MFA Financial Inc (MFA) 2022 Q3 法說會逐字稿

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Ladies and gentlemen, thank you for standing by. Welcome to the MFA Financial, Inc. Third Quarter 2022 Conference. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will be given at that time. If you should require any assistance during today's conference, please press *0.

(Operator Instructions]

As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Hal Schwartz. Please go ahead.

Thank you, operator, and good morning, everyone. The information discussed on this conference call today may contain or refer to forward-looking statements regarding MFA Financial, Inc., which reflect 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, should, could, would 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 those described in MFA's annual report on Form 10-K for the year ended December 31, 2021, and other reports that it may file from time to time with the Securities and Exchange Commission. These risks, uncertainties and other factors 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 third quarter 2022 financial results. Thank you for your time. I would now like to turn this call over to MFA's CEO and President, Craig Knutson.

Thank you, Hal. Good morning, everyone, and thank you for joining us here today for MFA Financial's Third Quarter 2022 Earnings Call. Also with me today are Steve Yarad, our CFO; Gudmundur Kristjansson; and Bryan Wulfsohn, our Co-Chief Investment Officers and other members of senior management. The third quarter of 2022 offered no respite from the extremely difficult prior 2 quarters and was another historically challenging period across all financial markets. Bond markets continue to be very volatile with rates backing up in the third quarter and agency mortgage spreads touching near all-time highs not seen since the great financial crisis, which you'll recall, in 2008, for a time, it was not certain that Fannie or Freddie credit was good. Equity markets experienced a particularly volatile third quarter. Although the S&P 500 was down only 5% for the quarter, it was up 14% through mid-August and then down 17% over the second half of the quarter.

Inflation numbers continue to disappoint with stubbornly high prints despite considerable action already taken by the Fed. Although the Fed has been consistently clear that their sole focus is on inflation, market participants seem to seize on random and sometimes tenuous signals to anticipate a pivot or a pause, driving yields down and stocks up for a short period until it becomes obvious that this temporary euphoria was ill-advised at which point we retrace levels in stocks and bonds. With the War still ranging in Ukraine and recent financial stresses in the U.K. and Japan, this market volatility is not likely to subside soon. As a result, financial market investors have generally remained on the sidelines, even as spreads and yields have moved in many cases to historically wide levels. Now admittedly, the conspicuous absence of the Fed is an active buyer in the market today as they have been for nearly all of the last 15 years, called into question any notion of what an average or normal spread is or what was observed over that time period.

But even looking back prior to 2007, many of the levels that we see in the market today look quite attractive. Recent agency mortgage spreads as wide as plus 190 versus 10-year treasuries effectively puts a floor on non-Agency RMBS, which explains even wider spreads on credit products today. In fact, there were only 4 times in the last 36 years that agency MBS spreads have been wider 1986, 1998, 2000 and 2008. And except for 1986, all these periods coincided with systemic and unique financial market crisis and all 4 x overlap with periods of falling rates, whereas the dislocation we see today is largely a function of rapidly rising rates. I referred to 1994 during our first quarter earnings call earlier this year, when the Fed raised rates 6x for a total of 250 basis points and then another 50 basis points in February of 1995. During this time, 10-year yields rose 240 basis points from $5.63 just prior to the first increase to a peak of 803. Agency mortgage spreads widened from 72 basis points just prior to the first Fed action to a peak of 116.

That's a 44 basis point widening in late April of '94 and then Agency MBS rallied through the summer and finished the year in the low hundreds. Contrast this with today when similar Fed tightening and almost identical increases in 10-year yields have led to over 130 basis points of agency spread widening from the beginning of the year, tights in the 50s. A more recent rising rate widening for Agency MBS would be the taper tantrum in 2013. Agency mortgage spreads had widened early in 2013 from plus 41 in January, and we're about plus 70% versus 10s before Chair Bernanke's announcement that the Fed would begin tapering asset purchases at some future date set off the taper tantrum, which we all remember set off a sell-off in treasury and push mortgage spreads wider. 10-year yields rose from 192 just before the announcement to 3% in early September and agencies widened, but only by 25 basis points to plus 95% in early July, and they were back inside of plus 70 by September.

Some of my recollection of the taper tantrum was much more dramatic than these actual numbers suggest. And again, this puts today's spread environment in context. While the magnitude of Fed hikes has exceeded some expectations, the direction was foreseeable. Our team at MFA took steps to preserve capital and manage our duration beginning in the fourth quarter of last year when it became clear that the Fed would need to move more dramatically than previously expected. We had $900 million of interest rate swaps at year-end last year. And as rates rose and duration extended, we increased this position to $2.4 billion at March 31 and again to $3.2 billion at June 30. This swap book has a weighted average fixed pay rate of 1.69%. So not only does this lock in what is now considered a cheap funding cost, but we also benefit from a positive carry from the floating rate received leg, which is now approximately 200 basis points with yesterday's Fed action priced in.

We deliberately slowed our loan acquisition pace beginning in the first quarter of the year, and at the same time, we've continued to execute securitizations throughout the year, 9 securitizations and over $2.7 billion of UPB. Through our swap position in these securitizations, we have now effectively locked in 99% of our asset-based financing costs. Taken together, these steps mitigated our book value decline. Although MFA was certainly not immune to book value diminution, our relative book value performance versus many in the peer group was considerably better. It's also worth noting that a significant portion of MFA's book value decline is due to fair value marks on loans on our balance sheet, the vast majority of which we will likely hold until payoff or maturity. As of September 30, the market discounts to unpaid principal balance on our $6.8 billion of purchased performing loan portfolio is approximately $668 million.

We have securitizations that are also marked below par by approximately $325 million. Netting these 2 discounts produces a potential book value increase of approximately $343 million or $3.37 per share, assuming the loans and liabilities all pay off at par. This amount would be offset by any realized losses on loans, but expected losses are relatively low, particularly on our purchased performing loan portfolio. We have also prioritized liquidity for all of 2022, and we ended the third quarter with approximately $434 million in cash. while holding a substantial portion of our equity in cash obviously creates a drag on overall ROE. This is not the time to swing for the fences. -- having a sizable liquidity position provides a cushion and volatile market and gives us the ability to take advantage of opportunities that arise. We've also fortified our balance sheet as we show on Pages 6 and 7 of our presentation. We've increased non-mark-to-market financing. As of September 30, 71% of our financing is non-mark-to-market and our recourse leverage was only 1.7x at quarter end.

Our loan financing agreements are term financings and 65% of this financing has a maturity date greater than 6 months. The borrowing spreads and haircuts on existing loan financing is fixed for the term of the financing agreement. Typically, we extend these agreements for another year, a couple of months before their term expires. And despite market volatility, financing is available for multiple counterparties, and we continue to field calls from other significant bank lenders eager to provide financing. Finally, I'd like to talk a little bit about housing and residential mortgage credit. Clearly, the selloff in rates and widening in mortgage spreads has had a profound impact on mortgage rates and housing activity has slowed dramatically. We're beginning to see some modest home price declines at least month-over-month in some parts of the country. After a dramatic -- after the dramatic home price appreciation over the last 2 years, this should not be a surprise

However, as we show on Page 8, our loan portfolio has considerable embedded HPA, which combined with amortization has lowered the current LTVs in most cases, to the mid-50s. So to summarize how MFA is positioned, we continue to maintain substantial liquidity. We have fortified our balance sheet with non-mark-to-market financing, fixed rate financing through swaps and securitizations and term financing agreements for our loan products. And our loan portfolio has benefited from seasoning and home price appreciation and has a low LTV, so borrowers have substantial equity in their properties. And I'll now turn the call over to Steve Yarad to discuss additional details of our financial results.

Thank you, Craig. On Slide 4 of the company update presentation, we present a snapshot of our Q3 2022 results. MFA's GAAP earnings were negative $63.4 million or $0.52 per common share. Distributable earnings were $28.2 million or $0.28 per common share. Net interest income for the third quarter was $52.3 million. Book value declined modestly during the quarter, with GAAP book value down 6.8% to $15.31 per common share, while economic book value was down 8.3% to $15.82. We ended the quarter with a leverage ratio of 3.6x. Recourse leverage, which excludes securitized debt was 1.7x at September 30, 2022. And with that, I'll turn the call over to Gudmundur.

Thanks, Steve. Turning to portfolio acquisitions. Loan acquisitions declined modestly to $710 million in the quarter as we continue to be selective in our investment activities and to require higher yields on the capital that is deployed. We continue to find the best opportunities in business purpose loans organically sourced through our leading nationwide EPO originator, Lima One, where we funded $520 million of new originations and rehab draws in the quarter. We also selectively acquired $179 million of non-QM loans in the quarter. The new acquisitions were an attractive yield of approximately 8%. And with the strong credit characteristics with average LTV of about 67% and average FICO score of plus 743.

The portfolio size was relatively unchanged as portfolio runoffs and asset valuation declines largely offset acquisition volumes. Lima One continues to thrive under MSA's ownership and has established a reputation as a leading nationwide BPL originator with strong origination volume, excellent credit performance and prudent underwriting. Lima's trailing 12-month origination volume is approximately $2.5 billion compared to $900 million at the time of acquisition on July 1, 2021. Lima originated approximately $640 million maximum loan amount in the third quarter, modestly up from approximately $600 million in the second quarter. About 3/4 of the third quarter origination was short-term RTL loans. Continuing the trends we have seen throughout the year of stronger demand for short-term products versus the more rate-sensitive longer-term rental loans. The credit performance of Lima originated loans owned by MFA continues to be excellent with 60-plus day delinquent loans of less than 2%.

All year long, we have been focused on the impact of higher rates, tighter monetary policy and potentially softer economic conditions on our portfolio. To get ahead of that, we have throughout the year, proactively managed the risk reward profile of Lima's BPL originations by tightening underwriting standards, increasing risk-based price adjustments and increasing loan coupons in general. As a result, the credit quality of our portfolio, which was excellent before, has improved further in the year, while our average origination coupon has increased. As an example, the average FICO score on Lima's 2022 RTL vintage of approximately 750 has increased by about 10 basis points and 20 basis points compared to the 2021 and 2020 Vince, respectively.

And the average coupon in our origination pipeline has increased by 400 basis points this year and is currently over 10%. At the same time, smaller BPL originators that are dependent on whole loan sales to third parties have been impaired by the market volatility, which has created an opportunity for Lima to grow market share while maintaining prudent credit standards. The result has been a fairly steady pipeline of increased credit quality. We are starting to see some softening in borrower demand due to higher rates and tightening of underwriting standards and expect origination volume to decline in the fourth quarter. We continue to be focused on liquidity and availability of financing to support our BPL origination. And to that end, expanded our RTL financing capacity in the quarter by approximately $650 million, of which about 65% is on non-mark-to-market terms.

In addition, RTL loan paydowns of about $148 million exceeded draws of about $107 million in the quarter. I will now turn the call over to Bryan, who will discuss MFA's securitization activities and portfolio credit performance.

Thanks, Gudmundur. We have made significant progress in our plan to obtain a greater share of our financing through securitization. Over the last 12 months, we have issued $3 billion of nonrecourse securitized debt through 12 securitizations. The securitizations issued cover many of our loan types from non-QM and SFR to RPL and RTL. 2022 has been a challenging year to be an issuer as spreads required from bond investors have pushed wider materially. To start the year, non-QM and SFR, AAA spreads were in the low 100s and moved 150 basis points wider by June. In August and September, there was a short-lived respite, which we took advantage of to issue a noncitization with AAA spreads in the high 100s just before spreads widened out again to the mid-200s. As Craig has previously mentioned, every time we would feel disappointed about our execution, spreads were perceived to lead even wider in subsequent peaks, which in hindsight made our levels look great.

We will continue to be a regular issuer in the market as we believe non-mark-to-market securitization financing provides significant benefits to our portfolio. Moving to our portfolio's credit performance. Delinquencies continued to improve across the portfolio over the third quarter. The percentage of loans 60-plus days delinquent in September for the 9 QM and S4 portfolio was 2%. The RTO portfolio was 6%. The RPL portfolio exhibited 18% with almost half of those loans delinquent making payments. In the portfolio of loans purchased NPLs, 41% of the remaining loans are 60-plus days lengthy. However, about 30% of those borrowers are making payments. We are laser-focused on our remaining nonperforming loans as momentum has shifted in home prices. Our asset management team is working to make sure our time line to resolution remain as short as possible as protracted time lines can be costly.

As a mitigant, our portfolio maintains a low LTV aided by the significant HPA experience over the past 2 years, which helps limit potential losses. Relating to modifications, we have adjusted our loss mitigation waterfall to take into account the current mortgage interest rate landscape. To receive a modification, borrowers in most cases, will now see an increase to the mortgage rate, which was not the case in the years following the financial crisis. Lastly, we have been successful in reducing our REO portfolio by 141 properties to 412 since the beginning of the year, taking $20 million of net gains as we remain aggressive moving properties in an increasingly tricky housing market. And with that, we'll turn the call over to the operator for questions.

Ladies and gentlemen, if you'd like to ask a question on today's conference, please press 1 and 0 on your telephone keypad. You may remove yourself from that queue at any time by repeating the 1-0 command. If you are using a speaker phone, we ask that you please pick up the handset before pressing the numbers. Once again,if you'd like to ask a question please press 1 then 0 at this time.

(Operator Instructions]

And we will begin the queue with Bose George with KBW. Please go ahead your line is open.

This is actually Mike Smith on for Bose. Thanks for taking the question. F irst one, given where you can aggregate and securitize loans, where levered ROEs on new investments? And then kind of as a follow-up, how are you thinking about kind of the balancing act between offense buying back stock and maintaining liquidity?

So I'll let probably Gudmunder talk about the ROEs on securitized, and then I'll talk about use of cash.

Yes. So as Brian pointed out, securitization execution has gotten more challenging throughout the year. But what we've done, as I explained throughout the years, raised our coupons and our yield requirements. And so right now, on the SFR side, we're originating coupons around 8.5% to 9%. So the yield that we're targeting there is probably an mid-8s. Securitization execution is mid- to high 7% in terms of costs. So when you do the math and in terms of the amount of bonds you could sell, you could say that the ROE is probably low double digits or around 10%. But the thing is we are also being quite cautious in the way where we approach it. We need to make sure that we're pulling in loans with high enough yields to basically be able to absorb some of the volatility in spreads -- and that's really how we're thinking and think about yields there of been 10% and 10.5%. The securitization and execution, there is also quite challenging. And if you were to do a deal, it probably cost you about 8.5% to 9%. So you're earning about 100 basis points of spread probably, but your asset yield is 10%. And so the ROE on that is probably mid-double digits. But importantly, if you think about the RTL execution, we said on the call, obviously, that we expanded our financing capacity in terms of warehouse setups and expanded also a non-mark-to-market component of that. So we do have the ability to hold those loans on a warehouse where the cost of funds is substantially lower. You can think warehouse cost of funds are probably anywhere from swaps so for plus 250 to 280, something like that, -- and then with SFR right now at 3.75%, the cost of funds there is close to 6.5%. And so if you're creating loans that yield 10%, you got a decent amount of spread there, and then you continue to just do the math. If the Fed hike is another 100 basis points. The cost of funds go to 7.5%, still quite attractive spread relative to the ads that we have. So we think we'll continue to do securitization, as Brian pointed out, from a liquidity and risk management perspective. But clearly, at the time being, there is -- it's more advantateous, especially in the shorter product to hold on warehouse if you do have those non-mark-to-market term of facilities. And just the last piece on the kind of the financing side of that. I just want to emphasize that, as Craig pointed out in his remarks, we have $3.2 billion of interest rate swaps, and that almost 100% offset the variable funding on our warehouse facilities. And so as the index that increases with SFR, we're going to receive on the floating side on those swaps on the option side.

Great. Thanks

And Mike, in terms of the -- how are we thinking about deploying cash? I mean we're obviously cautious, right, with the volatility that we've seen this year, and this is in the first earnings call, you've heard that on because I've listened to a bunch of them, too. So we're prioritizing liquidity, we're shoring up the balance sheet. Everything is on the table every day. So as we deploy cash, it could be into assets. It could be into buying stock -- but I think we're probably more focused on liquidity than necessarily rushing to make investments these days

Great. That's good color. And then maybe just one on BPL. Obviously, that sounds pretty short duration. Just wondering who's providing the permanent financing to a lot of these borrowers? And have you seen any changes in credit availability on that front?

When you say, financing, you're thinking about our counterparties that we borrow from?

No, I mean like the underlying borrower for like a Lima One loan on like, say, RTL, who's providing the person on that.

You mean the takeout when they sell when they flip the property?

Yes, exactly.

Okay. Okay. Sorry, follow. So yes, I mean, just the same as has always been, look, if you have an experienced borrower, keep in mind, most of the people we deal with or borrowers to Lima One are highly experienced real estate investors. And they'll have strategies around repositioning properties, whether it's single-family, multifamily, They'll be doing low construction, low rehab or medium lot of rehab. Some of the strategies will be around selling the property as we have other strategies will be around renovating and then refinancing to a rental property rental strategy. And so the exit there can be a few different things. If it's a sale of a property, then there's an end buyer, right? And that buyer maybe borrowing Fannie, Freddie loan to acquire the property. If the strategy of the real estate investor is to retain the property and add to his rental portfolio, he will most likely refinance that into some sort of a rental strategy loan. And Lima also makes those loans, so we tend to do some of thos e refinancing in-house. It could also be away from us from some of the sort of the competitors out there. But it is -- those best financing is widely available. The price is obviously higher than it has been in years past, but it's widely available.

Great. Thank you for taking the questions.

We'll now go to the line of Steven Delaney with JMP Securities. Please go ahead your line is open.

Thanks. Good morning, Craig and team Thanks for taking the question. I'd like to start with the interest spread. It looked like it went up nicely to 164 basis points compared to about 130 in the second quarter. I'm just trying to reconcile that with your distributable EPS coming in at $0.28 versus 46%, I know you're keeping a lot more cash that probably implies lower leverage. But is there anything else in there that I'm missing anything that was more onetime in nature, given the improvement in spread and versus the decline in distributable EPS? Thanks.

So Steve, one thing -- This is Stephen Yarad. One thing I'll point at you, Steve, is the spread includes the impact of the swap benefit, whereas the net interest expense that we report for GAAP doesn't. So that's one of the reasons you're seeing the full benefit of the swaps being in a net received position now reflected in that cost of funds and therefore in the spread, whereas the net interest expense that we're required to report the GAAP, the dollar value of that doesn't show that. So it's somewhat of a geography issue on our income statement. So that's one thing I'd point out to you that might help to reconcile that a...

That is very helpful. Yes. Okay. Just because the -- yes, if you're getting that in GAAP, but you're not getting that benefit from the swap in your distributable is what you're saying?

Well, that's not quite right. You are getting the carry on the swaps in the distributable. It's a geography issue in the income statement.

Okay. Well, my follow-up with that afterwards, Steve, if you don't mind. Lima One, I just wanted to be clear. I heard that I think you did $500 million in originations in the third quarter. I heard comments that, that will likely go down. Can you make any estimated range of where you would think that would be quarterly going forward over the next 2 to 3 quarters?

Yes. Steve, yes, that's right. I mean we -- as I said, based upon our proactive approach to managing our pipeline, and we've been raising rates throughout the year and tightening underwriting, reducing LTVs and things of that nature. Frankly, we were surprised how well the pipeline held up through the third quarter because, again, we were raising rates aggressively and pulling in some high coupons. But we're seeing some softening in the pipeline. And I think I said that -- so on a maximum loan amount, Lima originated about $640 million in the third quarter. So that includes like the total amount that is subject to draws and things of that nature. For the fourth quarter, I would expect originations probably to decline to like probably in the 400, maybe low 400s based on what we're seeing close.

Okay. So still some business there and coupons north of 8%, but just slower pace.

Well, the coupon is now, as I said -- and Craig mentioned and I mentioned in the current pipeline, the weighted average coupon is over 10%. And so our view is, yes, these are great loans to make, but we are very cognizant of the fact that the volume is coming down because the rates are higher, but also because we're being more selective in terms of the credit exposure we take.

Got it. Got it. And Craig, just to go back, I think Mike was trying to touch on this. I mean it seems you guys have done a great job reacting to this, 99% fixed-rate financings. I mean, I don't see how you can have your balance sheet in any better position and your credit metrics are holding up. The market is not rewarding this. I think that a lot of that is macro and not specific to MFA at all. But in any event, you're trading 60% of book the yield is 18%. You're trying to maintain liquidity. Can you share with us any thoughts as to how you and the Board are looking at this in terms of the balance of how you're delivering value to shareholders and what's the best way to do that? And I guess my point is, are all 3 of those things, important factors and kind of on the table for discussion, the dividend, if you will, and the liquidity. How has all that come out and when you're looking at things going forward? Thank you

Sure, Steve. And I appreciate you recognizing what we've done on the balance sheet and on the rate hedging side. In terms of how we deploy capital, as I said on a prior question, all things are on the table every day. I mean we are somewhat limited in how much stock we could buy back right under a plan. There's a limit, a daily limit. But clearly, that's one of the things that we think about. And by the way, we have bought over $100 million worth of stock back this year, and it obviously it hasn't helped a whole lot which is a little frustrating. In terms of dividends, I know there was this notion of liquidity. I mean, at the end of the day, our cash position on September 30 was about $435 million. So with the current dividend level, we can pay that dividend for 2.5 years with that cash.

Dividends are not a liquidity issue. It's more of an earnings issue. And obviously, our distributable earnings in the third quarter were below the current dividend level, although our distributable earnings in the aggregate have covered the dividend over the last 4 quarters despite the lower Q3 print. Lower distributable earnings should not necessarily come as a surprise given the rate environment that we're living through. And given this backdrop, we've prudently reduced our asset acquisition pace given recent and persistent rate volatility. And so maintaining that substantial liquidity position has been a priority for us. And so we could have made more investments, right? So while marginal investments might look cheap and we've seen that over and over this year that marginal investments that look cheap get cheaper and they get cheaper again.

So it's difficult to make the case that this will change in the near future. But if we had invested -- let's just say we invested $150 million at the beginning of the third quarter. And let's say that we levered at 4x and let's say that we could earn a 15% ROE, we might have added $0.05 or $0.06 to our distributable earnings, but our book value would likely be down 3x that much on those same investments. So I think it's great to have sort of 2020 hindsight, but I think that's been part of our thought process this year is as cheap as things look, it's difficult to really have conviction. And I think I've heard that across almost all the other earnings calls I've listened to, yes, things look really cheap. But in this market environment, liquidity and a strong balance sheet are really the -- at least in our opinion, those are the most important things. So I don't know if that helps, Steve.

It does. You came through loud and clear. So thanks for the comments. Look forward to seeing you guys at our conference in a couple of weeks. Thank you.

Thanks, Steve.

And as a reminder, if you'd like to place yourself in the queue for question, you may press 1 and 0 at this time. We'll now go to the line of Eric Hagen. Please go ahead your linr is open.

Hey. Good morning. Hope you're doing all right. I'm curious on 2 non-QM related questions. What are the triggers that would maybe support you having to buy loans out of the securitization trust for, I guess, non-QM BPL. And how do you think the funding for delinquent loans once you bring them back on to your balance sheet on a warehouse line, for example, could differ versus a performing loan. And then a lot of non-QM loans have prepayment penalties, but it almost seems counterintuitive in a market like this to enforce the penalty. Are there prepayment penalties for your non-QM loans -- how are you guys thinking about the turnover and the kind of ability for borrowers to potentially refinance if they needed to or wanted to? Thank you.

Sure. Thanks for the question, Eric. So for one, in our non securitizations, if loans go delinquent, they don't come out of the securitization, they stay there. So the only reason that loans will be required to be bought out of the securitization is that somehow there was like an underwriting defect found, which then we would have that right to put that loan back to whomever the originator would be--

Could be breaches we have portfolio (inaudible)

So by performance, loans don't have to be bought out. And that's sort of the same for BPL securitizations as well. And to your question about prepaid penalties, yes, the loans made to investors do have prepayment penalties, and you are correct if loans are valued at a discount, right, why would you necessarily -- if that's the sole reason that kept the borrower from prepaying a loan, why would you enforce that prepayment penalty? And the answer is you could sort of look at it selectively. But that's not really -- those prepaid penalties aren't at a level where they would really restrict the borrower from making that refinance or sale of a property decision. But if that -- if a borrower came to us and said, I would make this move. But for this prepayment penalty, we would evaluate that at the time.

Got it. That's helpful. Can you describe any sort of servicing advance obligation for the non-QM securitizations and just how that obligation for servicing and supporting the trust, just kind of works in general?

Yes, sure. So our securitizations don't have advancing for P&I, right? So the only advances that would take place would be protective advances in the case if a loan were to go delinquent. So that would be sort of taxes in insurance and property preservation. And that sort of comes off -- would come off the waterfall and it's not sort of a direct expense, you would say, of MFA

Got it. Got it. That's helpful. Thank you guys so much

And with that, we have exhausted all questioners in queue. Please continue

All right. We've exhausted everyone. Thank you very much for your interest in MFA Financial. We look forward to our next update when we announce fourth quarter results in February. Happy holidays to everyone.

Ladies and gentlemen, that concludes our conference for today. Thank you for your participation and for using AT&T Event Conferencing. You may now disconnect.