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Executives

Stewart Zimmerman - Chairman and CEO

William S. Gorin - President

Stephen D. Yarad - CFO

Craig L. Knutson - EVP

Ron Freydberg - EVP

Harold Schwartz - SVP and General Counsel

Kathleen Hanrahan - SVP and CAO

Shira Finkel - SVP

Goodmunder Christiansen - VP

Alexandra Giladi – Investor Relations

Analysts

Steven DeLaney - JMP Securities

Ryan O'Steen - Keefe, Bruyette & Woods, Inc.

Douglas Harter - Credit Suisse

Joel Houck - Wells Fargo Securities, LLC, Research Division

Richard Shane - JP Morgan Chase & Co, Research Division

Stephen Laws - Deutsche Bank Securities Inc

Christopher Donat – Sandler O'Neill & Partners L.P., Research Division

Arren Cyganovich - Evercore Partners Inc., Research Division

MFA Financial, Inc. (MFA) Q2 2012 Earnings Results Conference August 6, 2012 10:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the MFA Financial Inc. Second Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I’d now like to turn the conference over to our host Ms. Alexandra Giladi. Please go ahead.

Alexandra Giladi

Good morning. The information discussed on this conference call today may contain or refer to forward-looking statements regarding MFA Financial, Inc., which reflects 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, plan, continue, intend, should, could, would, may or similar expressions are intended to identify forward-looking statements. All forward-looking statements speak only as of the date on which they’re made.

These types of statements are subject to various known and unknown risks, uncertainties, assumptions, and other factors including, but not limited to those relating to changes in interest rates and the market value of MFA’s investment securities; changes in the prepayment rates on the mortgage loans securing MFA’s investment securities; MFA’s ability to borrow to finance its assets; implementation of or changes in government regulations or programs affecting MFA’s business; MFA’s ability to maintain its qualification as a real estate investment trust for federal income tax purposes; MFA’s ability to maintain its exemption from registration under the Investment Company Act of 1940, and risks associated with investing in real estate related assets, including changes in business conditions and the general economy.

These and other risks, uncertainties and factors, including those described in MFA’s Annual Report on Form 10-K for the year ended December 31, 2011 its quarterly report from 10-Q for the quarter ended March 31, 2011 and other reports that it may file from time-to-time with the Securities and Exchange Commission could cause MFA’s actual results to differ materially from those projected, expressed, or implied in any forward-looking statements they make.

For additional information regarding MFA’s use of forward-looking statements, please see the relevant disclosure in the press release announcing MFA’s second quarter 2012 financial results. Thank you for your time.

I’d now like to turn this call over to Stewart Zimmerman, MFA’s Chief Executive Officer.

Stewart Zimmerman

Good morning and welcome to MFA’s second quarter 2012 earnings call. With me this morning are Bill Gorin, President; Steven Yarad, Chief Financial Officer; Ron Freydberg, Executive Vice President; Craig Knutson, Executive Vice President; Harold Schwartz, Senior Vice President and General Counsel; Kathleen Hanrahan, Senior Vice President and Chief Accounting Officer; Shira Finkel, Senior Vice President; and Goodmunder Christiansen, Vice President.

Today we announced financial results for the second quarter ended June 30, 2012. Recent financial results and other significant highlights for MFA include the following. Second quarter net income per common share of $0.20 or earnings per common share. Book value per common share of $7.45 as of June 30, 2012 compared to $7.49 as of March 31, 2012.

We continue to focus on adding longer term financing for our Non-Agency mortgage-backed security holding. On June 29, 2012 we added $350 million three-year repurchase agreement to finance Non-Agency MBS assets.

On July 31, 2012 we paid our second quarter 2012 dividend of $0.23 per share of common stock to stockholders of record as of July 13, 2012. Our REIT taxable income exceeded core earnings in the first half of 2012, primarily due to the fact that for Non-Agency MBS acquired at a discount, core earnings are reduced by credit reserves for estimated future losses while taxable income is reduced by realized losses only when they actually occur.

We typically distribute approximately 100% of a REIT taxable income and consequently, dividends exceeded core earnings in the first two quarters of 2012. We currently anticipate that our REIT taxable income and core earnings will trend closer together in the second half of 2012.

At quarter end our debt-to-EBIDA ratio including the liabilities underlying our linked transactions was 3.6:1. In this low interest rate environment, core earnings per share was $0.20 versus $0.21 in the first quarter. Our Agency portfolio had an average amortized cost of 102.9% of par as of June 30, 2012, and generated a 2.95% yield in the second quarter.

Our Non-Agency portfolio had an average amortized cost of 73.0% of par as of June 30, 2012, and generated a loss-adjusted yield of 6.75% in the second quarter. While housing fundamentals remain moderate to weak, we believe that we’ve appropriately factored this into our cash flow projections and credit reserve estimates. Our Non-Agency mortgage-backed security loss adjusted yield of 6.75% is based on projected defaults that are approximately twice the amount of underlying mortgage loans that are presently 60 plus days delinquent.

These underlying mortgage loans were originated on average more than six years ago so that we have access to an average of 74 months of payment history. In the second quarter we continued to add multi-year financing that serves to reduce our reliance on short-term funding for Non-Agency mortgage backed securities. While this longer-term financing is incrementally more expensive than short-term financing by approximately 100 basis points, we believe the certainty of the committed term more than justifies the additional cost.

Before I turn the call over for questions, I just wanted to give a brief mention to the recently publicized proposals that are being considered by some county and local governments and particular San Bernardino County, California, to use the power of eminent domain to seize certain mortgages from existing mortgage holders.

Although these proposals are still in their preliminary stages and we do not yet know whether they will ultimately be acted upon, we’re taking this matter very seriously and are working with other mortgage investors and trade groups to make sure that our voice is heard in this debate, with the objective of protecting the interest of our stockholders.

I thank you for your continued interest in MFA Financial and at this time I’d like to open the call for questions. Operator?

Operator

Yes, sir. I’m here.

Stewart Zimmerman

We would like to open the call for questions, please.

Question-and-Answer Session

Operator

Okay. Thank you. (Operator Instructions) And we have a question from the line of Mr. Steve DeLaney with JMP Securities. Please go ahead.

Steven DeLaney - JMP Securities

Thank you. Good morning, everyone.

Stewart Zimmerman

Good morning, Steve.

Steven DeLaney - JMP Securities

So, Stewart your book value was essentially flat in the second quarter and I guess that while you note treasuries agency bonds were moving, it looks like the Non-Agency paper was pretty flat in fact, maybe some of the weaker paper was even down, but that sentiment seems to have changed here since early July. I wondered if you guys could just give us a little color on what you’re seeing as far as price action in the types of bonds you own and, I guess, importantly what is that mean for the kind of yields you get on new investment and the impact on your book value?

Stewart Zimmerman

Steve, let’s do this. I’m going to turn it over to Craig to talk about the Non-Agency side and what he is seeing in the market relative to Non-Agencies. Then – from that I will turn it over to Goodmunder to talk about the Agency side. So Craig?

Craig L. Knutson

Thank you, Stewart. Hey Steve.

Steven DeLaney - JMP Securities

Good morning.

Craig L. Knutson

So on the Non-Agency side since June 30th; we’ve seen some strong buying. Again, it depends on the specific bond and the collateral underneath it, and obviously, credit enhancement associated with it, but I’d say in general Non-Agency prices on the types of assets that we traffic in are probably up about two points on the – close to $6.5 billion face. And yields today at those higher prices, I’d say they’re generally in the low sixes.

Steven DeLaney - JMP Securities

Okay. And your existing portfolio, I think was what, 6.75 for the second quarter?

Craig L. Knutson

6.75, yes.

Steven DeLaney - JMP Securities

So you probably lost, half point or so in yield at the margin?

Craig L. Knutson

On new purchases that’s probably about right.

Steven DeLaney - JMP Securities

Yeah.

Craig L. Knutson

Again, it depends. There could be bonds that could be a little below six and there could be bonds that are in the high sixes.

Steven DeLaney - JMP Securities

Right.

Craig L. Knutson

But in general, I’d say there are no low sixes now.

Steven DeLaney - JMP Securities

And since you guys, I mean, on your Non-Agency portfolio obviously you own those bonds at a discount and you’re going to do better in a – probably in a rising rate environment with the better economy, I mean, is it since you really – I don’t know if you look at that as allocating any of your swaps there, but it would seem that with the price move you’re at least the fair value of the Non-Agency portfolio standalone should certainly be higher versus June, in terms of making a positive impact on your book value?

Stewart Zimmerman

Again Steve, -- right, at general you’re right. Again, look what [we’re] really discussing or what Craig is discussing is the fact that in the market in terms of Non-Agencies he has seen – he has seen a price increase.

Craig L. Knutson

And that is – Steve, as you know price increase is relative to the face amount of these assets, not the market value. So we have about $6.4 billion face of Non-Agencies. So an upward movement in price there obviously that change of price is timed $6.4 billion. So it would impact book value in the quarter.

Steven DeLaney - JMP Securities

Okay. I appreciate it guys. Thank you.

Stewart Zimmerman

Thank you, Steve. Goodmunder, do you want to discuss the Agency side?

Goodmunder Christiansen

Sure. So Steve, on the agency side, we’ve seen prices appreciate, especially on the kind of lower coupons slightly longer assets that the curve has flattened after quarter end. And the yields that we’re seeing in terms of what we’re purchasing, we’re seeing hybrids around 160 basis points and the 15 year fixed are closer to 2%, which would put spreads in terms of the new assets around 130 basis points when you include the cost of hedges.

Stewart Zimmerman

Operator, next question.

Operator

We have a question from the line of Bose George from KBW. Please go ahead.

Ryan O'Steen - Keefe, Bruyette & Woods, Inc.

Hi. Thank you. Actually this is Ryan O'Steen on for Bose.

Stewart Zimmerman

Okay.

Ryan O'Steen - Keefe, Bruyette & Woods, Inc.

I’m just curious were recent purchases having concentrated and where do you see the most relative value right now between Non-Agency and Agencies?

William S. Gorin

This is Bill Gorin. I’d say that we’ve been investing across both asset classes looking to keep the asset allocation approximately where it’s been. The answer to the last question, we mentioned that the value of the Non-Agency MBS have gone up due to appreciation in the asset class. So in order to keep the same ratio, we’ve also had to buy agencies in addition to Non-Agencies in this quarter.

Ryan O'Steen - Keefe, Bruyette & Woods, Inc.

Okay. Thank you. And then just second of all, on your swap portfolio, it looks like you have about 530 million or so of swaps rolling off in the back half of the year. What type of swap maturities are you looking to replace as with just kind of your strategy in general for replacing those swaps as they roll off?

William S. Gorin

Yeah, so what we do is we look at the interest rate sensitivity of the entire portfolio, which includes Agencies and Non-Agencies. And its not that, gee, we have a swap today if it goes away, we have to replace it necessarily the next day. It’s incrementally are we adding interest rate risks to the assets and therefore do we need to hedge against that. And incrementally we’ve been not looking to increase our interest rate exposure on the asset side. So, it’s not clear that we need to replace or incrementally add swaps in our current strategy.

Ryan O'Steen - Keefe, Bruyette & Woods, Inc.

Okay. Thank you so much.

Operator

We now have a question from the line of Douglas Harter with Credit Suisse. Please go ahead.

Douglas Harter - Credit Suisse

Thanks. I was wondering if any of the decline in Non-Agency yields in the quarter was related to adjustments in the forward curve?

Stewart Zimmerman

Yeah, to some extend it is obviously on hybrid securities. So the fixed-rate securities are not really affected by that. But the forward curve was a little bit lower, I don’t recall exactly was it a significant number, I think its less than 25 basis points.

Douglas Harter - Credit Suisse

I mean, would that – should we expect that to be a bigger impact in the third quarter, given the decline in rates?

Stewart Zimmerman

Well, I think we set our forwards as of the end of – it would have been end of February, end of May. So the – May to August, I guess, it would be the end of August. So the forward curve maybe marginally flatter now than it was at the end of May, but I’m not sure there is a big difference. And again, remember that it’s only on those securities that are only on those Non-Agencies that are adjustable.

Douglas Harter - Credit Suisse

Okay. Thanks. And then on the new three-year repo facility that you added at the end of the quarter, was any of that utilized, sort of included in those numbers that you show off sort of your longer term financings at quarter end?

Stewart Zimmerman

You mean in terms of balance sheet or in terms of cost of funds?

Douglas Harter - Credit Suisse

I guess, I was thinking balance sheet – I guess, that ultimately close together, but in terms of balance sheet on that table where you show your longer term financings.

Stewart Zimmerman

Well we closed it at the very end of the quarter, so it didn’t affect our income statement at all for one day …

Douglas Harter - Credit Suisse

Okay.

Stewart Zimmerman

… I guess – but it should show up in the balance sheet number.

William S. Gorin

Yes.

Douglas Harter - Credit Suisse

Okay. Thank you.

Stewart Zimmerman

Sure.

Operator

And we now have a question from the line of with Wells Fargo. Please go ahead.

Joel Houck - Wells Fargo Securities, LLC, Research Division

Thanks. Good morning. I guess, my question is on the Agency portfolio, you mentioned average amortized cost base of 102.9% that implies more generic collateral. You’ve seen a huge move in the spec pools, a lot of your peers continue to like that [trading]. Maybe talk about your strategy in Agency, why you have not played that trade to a large extent and also in your comfort level with kind of maintaining prepayment speeds in the back half of year?

Stewart Zimmerman

First of all, what we do – we don’t buy – generally don’t buy TBAs, they’re not generic pools. So, we do look at the specifics of, certainly on the agency or on both Agency and non-Agencies, but certainly relative to your question on the Agency side, but it turned – to give you more specifics, Goodmunder, would you like to address that?

Goodmunder Christiansen

Yeah. So our amortized cost of 102.9% is relatively low compared to some of our peers, but a big part of that reason is we have a older portfolio. So, some of the assets we acquired a few years ago whether it’s three, four, five years ago we’re quite close to par. So, therefore the amortized cost then is very low. Now the bonds we’re buying today is – we’re buying what we see in the marketplace and in general, prices are above 103%.

Now, as I come – as you talk about the specified story, I would just like to mention that on the15-year side in excess of 70% of our portfolio is in some type of prepayment protected stories whether that is lower loan balance or higher LTV paper, and we’ve been very happy with that story, but we’re also highly aware of the prices that we pay for those securities and the way we played it and the way we like to do it is, we like to pay – like to buy those prepayment protected stories when the payout is lower or limited and when its closer to the TBA not when you have to pay two or three points for that prepayment protection.

But like I said, 70% is in prepayment protected stories on the 15-year side. On the hybrid side, it’s more on – of a bond by bond basis because it’s harder to source collateral with specific characteristics, but we will look for things that we like and it’s basically a mix of seasons and newer origination.

William S. Gorin

Hey Joel, one thing to take into account, the purchase – amortized cost is very important, prepay speed is very important, but what is most important is, how much yield the Agencies are generating for how much interest rate risk you’re taking and our Agency portfolio yielded 2.95% in the quarter without any 30 years. So, we think the inputs of price and prepay speed we’re very happy with the returns we’re getting from the Agencies relative to the fact that we own no 30-year Agency assets.

Joel Houck - Wells Fargo Securities, LLC, Research Division

Yeah, I mean, you guys are certainly shorter duration than a lot of your peers, I guess, given the exposure on the non-Agency side that you have, I mean, when you think about the Agency strategy, does it make more sense to have more longer duration Agency and maybe take a little more interest rate risk given that you kind of hedged with the Non-Agency book?

William S. Gorin

So, the question is, how much interest rate risk do you have and how much did you add? And I think what we're saying is, we’re not looking to add interest rate risk with interest rate sensitive assets yielding with the yield.

Joel Houck - Wells Fargo Securities, LLC, Research Division

Okay. And then maybe talk about your outlook for prepayment speeds in the back half of the year?

Craig L. Knutson

Yeah, I mean prepayments have trended-up. I think they will continue to trend-up over the next couple of months. We should probably see the kind of high watermark for speeds in the next couple of months, and absent any further rate rallies I think they should then stabilize in the back-end of the year.

Stewart Zimmerman

I think one of the things to keep in mind, Joel, however, is the fact that, having a – it was our CPR about 25, if I remember correctly, right. Having that with less than a three point in premium is very different than having a very low CPR and paying a 108 or 107. So, it's a very different kind of a strategy.

Joel Houck - Wells Fargo Securities, LLC, Research Division

Okay. Thank you very much.

Stewart Zimmerman

Thank you.

Operator

The next question is coming from the line of Rick Shane with JP Morgan. Please go ahead.

Richard Shane - JP Morgan Chase & Co, Research Division

Thanks guys, and actually you started to address in your response to the last question, part of my question here which is about speeds, and I think what you really were talking about was the Agency side of the book. On the Non-Agency side is there anything you’re seeing either in the origination or primary markets to suggest that speeds are going to continue to increase there at this point?

Craig L. Knutson

No. I think it’s pretty clear that on the jumbo sides of non-conforming balance originations are still pretty low. We have and you’ll see this in the Q that comes out, the three month average voluntary speed on the Non-Agency portfolio was a little more than 7%. So, you'll see a top-line CPR print of 15.8%. It’s a little less than half voluntary and the other half is involuntary. I’d say 7% voluntary is generally below our long-term expectation in the assumptions that we have on these securities – I am sorry, it’s higher than our long-term averages it’s probably closer to 5%. But, we’re not seeing dramatic prepayment speeds on Non-Agencies, that’s for sure.

Richard Shane - JP Morgan Chase & Co, Research Division

Got it. Which actually is a good segue to the second part of my question, which is that you guys make a pretty clear statement. The core earnings and REIT taxable earnings are going to converge in the second half of the year. And I think the implication is that core – that taxable, REIT taxable earnings will trend down towards core earnings, I would love to get clarification on that. I’m assuming that the reason you see that occurring is that you don’t see speeds picking up on the Non-Agency stuff and that you’re just going to have incremental credit losses coming through and as you run the credit through that will drag on, that will – drag is probably an over statement, but cause the modest erosion of the REIT taxable?

William S. Gorin

Yes, your interpretation is correct. The taxable will be trending downwards towards the core. That is correct. And you’re right, we’re not making a more optimistic forecast, but you will have continued impact of losses. Now for taxable purposes, we can’t assume losses that haven’t occurred, but as they actually occur the taxable income should be closer to the core income.

Richard Shane - JP Morgan Chase & Co, Research Division

Got it, and so you’re not making an assumption that you’re going to get prepayments that come through that basically eliminate the loss risk and so it’s a pretty conservative assumption?

Stewart Zimmerman

It is, and let me just add. When we started this strategy and as we continue the Non-Agency strategy, it is never with the idea that all of a sudden that Non-Agencies – the prepay for Non-Agencies were going to pick up dramatically, that was never it. It was looking at the underlying cash flows and the constancy of those underlying cash flows.

Richard Shane - JP Morgan Chase & Co, Research Division

Got it. Great guys. Thank you very much.

William S. Gorin

Thank you.

Operator

(Operator Instructions) And we do have a question from Stephen Laws with Deutsche Bank. Please go ahead.

Stephen Laws - Deutsche Bank Securities Inc

Hi, thanks for taking my question. I guess to follow-up on the last comment, can you maybe talk to how you see the trend with taxable versus core as we look out past the second half of the year if taxable is running over core and over the lifetime of those assets, I believe that the GAAP income and taxable should be the same, just recognized differently. How do you expect that to trend? Will there be a period in ‘13 where we see core earnings above taxable? Can you maybe talk to that a little bit?

Stewart Zimmerman

So, you’re right. Over the lifetime they will be the same, but the lifetime is yet another 23 years and it’s very hard to model exactly – we can model how many defaults and the severity over the life, but it’s hard to know in which month, which servicer is actually going to foreclose. So, we can’t fine-tune it that well. But, you’re right, over 23 years they should match and taxable has exceeded core and we expect it will exceed core although by a smaller amount.

Stephen Laws - Deutsche Bank Securities Inc

Great. And then one question just kind of in – maybe just in general on the financing side, you added some longer duration repo, I think multi-year financing there, you’ve had some securitizations there, I believe some re-REMICs in the past. Can you maybe talk about the pros and cons of those, what the securitization markets are like today? And then are you seeing any – just changes in your terms or simply [tone] from counterparties in Europe, given maybe specific problems they have that are not related to MFA, but that are changing the way they do business given the environment in Europe.

Stewart Zimmerman

This is Stewart, I am just going to add something before I think Craig will give you some detail, but – our strategy has been from the beginning to try and rely less on shorter term financing and much, much greater emphasis on longer term financing and it’s a strategy that we have followed going on for a significant period of time and we’re going to continue to do that. So, as we said in the opening remarks or what's in the press release we think that the additional cost is well worth not having the rolled-over risk. So, if you put that in context and Craig if you could hand over the specifics please?

Craig L. Knutson

Sure. So, as you know we’ve done four re-securitizations to-date. We did not do one in the last quarter, but we did this $350 million structured facility which in many ways is economically similar to a re-securitization. The re-securitization market still exists; to-date there is still only one rating agency which is DBRS.

So while we get a transaction I think we closed it in February this year, is our most recent one. But the economics of this structured facility that we did are substantially similar to a re-securitization. To the extent that, one of one or several of the other rating agencies come back into that market, it may make that the more viable alternative, so we continue to stay on top of that and we’ll take advantage of it when it presents itself.

William S. Gorin

But the economics are definitely comparable. Securitization market is available, but when someone offers us long-term repo on Non-Agencies we'll take it, no one can always do re-securitizations in the future.

Stephen Laws - Deutsche Bank Securities Inc

Sure. And then lastly just kind of general comment on counterparties in Europe, any change in tone you’re noticing from them or no?

Craig L. Knutson

Well certainly for Non-Agencies, we haven’t seen any change at all from – I would say from any of our counterparties whether it’s due to Europe or not, and Goodmunder I don't – have you seen anything on the Agency side relative to European counterparties.

Goodmunder Christiansen

No. We haven't seen anything.

Stephen Laws - Deutsche Bank Securities Inc

Ron, what have you found in terms of Agency repo?

Ron Freydberg

I'd say the same thing that Craig has said, we’re also very careful about who we do our Agency repo with. We’ve – just because people come in and want to give us repo, we don’t necessarily signup to do it with them, but we've seen no change in haircuts. Rates have all been within a reasonable band and we've seen no issues with balance sheet.

Craig L. Knutson

And part of the whole strategy of the Company was to generate these returns without being overly reliant on repo. As a result, we really haven’t grown our repo book at all and our Agency – here Agency repo is about $6 billion, which is very, very manageable in almost any situation.

Stephen Laws - Deutsche Bank Securities Inc

Yeah, yeah and then I guess while you’re there speaking of growing the balance sheet, it seems a number of other companies in the sector have raised capital recently even though that money is being deployed at ROEs that are dilutive to the – their existing portfolios. Can you guys talk about your views on capital here and that being both common and potentially preferred seeing a few of those deals and just how you guys evaluate raising capital, the cost of that versus the returns available on new investments today?

Stewart Zimmerman

Well, again we always have reiterated the ground relative to – wanting to raise additional capital, but again, you have to have the correct assets with that they’re going to provide the yields and as you said to do something that’s dilutive, that doesn't really do one heck of a lot of good. So, to get bigger, for the sake of getting bigger has never been part of our strategy. So, we continue to look at opportunities and if and when the opportunities are there in terms of both on the asset side, sure we'll consider raising additional equity.

Stephen Laws - Deutsche Bank Securities Inc

Sure, okay, great. Thanks a lot for taking my questions.

Stewart Zimmerman

Thank you.

Operator

We now have a question from the line of (indiscernible). Please go ahead.

Unidentified Analyst

Hey, guys my questions have been answered. Thanks.

Stewart Zimmerman

Thank you.

Operator

And we have a question from Chris Donat with Sandler O'Neill. Please go ahead.

Christopher Donat – Sandler O'Neill & Partners L.P., Research Division

Hi, good morning everyone. I just wanted to circle back on the repo issue and just see if I can get a little better understanding of -- as you deal with $350 million over three years. Do counterparty issues and the risks associated there, do they increase or just because it’s repo does that give you some safety and then if you could put this in the historical context over the last say half dozen years where we have seen some repo counterparties exit the stage. Just help me think about the risks there?

Craig L. Knutson

These are – Ron, had said a moment ago on the Agency side, we've been very selective and very careful with whom we do repo. We probably do maybe more analysis than the folks do on us, when we enter into a repo agreement and on the Non-Agency side we are just as selective and very, very careful and very comfortable with our counterparties. That’s the best answer I can give you without giving you names.

Christopher Donat – Sandler O'Neill & Partners L.P., Research Division

Got it, and just in terms of the number of repo counterparties on the Non-Agency side?

Craig L. Knutson

So we currently have 13.

Christopher Donat – Sandler O'Neill & Partners L.P., Research Division

Okay, got it. Thank you.

Craig L. Knutson

Thank you.

Operator

And our question now is from Arren Cyganovich with Evercore. Please go ahead.

Arren Cyganovich - Evercore Partners Inc., Research Division

Thanks. Just getting back to the overall portfolio allocation, you mentioned keeping the portfolio roughly the same mix at Agency and Non-Agency. We’ve seen some improvements in the housing market somewhat stabilization of HPI. When do the fundamentals make it more attractive for you to get more heavily involved on the Non-Agency side?

Stewart Zimmerman

We are involved in the – on the Non-Agency side. And we continue to see again, I think Craig mentioned before, somewhere in the low sixes, which seems to us in a zero interest rate environment to be a very, very attractive return for our investors.

Craig L. Knutson

Fundamentally, you really can’t increase your Non-Agency portfolio to be the majority of your assets because of various limitations from the – for the 40 Act, which we’ve discussed before.

Arren Cyganovich - Evercore Partners Inc., Research Division

There is room though to increase Non-Agency relative to today to the current mixes or not?

Craig L. Knutson

There is some and incrementally we have been investing there.

Arren Cyganovich - Evercore Partners Inc., Research Division

Okay. And then lastly, just a quick question. Do you have the premium amortization on the Agency handy for the quarter?

Stephen D. Yarad

Sure. This is Steve Yarad. The net premium amortization for the quarter, the premiums outweighed the accretion of discount by about $2.6 million, which is around about $0.01 a share.

Arren Cyganovich - Evercore Partners Inc., Research Division

So say that again, so the premium amortization was how much?

Stephen D. Yarad

The premium amortization was $12.4 million and net accretion discount was $9.8 million, so net of about $2.6 million amortization on premium.

Stewart Zimmerman

And that’s why we like to invest across mortgage-backed securities Agency and Non-Agency, you do have a premium amortization on the Agency, you have discount accretion on Non-Agencies and they’ve been running pretty close.

Arren Cyganovich - Evercore Partners Inc., Research Division

Thank you.

Stewart Zimmerman

You’re welcome.

Operator

And there are no more other questions in queue. Please go ahead speaker.

Stewart Zimmerman

I’d like to thank everybody for your continued interest in MFA. We look forward to speaking with you next quarter. Thank you.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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