Detailed narrative
Macroeconomic Environment and Market Conditions
The second quarter saw continued macroeconomic volatility🌐, with oil prices fluctuating significantly and Treasury yields rising modestly, leading to a material flattening of the yield curve. The Fed's tone became more hawkish, with expectations for a Fed funds rate increase later in the year due to elevated inflation and strong payroll numbers.
Despite this, the mortgage market remained constructive, experiencing modest spread tightening and well-bid securitization markets.
Strategic Portfolio Growth and Composition
MFA Financial prudently deployed capital, growing its investment portfolio to approximately $13 billion, a 20% increase year-over-year. This growth was concentrated in agency MBS, which now comprise nearly a third of the portfolio at $4.1 billion, offering attractive spreads and liquidity.
The non-QM portfolio remains the largest asset class at $5.7 billion, with $462 million of new acquisitions at an average coupon of 6.9% and LTV of 67%.
Accelerated Delinquency Resolution
A defining effort of the quarter was the significant acceleration in resolving delinquent assets. The company resolved approximately $200 million of previously delinquent loans, leading to an 80 basis point reduction in the 60+ day delinquency rate, from 7.8% to 7.0%.
The legacy multifamily book was notably reduced by $65 million to $360 million, now representing only 2% of the investment portfolio, with further resolution expected in the coming quarters⏳.
Lima One's Re-accelerated Momentum
Lima One, MFA's origination franchise, continued to build momentum with origination volume up nearly 45% from the first quarter to $316 million, comprising $220 million in short-term transitional loans and $96 million in 30-year rental loans. This growth reflects the payoff from prior investments in technology and salesforce expansion, with the origination pipeline reaching levels not seen since 2024 and recent vintages showing improved credit performance.
Expense Base Optimization
The company completed the exit of its former corporate headquarters and continued to drive down its expense base. G&A expenses for the quarter included $5 million of accelerated non-cash depreciation, but the expected run-rate G&A is projected to average $26 million to $27 million per quarter for the remainder of the year, representing a significant reduction of over $6 million per quarter compared to the 2024 average.
Capital Allocation and Shareholder Returns
MFA maintained a stable economic book value at $13.20 per share and declared a $0.36 common dividend, delivering a total economic return of 2.6%. The company also repurchased over 500,000 shares of common stock at a significant discount to economic book value, funded largely by preferred stock issuance.
Capital was unlocked through re-securitizing over $500 million of single-family rental loans, providing $48 million in cash and financing capacity.