, in terms of deploy how are we thinking about deploying cash? We're obviously cautious, right? With the volatility that we've seen this year and this isn't the first earnings call you've heard that on because I've listened to a bunch of them too. So, we're prioritizing liquidity, we're shoring up the balance sheet. Everything's on the table every day. So, as we deploy cash, it could be into assets, it could be into buying stock. But I think we're probably more focused on liquidity than necessarily rushing to make investments these days.

Great. That's good color. And then maybe just one on BPL. Obviously that sounds pretty short duration. Just wondering who's providing you the permanent financing to a lot of these borrowers, and have you seen any changes in credit availability on that front?

When you say finance, you're talking about our counterpart that we borrow from?

No, like the underlying borrower for like a LIMA One loan on like, say an RTL who's providing the purpose financing on that?

You mean the takeout when they sell -- when they flip the property?

Yeah, exactly.

Oh, okay. Okay. Sorry. Yeah. Follow up. So yeah, I mean, just the same as has always been. Look, if, if you have an experienced borrower, most, keep in mind most of the people we deal with or borrowers to, to Lima one, are highly experienced, experienced real estate investors, and they'll have strategies around repositioning properties, whether it's single family, multifamily, they'll be doing low construction, low rehab, or medium or lot rehab. Some of them strategies will be around selling the property as it's rehab. Other strategies will be around renovating and then refinance into a rental property rental strategy. And so the exit there can be a few different things. If it's a sale of a property, then there's an end buyer, right? And that buyer maybe get maybe borrowing, Fanny Freddy loan to acquire the property. If the strategy of the real estate investor is to retain the property and add to his rental portfolio, he will most likely refinance that into a, some sort of a rental strategy loan. And, also LIMA makes those loans. So we tend to do some of those refinancing in house. It could also be away from us from some of the, some of the competitors out there. But, it is, those that financing is widely available. The price is obviously higher than it has been in years past, but, but there's, it, it's is widely available.

Great. Thanks for taking the questions.

Well now go the line of Steve DeLaney with JMP Securities. Please go ahead. Your line is open.

Thanks. Good morning. Craig and team, thanks for taking the question. I'd like to start with the interest spread. It looks like, like it went up nicely to 164 basis points compared to about 130 in the second quarter. I'm just trying to reconcile that with the, your distributable EPS coming in at $0.28 versus $0.46. I know you're keeping a lot more cash, that probably implies lower leverage, but is there anything else in there that I'm missing? Anything that was more one time in nature given the improvement in spread and versus the decline in and distributable EPS? Thanks.

So Steve, one thing I, this is Steve. One thing I point out to you, Steve, is the spread includes the impact of the swap benefit, whereas the net interest expense that we report the GAAP doesn't. So that's one of the reasons why you're seeing the, you're seeing the full benefit of the swap the swaps being in a net received position now reflected in that cost of funds and therefore in the spread, whereas the, the net interest expense that we're required to report the gap, the dollar value of that doesn't show that. So it's somewhat of a geography issue on our income statement. So that's one thing I'd point out to you that might help to reconcile that,

That is very helpful. Yeah. Okay. Just because the yeah, if you're getting that, you're getting that in gap but you're not getting you're not getting that benefit from the swap in your distributable is what you're saying.

Well, that's not quite right. You are getting the carry on the swaps in the distributable. Okay. It's just, it's a geography issue in the income statement.

Okay. Well I may follow up with that afterwards. Steve, if you don't mind. LIMA One, I just wanted to be clear. I heard that I think you did 500 million in originations in the third quarter. If I heard comments that that will, will likely go down, can, can you make any estimated range of where you would think that would be quarterly going forward over the next two to three quarters or,

Yeah. Hey, Steve. Yeah, that's right. I mean, we, as, as I said, based upon our, our proactive approach to, to managing our pipeline and we've, we've been raising rates throughout the year and, tightening on writing, reducing LTVs and things of that nature. Frankly, we were surprised how well the pipeline held up through the third quarter. Because again, we were raising rates aggressively and pulling in some high coupons. But we're seeing some softening in the pipeline. And I think I said that, so on a maximum low amount, Lima originated about 640 million in the third quarter. So that includes like the total amount that that is, that is, substitute to draws and things of that nature. For the fourth quarter, I would expect, the origination is probably to decline to like probably, in the four hundreds, maybe, low 400 s based on what we're seeing closing.

Okay. So still some business there and coupons north of 8%, but just slower pace.

Well, the coupons now as I said, and Craig mentioned, and I mentioned in the current pipeline, the, the waiter average coupon is over 10%. And so, so we, so our view is, yeah, these are great launch to make, but we are very cognizant of the fact that the volume is coming down because the rates are higher, but also because we're being more selective in terms of the credit exposure we take.

Got it. Got it. And Craig, just to, to go back, I think Mike was trying to touch on this. I mean, it seems you guys have done a great job reacting to this 99% fixed rate financings. I mean, I don't see how you can have your balance sheet in any better position and your credit metrics are holding up the market's, not rewarding this. I think a lot of that is macro and not specific to MFA at all. But in any event, you're trading 60% a book, the yield is 18% you're trying to maintain liquidity. Can you share with us any thoughts as to how you and the board are looking at this in terms of the balance of how you're delivering value to shareholders and, and what's the best way to do that? And I guess my point is, are all three of those things important factors and kind of on the table for discussion the dividend if you will, and the liquidity, how has all that come out and you when you're look looking at things going forward? Thank you.

Sure, Steve and I appreciate you recognizing, what we've done on the balance sheet and on the, on the rate hedging side. In terms of, in, in terms of how we deploy capital, as I, as I said to on a prior question, all things are on the table every day. I mean, we are somewhat limited in, in how much stock we could buy back, right, under a plan. There's a limit, a daily limit right. But clearly, that's one of the things that, that we think about. And by the way, we, we have bought over a $100 million worth of stock back this year, and it obviously it hasn't helped a whole lot.

I hear you, which is a little frustrating, in terms of, in terms of dividends. I know there was this notion of liquidity?

At the end of the day our cash position on September 30 was about 435 million. So with at the current dividend level, we could pay that dividend for two and a half years with that cash. So it's not a, dividends are not a liquidity issue, it's more of an earnings issue. And obviously our distributable earnings in the third quarter, were below the current dividend level. Although our distributable earnings in the aggregate have, have covered the dividend over the last four quarters, despite the lower Q3 print lower distributable earnings should not necessarily come as a surprise given the rate environment that we're living through. And given this backdrop, we've prudently reduced our asset acquisition pace, given recent and persistent rate volatility, and so maintaining that substantial liquidity position has been a priority for us. And so we could have made, we could have made more investments, right? And so while marginal investments might look cheap, and we've seen that over and over this year, that marginal investments that look cheap get, get cheaper and they get cheaper again. So it's difficult to make the case that this will change in the near future. But if we had invested, let's just say we invested $150 million at the beginning of the third quarter, and let's say that we levered it four times, and let's say that we could earn a, a 15% roe, we might have added $5 or $6 to our distributable earnings, but our book value would likely be down three times that much on those same investments. So I think, it's great to have sort of 2020 hindsight. But I think that's been part of our thought process this year is, as cheap as things look, it's difficult to really have conviction. And I think, I've heard that across almost all the other earnings calls I've listened to. Yeah, things look really cheap. But in this market environment, liquidity and a strong balance sheet are really the, and at least in our opinion, those are the most important things. So I, I don't know if that helps, Steve.

It does. You came through loud and clear, so thanks for the comments. Look forward to seeing you guys at our conference in a couple of weeks. Thank you.

[Operator instructions] We'll now go to the line of Eric Hagen. Please go ahead. Your line is open.

Hey, good morning guys. Hope you're doing all right. I'm curious on two, two non QM related questions. What are the triggers that would maybe support you having to buy loans out of the securitization trust for, I guess, non-QM or BPL? And how do you think the funding for delinquent loans, once you bring them back onto your balance sheet on a warehouse line, for example, could differ versus a performing loan? And then a lot of non QM loans have prepayment penalties, but it almost seems counterintuitive in a market like this to enforce a penalty. Are, are there prepayment penalties for your non QM loans? How are you guys thinking about the turnover and the kind of ability for borrowers to potentially refinance if they needed to or wanted to? Thank you.

Sure. thanks, thanks for the question, Eric. So, for one in our non QM securitizations, if, if loans go delinquent, they don't come out of the securitization, they stay there. So the only reason that loans would be required to be bought out of a securitization is if, if somehow there was like an underwriting defect found which, which then we would have the, that right to put that loan back to whomever the originator would, Was it breach? It'd be a breach. One reason we'd have, right? So if I have performance loans don't have to be bought out, and that, and that's the sort of the same for, for BPL securitizations as well, and to your question about prepay penalties, yet the loans made to investors do have prepayment penalties and you are correct if loans are valued at a discount. Right. Why would you necessarily, if that's the sole reason that kept a borrower from prepaying a loan, why would you enforce that prepayment penalty, and the answer is, you could sort of look at it selectively, but, but that's not really, those prepaid penalties aren't at a level where, where they would really restrict the borrower from making that refinance or sale of a property decision, but if that, if a borrower came to us and said, I would make this move, but for this prepayment penalty, we would evaluate that at the time.

Got it. That's helpful. Can you describe any sort of servicing advance obligation for the non QM securitizations and just how that obligation for servicing and supporting the trust just kind of works in general?

Yeah, sure. So our securitizations don't have advancing for P&I, right? So the only advances that would take place would be protective advances in the case if a loan were to go delinquent, so that would be sort of taxes and insurance and property preservation, and that sort of comes off -- would come off the waterfall. And it's not sort of a direct expense you would say of MFA.

And with that, we have exhausted all questioners in queue. Please continue.

All right. We've exhausted everyone. Thank you very much for your interest in MFA Financial. We look forward to our next update when we announce fourth quarter results in February. Happy holidays to everyone,

Ladies and gentlemen, this does conclude our conference for today. Thank you for your participation and for using AT&T event conferencing. You may now disconnect.