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MFA Mortgage Investments (NYSE:MFA)

Q1 2008 Earnings Call

April 30, 2008; 10:00 am ET

Executive

Stewart Zimmerman - Chairman of the Board, President, Chief Executive Officer

William Gorin - Chief Financial Officer, Executive Vice President

Ronald Freydberg - Executive Vice President, Chief Portfolio Manager

Teresa Covello - Senior Vice President, Chief Accounting Officer, Treasurer

Craig Knutson - Senior Vice President

Deborah Yang - Vice President

Timothy Korth II - Senior Vice President - Business Development, General Counsel, Secretary

Analyst

Steve DeLaney - JMP Securities

Jason Arnold - RBC Capital Markets

Mike Widner - Stifel Nicolaus & Company, Inc

Stephen Laws - Deutsche Bank Securities

Bose George - KBW

David Hochstim - Bear Stearns

Tayo Okusanya - UBS

James Delisle - Cambridge Place

Barry Cohen - Knott Partners

Hemanth Hirani - Litchfield Capital

Richard Sloan - H&R Realty

Amaru Almanaseer - 36 Capital Group

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the first quarter 2008 earnings MFA Mortgage Investments conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder this conference is being recorded today, April 30th, 2008. I would now like to turn the conference over to our host Stephanie Coyle. Please go ahead.

Stephanie Coyle

Good morning. The information discussed on this conference call today may contain or refer to forward-looking statements regarding MFA, that reflect management’s beliefs, expectations and assumptions as to MFA’s future performance and operations. Many of these statements, which are not historical in nature including those containing words such as anticipate, estimate, should, expect, believe, intend and similar expressions are intended to identify forward-looking statements. All forward-looking statements speak only as of the data on, which they are 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 the 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, changes in government regulations 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, 2007 and other reports that it may file from time-to-time with the Securities and Exchange Commission could cause MFA’s actual results, performance and achievements 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 MFA’s quarterly report on Form 10-Q for the quarter ended March 31, 2008, and or the press release announcing MFA’s first quarter 2008 financial results, thank you for your time. I would now like to turn this call over to Stewart Zimmerman, MFA’s Chief Executive Officer and President.

Stewart Zimmerman

Good morning and I welcome you to the MFA Investor call announcing MFA’s first quarter 2008 financial results. Joining me this morning our Bill Gorin, Executive Vice President and Chief Financial Officer; Ron Freydberg, Executive Vice President and Chief Portfolio Officer; Teresa Covello, Chief Accounting Officer; Tim Korth, General Counsel; Craig Knutson, Vice President and Deborah Yang, Vice President.

MFA Mortgage Investments today reported a net loss of $88 million or a loss of $0.61 per share of common stock for the first quarter ended March 31, 2008. For the first quarter, net income excluding items not impacting distributable income was $28.9 million or $0.20 per share of common stock. On April 1st, 2008 we announced our first quarter dividend of $0.18 per share. The dividend is being paid today, April 30th, 2008, to stockholders of record as of April 14th, 2008.

As of March 31, 2008, our book value per share was $6.30. During the quarter in light of the significant disruptions in the credit markets, we took proactive and definitive steps to adjust our leverage strategy and reduce liquidity risk by decreasing our target debt-to-equity multiple to seven to nine times from an historical norm of eight to nine times. We sold approximately $1.85 billion in mortgage-backed securities in March, 2008, consisting of $1.8 billion of agency and $50 million of AAA rated mortgage-backed securities, at an average realized loss of $25 million.

Related to these asset sales, we repaid associated repurchase agreements and terminated $1.6 billion of associated interest rate swap agreements realizing a loss of $91 million. As a result as of March 31, 2008, our debt-to-equity multiple was reduced to approximately seven times. As an update, leverage currently is approximately 7.5 times.

We remain focused on high quality agency assets and our portfolio spread has trended up in each of the last five quarters. We are currently acquiring additional agency mortgage-backed securities an incrementally higher spreads than last quarter and expect that our overall portfolio spread will increase again in the second quarter of 2008. On March 31, 2008, approximately 99% of our asset consisted of mortgage-backed securities issued or guaranteed by the agency of United States Government or a federally chartered corporation other mortgage-backed securities rated AAA by Standard & Poor’s. Mortgage-backed security related receivables and cash.

On March 31, 2008, agency mortgage-backed securities and related receivables constituted approximately 91.6% of our assets or approximately $7.8 billion. AAA mortgage-backed securities and related receivables were approximately 3.7% or approximately $317 million, and total cash was approximately 4.4% or approximately $373 million. The weighted average cost basis of our MBS portfolio was 101.4% of par as of March 31, 2008. Our MBS assets are liquid and continued to be financed with multiple funding providers through repurchase agreements. As of March 31, 2008 we financed our portfolio with 15 repurchase agreement counterparties, as of April 30, 2008 we are financing with 16 counterparties.

During the first quarter of 2008 our portfolio spread, which is the difference between our interest earning asset portfolio net yield of 5.54% and our 4.64% cost of funds was 90 basis points. By comparison, the portfolio spread for the fourth quarter of 2007 was 65 basis points. Our costs for compensation and benefits and other G&A expense $3.8 million or 16 basis points of average assets for the quarter ended March 31, 2008.

Our primary focus is high quality, higher coupon Agency hybrid adjustable rate mortgage-backed security assets. The MBS in our portfolio are primarily adjustable-rate or hybrids, which have initial fixed interest rates for a specified period of time and, thereafter, generally reset annually.

Assuming a 20% CPR, approximately 29% of the mortgage-backed securities in our portfolio are expected to prepay or have the interest rates reset within the next 12 months with a total of 83% expected to reset or prepay during the next 60 months. We take into account both coupon reset and expected prepayments when measuring the sensitivity of our mortgage-backed security portfolio with the changing interest rates.

In measuring our assets to pricing - to re-pricing gap or re-pricing gap, we measure the difference between the weighted average months until coupon adjustment or projected prepayments on our mortgage-backed security portfolio and the months remaining on our repurchase agreements including the impact of interest rate swaps.

Assuming a 20% CPR, the weighted average time to re-pricing or assumed prepayment for our mortgage-backed securities portfolio as of March 31st, 2008 was approximately 33 months, and the average remaining term on our repurchase agreements including the impact of interest rates swap was approximately 21 months, resulting in a new re-pricing gap of approximately 12 months. The payment speed on our MBS portfolio averaged 14% CPR during the first quarter of 2008.

A major initiative for 2008 is the expected initial public offering of MF Residential Investments, Inc., or MFR and an initial registration statement relating to a proposed initial public offering of stock was filed with the SEC on February 12, 2008. This new company will employ a different investment strategy than MFA by primarily investing in non-agency residential mortgage-backed securities, residential mortgage loans and other real estate related assets.

MF Residential will be externally managed by a subsidiary of MFA and is expected to generate investment and management fee income for MFA and additional value for MFA stockholders. I thank you for your continued interest in MFA. At this time I would like to open floor for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from Steve DeLaney, with JMP Securities. Please go ahead.

Steve DeLaney - JMP Securities

Stewart, I was wondering if maybe you could start-off with just sharing sort off your general comments and view on how conditions in the Agency repo and MBS markets have changed since March 31. I think we have a sense that things are a little more stable now, but I like to hear that in your words and also, if you could add where - bring us up to where we are today and where you think those financing trends may go over the next couple of months.

Stewart Zimmerman

You are in a market Steve, that really has not existed before and to look back historically and say that, you can look back to 78 or 87 or some of the other times of prices within the fixed income and capital markets, and use that kind of looking forward, is kind of difficult today. Again we have not had a situation in fixed income, certainly in the capital markets that even comes close to what we’ve experienced over the last 30 to 60 days. Having said that you used the word stable, and it’s probably a good adjective, but the capital markets are little more stable today, than they certainly where going back to the middle of March and for that we feel quiet good about that. Having said that it’s also a time to continue to be cautious, it's a time to continue to run a company such as MFA with the little bit lower leverage ratio than we’ve have been using in the past which is, will be basically what we have said on our press release of March 10 and we are going to continue in that way. Having said that, are their opportunities for us to - the answer is yes. There are, and as we get into the call and I assume by the questions, and some of the other folks here can give you some detail. There are very, very positive opportunities for us. In terms of, is the financing stable? The answer yes it has been, we’ve actually picked up an additional counterparty that has been very significant to us. We feel very good about that for that, for that credit I would certainly give Ron and Ron and his crew and thanking them for that. So, we continue to have the ability to finance ourselves, we have the ability to pick up additional counterparties and again I am looking very positively at the balance of this quarter and certainly the balance of 2008. I think the opportunities for us are right in front of us and those are opportunities you want to take advantage of having said that, what I have said in my prepared remarks is that our leverage at the end of the quarter was about seven times and right now we are about 7.5 times and we continue to see a very, very positive opportunities.

Steve DeLaney - JMP Securities

That’s very helpful Stewart. Is there anything that we could watch for in the market, whether its haircuts, maybe coming in a touch on pass through or anything that would specific, that would give you the comfort to say, take that leverage figure from, you obviously have a little more comfort today because you’ve gone up by a half of multiple on your leverage since March 31, but

Stewart Zimmerman

Steve. Hello, operator we seem to have lost of question.

Operator

Our next question is from Jason Arnold with RBC Capital Markets. Please go ahead.

Jason Arnold - RBC Capital Markets

Hi, good morning guys. Maybe I guess a follow-up with what Steve was getting on there, on the leverage side. Where would you guys really feel comfortable at this point of time kind of taking leverage for this quarter, I know its kind of a changing circumstances….

Stewart Zimmerman

Jason, it is a – it’s the changing environment sometimes by the moment, but again as I said and I guess Steve got cut off and hopefully Steve can circle back and we can further answer his question, but we gone up about a half a multiple and as we continue to see these types of opportunities that we can discuss with you. I don’t mine going up another half a multiple and so, that would be fine, but again its not a situation where you, can say that we are going back to where we were, to where the market was, the capital market. Not just MFA before August of ’07. I that was a seminal event and I think that the whole nature of things is such that companies such as us will run at lower leverage than they had run at previously, but having said that, that’s one side of the point. The other side of the equation is that the opportunities are better, the spreads are greater. So again as I said in answering Steve and I can answer yours is that we are very, very optimistic about the balance of this quarter, meaning the second quarter and certainly 2008.

Jason Arnold - RBC Capital Markets

Okay. Great very helpful and then I guess on the non-agency side of your portfolio is that prepays overtime, would you consider replacing those assets with more non-agency or would you guys tend to try the stick with more agency side going forward.

Stewart Zimmerman

Again, the portfolio is plus or minus about $8 billion for a round number and the queue will come out later today I believe, and when you look at MFA and you can really assume that the A, stands for the Agency and we made the announcement, we filed with the Securities Exchange Commission the idea of creating a sister company called the MF Residential and that would be involved in the non-agency product, but MFA is going to remaining and stay with agency paper.

Jason Arnold - RBC Capital Markets

Perfect. Okay and then just one final one, do you have the notional value on the remaining swaps available at hand and maybe the average pay fixed rate?

Ronald Freydberg

As of quarter end

Stewart Zimmerman

This is Ron.

Ronald Freydberg

Little over 4.2 billion and the weighted average pay rate is 4.175.

Operator

Our next questions from David Brill with [Inaudible] please go ahead.

David Brill

Yes, it’s been answered.

Operator

Our next question is from Mike Widner with Stifel Nicolaus. Please go ahead.

Mike Widner - Stifel Nicolaus & Company, Inc

Hi, thanks good morning guys. You hit on the major questions that I has as well, let me just ask for one point of clarity if I will. You mentioned, the leverage going up by about a half a multiple since the quarter, are you including in there, sort of the effect of the dividend which by my math takes, you up about two tenths in its sales, and then the second question is if you could maybe just comment on sort of what your expectations are for the degree of hedging, interest rate hedging you might have from here out. You just mentioned the amount of swaps left on the books, but you guys are pretty heavily hedged going into the quarter, clearly dumped a lot of swaps in the quarterly. We got a lot of cuts from the Fed and now we are getting it, sort of a point where the market is expecting that the Fed is pretty close to done and getting out toward the end of the year and might look at the Feds raising rates again so, I was just wondering if you could provide any color on sort of the your thoughts with regard to hedging front here. Do you have a preference were sort of more sensitivity to kind of floating rates or are you looking to get back to where you were in Q4 in terms of very heavily hedged portfolio.

Ron Freydberg

I guess two parts of that question, the point that Stewart is making that April we are acquiring more assets that are running off. So, yes, the equity number changes but that’s not what drove that the increase since we are acquiring assets at higher spreads. Does that answer the first part of your question?

Michael Widner - Stifel Nicolaus & Company, Inc

Yes, I mean I think so.

Ronald Freydberg

Yes, you could have your dividend, but yes you also earned money in April that you haven’t paid out to dividend, so…

Michael Widner - Stifel Nicolaus & Company, Inc

I guess at the end of the day, your numbers at the end of the quarter as published are about 6.95 leverage, if you add the dividend back in, it takes you to about 714 and I mean it’s a little bit of nit-picking, but when you say you’re up half a point, or a half a multiple from there, that could either point you at 76 or 74 depending on what your starting point is, I mean its kind of picking-nits, but just wondering if…

Stewart Zimmerman

I guess the large point is whether its 74 or 76 the larger point is that we continue to see very, very positive opportunities in hybrid agencies at spreads that are very attractive. So, whether the absolute number is 74, or 75, or 76, what I am also saying is that as we continue to see this opportunities and we continue to have adequate funding, which we do have, I will make that as a declarative statements. We will continue to put on additional assets.

Ronald Freydberg

In terms of hedging our strategy is fairly consistent that we want to be about 50% hedged.

Stewart Zimmerman

And which is about where we are now Ron, had mentioned we had about 4.2 billion of swaps versus 8.1 billion of mortgage-backed securities. Swaps work less well when interest rates declined and spreads widen, as they did in March. They work a lot better when interest rates go up and spreads tighten as they are in April. So, approximately in the 50% level, we are comfortable and some months, it works better than others and April is month where its going to work well.

Michael Widner - Stifel Nicolaus & Company, Inc

Okay, well, thank you for that clarity, and than just let me ask you one follow-up on that. I mean swaps are one way that you can sort of effectively extend the duration of your funding and as you mentioned you are about 50% swap. The other way is obviously entering into sort of long-dated repo. Do you guys have any sort of multi-year repo at this point?

Ronald Freydberg

This is Ron, we do have some, but this is no surprise to us with what’s going on in liquidity market since August. A lot of people have sort of backed away from doing a longer-dated repo at least for the time being.

Michael Widner - Stifel Nicolaus & Company, Inc

Okay.

Stewart Zimmerman

It is much more difficult today to get longer-dated repo then it was. Again I’ll give you an example, if you go back just a couple of years ago, if you go back 12 months ago. If you bought a 51 you might do a three-year repo, get a three-year repo against and then you had a pretty nice piece of paper sitting there. Today that is much more difficult to do and so we are utilizing as of other companies in our space, you utilize interest rate swaps.

Michael Widner - Stifel Nicolaus & Company, Inc

Yes, well thanks guys. I diffidently appreciate the clarity and, I didn’t mean to nit-pick you there on the leverage point, but I agree with everything you said. I mean this look like a fantastic opportunity to put money to work and I ask just from the standpoint, I think a lot of us would like to see comfortable but, higher leverage rather than lower, but thanks for the clarity.

Operator

Our next question is from Stephen Laws with Deutsche Bank. Please go ahead.

Stephen Laws – Deutsche Bank Securities

Good morning. Could you guys maybe quantify where the repo that is resetting -- to, we see LIBOR up here at 280 and it’s historically been a pretty good indicator, where funding costs are going. Although, I think at this point maybe it’s resetting the lower than LIBOR. So, can you quantify kind of where you seeing this new levels?

Ronald Freydberg

Steve, this is Ron. We are seeing, for the last couple of weeks, we have seen the repo at LIBOR minus and LIBOR minus to fairly significant amount, but history will tell us that using LIBOR plus or minus five is probably the way to go for the long-term, but for the month of April it’s been significantly below LIBOR.

Stephen Laws – Deutsche Bank Securities

And then with that said maybe quantify spreads on new capital as you’re reinvesting, say prepayment proceeds as you are, growing the portfolio from a leverage standpoint. What is the new spreads coming on?

Ronald Freydberg

The asset that that we have been buying, which Stewart talked bout to bring the leverage up, we are seeing in the neighborhood of 200 basis points of spreads, and use the 51 - 71 as your average type of security.

Stephen Laws – Deutsche Bank Securities

And then with that said, given that, clearly significant accretive to the current spreads, is there anything with MFR being of focus for 2008? Is there anything with that on filed that would prevent MFA from raising additional capital?

Stewart Zimmerman

No, one really, it will not affect the other.

Operator

Our next question is from Bose George with KBW. Please go ahead.

Bose George - KBW

Hey, good morning. Just as follow-up on the last question on spread. The 200 basis points, is that a spread on a, like is that a fully hedged like as theses spread or is that a spread for the stuff you are funding with swaps, or is that I mean with repo or is that sort of the blend of the two. How does that number work?

Stewart Zimmerman

Very good question, it’s a blend. It’s between 25% and 30% swaps.

Operator

Our next question is from David Hochstim with Bear Stearns. Please go ahead.

David Hochstim – Bear Stearns

Hi, just another variant to that. So if you were, sort of roughly 50% swapped and financing where you would on the overall portfolio. What would the marginal spread be?

Stewart Zimmerman

We are looking at a 480 coupon. If you take a look, we are in a conference room so I don’t have the Bloomberg in front of me, but we are looking at 4.80% to 5% as our yield and when we’ve been funding, we have been using 24 -- 235 or 240, to close to 240 as our funding number. Right now, five year swap would be a little bit less than 4%. So, it blended the two and I guess you probably lose; I have got to do it in my head, 20 to 30 basis points.

Ronald Freydberg

It would be about 175 basis points.

Stewart Zimmerman

Yes.

David Hochstim – Bear Stearns

And then just how much, could we think leverage would increase, I mean over the next, besides to half turn. I mean, what point would you feel comfortable that the market is stable enough that you could deliver further? What can we watch that...

Stewart Zimmerman

I think the best answer I can give you there without me sounding glib. It’s simply that when we pick up the Wall Street Journal and pick up the New York Times, not reading about write-downs in the billions-and-billion of dollar. I think it’s very, very important for us to be the custodians or the equity of this company and you have to do that on a real time basis. So, my best answer to you would be, when we pick up the paper and there is a much more positive tome and we can consider in terms of leverage. We can consider going back or potentially going back to approaching levels that we maybe we are at before. That’s not the case today, the fact is we’ve seen opportunities and we feel comfortable with our funding ability and we’ve gone up a half a turn, so we go up another half a turn or whatever the absolute number might be, the answer is yes. We want to continue to see certain stability, that’s the first question that was answered, that was asked today. We want to continue to see stability in the marketplace, where we continue to have this in this level of comfort and not just for an hour, or for a day or for a week.

David Hochstim – Bear Stearns

And in terms of the new repo relationship you added, where the terms on that or the size very different that what you have on the other 14 or 15? I guess may have replaced one this month?

Ronald Freydberg

The terms were very liberal, they were fair. Haircuts were right inline and the size was relevant to the counterparty and relevant to us. It was the win-win situation. The only people that we have seen since the beginning of going back to last August, who we don’t have the ability to do repo with anymore, didn’t exit MFA, they basically exited the business. So, we have not had a counterparty that was limited to MFA and say, we don’t want to do business with MFA on agency paper.

David Hochstim – Bear Stearns

Right and have there been any adjustments in the amount of repo available by individual people, you are still able to borrow from?

Ronald Freydberg

Nobody had come to us and said that our credit line has changed. Nobody has come to us and said that we can’t roll us because we’ve reached any credit line and credit limit.

Stewart Zimmerman

Dave, don’t take it in the wrong way, but one place we’ve cut is there.

David Hochstim – Bear Stearns

I would assume that would be.

Ronald Freydberg

That was our decision, but again we have tried to run the shop as prudently as we know how, I know I have taken some heat on some earnings calls in the past, maybe we are little to conservative, a little to this, a little to that. I haven’t gotten any of those calls in the last 45 days. So we are going to continue to be, I’ll call it prudent and again, will we take advantage of the situation, the answer is yes. We diffidently, absolutely will, but we are going to continue to do that in the manner that we done things before and I think that’s the way that our shareholders would want us to run the company.

David Hochstim – Bear Stearns

I think you absolutely right, and finally, what -- with the non-agency securities just don’t have. Would there be any opportunity to sell those to MFR or to do something?

Stewart Zimmerman

Let me just answer that, the answer is no. MFA is a separate company, a separate vehicle. MF Residential will be its own vehicle with its own operating policies. So, the answer is no.

Operator

Our next question is from Tayo Okusanya with UBS. Please go ahead.

Tayo Okusanya - UBS

Hi, good morning everyone. Just couple of quick questions what was the spread at the end of the quarter?

Stewart Zimmerman

Give us a second.

Ronald Freydberg

They were slightly higher than the 90, but we need to take into account typically February is a very high spread month. We have less prepaid in February and you have less days.

Stewart Zimmerman

In liabilities

Tayo Okusanya - UBS

Okay.

Ronald Freydberg

But, yes March was higher than the May.

Tayo Okusanya - UBS

Could you give an indication of how much higher?

Ronald Freydberg

Sure, it was 95.

Tayo Okusanya - UBS

Second question, average cost of funds 4.64 in first quarter versus 5.05 in fourth quarter; I mean kind of given how much LIBOR came down during the -- well, not necessarily though, but I guess just give the how much Fed funds came down and how much LIBOR came down, I would have thought that funding costs would have come down much more than the 41 basis points even though you were 50% hedged?

Ronald Freydberg

Yes, we also have. Some of the hedges are against three month repos, so you don’t see the them right way.

Tayo Okusanya - UBS

Okay.

Ronald Freydberg

What we have for example in the next thirty days going to back to March 30, the month of April we have about 3.4 billion of repos rolling, which had a average costs of 305. So, again you see but with the quarter lag.

Tayo Okusanya - UBS

So, so this is typical quarter lag that you have because of the hedges that are against three month repo?

Stewart Zimmerman

That’s right. Our repo aren't overnight.

Tayo Okusanya - UBS

That’s helpful. And then Steward, kind of back to this issue of when you could potentially take leverage up and what your current concerns are about, taking leverage up slightly higher. I mean could you create a scenario in your mind where you think we may go back to a lot of the chaos that we saw in March? Do you kind of see anything on a horizon that you think could create that kind of anxiety again?

Stewart Zimmerman

Look it is always that are known, if one of the foreign banks or of a sudden wakes up and say gee we have a $100 billion of mortgage paper, we didn’t even understand that we had. I don’t think that’s going to happen, I don’t think we go back to where we were with the market being as unstable as it was again. I’ve done this for a long time I have never seen a market like that. I’ve never saw a lock-up in liquidity in the 40 years that I have involved in mortgages and capital markets. So, I don’t see that occurring having said that, I think it’s very, very important with market being more stable than it was to continue to be cautious.

Ronald Freydberg

What’s important is, in October you could have asked us, if we’d ever see August again and yes, we will see August against, see it every eight month of every year, but it’s a difficult question to answer and what we can tell you is we can’t rollout the probability of zero that you don’t see March again. We need to keep in mind that a possibility exists.

Operator

Our next question is from Jim Delisle with Cambridge Place. Please go ahead.

James Delisle – Cambridge Place

Congratulation on a good quarter from a different angle, catching and getting a new repo counterparty when obviously you lost another one. If I were to divide repo counterparties into kind of like one of four categories like you have broker dealers, you have domestic depositories that are non-broker dealers, foreign depository is the same and fund companies, mutual funds and like. Are you seeing any change in the competition or the distribution amongst those categories in terms of your repo funding?

Stewart Zimmerman

No, really it’s been very consistent. I haven’t seen where one group has kind of come forward and another one has kind of backed off. It’s really been -- I’ve found it to be very consistent.

James Delisle – Cambridge Place

And I mean are you seeing or hearing of entrances of say fund companies and the like that would direct repo, kind of a disintermediation if you will the broker dealers, is that a trend we can look for?

Ronald Freydberg

We haven’t seen it.

Operator

Our next question is from Barry Cohen with Knott Partners. Please go ahead.

Barry Cohen – Knott Partners

Yes, Hi. Could you just give us a sense of what do you maybe thinking about the spread margins is going to be in the second quarter, just because you have a lot of moving parts? Thank you.

Stewart Zimmerman

Yes the best I can tell you is, really what it’s says in the press release, which was a -- it should continue to be very positive and continue to increase. I really can’t give you any kind of color on what those absolute numbers are. We are continuing to see opportunities and with the opportunities that we are seeing in the market is what we have been able to put on which I kind of just mentioned to you. They should continue to be in a very positive mode.

Operator

Our next question is from Hemanth Hirani with Litchfield Capital. Please go ahead.

Hemanth Hirani - Litchfield Capital

Hi, I just like to seek clarification. You said the coupon or the yield on the new investments is 485 range

Stewart Zimmerman

I said the yield was…

Ronald Freydberg

You said coupon and then you said yield.

Stewart Zimmerman

Why don’t we clarify it then?

Ronald Freydberg

The coupon is between 4 -- I’m sorry the yield is between 480 and 5%.

Hemanth Hirani - Litchfield Capital

And the yield for the average for the quarter was 550 or something average roughly. So, given that we would assume that the value of the MBS is relatively up versus March. Is my thinking right?

Ronald Freydberg

It’s not from what he said, because he telling you the yield, he’s not telling you the purchase price.

Hemanth Hirani - Litchfield Capital

What would you think your book value is right now around 30, April?

Stewart Zimmerman

That the book value that was in the press release..

Unidentified Company Representative

Your question is what happed since March 3rd.

Hemanth Hirani - Litchfield Capital

Yeah.

Unidentified Company Representative

I would say generally the swaps have gained substantial value and mortgage backed securities, because of the change in the two year and because of the fact that hybrids have probably decline somewhat in value. So, not a large change either ways.

Operator

(Operator Instructions). Our next question is from Matthew Howlett with Fox-Pitt. Please go ahead.

Matthew Howlett – Fox-Pitt Kelton

Hi, guys thanks for taking my question. Just on a broader outlook -- hybrid agencies I mean clearly they are cheap now there is a lot of spreads in the market. What is your outlook 2, 3, 4 quarters down the road? My sense is hybrid ARMs supply has just come down. There is talk of the GSE’s going in and buying those types of assets, that’s the first one they will go after, is there a sense of urgency in your part to maybe acquire as much as you can in the next few quarters. Would you think sort of with 5% haircuts across the board spreads aren’t really going to go anywhere for sometime?

Stewart Zimmerman

I think that spreads will continue to be very attractive whether they are absolutely at this level or they are a couple of basis points higher or lower. I don’t think it terribly significant, but we do not have a gun to our head, where we feel, my God if we don’t invest now, we are never going to have the opportunity that is not the feeling that we have. The feeling that we have is that we -- we always do things on a considered basis that we are going to continue to do that, but we are seeing opportunities we did go up a half a turn and if we continue to see those opportunities, we’ll continue to buy assets.

Matthew Howlett – Fox-Pitt Kelton

And in terms of just maybe keeping the leverage where it is and raising additional capital, clearly it’s not as accretive to book as your last yield, but fully would be to earnings. Is there any sort of guidance, you can give us on that?

Ronald Freydberg

I mean right now, with leverage the way it is basically we can buy. We don’t have to raise capital. So, we have dry powder, but having said that, we love to see to stock price a little more robust and if the opportunity, continue there we’ve got something that we would certainly consider.

Operator

Our next question is from Richard Sloan with H&R Realty. Please go ahead.

Richard Sloan – H&R Realty

Could you tell me whether the, you know repo costs are more sensitive to Fed Fund rate or to LIBOR?

Unidentified Company Representative

When LIBOR spikes relative to Fed funds as they have now, because we’re borrowing using collateral in some ways we become a better credit than other banks. So, usually our repo rates are highly correlated with the LIBOR but right now they have separated as Ron mentioned we are borrowing below LIBOR, because we are not just the bank we are providing collateral.

Operator

Our next question is from Amaru Almanaseer with 36 Capital Group. Please go ahead.

Amaru Almanaseer - 36 Capital Group

I just had a couple of questions about MF Residential I know it’s a little bit early, but I was wondering what kind of leverage do you think about running for that strategy and what’s your sense of the financing markets for that kind of assets?

Unidentified Company Representative

We were currently in registration with the SEC, but if you did pull up that draft and my general counsel wants to make sure I don’t advertising deal, but if you did pull up the draft you would see that we are looking at three times leverage on AAA’s, up to three times leverage on AAA's, which we believe it’s available based on the fact that we’re able to borrow as a higher percentage for the AAA's that we own in MFA.

Operator

I am showing that we have no further questions, do you have any closing comments.

Stewart Zimmerman

I just wanted to thank everybody for taking the time and positing some very, very good questions this morning and we look forward to speaking with you again next quarter and 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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Source: MFA Mortgage Investments Q1 2008 Earnings Call Transcript
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