MFA Mortgage Investments (MFA) is a position I just began last week with a 1% stake [Initiating MFA Mortgage Investments]. They reported earnings this morning and missed by 1 cent, but I like what I am reading (huge year over year increase in profits), so I am going to take my stake up by 500 shares in the $10.30s area, and make this a 1.5% stake. I believe the turmoil in credit markets will work to this company's advantage - companies who are desperate to raise capital and get product off their balance sheet will provide these mortgage REITs a lot of prey. The CEO said as much in the AP report ... and we have your government tax dollars backstopping this company's investments because as we all know, Freddie Mac and Fannie Mae will not be allowed to fail. Heck, the system is set up so even the worst home builders are not being allowed to fail.
The price I added is near the 20 day moving average. As I stated when I opened my position I'd prefer to add to this stake lower, preferably near the 50 day moving average of $9.50 so I will see if I can get that price going forward before increasing the stake. Since the stock has slingshoted up, I didn't want to buy a huge slug when I first opened the position so we are getting the anticipated pullback now.
- MFA Mortgage Investments Inc.'s profit quadrupled in the fourth quarter as the mortgage investor capitalized on the turmoil in financial markets by buying cheap bonds, the investment fund said Thursday.
- MFA Mortgage earned $18.6 million, or 16 cents per share, in the fourth quarter, compared with profit of $4.4 million, or 6 cents per share, in the fourth quarter of 2006. Analysts polled by Thomson Financial forecast profit of 17 cents per share.
- The company collected $112.3 million in interest on its portfolio, compared with interest payments of $71.5 million in the fourth quarter of 2006. This was principally because MFA's portfolio grew to $8.3 billion from $6.34 billion as the company capitalized on the upheaval in credit markets by buying bonds at inexpensive prices.
- MFA turns a profit by collecting more in interest on its bonds than the company pays to raise money. In the fourth quarter, MFA collected 0.65 percentage points in interest on its portfolio more than the company paid in interest on its debt. That spread in the fourth quarter of 2006 was 0.36 percent.
- MFA has largely sidestepped the credit crisis plaguing many other mortgage lenders and investors because the company buys only the safest kinds of mortgage bonds, mostly those guaranteed by government-sponsored companies like Fannie Mae and Freddie Mac. These bonds are considered safe because people think the government would rescue Fannie or Freddie if they were to default.
- In fact, MFA's chief executive, Stewart Zimmerman, said the company is in a good spot to take advantage of the turmoil in the market. As lenders record billions of dollars in losses and are forced to sell their loans, there are a lot of cheap assets for sale, he said.
Disclosure: Long MFA Mortgage Investments in fund and personal account