The Impact Of Rate Movements On MFA Financial
- The notional value of swaps is heavily concentrated to certain maturities.
- The fixed rate paid on the swaps does not reflect the normal upward slope of the yield curve.
- The relative value of swaps to MBS is lower than I would expect for the duration of the swaps.
- Using the new LIBOR rates, we get a feel for the unrealized gains or losses.
MFA Financial Needs To Take Additional Interest Rate Risk As Dividends Remain Sustainable
- Rates will remain low for longer than expected by the market and company should not limit interest rate risk.
- Company should take advantage of low yield environment.
- Quarterly dividends are sustainable and current valuations are justified.
How Does MFA Financial Produce So Much Net Interest Income?
- The difference between non-agency and agency MBS is substantial.
- The yields on non-agency securities are dramatically higher than the agency MBS.
- The agency MBS are split up between hybrids and 15-year fixed rate securities. I’ll get into the prepayment risks for each.
9.7% Dividend MFA Financial Continues To Put Up Good Numbers
- MFA paid a Q3 2014 dividend of $0.20 (or about 9.7% annualized).
- MFA had a -1% book value loss for Q3 2014; but this was outperformance compared to most REITs.
- Between stock price appreciation and dividends issued, MFA has delivered a return of about 27.2% through the first three quarters of 2014.
Attractive Net Interest Margin And Potential Price Appreciation Key Features Of MFA
- Company’s credit portfolio paints compelling outlook with attractive net interest margin.
- Dividends are covered by EPS, and dividend coverage will improve as company continues to invest in credit-sensitive assets.
- Slacks identified by Fed continue to persist and will keep rates low.
9.7% Dividend MFA Financial Is One Of The Safest Mortgage REITs Long Term
- MFA's portfolio is designed to perform whether interest rates go up or down. 68% of its MBS are adjustable, hybrid, or step-up.
- MFA generated a 9.7% annual dividend for Q2 2014 and a $0.17 book value gain for a total economic return of +4.5% for Q2 2014 (+18% annualized).
- MFA's stock price has proven much more resilient over the last several years than that of many primarily Agency mortgage REIT companies. Read further for more details.
MFA Financial Has Returned 25% In 1H 2014 - This 9.5% Dividend Payer Is Still Attractive
- MFA has returned 25% in dividends and stock price increases so far in 2014.
- Its portfolio of non-Agency RMBS, Agency ARMs, and 15 year fixed rate Agency RMBS is about as safe a portfolio as investors will find.
- The continually decreasing LTV ratio of MFA's non-Agency RMBS (now about 82%) makes it ever safer.
- In a bullish economy, it is set up to excel. In a mediocre one, it should hold its own. In a weak one, it should perform better than most.
MFA Financial: A Mortgage REIT With Real Potential
Nov. 19, 2014, 3:42 PM
- A check of the mortgage REITs following FOMC minutes which shows the discussion moving a bit more seriously towards rate hikes finds the sector (REM -0.5%) modestly lower.
- Individual names: Annaly (NLY -0.3%), American Capital Agency (AGNC), CYS Investments (CYS -0.3%), Invesco Mortgage (IVR -0.9%), New York Mortgage Trust (NYMT -0.4%), Hatteras Financial (HTS -0.8%), MFA Financial (MFA -1%), Capsteam Mortgage (CMO -0.6%), Ellington Residential (EARN -0.4%).
Nov. 5, 2014, 10:51 AM
- On the earnings call (transcript), KBW's Mike Widner questioned the sustainability of MFA Financial's (MFA -2.3%) $0.20 dividend, noting taxable income has been running below GAAP income (and below $0.20 per share) for some time. Widner also says core income (stripping out gains on sales) has been running below GAAP.
- Widner: "I don't expect you guys to give the answer that taxable is going to continue to run lower and, therefore, there is an implication that the dividend is going to get trimmed. But I mean just that it seems bit sooner or later that's the trend that we’re running on."
- Also downgrading to Hold (Neutral), is Sterne Agee's Jason Weaver, though - judging by what he had to say on the earnings call - the move seems more valuation-related with the stock higher by nearly 20% YTD and trading at a premium to book value. Weaver: "My questions have actually been asked ... But I'll say congratulations and solid performance in what was a really wild quarter for the space"
- Previously: MFA Financial beats by $0.01, beats on revenue
- Previously: MFA Financial creeps higher after earnings
Sep. 30, 2014, 3:05 PM
- Many in the sector (REM -0.9%) presented today at the JMP Financial Services and Real Estate Conference. Those heard in full by this reporter - CYS Investments (CYS -1.6%), Hatteras Financial (HTS -0.9%), and MFA Financial (MFA -1.3%) - presented nothing alarming, but the sector is nevertheless lit up bright red.
- Other presenters included Capstead Mortgage (CMO -1.2%), Arlington Asset (AI -2.2%), Dynex Capital (DX -1.7%), Invesco (IVR -1.2%), Armour (ARR -2%), New York Mortgage Trust (NYMT -3.2%), Javelin Mortgage (JMI -1.5%), Five Oaks Investment (OAKS -1.9%), and Apollo Residential (AMTG -1.1%).
- Related ETFs: MORT, MORL
- Previously: CYS's Grant not buying hawkish ideas from Fed
- Previously: Hatteras updates on Q3 at conference
- Previously: MFA Financial positions for further housing improvement
Jul. 3, 2014, 9:56 AM
- A few days ago, the 10-year Treasury yield stood at about 2.50%, but it's been on the rise all week and shot up to near 2.7% this morning following the strong jobs print and drop in unemployment to 6.1%. Checking the short end of the curve, Eurodollar futures are selling off as well, and now have baked in more than one rate hike between now and one year from now, and 75 basis points of hikes by the end of 2015.
- Previously: Treasury yields jump, gold slumps after strong jobs print
- Off 1.1% today, Annaly Capital (NLY) is down nearly 5% since this time last week, with a similar move having taken place in American Capital Agency (AGNC -1.2%).
- Chimera (CIM -1.4%), CYS Investments (CYS -1%), Invesco Mortgage (IVR -1.8%), American Capital Mortgage (MTGE -1.6%), New York Mortgage Trust (NYMT -1.2%), AG Mortgage (MITT -1.8%), Ellington Residential (EARN -0.7%), Dynex (DX -0.8%), MFA Financial (MFA -0.9%).
- ETFs: REM, MORT, MORL
Apr. 10, 2014, 11:49 AM
- Lit up bright green as the market's momentum names again break down and lead the averages - and Treasury yields - lower are the mortgage REITs (REM +0.5%).
- The 10-year yield is off six basis points to 2.63% and Eurodollar futures in the last few sessions have rallied strongly, pricing out at least one rate hike between now and the end of 2016.
- CYS Investments (CYS +1.7%), Invesco Mortgage (IVR +1.3%), Hatteras Financial (HTS +1.3%), MFA Financial (MFA +1.4%), Two Harbors (TWO +0.8%), American Capital (AGNC +0.6%), (MTGE +0.5%).
- One day after making a number of additions to its management team - including a couple of hires from the New York Fed - Annaly (NLY +0.5%) is also posting gains.
- Related ETFs: MORT, MORL
Apr. 4, 2014, 3:15 PM
- What's working today? With the exception of Western Asset Mortgage which had a massive secondary offering, the mREIT sector is nearly universally higher as money rushes out of the previously perkier areas of the market.
- Not hurting is a seven basis point decline in the 10-year Treasury yield to 2.73%.
- Up the most are the two largest and also investor favorites Annaly (NLY +1.4%) and American Capital Agency (AGNC +1.3%). Others: CYS Investments (CYS +1%), American Capital Mortgage (MTGE +0.5%), MFA Financial (MFA +0.5%), Dynex (DX +0.9%), Armour (ARR +0.5%).
- Related ETFs: REM, MORT, MORL
Mar. 19, 2014, 3:13 PM
- A check of sectors following the FOMC statement and updated projections suggesting a quickened pace of rate hikes in the future finds the banks and life insurers notably moving higher. Both groups have struggled earning a spread amid ZIRP and are positively levered to higher rates.
- Lenders: Bank of America (BAC +1%), Citigroup (C +1%), JPMorgan (JPM), Regions (RF +1.7%), KeyCorp (KEY +0.9%), SunTrust (STI +0.7%).
- Life insurers: MetLife (MET +1%), Prudential (PRU +0.7%), Lincoln National (LNC +1%).
- Related ETFs: XLF, FAS, FAZ, UYG, VFH, IYF, KIE, SEF, IYG, IAK, FXO, PFI, KBWB, FNCL, FINU, RWW, RYF, PSCF, KBWP, KBWI, FINZ, KBE, KRE
- Not necessarily positively levered to higher rates are the mortgage REITs (REM -1.6%): Annaly (NLY -1.8%), American Capital (AGNC -1.7%), (MTGE -1.9%), Armour (ARR -1.3%), Two Harbors (TWO -2%) CYS Investments (CYS -3.3%), Capstead (CMO -1.3%), MFA (MFA -1.8%).
- Related ETFs: MORT, MORL
Mar. 7, 2014, 12:46 PM
- The mortgage REITs are maybe the poorest performing sector amid a big move higher in interest rates, and formerly bullish Deutsche Bank ringing the register on New York Mortgage Trust, CYS Investments, and American Capital Mortgage after nice runs for all have pulled them close to (or above in NYMT's case) book value.
- There's also an earnings miss this morning from one of the last of the players to report Q4, Western Asset Mortgage.
- Annaly (NLY -2.1%), American Capital Agency (AGNC -2.3%), Armour (ARR -1.4%), Two Harbors (TWO -1.8%), Invesco (IVR -2.7%), Capstead (CMO -1.2%), MFA Financial (MFA -2%), Apollo Residential (AMTG -1.7%)
Nov. 26, 2013, 1:54 PM
- At what point do you just liquidate the portfolio? Habits die hard and traders used to hitting the sell button on the mREITs (REM -0.5%) are doing so again today even as interest rates slide a bit.
- Hitting another multi-year low today, Annaly (NLY -1.3%) - with a portfolio of very liquid assets heavily hedged against rising rates - is now selling for 20% less than September 30's reported book value.
- American Capital Agency (AGNC -0.8%) - with an equally liquid hedged portfolio - is also at about a 20% discount. Previous: CIO Kain promises to continue buybacks at this discounted level.
- Other agency players: Hatteras (HTS -1%), CYS (CYS -1.4%), Capstead (CMO -1%).
- Non-agency mREITs are slipping as well - even as Case-Shiller reports continued solid gains in home prices (which should boost portfolio values). Two Harbors (TWO -1.5%), MFA (MFA -1.4%), Western Asset (WMC -1.1%).
- ETFs: MORT, MORL
Aug. 20, 2013, 10:50 AM
- Sector giants Annaly (NLY +3.3%) and American Capital Agency (AGNC +4.3%) are the leading gainers, followed but Armour (ARR +2.6%), MFA (MFA +2.7%), Dynex (DX +2.8%), New York Mortgage (NYMT +3.3%), and Western Asset (WMC +2.8%) as interest rates take a breather from going up.
- Earlier: This year's Treasury bear market may be the worst one yet.
- Especially ugly trade in the preferreds of many of the agency mortgage REITs have some traders wondering if retail panic isn't ringing a bell for a bottom in the sector. Today, the action isn't necessarily ugly, but it is sloppy - with different preferreds of the same issuer (Armour, for example I, II) trading in different directions even as both represent the same credit risk.
- ETFs: (REM +2.4%), (MORT +2.7%), (MORL +5.8%).
Jul. 31, 2013, 10:23 AM
- The good vibes from American Capital Agency (AGNC -2.7%) and American Capital Mortgage (MTGE -1.4%) earnings are somewhat snuffed out by rising Treasury yields which have returned to about their highs of early July following strong ADP and GDP prints this morning.
- The 10-year Treasury yield is up 7 bps to 2.69%.
- Both AGNC and MTGE rallied along with the rest of the mREIT sector (REM -1.5%) on smaller-than-expected Q2 book value declines, but rising bond yields could lead to further drops in Q3 (though Gary Kain made the case for his portfolios being well-hedged).
- Annaly (NLY -1.7%) - reports tonight, Armour (ARR -1.4%), Invesco (IVR -2.3%) - reports tomorrow morning, Two Harbors (TWO -1.9%), MFA Financial (MFA -3%), Capstead (CMO -2.2%), CYS Investments (CYS -2.4%), Hatteras (HTS -1.7%).
- MTGE earnings last night.
Jul. 24, 2013, 10:35 AMThe mortgage REIT (REM -3%) slips amid a 10% dive in Hatteras Financial following a big decline in its book value. Other ARMs players CYS Investments (CYS -2.2%) and Anworth Mortgage (ANH -2.9%) don't take it as hard, but CYS (which reported last week) already trades at a substantial discount to book and Anworth likely does. Others: Annaly (NLY -2.8%), Armour (ARR -2.4%), Invesco (IVR -2.5%), MFA Financial (MFA -4.1%), Dynex (DX -3.4%), Western Asset (WMC -3.8%). | 18 Comments
Jul. 11, 2013, 7:43 AMMFA Financial (MFA) is upgraded to Buy with $9 price target at Evercore Partners. The stock has faltered this year along with the rest of the mREIT sector, but has shown relative strength thanks to its credit and ARM exposure. Shares +5% premarket along with the rest of the mREIT sector, post-Bernanke. | Comment!
Jul. 8, 2013, 10:00 AMInvestors tiptoe back into mREITs (REM +0.7%) following Friday's drubbing which was the exclamation point (at least the bulls hope so) on 3 months of major losses for the sector. In what could turn out to be a sell side classic, Wunderlich cuts a swath of pummeled names from Buy to Hold: American Capital (AGNC), (MTGE +0.7%), CYS (CYS +1.2%), Invesco (IVR +0.9%), Western Asset (WMC -0.4%), AG (MITT -2.5%). Others of interest this morning: Annaly (NLY +1.6%), Armour (ARR +1.2%), Hatteras (HTS +0.6%), MFA (MFA +0.4%), Anworth (ANH +1.8%), Dynex (DX +1%). | 11 Comments
May. 29, 2013, 10:01 AMThe selling continues in the mortgage REIT space (MORT -3.4%), with one of today's biggest losers Chimera Investment (CIM -3.8%) a curious one as its exposure is credit risk not rate risk. Other tumblers: Armour (ARR -6.4%), New York Mortgage (NYMT -6.5%), Javelin (JMI -6.1%), MFA Financial (MFA -3.4%). There's little bid for American Capital - (AGNC -4.1%), (MTGE -3.3%) - with one trader noting Gary Kain's focus on owning pre-pay protected paper is another bet not paying off as rates rise. | 27 Comments
May. 28, 2013, 1:33 PMGrowing thoughts of a tapering and then ending of QE∞ triggers panicky selling in the mREIT sector (MORT -2.3%) as Treasury yields hit their highest level in more than a year (the 10-year at 2.12%), and mortgage prices slide as well (MBB -0.4%). Leading the way is a 5.3% decline in American Capital Agency. Annaly (NLY -2.7%), Two Harbors (TWO -3%), Anworth (ANH -2.2%), Western Asset (WMC -4.7%), Apollo Residential (AMTG -3.7%), Javelin (JMI -4.3%), Invesco (IVR -1.8%), MFA Financial (MFA -1.5%). | 83 Comments
MFA vs. ETF Alternatives
MFA Financial Inc invests, on a leveraged basis, in residential Agency and Non-Agency mortgage-backed security. Its objective is to generate net income for distribution from the difference between the interest and other income it earns on investments.
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