MFA Financial Inc (MFA) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the MFA Financial, Inc. second-quarter 2013 earnings call. At this time, all lines are in a listen-only mode. Later there will be an opportunity for your questions, and instructions will be given at that time. (Operator Instructions).

As a reminder, this conference is being recorded. I will now turn the conference over to analyst Danielle Rosatelli. Please go ahead.

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 a 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 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 interest rates and the market value of MFA's investment securities; changes in the prepayment rate on the mortgage loans securing MFA's investment securities; changes in the default rates and management's assumptions regarding default rates on the mortgage loans securing MFA's MBS; 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; MFA's estimates regarding taxable income and the timing and amount of distributions to stockholders; 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, 2012, 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 it makes. 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 2013 financial results. Thank you for your time.

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

Good morning, and welcome to MFA's second-quarter 2013 earnings call. Joining me this morning on the call our Bill Gorin, President; Stephen Yarad, Chief Financial Officer; Ron Freydberg, Executive Vice President; Craig Knutson, Executive Vice President; Terence V. Meyers, Senior Vice President; Harold Schwartz, Senior Vice President and General Counsel; Kathleen Hanrahan, Senior Vice President and Chief Accounting Officer; and Goodmunder Christiansen, First Vice President.

Today we announced financial results for the second quarter ended June 30, 2013. Recent financial results and other significant highlights for MFA include the following -- our second-quarter net income per common share of $0.19 and core earnings per common share of $0.19.

On July 31, 2013, we declared our second-quarter 2013 dividend of $0.22 per share of common stock to stockholders of record as of July 12, 2013. On August 1, 2013, our Board of Directors declared a special cash dividend of $0.28 per share of common stock. This dividend will be paid on August 30, 2013, to stockholders of record on August 12, 2013.

After the special dividend, we will have distributed approximately $155 million in dividends in 2013 not allocated to prior years. The Company has until the filing of its 2013 tax return, due not later than September 15, 2014, to declare the distribution of any 2013 REIT taxable income not previously distributed. The Company is currently working on completing its taxable income calculations for the first 6 months of 2013, and we expect that we will be able to provide you with a tabulation of taxable income for the first 6 months of 2013 at the time of our third-quarter earnings presentation. As a result, we are not at this time able to give you guidance for an estimate of MFA's 2013 taxable income.

Book value per common share declined to $8.19 as of June 30, 2013, from $8.84 as of March 31, 2013. Increased uncertainty around the pace in the amount of future Federal Reserve asset purchases impacted the value of our mortgage-backed securities during the second quarter of 2013. Strong home price appreciation continues to decrease the loan-to-value for many of the mortgages underlying our Non-Agency portfolio, and we believe that due to underlying mortgage loan amortization and based on regional home price appreciation, the loan-to-value of mortgage loans underlying our Non-Agency MBS has declined from approximately 105% to approximately 90% since January 2012.

As a result, we continued to reduce our estimate of future losses. In the second quarter we transferred $54.8 million to accretable discount from credit reserve, bringing the total transferred over the last 12 months to $224.3 million. This increase in accretable discount prospectively increases the yield on our Non-Agency mortgage-backed securities, and it will be realized in income over the life of the assets.

Due primarily to increases in accretable discount and to changes in the forward curve, the loss-adjusted yield on our Non-Agency portfolio increased from 6.80% in the first quarter to 7.15% in the second quarter.

I thank you for your continued interest in MFA Financial, and at this time I would like to open the call to questions.

(Operator Instructions). Steve DeLaney, JMP Securities.

I guess we should say solid quarter, all things considered, with what we went through in the bond market in the second quarter. My first question has to do with the indicated fair value of the Non-Agency portfolio at June 30. In Page 2 of the press release, there's the fair value in the face amount, and the math there works out to 84.2 as far as an average dollar price. That would appear to be up slightly from 82.8 at March. In my interpreting that correctly?

Yes, Steve. I think if you look at the FICO table, which is around page 80 of our Q for March, I think you will see that the average fair value price for Non-Agencies was a little over 85.

Got it.

And in the queue that we will file today, you will see that it's 84.3.

Okay. That makes sense. My table here from March may have a bad number, but I will go to that table you referred to. We were only expecting 1 to 2 points, given the quality of your bonds, anyway -- which I guess really brings me to my real question.

We are now having to face higher rates for the first time in several years, and I think we have always viewed the Non-Agency book as credit assets. And, you know, back when things had $60 and $70 prices, we thought that they had maybe negative duration or, worse, no duration. Now we are up into the mid-80s.

I am just wondering, as we go forward from here, in even thinking about the price action in June, we hear the term spread widening thrown around on all types of mortgage assets these days. And I am just wondering if part of what's going on is that the market is starting to look at these bonds in a positive duration expectation to them rather than minimal duration. If you can comment on that and how that sort of might impact your view towards future price appreciation?

And we also noticed you added some long-dated swaps. And I'm just curious if adding the swaps -- you may have had in the mind not just the Agency book, but maybe this appreciating Non-Agency book. Sorry for the long-winded question.

Well, Steve, thank you for the question; and thank you for also answering the question. As you know, because you have paid a lot of attention to us over the last number of years, the asset prices for Non-Agencies were a lot lower. And what that meant was the expected yields were a lot higher than yields on non-credit-sensitive assets. As a result, Non-Agency prices were not correlated to changes in market interest rates.

Now, this made a lot of sense, because in the periods of time when rates did trend up over the last couple of years, that was generally accompanied by an improvement in economic expectations. And therefore, the market priced in more positive scenarios for Non-Agencies. In addition, because of the very wide risk premiums, spreads can tighten to allow Non-Agencies to hold value despite increases in interest rates.

Now, Fed actions have helped increase the prices of all financial assets the last couple of years. But more significantly for Non-Agencies, there's been very strong mortgage credit fundamentals. There has been increase in home prices, declined defaults, stable severities, and high voluntary pre-pays.

As of June, we sort of reached the point where there's increased uncertainty about future Federal Reserve actions. And Non-Agency prices have become more volatile, and I think you mentioned the term credit spreads have widened. We sort of agree with where you were leading. Non-Agency assets have become more interest-rate sensitive. And in fact, we do believe they exhibit a positive duration now.

The good news is the majority of our Non-Agencies are hybrids; and even better news, the majority of those hybrids -- the majority of our Non-Agencies -- are actually in the one-year reset period. So while there is positive duration, it's not a high number, and we think across the Non-Agency portfolio the duration is probably 1.5.

As a result -- and you're right, we now believe there is more interest-rate sensitivity across the entire MFA portfolio. And as a result, we did add swaps in the month of July.

And those look to be -- just looking at your blended swap tenor, they look to be relatively long swaps. Maybe as long as 10 years. Is that correct?

That is correct. Goodmunder, you want to give some detail on the swaps we added?

Yes. So we added about -- well, I'm going to also go back to the second quarter. We also started adding longer-dated swaps towards the end of the second quarter. We added about $700 million of longer-dated swaps there, at an average life of about 5. And then in July, we added about $950 million at an average life of 6.5. And you're right, they range from being 5-year swaps to 10-year swaps.

So as a result, as of the end of July, our calculated duration -- Goodmunder?

So our calculated duration, including the 1.50 on the Non-Agencies, the end of July's is about 1 [spot] 25. So 125 basis points.

Okay. Your net duration.

Yes.

All right. Thank you. And one final, very quick follow-up. Craig, your average price on your Non-Agency -- could you give us sort of the wings there? Roughly, what would be sort of the low range of dollar prices, and what would be the high range? Around that 80, 85 figure?

Sure. I would say probably the lowest prices are -- and again, I am sure there are bonds that have lower prices. But I would say that the low band is probably in the 70s. So maybe the low 70s. And the high is probably in the low 90s.

Low 90s. Thank you guys so much for the color. Appreciate it. And nice, solid job. Keep it up.

Douglas Harter, Credit Suisse.

I was hoping you could talk about the decline you saw in the Agency MBS yields -- how much of that was from resets, and what impact premium amortization, if any, had on that?

Hi, this is Goodmunder. So our coupon in the quarter went down 11 basis points, and the increased amortization caused a 12 basis points decline. So I guess it's half to lower coupons. But that also includes new investments, those lower coupons.

So given the move in rates, would it be reasonable to expect that some of that drag from the higher premium amortization should either go away or could reverse itself in coming quarters?

Well, I mean, mortgage rates have gone up by about 100 basis points over the last few months. And when you look at mortgage refinancing applications, they have gone down significantly. So I think it's safe to say that prepayments will decline going forward.

Doug, you actually bring up a point that we have been focusing on. The trend of the yield on Agencies has been down for mortgage REITs in general for the last couple of years, and we are included. And now, in this new interest rate environment, you no longer would have to downtrend on yields due to the fact that you are replacing assets at lower yields.

So for example, our yield for Agencies in the second quarter was 2.19%, and we can now invest at higher yields than 2.19%.

So in that new yield environment, Bill or anyone, how do you view the attractiveness of Agency with higher yields but higher volatility in interest rates?

I think that the -- hi, it's Stewart. We still view the agency sector in a positive manner. But again, we have really kind of stuck to our knitting. So, again, I think as Goodmunder might have mentioned, you will see the Q, where what we have replaced are basically in either 15-year or 7-year hybrids. And again, we like that sector. We think that's where there's value.

And I guess just, Stewart, on a relative value, how would you compare Agency to Non-Agency today?

You know, that's interesting, because we like both sectors. But I think the Agency side we found a little bit more attractive over the last couple of weeks and months. But that doesn't mean to say that we still have not purchased Non-Agencies, because we have.

Great. I appreciate that.

Jason Arnold, RBC Capital Markets.

Just to follow up on that last question, would you say that from a capital allocation perspective, would you be putting 50% of new capital to work in the Agency side, or more? How would you break that out in terms of relative attractiveness, again, on that question?

Well, again, there isn't, Jason -- one, thanks for the question. But there isn't a magic number. But again, we look -- as Doug had asked the question a moment ago -- where there's relative value. And again, as you know, as a REIT, we have to have a certain percentage in what we call good real estate assets. So there are limitations.

So again, it's where we see value. And again, we are seeing value on the Agency side. But again, as Craig has also said, we have been able to find some niche bonds that have really fit us very well. So I can't give you the absolute answer that you are looking for. I'm sorry.

No, that's good color. As you said, certainly better prices these days, for sure, on the Agency side relative to where we were a few months ago.

But my other question, I guess, with hopefully a slow, steady ramp to home price improvement here over time, could you envision your $1.3 billion credit reserve embedded in the Non-Agency side of your book eventually being, say, 50% or more released? And then maybe could you update us on the current average delinquencies on the Non-Agency end and kind of your loss assumptions there, please? Thanks.

Sure. So as far as what we do to that credit reserve going forward, I can't really speculate. I mean, you see that over the last year we have released monies each quarter. But it really depends on the performance of those bonds for the last three, six, nine months or so.

So as LTVs have continued to improve, basically what we have done is we have decreased our assumptions of future defaults on loans that are current today. So those are loans that are current today that may have high LTVs. As those LTVs decline, our predictions for future defaults of current mortgages today goes down.

As far as delinquency on the portfolio, 60 plus days delinquent is 18.3%. I don't have the exact number, but I think if you look a year ago, that number was probably 21% or 22%. So clearly, we have seen that come down. More importantly, we are seeing the transition rates go down as well. So all good, but way too soon to speculate on the future credit reserve changes.

Okay, make sense. Yes, I was just thinking of, as you mentioned, going from 105% to 90% on LTV dashes that number suddenly -- again, totally speculative, could or could not happen -- but two years from now going from, say, 90% to 70% or something like that, what sort of thoughts you would have around the credit release there.

Well, again, that's all good, but what we worry about are the tails. So the average might be 105% to 90%. But there are still plenty of loans that have LTVs higher than 100%. So those are the ones that we are concerned about in terms of credit loans today that could default in the future.

But Jason, I think your point, and the point I would like to make is that what we have seen across the portfolio is that housing values have increased amongst our portfolio, and we are feeling very good about that. And again, that will be accreted back into the Company over time. Over the life of the asset.

Jason, the only other thing I would add is we've also seen voluntary speeds pick up on Non-Agencies. And I have always said this. I think that's much more a function of the LTV than it is mortgage rates. So these people are now in a position where they can refinance without writing a check, because their LTV is down to 80% or 85%. I think you'll continue to see that drive prepayment speeds.

And I think the LTV outweighs mortgage rates. So yes, mortgage rates are higher than they were a few months ago, but I don't really think that's affected Non-Agencies materially.

Makes sense. Yes. I think you guys are in a great spot with that portfolio. So congrats and thanks for the answers there. Appreciate it.

Joel Houck, Wells Fargo.

I guess my question is more of a philosophical one. And that is how transitory do you think kind of the correlation we saw later in the second quarter between Non-Agency pricing and rates going up is going to be? Because the thesis, at least our thesis, anyway, on names like MFA is that the Non-Agency credit book would always do well in a rising rate strengthening housing environment. I think that is intact. But I would just be curious to see your viewpoints on when you think that correlation starts to dissipate, or if it is going to stay here for the foreseeable future?

So people can always debate philosophies, and we could be right or wrong. So we try not to look at it that way. We try to quantify to the extent we can. And clearly, when the asset is traded at 72 or 73, which is our average cost basis, there is less correlation. And as we get to the mid-80s, there's more correlation. That is pretty quantitative.

But no matter what answer we decide upon, what is very important is even if these were Agency assets, we would still consider them lower duration, because we really did purchase assets which were 5/1s, 7/1s, 10/1s that were issued 7 years ago. The majority of our Non-Agencies are 1-year reset assets.

Even if these were agencies, Joel, I think you would be saying, gee, these are really low-duration assets. The fact that they are Non-Agencies reinforces that argument. So the majority of these Non-Agencies probably have a duration of 0.5. That is the grouping that is within one year of reset. So we don't have to -- even if we differed on the philosophy, I think the numbers would get you to the point where the duration is probably 1.5. We have added swaps. And probably that is the right duration going forward, despite what the Fed does.

Yes. That's a very good point. I guess I hadn't taken it that step further. But you have a very short duration kind of asset strategy, regardless of whether it's Agency/Non-Agency yield. As others did, you took up the hedge ratio, I guess. Is it something given kind of where you are at, you would look to move back down once volatility subsides? Or do you just say, look, we are comfortable with where the net duration is right now. We are going to let that run as it is.

Yes, I would have to say it's the latter, because we are always going to approach the point where the Non-Agency prices have moved up so much that they would be adding duration. So it really is not so much the impetus of the Fed's statements or communications in June. We were getting close to having to start to hedge Non-Agencies anyway, because as I said, the prices went from 72 to mid 80s, and hopefully higher than that. So I think what we did is permanent.

Okay, great. Thanks, Bill.

Daniel Furtado, Jefferies and Company.

This is Martin Kemnec in for Dan Furtado. First, just to clarify a question on book value. Is it safe to assume that the August special dividend is not included in the second quarter end book value?

Yes, that's correct.

Yes.

Okay. Thanks. Great. And then have you guys given any thought to investing in the new Freddie Mac risk-sharing securities?

We have looked at it. We certainly find it an interesting security. But at this point, we haven't made a decision to invest in those.

Okay, great. And looking forward, what are your expectations for basis risk in the market over the next quarter or two? Are you guys expecting widening there or tightening?

Are you talking the difference between Agencies and Non-Agencies? Or just the market in general?

Just on the basis risk, I guess. The movement in between your hedges and the assets. If you have any color there?

Goodmunder, any feelings?

Well, I would say on the Agency side, stuff has widened to a point where the risk/reward is more compelling today than it was 3 to 4 months ago. So I do feel more comfortable about the basis risk today than I did 3, 4 months ago. I'll leave it at that.

Okay. And then have you guys contemplated bringing on additional whole pool credit assets that could reduce your percentage of Agency MBS that you have to qualify for the whole pool tests?

Look, we continue -- we monitor that very, very closely. And we are comfortable where we are. And when we buy -- as an example, when we buy any particular asset, we are always looking at where we are on the percentage basis. As you know, it's got to be at least 55% of good real estate assets. I don't know -- I can't say every Agency, but almost every Agency we buy as a fact is a whole pool. And again, we look at other asset classes that would also qualify as good real estate assets.

Okay, great. That helps. That's all I had.

Chris Donat, Sandler O'Neill.

Got a question on the -- if you can remind me on the accretable discount. Since it accretes over the remaining life of the assets, what sort of life should we think about for those Non-Agency assets?

So I would say if you boil down all our assumptions -- so voluntary speeds, default rates, loss severities, then the various structures of the securities, that the average life is probably around 7 years or so. But as you know, you can't really straight line that calculation over 7 years.

Right, right. And any change in those assumptions from -- like, over the last 12 months, it's $224 million that has been transferred. Is it safe to assume the same sort of seven-year average life underlying the bigger chunk, not just the 55, but the $224 million?

Are you asking has the average life changed in the last year?

Yes. Or if the assets that were affected had -- for some reason would have had a different average life.

I don't think so, no. I don't think the average life has changed materially, and I don't think that the assets that we have changed assumptions on have materially different average lives than the rest of the portfolio.

But I just like to add, though, Craig and his group -- they are continually looking and monitoring these assets, so that there are times that the assumptions do change. But again, that is part of partial of what we do in order to determine what's accretable.

Well, and keep in mind, as we decrease our future default assumptions, that actually could lengthen the securities, right? Because those defaults would come through as liquidations. Now, to some extent, we've also increased some of our prepayment speeds. So those two may balance out. But there are several moving parts to that.

Right. That's part of the reason why I am asking you rather than me make the assumption, because -- yes. Appreciating all of the moving parts is sometimes a little more challenging.

And then just also on methodology kind of question -- when you are looking at the loan-to-value ratios, and you mentioned the regional home price appreciation, I know in your presentations you typically use the data from CoreLogic. But as you look at the LTVs, are you going through county by county in California, like what you show on your presentation? Or are you able to get more granular than that?

For the most part it's actually more granular than that. It's really down to ZIP Codes. So for the most part -- again, we don't have every single ZIP Code. But for the most part, it ZIP Code based. So it's median home price in each ZIP Code. So it's pretty granular.

Okay. Thanks very much, then.

(Operator Instructions). Mike Widner, KBW.

I guess a two-part question here. The first one is -- it might sound a little silly, but what percent of your intellectual effort, for lack of a better word, do you think goes to asset selection versus hedge selection? Do you think a changed environment -- for indeed in a changed environment -- suggests that that should shift at all?

That's an interesting question. I would tell you that we spend a lot of time looking at the entire portfolio and in terms of the other side of the ledger in terms of looking at it, and looking at how we hedge it. And again, you have to be fluid in this business. You have to be able to try and anticipate a lot of the moving parts, as one of the previous questions answered. So in terms of the intellectual energy, the intellectual energy is spent on both parts.

If you are suggesting in a more volatile -- which I think is what you are suggesting -- in a more volatile market, are we certainly spending the equivalent amount of time looking at the hedged side of it and making sure that we are adequately hedged? Of course the answer is yes. When you have a less volatile time, it doesn't mean you don't spend the same amount of time. But you may not be pulling the trigger quite as quickly.

If I might add, I would say we probably have a bias on the asset side, and I will tell you why. When we focus on the assets, we purposely by assets that have less interest rate risk. So by plan, we don't have to focus as much on the hedge. If we were dynamically hedging a 30-year asset, we would be giving you a different answer. If we are telling you we are focused on a credit work on assets that reset within one year, you get a different answer. So we probably make sure we put the right assets in, and therefore we don't have to focus as much on the hedge.

That makes perfect sense, and that's kind of what I would've expected to hear. So let me ask you part two, which is a little more philosophical. We hear a lot of you guys talking about it was really spread widening on the credit side, and that was -- number one, it's hard to hedge; and number two, it was a little bit maybe unexpected.

And I guess I'd counter that by saying Bernanke has been telling us for a very, very long time that the whole point of what the Fed has been doing is to actually force credit spreads tighter. You take away other options for yield, credit spreads will tighten. And that's the whole point of QE, really.

And now everyone that sort of bought credit assets is sitting back and going, oh my God. Spreads widened when everyone thought the Fed was going to stop buying. And so I guess the philosophical question is, is it really at all unexpected? And is it really something that doesn't need to be hedged? Yes, they can -- fine. They are very short-duration assets. But does that mean you don't need to find some way to hedge the credit component of them? Or the fact that the spreads are expected to widen? Or maybe I'm wrong, and they are not expected. But I guess that's a broad question.

Boy, we had two philosophy questions in one earnings call. I would say, look, when the Fed communicated that an end to QE might be approaching, the 10-year went from 1.60% to 2.60%, which was a very large percentage increase. No matter how well they telegraph the change in Fed policy, it's disruptive.

And as you point out, the reaction was broad-based. There was increased volatility. There was credit spread widening. There was outflows from bond funds. It impacted all financial assets -- emerging market equities, high-yield bonds, US equities.

So what do we do about that? Right? The question is, when the value of the Non-Agency changed, how much of it was credit spread and how much was due to the fact that the interest-rate sensitivity changed? And that is what we debate. And we said, gee, there is more interest-rate sensitivity.

So maybe you would be arguing there is no interest-rate sensitivity. This is all just credit spread widened. So we sort of had that allocated. We did allocate part of it to interest rates and part of it is credit spread widening. So Non-Agencies now yield close to 5%, and treasuries yield 2.60%. So is that a wide enough credit spread? When there is more disruption, will the credit spread widen?

It might on a disruption, but we think that's about the right spread over the medium term. So we are comfortable that the value of the Non-Agencies will not go down a lot if there is a credit spread widening. So hopefully I was close to addressing your question.

I think you did. I think that, again, everyone sort of talks about the credit spread widening that happened most recently. But you guys have been in this business for a while and running credit assets for a while -- longer than a lot of guys in the business. So our credit spreads really wide to treasuries right now relative to historical norms? Or is it really we are moving from artificially type levels to on a journey back to something that is a little more normal?

And if you approach it from that angle, again, it suggests that maybe one needs to hedge differently. And obviously, the reason for this question is -- I mean, the reason most of the stocks are trading at discount to book and investors are having a hard time with the sector is everyone is trying to wrap their head around, God, if we are really in a secular bond bear market, what do I need to believe about management's ability to hedge in order to be willing to buy these things as leveraged bond funds, effectively?

Right. But if we were just a leveraged bonds fund, we would say, interest rates change. Credit spreads widen. But we are saying something different. We are saying those two things did happen, but we've got the fundamentals so right that the yield on our high-yielding assets went up. So you really can't compare us to a high-yield bond fund there. We have got the fundamentals so right that we have an increasing yield, and that's different than any other asset class you can compare us to, we believe.

Yes, I would certainly agree with that. And I don't want to make the comparison --- I certainly don't mean to imply you guys, or anybody in this sector, is like a high-yield bond fund. But there is a difference. I mean, you are asking for equity investors to buy you, not bond investors to buy you.

And equity investors do need to get comfortable with the fact that your hedges can be and will be effective, and a lot of that will depend on having a changed view of how to hedge in a changed interest rate environment where, for the first time in arguably 30 years, the expectation is rates will be moving higher, not 50%/50% chance of going higher or lower. And again, hedging it properly next quarter, and the quarter after, and the quarter after that -- I guess again, the question is really does it change your thinking about hedging more than just -- swapped hedge more than just the interest rate risk. It's also about figuring out how our credit spreads going to widen or tighten or whatever relative -- and can that be hedged, versus we are just hoping for the best?

We are not just hoping for the best. I will answer that definitively. We put a lot of work into looking -- and getting back to your initial question -- on both sides of the ledger. Yes, credit spreads are widening. This could be the new normal or getting back to where when I got into the business, God knows how many years ago.

But having said that, we are in a position where we think our portfolio is very well placed for whatever's going to happen. And again, if in fact -- again, we have put on some additional hedges. We feel comfortable about where we are. And our Non-Agency portfolio has reacted very, very well with this widening. So what's going to happen in the future? We are on top of it, but I don't have a crystal ball.

Well, I appreciate that. And you guys, in all fairness, clearly did a better job on book value than the majority of the guys reporting so far. And your stock does trade better on a price-to-book basis than most of the others. So I think the market does have some confidence, and I certainly have some confidence as well. But it's tough being at the end of the queue and having no real good questions left to ask. So I had to make you go philosophical. (Laughter)

And you don't know how we appreciate it, Mike.

I do. Thanks, guys.

Jordan Hymowitz, Philadelphia Financial.

Hey, guys. Two quick questions. One, can you confirm that when they look at your leverage for repo lines, they look at it in aggregate and not just the Agency basis?

Jordan, the answer to that is yes.

Okay. The second question is American Homes for Rent just went public last night, and there have been several of these homes for rent companies going public. Have you looked at the geographic focus of these areas and compared to your Non-Agencies? And the reason why us say this is that the areas in these companies are concentrating in are raising the prices the most in these regions. And as more capital comes there, it should be a greater push up on price in those regions.

Does that make any sense to you? And have you done any overlap?

It certainly -- it does make sense. I don't know we have actually done an actual study. I know some of it, as an example, around Henderson, Nevada, and that area -- I am certainly aware of that. But I don't know that we've done an absolute study on it.

And Jordan, I think we certainly see it, but it happens somewhat slowly. It happens over time. But where we will see it in portfolio performance will be and perhaps lower loss severities. But that's something that is really -- it pretty much happens over time.

And on your Non-Agency book, what's the newest stuff?

What types of assets? Is that what you're asking?

No, no, no. What year?

The portfolio is pretty much 2005, 2006, 2007. So there's very little that's any newer than 2007 origination.

Okay. Thank you.

Thank you. Gentlemen, we have no further questions in queue.

I'd like to thank everybody for joining us on the call. We look forward to speaking with you next quarter. Thank you.

Thank you. And 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.