MFA Financial, Inc. Aktie

Greetings, and welcome to the MFA Financial First Quarter 2026 Financial Results. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the call over to Hal Schwartz, General Counsel, to begin. Thank you.

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 the year ended December 31, 2025, 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 first quarter 2026 results. Thank you for your time. I would now like to turn this call over to MFA's CEO, Craig Knutson.

Thank you, Hal. Good morning, everyone, and thank you for joining us for MFA Financial's First Quarter 2026 Earnings Call. With me today are Bryan Wulfsohn, our President and Chief Investment Officer; Mike Roper, our Chief Financial Officer; and other members of our senior management team. I will offer some general remarks on the macro economic and political landscape and will then provide an update on MFA's business initiatives and portfolio activities. Then I'll turn the call over to Mike, followed by Bryan before we open up the call for questions.

Moving to market conditions in the first quarter of 2026, it was very much a tale of two market environments. Fixed income markets began the year with a continuation of strong investor demand and low volatility that we experienced in the second half of 2025. The economy continued to exhibit resiliency and the labor market seemed to stabilize, particularly with a surprisingly robust January nonfarm payroll print in early February.

Mortgages performed particularly well, aided also by a directive for the GSEs to purchase $200 billion of agency mortgage-backed securities in early January. Unfortunately, the party ended abruptly with the onset of a war in Iran, which spiked volatility, pushed rates sharply higher and dramatically raised oil prices. Higher energy prices renewed fears of inflation and markets adjusted expectations for fewer or even no rate cuts later this year.

Mortgage spreads widened significantly against this backdrop and contributed to an economic return for MFA in the first quarter of negative 1.2%. However, despite the market volatility and heightened geopolitical tension, markets remained open and orderly. We priced 2 non-QM securitizations in March. And while spreads were modestly wider, the market function normally. This is a testament to the expansion, maturity and depth of these markets over the last 4 years.

The second of these 2 non-QM securitizations was a relever of 2 previous deals, which is a good example of what we often refer to as an underappreciated source of optionality that our ability to call these deals as they season and pay down, enabling us to lower borrowing costs and unlock additional capital.

We grew our investment portfolio to $12.5 billion in the first quarter adding almost $700 million of agencies, including TBAs, $471 million of non-QM loans and Lima One originated $219 million of business purpose loans. Our asset management team continues to work diligently to resolve delinquent loans in the portfolio. This can be madly time-consuming, but our team has been working out delinquent loans for over a decade the majority of which were purchased as nonperforming loans, and they're the best in the business at this and uniquely suited to the task.

Finally, our listeners will recall that we began a program in the third quarter of last year to issue additional shares of our 2 outstanding preferred stock issues via an ATM and use the proceeds to repurchase common shares at a significant discount to book. While this program is modest in size thus far, this is very accretive. And importantly, because we are issuing equity in the form of preferred stock, we are not shrinking our equity base despite repurchasing common stock.

Finally, we continue to pursue expense reductions, both at MFA and at Lima One, which Mike will discuss shortly. I will note that we have added an additional distributable earnings metric that we are introducing in response to requests from analysts and investors, distributable earnings prior to realized credit losses and Mike will describe this in more detail shortly. We believe that this new DE metric offers a useful representation of how we think about the earnings power of the portfolio. And for those of you that follow commercial mortgage REITs, this should be a very familiar concept.

Taken together, MFA has a diversified business strategy that includes multiple attractive target asset classes with a robust ability to source these assets, a reliable and proven ability to obtain durable nonrecourse leverage to generate attractive ROEs, a highly confident in-house asset management capability, a keen focus on expense management and a demonstrated responsible capital issuance philosophy. And I'll now turn the call over to Mike to discuss our financial results.

Thanks, Craig, and good morning, everyone. At March 31, GAAP book value was $12.70 per share and economic book value was $13.22 per share, each down approximately 3.8% from the end of 2025. MFA again paid a common dividend of $0.36 and delivered a quarterly total economic return of negative 1.2%.

For the first quarter, MFA generated a GAAP loss of approximately $1 million or $0.11 per basic common share. Our GAAP results for the quarter were adversely impacted by net mark-to-market losses on the portfolio of approximately $28.8 million driven by higher rates and wider spreads on March 31.

Net interest income for the quarter was $59.2 million, an increase from $55.5 million in the fourth quarter driven by rate cuts late last year and growth in our investment portfolio. These benefits were partially offset by interest income reversals totaling $3.5 million associated with loans moving to nonaccrual status in our transitional loan portfolio during the quarter.

On the G&A front, we're happy to report that we again made significant progress with our cost reduction initiatives. In February, we entered into a series of agreements to relocate our corporate headquarters to a new location here in New York without paying any early lease termination fees. As a result of these agreements, we expect some short-term noise in our reported G&A, including $2.4 million of accelerated noncash depreciation expense recognized this quarter an additional $5 million expected in the second quarter.

Following these accelerated noncash charges, we expect to realize run rate expense reductions of approximately $4 million per year related to the move or nearly $40 million in total over the remaining term of our prior lease. Including the expected savings from the relocation we now estimate that our expense reduction initiatives have achieved nearly $20 million per year of run rate overhead savings versus 2024 levels.

Moving to our DE Distributable earnings for the first quarter were approximately $31.1 million or $0.30 per share, up from $0.27 per share in the fourth quarter. The increase was primarily attributable to a $0.03 benefit associated with the lease modification and approximately $0.02 of higher mortgage banking income at Lima One. These benefits were partially offset by an aggregate $0.02 charge related to higher carrying costs on REO and higher realized credit losses on our fair value loans. We remain focused on growing ROEs, and we continue to expect that our DE will begin to reconverge with the level of our common dividend later this year.

As Craig mentioned earlier, this quarter, we are introducing an additional non-GAAP measure, which further adjusts our distributable earnings to exclude realized credit losses on our residential whole loans held at fair value. We're providing this new disclosure to give additional context around our distributable earnings as credit losses on our legacy multifamily portfolio continued to flow through our DE.

As we've noted on prior calls, because resolving NPLs doesn't impact our DE until long after the loan has been marked down on our GAAP results and book value, these losses can potentially obscure the current earnings power of the portfolio. While credit losses are a normal and recurring part of investing in credit assets, we expect that the resolution of the legacy multifamily portfolio and improvements in processes and underwriting more broadly at Lima One should result in significantly lower loss rates across more recent vintages of origination.

As a result, we believe this new metric, alongside our reported GAAP results and our existing DE disclosure can give investors a clearer view of the underlying earnings capacity of our investment portfolio as we work through the resolution of these troubled legacy assets. While the timing of loan resolutions and result in credit charges can be difficult to reliably forecast, we expect realized credit losses on the legacy transitional loan portfolio to accelerate meaningfully in the second quarter, before beginning to normalize as we move through the back half of 2026 and into the first half of 2027.

As a result, we expect that the difference between DE and this new supplemental DE measure will narrow considerably over time. and we anticipate reassessing the usefulness of this new measure as the runoff transitional portfolio continues to wind down. Finally, subsequent to quarter end, we estimate that as of the close of business on Friday, our economic book value was approximately flat to the end of the first quarter. I'd now like to turn the call over to Bryan, who will discuss our investment portfolio and Lima One.

Thanks, Mike. We acquired over $1 billion of residential mortgage assets in the first quarter. This included $471 million of non-QM loans, nearly $400 million of agency securities in addition to $300 million of TBAs and $219 million of business purpose loans originated by Lima One. Non-QM remains our largest asset class.

During the quarter, we grew our non-QM book to $5.5 billion. We added $471 million of new loans with an average coupon of 7% and an LTV of 68%. Although our portfolio has grown significantly in recent years, along with the broader non-QM industry, we remain highly focused on credit quality and continue to review every loan prior to acquisition. Credit performance in our non-QM book remained strong with a default rate just above 4%.

During the quarter, we issued 2 securitizations. First, in early March, we issued our 22nd non-QM deal, selling $326 million of bonds at an average coupon of 5.12%. The newly originated loans in that deal carry an average coupon above 7%. Later in March, we resecuritized over $400 million of fees on non-QM loans that had been in 2 deals we issued several years ago. This relever unlocked approximately $40 million of cash and additional financing capacity. We expect this move to be accretive to our earnings moving forward.

During the quarter, we continued to grow our agency portfolio, which now exceeds $3.5 billion in size. Our investments this quarter continue to focus on low pay-up spec pools. After the escalation in the Middle East unleashed to broader sell-off, spreads widened by nearly 40 basis points from the tights, and we took advantage of the volatility establishing a $300 million TBA position in late March. Since quarter end, spreads have tightened about 10 basis points. We expect to add to the portfolio depending on market conditions and excess investment capacity.

Turning to Lima One. Lima originated $219 million of business purpose loans during the first quarter. This included $145 million of new transitional loans and $74 million of rental term loans. We continue to sell the longer-duration rental loans at a premium to third-party investors. This quarter, we sold $81 million, generating $2.7 million of gain on sale income. Mortgage banking income at Lima One rose to $7.7 million, an increase of 34% from the fourth quarter.

During the quarter, Lima's monthly submissions and origination pipeline reached their highest level since 2024. With the recent opening of our wholesale channel and the relaunch of multifamily lending underway, we expect Lima One's contribution to our earnings to grow from here.

Lastly, touching on our credit performance. During the quarter, delinquencies rose in our residential loan portfolio to 7.8%. The increase was driven primarily by elevated default activity in our legacy multifamily book which, as a reminder, has been in runoff mode for the past 2 years. We've made further progress shrinking that multifamily book and resolving nonperforming loans since quarter end, and our delinquency rate has already fallen back to 7.3%. We look forward to recycling that capital back into income-producing assets as we move through the year.

In summary, Q1 was a productive quarter for our investment platform. We grew the portfolio. We executed 2 non-QM securitizations, saw strong momentum at Lima One and continue to move our credit borrowings towards non-mark-to-market financing. We believe the current environment positions us well for the year ahead. And with that, we'll turn the call over to the operator for questions.

[Operator Instructions]. Your first question comes from Bose George with KBW.

Actually, how much capital was tied up in the remaining multifamily transitional portfolio at quarter end? And just your guidance on the convergence between the EAD and the dividend sort of include the redeployment of that as well?

Yes, to answer your second question first. The forward guidance on DE reconverging by the end of the year does include anticipated pay downs of some of the troubled assets and redeploying into our target assets. To answer your question on how much capital is locked in that multifamily book, it's just over $100 million, $101 million at the end of the quarter.

Okay. Great. And then on the expenses, so after the second quarter when -- and that sort of noise is over with the depreciation, what's kind of a decent run rate for expenses going forward?

Yes. So I think there's always a little bit of noise from quarter-to-quarter in our G&A for various reasons. So for example, this quarter, we had about $4 million of accelerated noncash stock-based comp charges which is consistent with the first quarter of the past few years and then the 2.4 of the accelerated depreciation. So if you sort of take this quarter and sort of normalize for those one timers and then it's about $0.01 a quarter for the -- or $1 million a quarter for the lease changes. I think that's a pretty good start for the run rate of G&A.

Okay. And one -- and each 1Q will have that noncash comp piece that kind of bumps it up a little bit.

Yes, exactly. So the accounting rules require us to expense awards made to retirement-eligible employees on the grant date instead of over the 3-year service period.

Your next question comes from Marissa Lobo with UBS.

On the Agency MBS portfolio, how should we think about it? Is it ultimately something that you're going to rotate back into non-QM and BPL or is this a strategic reweighting in the portfolio?

Yes. I would think we'll most likely have some exposure, but the level of exposure will be wound down a bit, depending on the attractiveness on the credit side. So as Lima does grow their production, you could expect that agency portfolio as we received paydowns and we could also sell bonds to help fund the growth at Lima One in addition to non-QM purchases as well.

Okay. Great. And for Lima One, what is its posture on AI and automation with servicing underwriting? I mean, is there a cost target that you're willing to share for '26, '27 there?

I know we were trying to reduce G&A there by sort of 10-plus percent and we were -- we're sort of on the way of doing that. We had some efficiencies gains in Q1. We are utilizing AI down there, utilizing the Claude and Anthropic's AI infrastructure to help accelerate those moves. It's unclear at what point if there was an exact percentage of cost reductions we can say AI will accrue to the business. But it's one of those things that we're exploring and will be sort of ongoing benefits as we utilize the AI code and agents down there.

Your next question comes from Matthew Erdner with JonesTrading.

Like you touched on the multifamily, is there anything that specifically drove the delinquencies to increase quarter-over-quarter significantly?

Well, the whole portfolio is really -- the loan structure was the 3-year with sort of 2-year extensions. So they're all really coming up on maturity and have been extended. So at this point, there might be some where the borrower has been out trying to get refinancing and they realize they can't get the same amount of proceeds that they borrowed initially.

So then they're -- they sort of call it a day, and we have to deal with the property or work out a mutual resolution. But really, I think it's the fact that they're sort of towards the end of the life, you're going to see more delinquencies in certain cases where the borrower isn't been able to refi or sell the property timely.

Got it. And then as it relates to that, should we expect you guys to kind of bring some of these properties in, stabilize and then sell? Or are you guys going to look for them to kind of just hit the market, go out, see what they can get and then move on from the asset?

I mean it's really a case-by-case basis. Some assets, we will try to stabilize where it makes sense, depending on the time and capital required to do so. But in some instances, it just makes sense to hit the bid and move on.

Got it. That's helpful. And then one last one for me as it relates to this. I appreciate you throwing in the adjustment there for DE, should we expect a number kind of similar to 3Q, 2Q of last year?

Yes. So listen, as I said in my prepared remarks, it's really hard to have a reliable forecast of when exactly the losses are going to hit. Every foreclosure is different, every borrower is different and there can be some timing differences from quarter-to-quarter pretty easily. I think with that said, in the immediate term, and we expect this primarily in the second quarter, we're expecting somewhere in, call it, the high teens of credit losses on multifamily resolutions.

Like I said, it's -- and part of the reason why our guidance is the back half of 2026 is one of these bad multifamily loans rolling into the next quarter can be a $0.03 or $0.04 swing in DE or the timing of that resolution. But our base case is somewhere in the mid- to high teens of credit losses for the second quarter before beginning to normalize in the back half of the year and into '27.

Your next question comes from Mikhail Goberman with Citizens JMP.

If I could just to clear up one thing. When you talk about distributable earnings converging with the $0.36 dividend in the latter half of the year, are you referring to the current $0.30 figure you printed in Q1 or the $0.34 prior to realized credit losses figure?

Yes, that's referring to our $0.30 DE or the DE with loss adjustments.

Got you. And sort of in -- looking at the Lima One pipeline, what do you guys see the product mix of that going forward? Obviously, a very good quarter to start the year. You guys see momentum picking up in Q2, Q3? And just kind of your thoughts on the product mix there going forward?

Yes. I mean, so right now, the mix is really split between the transitional and the rentals. As we sort of bring wholesale more online, we could see growth on the rental side, which could accelerate. But we're also seeing great growth on the transitional. So when we said pipeline is sort of the highest it's been in the past couple of years, right, that's plus or minus $20 million at the moment and you think about what pipeline converts to actual loan, usually might be, say, 50% to 60% to 75%, so depending on coupon timing, what have you.

So that might go to like $100 million or plus or minus per month in the near term, and we still expect to grow from there. And one thing we haven't really hit upon yet is multifamily is relaunched, but the pipeline and submissions that's really not including the multifamily figures.

So we still think it's sort of -- we're in a slow growth mode. We took -- looked at a lot of loans -- but we haven't really -- we haven't closed anything yet. So the hope is as that really comes online maybe back half of the year that could really help accelerate sort of the growth on top of what we're doing on the transitional and rental side.

[Operator Instructions]. Your next question comes from Doug Harter with BTIG.

On the transitional loans, if you could just remind us sort of at what level those are marked and just how we should think about resolutions and working through that book and any impact that should have on book value?

Yes, I'll speak to the second half of your question first. We mark these loans every quarter to fair value, and that's not just what we would expect in a credit loss situation. It's what we think we could solve a loan for. So there's not a huge market for delinquent transitional loans. So a loan rolling delinquent can have a pretty big impact on fair value, even if we think the LTV is good enough to be picked on that asset.

As far as the market level, I think as I kind of said a second ago, it's sort of the current loans versus the delinquent loans. The current loans with their, call it, 10%, 11% coupon tend to be marked just slightly below par, whereas the delinquent loans, it's really on a loan-by-loan basis. I think the weighted average for the portfolio, or I should say, the total discount for the portfolio in multifamily is just over $50 million. And then single family, it's probably closer to about $15 million to $20 million discount.

Great. So I mean, I guess, so it just depends on the ultimate resolution, but you feel like on the delinquent loans, you've been fairly conservative.

Yes, for sure. We've always taken great pride in our marks process and have extreme confidence in the level of our marks. I think we've said over the last few quarters that as we've resolved some of these delinquent loans were generally -- not generally almost entirely generating gains.

This quarter, we resolved another, I think it's $160 million of delinquent loans and the P&L versus our prior mark on those assets generated a gain of about $14 million this quarter. So again, all of the empirical evidence, including where we've executed loan sales in prior quarters, gives us a lot of confidence in where we have these assets marked.

Thank you. And there are no further questions at this time. So I'll hand it back to Craig Knutson for closing remarks. Thank you.

All right. Well, thanks, everyone, for your interest in MFA Financial, and we look forward to speaking with you again in August when we announce second quarter results.

Thank you. And that concludes today's call. All parties may disconnect. Have a good day.

Greetings, and welcome to the MFA Financial Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the conference over to our host, Hal Schwartz, General Counsel. Thank you. You may begin.

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, 2024, 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 fourth quarter and full year 2025 financial results.

Thank you for your time. I would now like to turn this call over to MFA's CEO, Craig Knutson.

Thank you, Hal. Good morning, everyone, and thank you for joining us for MFA Financial's fourth quarter and year-end 2025 earnings call.

With me today are Bryan Wulfsohn, our President and Chief Investment Officer; Mike Roper, our CFO; and other members of our senior management team. I'll begin with some general remarks on 2025, touch on the macro and political landscapes and will then provide an update on MFA's initiatives to foster earnings growth and increase ROEs. I will then turn the call over to Mike, followed by Bryan, before we open up for questions.

After 3 very difficult years for fixed income investors, 2025 felt like an exit from a dark tunnel. The Bloomberg U.S. Aggregate Index was up 7.3% in 2025 after being down 7.1% for the prior 3 years or just under 2.5% annually. Following a 100 basis point reduction in the Fed funds rate via 3 rate cuts in the last 3 months of 2024, we had to wait 9 months until September of 2025 for the next rate cut, which was quickly followed by 2 more in October and December.

Treasury rates also declined during the year, with 2-year yields dropping 77 basis points and 10-year yields dropping by 39 basis points. More importantly, the 210 spread steepened from 32 basis points at the beginning of the year to 70 basis points at the end of the year. This positively sloped yield curve, while perhaps somewhat modest, is a welcome change from the environment we faced from 2022 to 2024. Additionally, volatility has declined.

The MOVE index began 2025 at just under 100, 98.8 before briefly spiking after Liberation Day in early April to almost 140 and then trended down for the succeeding months, ending the year at just under 64. Now to put this in context, the MOVE index was above 100 for almost the entirety of 2022, 2023 and 2024. The combination of lower rates, lower volatility and a positively sloped yield curve are all favorable for the mortgage market and for our business.

With recent developments in Washington, D.C. and a strong focus on housing affordability, it seems likely that government policy, while certainly never certain, will continue to be supportive for our markets. The recent initiative for the GSEs to buy $200 billion of Agency MBS, the nomination of a new Fed chair with the expectation of further rate cuts later in 2026 and the repeated mantra of do no harm with respect to the mortgage market are all constructive for our market and for our business. We are excited about 2026 as we start the year with these tailwinds at our back.

In the fourth quarter of 2025, MFA continued to execute on our strategic initiatives to cap off a solid year of performance. Our total economic return in the fourth quarter was 3.1% and 9% for the full year of 2025. Total shareholder return for the year was 6%. During our last earnings call in November, I provided details on several strategic actions that we were initiating to increase earnings and grow ROEs over the coming year. I'm happy to report material progress on these fronts.

While the results will take several quarters to be fully reflected in our financials, the building blocks are in place. As discussed on our last call, we have deployed over $100 million of excess cash into our target assets in order to reduce the cash drag on earnings. We acquired $1.9 billion of loans and securities in the fourth quarter, including $1.2 billion of agencies purchased early in the quarter, $443 million of non-QM loans and Lima One also originated $226 million of new business purpose loans in Q4.

We have highlighted the underappreciated optionality in our outstanding securitization ladder for quite some time now. With a constructive rate environment and tight securitization spreads, we believe we will have significant opportunity to call some of these deals and relever the underlying loans, reducing our cost of funds, while also generating incremental cash to redeploy.

We're also excited about the prospects for 2026 at Lima One. We hired 45 new salespeople in 2025. We are debuting a new wholesale channel, and we are relaunching multifamily lending in the first quarter of 2026. In addition, we have rolled out several best-in-class technology platforms to enhance the borrower experience and drive operational efficiencies at Lima.

The results of these initiatives are not immediate, but we again feel that the building blocks are in place. A number of us visited Greenville in late January to attend Lima's annual meeting, and the energy and enthusiasm at Lima One is palpable. Growth at Lima One in 2026, we believe will contribute materially to MFA's earnings.

We continue to work diligently to resolve delinquent loans in the portfolio. This can be maddeningly time-consuming, but our team has been working out delinquent loans for over a decade, the majority of which, by the way, were purchased as nonperforming loans. And our team is the best in the business at this and uniquely suited to the task. We resolved over $150 million of delinquent loans in the fourth quarter, unlocking substantial capital to be redeployed at mid-teen ROEs.

We've made substantial progress in reducing G&A expenses, both at Lima and at MFA. 2025 G&A was $119 million, down from $132 million in 2024. Many of these actions take some time to be realized depending on when in the year they occur and whether or not there are severance expenses associated with them. We're confident that we will continue to make progress on expense reductions in 2026.

Finally, our listeners will recall that we began a program in the third quarter of 2025 to issue additional shares of our 2 preferred stock issues via an ATM and use the proceeds to repurchase our common stock at a significant discount to book. The stock buyback authorization expired at the end of last year, but our Board has reauthorized this program, and we expect that we will continue to utilize these 2 programs when the trading window opens after we file our 10-K.

While this program is modest in size thus far, this is very accretive. And importantly, because we are issuing equity in the form of preferred stock, we are not shrinking our equity base despite repurchasing common stock. In the aggregate, we believe we are taking meaningful active measures to materially increase earnings and ROEs, and we expect to begin to see these results in 2026.

And I'll now turn the call over to Mike to discuss the financial results.

Thanks, Craig, and good morning, everyone. At December 31, GAAP book value was $13.20 per share and economic book value was $13.75 per share, each up modestly from the end of September. For the quarter, MFA again paid a common dividend of $0.36 and delivered a total economic return of 3.1%. For the full year, MFA paid common dividends of $1.44 and delivered a total economic return of approximately 9%. We were happy to report in late January that approximately 40% of our 2025 common dividends were treated as a tax-deferred return of capital to our shareholders.

This is the sixth straight year that a substantial portion of our common dividends were treated as a nontaxable distribution. This preferential tax treatment is the result of meticulous tax planning and a significant fully reserved deferred tax asset that gives us additional flexibility to efficiently structure transactions to minimize or deferred tax burden for our shareholders. Though there can be no assurances about the tax treatment of future distributions, this favorable tax treatment has substantially increased the after-tax dividend yield realized by holders of our common stock.

Switching back to our results. For the fourth quarter, MFA generated GAAP earnings of $54.3 million or $0.42 per basic common share. Net interest income for the quarter was $55.5 million, a modest decline from $56.8 million in the third quarter, driven primarily by lower yields on our legacy RPL/NPL loan portfolio and interest reversals associated with increased nonaccrual loans in our multifamily transitional loan portfolio.

These declines were largely offset by higher interest income on both Agency MBS and non-QM loans as a result of our significant asset purchases during the quarter. In the fourth quarter, we again improved our operational efficiency with further progress on our expense reduction initiatives. Quarterly G&A expenses totaled $27 million, a $2 million decline from approximately $29 million last quarter.

For the full year, G&A expenses were $119.4 million versus $131.9 million in 2024, a decline of approximately 9.5% at the high end of the 7% to 10% reduction we had previewed earlier this year. We continue to make progress on additional initiatives that we expect will bring further reductions to our run rate expenses during 2026.

Distributable earnings for the fourth quarter were approximately $27.8 million or $0.27 per share, an increase from $0.20 per share in the third quarter. The increase was primarily attributable to $0.09 of lower credit-related charges, which were partially offset by $0.03 of lower gains from sales of REO during the quarter. We continue to see progress from our efforts to grow our return on equity, and we expect our DE to reconverge with our common dividend in the back half of 2026.

Moving to our capital. As Craig alluded to, during the quarter, we sold approximately 163,000 shares of our Series C preferred stock and approximately 53,000 shares of our Series B preferred stock for cumulative proceeds of approximately $5 million. We used these proceeds to repurchase approximately 540,000 shares of our common stock at a weighted average discount to our economic book value of approximately 33%.

Given current market conditions and the trading level of our common stock, we expect to continue to issue preferred shares and repurchase our common shares as a way to enhance returns to our common shareholders without sacrificing scale. Finally, subsequent to quarter end, we estimate that our economic book value has increased by approximately 3% since the end of the year.

I'd now like to turn the call over to Bryan, who will discuss our investment portfolio and Lima One.

Thanks, Mike. We acquired nearly $2 billion of residential mortgage assets in the fourth quarter. As Craig mentioned, this included $1.2 billion of Agency securities, $443 million of non-QM loans and $226 million of business purpose loans originated by Lima One. We grew our agency book by over 50% to $3.3 billion during the quarter. Most of our investments were made in late October before spreads tightened significantly.

We continue to focus on low pay-up spec pools that offer some prepay protection. Our agency portfolio is comprised mostly of 5.5% purchased at par or at a slight discount to par. We've slowed purchases since the tightening that occurred in late 2025 and especially into the year after the President's directed to the GSEs to buy mortgage bonds. That said, it still remains possible to generate a low double-digit ROE on levered agency investments, and we may buy more depending on capital needs elsewhere in the business.

Our non-QM whole loan portfolio remains our biggest asset class at $5.3 billion, and we had another successful quarter sourcing, buying, managing and securitizing non-QM loans. We acquired $443 million of new loans with an average coupon of 7.3% and an LTV just shy of 69%. We remain laser-focused on credit quality. We buy loans from only select counterparties and still review every loan prior to acquisition.

Turning to Lima One. Lima originated $226 million of new loans in the fourth quarter. This included $83 million of new construction loans, $48 million of rehab loans, $25 million of bridge loans and $70 million of rental term loans. We continue to sell Lima's production of those longer duration rental loans at a premium to third-party investors. This quarter, we sold $45 million, generating $1.4 million of gain on sale income. Lima as a whole produced $5.7 million of mortgage banking income.

Although origination volume was lower in the fourth quarter due to seasonality, we continue to make progress positioning Lima for growth. We are relaunching multifamily lending with an entirely new underwriting team, and our wholesale channel is now live. We've also made further investments in Lima's sales force and technology capabilities and expect all of these efforts to bear fruit in 2026.

Moving to our credit performance. We made good progress throughout 2025, resolving nonperforming loans on our balance sheet. The delinquency rates across our entire loan portfolio ended the year at just over 7%, down from 7.5% a year ago. We did see a 30 basis point increase during the fourth quarter, which was driven primarily by several defaults in our legacy multifamily portfolio.

As a reminder, we have been actively managing the runoff of that book for the past 2 years, and as we start to approach the tail of that process, we expect that delinquency rate in the legacy portfolio to remain elevated, particularly as loans pay off and its overall size continues to decline.

It's important to note that these assets are accounted for at fair value, and the remaining loans were held at a $42 million discount to par at year-end. We will continue to work hard to wrap up the resolution of that book.

Finally, moving to our financing. We issued our 21st non-QM securitization in December, selling $424 million of bonds at an average cost of 5.26%. Securitization spreads have tightened in recent months and remain highly attractive for regular issuers such as ourselves. And once again, I'd like to thank many of our investors who have consistently supported our non-QM program and look forward to seeing some of you at the conference next week.

As Craig highlighted earlier, given the recent movement in credit spreads, we continue to relever and look at -- to relever some of our securitizations in the months ahead. We currently have $2.3 billion of currently callable securitized debt outstanding, which, in some instances, has materially delevered since issuance. We expect that calling and reissuing deals will be a significant source of liquidity for us in 2026 and will unlock appreciable equity to be deployed in our target assets in the months ahead.

And with that, we'll turn the call over to the operator for questions.

[Operator Instructions] And your first question comes from Bose George with KBW.

Can you just talk about where you see the run rate ROE on your EAD once these loss provisions are through? And then can you remind us also, like there's capital that's tied up with the delinquent loans, how much that's going to sort of contribute to that number as well?

Bose, thanks for the question. So I guess a few things. One, it's kind of hard to predict, obviously, when exactly these credit losses will be realized. Bryan alluded to in his remarks that we hold the multifamily transitional loan portfolio at a $42 million discount to par. And given the short duration of those assets, we expect that most of that is attributable to what's eventually going to flush as credit losses through our DE.

I think if you think about sort of DE on a loss less basis or DE before credit charges, I think this year, it was in the 8% to 9% range. And I think as we get to the back half of next year, certainly closer to that 10%, 10.5%, 11% range is sort of the run rate. Obviously, we've done a lot of work. And as Craig alluded to, both last time and this time, a number of initiatives take some time to flush through. But if you think about the dividend on our book value, it's about 10.5%. And as I mentioned in my prepared remarks, we expect the DE to reconverge with the level of the dividend in the back half of 2026.

Okay. Great. That's helpful. And then can you just discuss the reentry into the multifamily market? Are you focusing on the different loan types? Or is the underwriting process different? Just yes, can you just talk about the 2.0 version versus the older version?

Sure. So we're sort of targeting up in quality a little bit and up in unit size and value size. So when you think about the prior instance, average loan amounts might have been between 3 and 10. Now we're sort of targeting between 5 and 25. So moving up a Tier 2 in quality.

And sort of the idea behind the program is it's similar to the rental loans, it's an originate-to-sell model, so to sort of capture the origination fees and then capture some servicing fee on the back end, not necessarily to put on MFA's balance sheet.

Okay. Okay, great.

Thanks, Bose.

And your next question comes from Doug Harter with UBS.

As you think about the deals that are potential -- could potentially be called, how do you think about the returns you're generating on that capital today and where that could be redeployed into?

So in terms of -- it's really depending on the deal, right? We're still -- we still could be generating a mid-teen type return on that deal. But in addition, we can unlock, say, incremental whatever, $10 million to $20 million to $30 million of liquidity sort of per deal that can then be reinvested at that -- at our target ROEs of sort of the mid-teens. So it really is -- you think about it as the existing deal is $15 million, then add another $30 million or $40 million of additional sort of equity that could be redeployed to earn another $15 million. So it's all sort of additive.

Got it. And how should we think about the sizing? I mean, you mentioned the large potential that could be called. How should we think about timing and the magnitude that you guys could get done this year?

So I mean, realistically, we could get done several deals in the coming quarters, which could unlock sort of, say, $50 million to $100 million of capital that can then be redeployed. So it's a this year activity.

Your next question comes from Matthew Erdner with JonesTrading.

As you guys went into agency during this quarter, how should we think about capital allocation going forward as you guys do start to call some of these securities, resolve some of the loans and just get capital back?

So the expectation is, given the tightening that we've seen in agencies, it would -- we will probably tend to target over time into the non-QM and BPL asset classes. You can't just necessarily go out and buy $1 billion in loans in a day. So initially, you may see some investments increased in the agency portfolio, which would then sort of wind down over time and transfer into the non-QM and BPL space.

Got it. That's helpful. And then kind of switching gears to the rental product now. What's come out of the administration, the potential institutional ban, what kind of clients are you guys dealing with? And would that have kind of any impact on your day-to-day?

It's pretty unclear whether anything is going to happen, but we don't lend to the largest buyers of single-family homes to rent. So we do believe sort of whatever comes of this, theoretically, right, could be an opportunity for the more mom-and-pops to absorb some more market share, which could be beneficial to Lima One from a lending perspective. But there's still -- it's very unclear what will come of this.

Right. Right. That's helpful. Appreciate the comments, guys.

Thanks, Matthew.

Your next question comes from Eric Hagen with BTIG.

The move to issue preferred and buy back the common, can you say which series of the preferred that you're issuing? And then more holistically, like how do you think about the shape of the capital structure and like the right mix of preferred versus common right now?

Yes. Eric, thanks for the question. So during the quarter, we did about 160,000 of the C and about 50,000 of the B. And if you think about the issuance, we're selling more of the C pretty regularly. As far as the capital structure, certainly, there's room in the structure to add more preferred. But that market has been somewhat closed for a while now. But given this is an ATM program, it's easy to issue at the margin. But definitely, if the market becomes more attractive, we'd be capable of adding additional preferred to the capital stack.

Got it. Okay. That's helpful. Following up on the resecuritization opportunity, I mean, how tight do non-QM spreads really need to be in order for you to see like a benefit? Is there a way to sensitize the opportunity relative to where non-QM spreads are currently? And does that opportunity necessarily go away if spreads are wider? Or is there still some capital that you can draw out of that portfolio even if spreads are a little wider than they are today?

So there's sort of 2 reasons the opportunity exists. One is that spreads are attractive in a lot of cases to reissue. However, just the natural delevering that occurs in the structure is also creates the opportunity. So it's just sort of an equation and spreads could -- it probably still works if spreads are even 25, 30, 40, 50 wider depending on the amount of delevering that has occurred in a deal. There might be 1 or 2 deals at the margin that are more attractive to do given that spreads are tighter. But realistically, it doesn't change our strategy materially if there was a widening in spreads from here.

Right. Got you.

Thanks, Eric.

Thanks, Eric.

[Operator Instructions] Your next question comes from Mikhail Goberman with Citizens JMP.

I hope everyone is doing well. Just swing it back to Lima One real quick. What are you guys' expectations for margins holding up throughout the year, total volumes throughout the year and how that sort of product mix is going to develop as you add in the wholesale and multifamily lending?

Yes. I mean in terms of margins; we are seeing healthy spreads when you think about our -- the potential issuance of RTL securitization versus where coupons are today on the short-term loan. So it might be sort of low 5 handle cost of funds and rates on new loans are somewhere between 8% to 11%. So there's a very healthy spread there when you think about ROEs.

When we look towards the loan sale pipeline of the term loans, given the demand, given where spreads have gone, we've seen significant premiums. If you sort of look at where it was in the last quarter, sort of north of 103. We're sort of still seeing that type of execution today in the market based upon a mid- to high 6s coupon that's originated. So that continues to be attractive.

When we think about sort of the volumes of this year, we would project sort of -- we think there's a lot of potential for growth given that we did sort of 0 in the way of multifamily and didn't really have a wholesale channel in the prior year. So we think there is sort of opportunity for sort of incremental growth, and it could be material growth throughout the year.

But these things are sort of just coming online in the first quarter, and it takes some time for them to get up to speed. So we do think it's more of a back half of the year is where we see that incremental growth. So it's unclear what necessarily we'll see for the full year 2026, but I think the run rate will be sort of materially higher in the back half.

That's very helpful.

Thank you.

Thank you.

Thank you. And there are no further questions at this time. So I'll now hand the floor back to Craig Knutson for closing remarks.

All right. Thank you, everyone, for your interest in MFA Financial. We look forward to speaking with you again in May when we announce our first quarter results.

Thank you. This concludes today's call. All parties may disconnect.

Greetings, and welcome to the MFA Financial, Inc. Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Hal Schwartz, MFA Financial. Please go ahead.

Thank you, Rachelle, 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, 2024, 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 2025 financial results. Thank you for your time. I would now like to turn this call over to MFA's CEO, Craig Knutson.

Thank you, Hal. Good morning, everyone, and thank you for joining us for MFA Financial's Third Quarter 2025 Earnings Call. With me today are Bryan Wulfsohn, our President and Chief Investment Officer; Mike Roper, our Chief Financial Officer; and other members of our senior management team. MFA continued to execute on our business objectives during the third quarter and delivered a total economic return of 2.6% to shareholders. After my remarks this morning, Mike will provide details on our financial results, and then Bryan will discuss our portfolio activity, financing and Lima One before we open up the call to questions.

For today's call, I will focus on a new slide that we've added to our earnings deck. This is Page 4, which lays out various actions we have taken to increase earnings and grow ROEs over the next year. Although we have previously mentioned some of these plans, we think it is important to highlight these initiatives in the aggregate as we believe that together, these programs will have a meaningful impact on MFA's earnings, returns on equity and dividend generation. The first initiative is higher capital deployment.

Over the last several years, we have consistently operated with high levels of liquidity, often with over $300 million of unrestricted cash. This strategy was prudent, particularly during 2022 and 2023 when the bond market experienced extreme volatility against the backdrop of an unprecedented tightening cycle by the Fed and allowed us to capitalize on temporary market dislocations to add assets at attractive yields. During these years, we also executed on a liability strategy to create durable and non-mark-to-market financing for the vast majority of our assets, much of which was through securitizations.

Also over this time, we began adding Agency MBS beginning in December of 2022. As we discussed at the time, we saw agencies as an attractive complement to our mortgage credit portfolio. In addition to providing very attractive returns, agencies significantly increased the liquidity of our overall portfolio and helped us manage the cash needs for margin calls on our interest rate swap hedge position. Fast forward to today, with increased clarity on the path of interest rates, lower market volatility, the increased portfolio liquidity provided by our agency portfolio and the predominance of non-mark-to-market financing on our loan portfolios, we have increased confidence to deploy more of our excess liquidity into our target asset classes, including an increased allocation to Agency MBS.

Holding nearly 20% of our equity in cash has been a significant drag on earnings. While the 4-ish percent that we earn on cash is certainly better than the 0 we earned in 2021, it's more than 1,000 basis points less than the ROEs we generate in all other asset classes. Investing $100 million of this excess cash will still leave us with substantial liquidity, but the incremental earnings will have a meaningful and immediate impact on earnings and ROE. Finally, our ladder of outstanding securitizations is another potential source of additional capital.

Because these securitizations delever over time, calling them and resecuritizing the underlying loan collateral often frees up tens of millions of dollars of capital to deploy into new assets, significantly boosting portfolio ROEs even if the new securitization deal comes with a higher cost of funds. We've shared progress over the last several quarters on our efforts to grow origination volumes at Lima One, and we're happy to report that we are starting to see these efforts bear fruit. We announced on our second quarter earnings call back in 2024 that we've made the decision to pause multifamily transitional lending at Lima One. We used this pause as an opportunity to initiate a comprehensive review of the multifamily underwriting guideline and processes. This review led to some changes, and we have recently hired a new multifamily leadership and underwriting team.

In the last 1.5 years, multifamily seems to have found some footing with prices above the lows from early 2024, new construction starts down materially about 50% between 2024 and '25 and supply and demand in more balance. We are confident that the changes we have made have significantly strengthened our product offering, and we expect to resume multifamily lending in early 2026. During 2025, we have also made significant new hires to Lima's sales team, rolled out technology initiatives that materially improve the borrower experience, and we're planning to launch a wholesale origination channel next year as well. These initiatives take time to produce results, but we are confident that we have the right team, the right mindset and the right processes to produce quality loan production that we can now begin to scale.

Business purpose loans generate some of the highest ROEs of all of MFA's target asset classes. So growth at Lima One into 2026 will contribute materially to MFA's earnings. Another initiative has been expense reductions. Over the last year, we've taken a hard look across all of our operating expenses, both at MFA and Lima One. While most of the significant reductions have been personnel related, we've also canceled or renegotiated many vendor contracts. As Mike stated on our last earnings call, our goal is to reduce run rate G&A expenses by 7% to 10% versus 2024 levels, which is about $9 million to $13 million a year or $0.02 to $0.04 per share per quarter. While we have realized a significant amount of savings already, we anticipate that additional savings will be realized throughout 2026 as many of these actions take time to be realized.

A further initiative has been accelerating the resolution of nonperforming loans. These loans are across MFA's loan portfolio, but many are business purpose loans, including the aforementioned multifamily transitional loans. Our team has over 10 years of on-the-ground experience resolving nonperforming loans, dating back to 2014 and 2015 when we were large buyers of RPLs and NPLs from banks and the GSEs. We've been working closely with Lima One servicing professionals to resolve these loans, whether through loan sales, foreclosure and liquidation or other forms of asset resolution. And we've made significant progress. The multifamily transitional loan portfolio is almost half of what it was a year ago, and delinquent loans are down from $86 million to $47 million so far in 2025.

Economically, losses associated with these loans were reflected in fair value marks when they emerged, which in most cases was over a year ago or more when these fair value marks flow through GAAP earnings and book value. But these nonperforming loans tie up a lot of capital. In some cases, these loans or REO properties may be unlevered, in which case, they are funded 100% with equity. In other cases, they may be funded partly with borrowing, but the advance rate on delinquent loans is generally lower than for performing loans. Additionally, we do not -- we generally do not recognize interest income on delinquent loans due to our nonaccrual policy. So the equity that we have tied up in nonperforming loans is a significant drag on our earnings and ROE. As we free up capital by resolving these problem assets, we can invest it in our target asset classes that generate mid- to high-teen ROEs.

Finally, during the third quarter, we began a program to modestly modify our capital structure. Under our recently implemented preferred stock ATM program, we have issued additional shares of both our Series B and Series C preferred stock and used the proceeds to repurchase common stock at a significant discount to economic book value. While modest in size thus far, this is very accretive. And importantly, because we are issuing equity in the form of preferred stock, we are not shrinking our equity base despite repurchasing common stock. In the aggregate, we believe we are taking active measures to materially increase earnings and ROEs, and we expect to begin to see these results in 2026. And I'll now turn the call over to Mike to discuss our financial results.

Thanks, Craig, and good morning. At September 30, GAAP book value was $13.13 per share and economic book value was $13.69 per share. Each effectively unchanged from the end of June GAAP earnings of $48.1 million or $0.36 per basic common share. Net interest income was $56.8 million for the quarter, a modest decline driven primarily by the nonrecurring acceleration of discount accretion from the redemption of our MSR-related assets last quarter. As Craig mentioned, we continue to make progress with our expense reduction initiatives. Quarterly G&A expenses totaled $29 million, a $900,000 decline from $29.9 million last quarter and a $4.8 million decline from $33.8 million in the third quarter of 2024.

Year-to-date G&A expenses were $92.4 million versus $103.9 million for the same period last year, a decline of approximately 11%. While we're proud of the savings achieved thus far, we continue to make progress on initiatives that we expect will bring additional savings in the back half of 2026. Distributable earnings for the third quarter were approximately $21 million or $0.20 per share, a decline from $0.24 per share in the second quarter. DE was again adversely impacted by credit losses on our loan portfolio, which totaled $0.11 per share for the quarter. DE, excluding these credit losses, declined modestly to $0.32 per share from $0.35 per share last quarter, a decline driven largely by the nonrecurring income in the second quarter on our MSR-related assets.

Though we continue to expect some near-term pressure on our distributable earnings, as we made progress on the highly accretive strategic initiatives Craig spoke to earlier, we expect to see growth in our DE in the quarters ahead and continue to believe that our DE will reconverge with the level of our common dividend by mid-2026.

Moving to our capital. During the quarter, we sold approximately 70,000 shares of our Series B preferred stock and approximately 125,000 shares of our Series C preferred stock for aggregate proceeds of approximately $4.5 million at a yield well below our common cost of capital. During the quarter, we repurchased approximately 500,000 shares of our common stock at a discount of approximately 27% to our economic book value. As we continue to execute on our strategic initiatives to grow earnings, we find the opportunity in MFA's common stock today to be extraordinarily compelling.

Given current market conditions and the trading level of our common stock, we expect to continue to issue preferred shares and repurchase our common shares as a way to enhance returns to our shareholders without sacrificing scale. Finally, subsequent to quarter end, we estimate that our economic book value is up by approximately 1% from the end of the third quarter. I'd now like to turn the call over to Bryan, who will discuss our investment activities in the third quarter and our progress with Lima One.

Thanks, Mike. We acquired $1.2 billion of loans and securities in our target asset classes during the third quarter. This included $453 million of non-QM loans, $473 million of agency securities and $260 million of loans originated by Lima One. I'll expand on the latter 2 in a moment. Our non-QM portfolio now exceeds $5 billion in size and remains our largest asset class. The loans we purchased during the quarter carry an average coupon of 7.6% and an LTV of only 68%, which we believe helps insulate us from a softer housing environment. We remain focused on the credit quality and maintain a robust diligence process, utilizing in-house resources in addition to independent third-party reviews.

Credit performance in our non-QM book continues to be strong with a delinquency rate just over 4%. We issued our 19th and 20th non-QM securitizations during the quarter, selling $673 million of bonds at an average coupon of 5.4%. We've now securitized over $7 billion of non-QM paper since our first issuance in 2020. I want to thank our many investors who have consistently supported our deals. We grew our Agency MBS position to $2.2 billion during the third quarter, adding almost $500 million of securities. Spreads have tightened, but it remains possible to generate mid-teens ROE with leverage on these investments. We continue to focus on lower pay-up spec pools that provide additional prepayment protection than generic pools.

Our portfolio is predominantly comprised of 5.5% purchased at a slight discount to par. Our portfolio interest rate exposure remained stable over the quarter with our duration decreasing slightly just under 1 year. As Craig mentioned earlier, we plan to invest our excess cash into our target assets, which includes agencies. Subsequent to quarter end, we acquired an additional $900 million of Agency securities, and we plan to marginally grow our position further while spreads remain attractive. Given the liquidity of our agency portfolio, we retain the flexibility to opportunistically rotate capital should credit spreads widen from here.

Turning to Lima One. Lima originated $260 million of business purpose loans during the quarter, a 20% increase from the second quarter. This included $200 million of single-family transitional loans with an average coupon of over 10% and over $60 million of new rental loans with an average coupon of 7%. During the quarter, we sold $66 million of recently originated rental loans at a premium to third-party investors, generating $1.6 million gain-on-sale income. Lima overall contributed $5.6 million of mortgage banking income to our earnings.

During the quarter, we made important progress in positioning Lima for growth. We hired new talent to help expand Lima's product offerings and origination channels, and we've continued adding to our sales team across the country. As Craig mentioned, Lima is planning to reenter the multifamily lending space in addition to opening up a wholesale channel focused on single-family rental lending. We are exploring partnerships with third-party investors interested in these credits to accelerate ROE growth. We believe these hires, along with further technology improvements will help support Lima's origination volume in future quarters.

Finally, turning to our credit performance. The delinquency rate for our entire loan portfolio declined by 50 basis points to 6.8% in the third quarter. This was driven by decreases in nearly every asset class, including our multifamily book, where we sold $15 million of delinquent loans at levels in line with our marks from the prior quarter. Over the quarter, we resolved $223 million of nonperforming loans, generating a gain to our prior quarter marks of nearly $15 million. We are excited by the prospect of recycling all of that capital into income-producing assets moving forward.

Wrapping up, we're excited about the growth prospects across our business and look forward to sharing our continued progress next quarter. And with that, we'll turn the call over to the operator for questions.

[Operator Instructions] Our first question today will come from Bose George with KBW.

[ Audio Gap ] run rate EAD. Should the starting point be $0.32 where we just basically pulling out that loss provision? And just to be clear, that loss provision is -- since that was already in the mark, that's not having an impact on your book value. Is that right?

Sorry, Bose, we didn't hear the first part of your question. Can you just repeat the question?

Sure. Yes, the first part -- actually, the cool question. The first part was the -- when we think about run rate EAD for the company, should the starting point be the $0.32, which is basically the $0.20 after pulling out the loss provision this quarter? And the second part is that loss provision is already reflected in the mark or just confirming that's the case. So there's no book value impact from these loss provisions.

Yes. Thanks, Bose. So I guess a couple of things. We strip out 100% of the losses in that $0.32 number. This is not a 0 loss business. So it's certainly heightened right now, but call it, $0.01 or $0.02 or maybe slightly north of that, certainly not $11. I think if you look at the initiatives Craig spoke to, there's a lot of ROE to be found there, right? And if you look at the lossless DE ROE, it's something like 9-ish percent. And then if you look at our dividend yield on book value, it's about 10%. So there's a lot of upside to be found in some of the initiatives Craig spoke to. And you can very, very cleanly bridge the gap between that sort of lossless DE today and where we think we can take DE to and the earnings potential of the portfolio.

Okay. Great. That's helpful. And then in terms of incremental capital deployment, you guys -- you noted the $100 million of excess. And how much capital is tied up in the delinquent loans? Like how much could that be in terms of incremental investment?

One sec Bose. So I think that could probably be somewhere in the magnitude of like $40 million to $60 million associated with the delinquent loans. And I think I maybe missed part of your previous question. Just to confirm, the losses that are flowing through DE, they've been reflected in book value, in some cases, years ago. We have about -- I think for the quarter, if you look at where it was marked last quarter and then where the asset resolved today, we had about a $15 million gain for the quarter associated with those resolutions. So these are really old news. And in many cases, they're actually positive to book value when they're being resolved.

Okay. Great. And yes, just on the incremental capital. So $150 million times whatever teens ROE is kind of the way to think about the incremental contribution -- I guess, net of -- on the $100 million net of the cash that you're earning is kind of the...

That's exactly right.

And next, we'll move to Mikhail Goberman with Citizens JMP Securities.

If I could ask about Lima One, originations were very strong there. What kind of margins are you guys seeing in that portfolio? And do you guys need sort of a higher level of margins to get that mortgage banking income quarterly up from the $5.6 million you did in this quarter to sort of, let's say, a higher single teen million dollar level?

Yes. In terms of -- I mean, the margins are pretty healthy. So on the short term, you're collecting sort of 1 point to 2 points on origination and then you're additionally getting a servicing strip on the back end. So I think growth there will lead to increased mortgage banking income. On the loan sales related to the rental loans, those sell at generally, say, a 2 to 3.5 point premium. And then we're also collecting origination fees on those loans. So the margins are pretty healthy. I think there's just -- we just need to increase the volume of origination, which would drive that income growth.

And that's ostensibly what the multifamily -- the move into multifamily is going to do, right?

Right. The multifamily plus the wholesale.

Right. Great. Maybe if I could ask one more about your Agency MBS capital allocation, how you guys are thinking about what that level might be going forward, what it might grow to?

Yes. I mean in terms of the equity allocation, where we are today, we could see some marginal growth as sort of I stated in the prepared remarks, but we don't see it dramatically changing after this additional purchase of $900 million post quarter end.

[Operator Instructions] Next, we'll move to Eric Hagen with BTIG.

We thought it was a good quarter. The move to get back into multifamily at Lima One, can you say what the levered returns that you're seeing there are? And when you think about the credit box, I mean, have there been any meaningful changes or kind of like edits or tweaks to the credit box? And how you guys are just thinking about like the sustainability of the credit there?

Sure. I mean in terms of ROEs, we think mid-teens ROEs are achievable. And we also said that we would utilize sort of third-party capital partners as well with that. So we don't necessarily need to take all the loans on our balance sheet. So what really it does do efficiently is help grow sort of the mortgage banking income line down at Lima One. And in terms of the types of assets that we're looking at, really, it's moving somewhat up in market and quality and then thinking more about bridge versus value add.

Okay. That's interesting about the bridge. You guys talked about the agency portfolio. We really like what you guys are doing there. Can you talk about the range for leverage that you guys think you can tolerate in that portfolio? And then on the hedging, I mean, are you using any products which maybe help you better manage the liquidity in that portfolio versus some of the products or the kind of structure that you've operated with in the hedge portfolio in the past?

So yes, from a leverage perspective, we're still -- we're not really targeting increasing that leverage. It's still around plus or minus 8. And then in terms of the hedges we use, we use cleared swaps as well as we started using these SOFR futures from ERIS. And they're similar in terms of economics as it relates to the cleared swaps. However, the initial margin is materially lower. So just as an example, we've added almost $300 million notional of hedges, but we moved some cleared swaps into the SOFR futures, and it reduces the initial margin by, say, $16 million, $17 million, and that can then be redeployed into a mid-teens ROE asset. So if you think about sort of unlocking earnings power of the portfolio, that's about, say, $2 million a year, just moving that. So it's pretty attractive.

And at this time, there are no further questions. I would like to turn the floor back to Craig Knutson for additional closing remarks.

Thank you, and thank you for your interest in MFA Financial. We look forward to speaking with you again in February when we announce fourth quarter and full year results.

Thank you. That does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.

Greetings, and welcome to the MFA Financial, Inc. Second Quarter 2025 Financial Results Conference Call and webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Hal Schwartz, General Counsel. Please go ahead, sir.

Thank you, Kevin, 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, 2024, 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 second quarter 2025 financial results.

Thank you for your time. I would like -- I would now like to turn this call over to MFA's CEO, Craig Knutson.

Thank you, Hal. Good morning, everyone, and thank you for joining us for MFA Financial's Second Quarter 2025 Earnings Call. With me today are Bryan Wulfsohn, our President and Chief Investment Officer; Mike Roper, our CFO; and other members of our senior management team. I'll begin with a high-level review of the second quarter market environment and then touch on some of our results, activities and opportunities. Then I'll turn the call over to Mike to review our financial results in more detail, followed by Bryan who will review our portfolio financing, Lima One and risk management before we open up the call for questions.

I'm sure you will all remember the market turmoil that ran in the second quarter with Liberation Day on April 2. 2-year treasuries ended the first quarter at 3.88%, rallied to 3.65% by April 4, sold off to 3.96% on April 11 and rallied again to 3.60% on April 30 and then subsequently sold off to 4.05% on May 14. 10-year treasuries followed a similar trajectory, rallying 20 basis points to 3.99% on April 4, selling off 50 basis points to 4.49% on April 11, closing the month of April at 4.16% and then selling off to 4.60% by May 21. Fortunately, cooler heads appear to have prevailed since then, both in Washington, D.C. and in bond and equity markets. At least until last Friday's employment report revisions, 2s and 10s have generally each settled into their own 25 basis point ranges since mid-May and equity markets have continued to grind higher, again, last Friday, notwithstanding.

Mortgage spreads -- mortgage credit spreads track other risk assets widening somewhat in April and then retracing back to or near levels seen at the end of Q1 by the end of the second quarter. Importantly, the market for securitized mortgage credit assets and non-QM securitizations in particular, continues to deepen as liquidity increases and investor appetites remain strong. Spreads widen and tighten along with other risk assets, but deals get done and priced in a very orderly fashion. This was decidedly not the case as recently as 2023 when at times demand was weak spreads were much more volatile and some deals were pulled from the market. The depth and reliability of this market is a powerful testament to this durable source of financing that we utilize to finance over 80% of our loan portfolio.

The economic and macro environments, while never certain, seem a bit more clear as the year progresses. Growth, though slower than originally expected, is remarkably resilient. The passage of the tax and spending bill has removed the market uncertainty that had been associated with that. Inflation fears have moderated, particularly as tariff negotiations begin to get resolved at less draconian levels than originally feared. Employment continues to grow, albeit at a reduced pace, although with the substantial revisions in last Friday's jobs report, a strong case can be made that the jobs market is not as healthy as previously believed. Amidst the drama between the President and the Fed Chair, consensus now seems to be for 2 rate cuts later this year and lower short rates is always a helpful tonic for mortgage REITs.

Finally, housing is languishing somewhat as demand continues to fall off due to interest rate and affordability challenges. Actual home price declines have, for the most part, been concentrated in specific geographies where new supply has saturated these local markets. There's still a fundamental nationwide supply shortage, so it's hard to envision more than a very modest weakness in home prices nationwide. Homeowners with existing mortgages today are generally not over-levered and years of substantial HPA, coupled with prudent and sensible underwriting practices means that LTVs are low enough that even in the event of a job loss, death or divorce, borrowers have substantial equity and will sell their property to extract their equity and pay off the lender.

In the midst of this environment, our portfolio delivered a total economic return of 1.5% for the second quarter and 3.4% year-to-date, which includes our first 2 quarterly dividends, which we increased to $0.36 in the first quarter. Our economic book value in the second quarter was down very modestly by 1%. Our distributable earnings for the quarter was $0.24 per share and were negatively affected by credit losses incurred on certain business purpose loans that were realized during the quarter. Absent these credit losses, DE would have been $0.35. As a reminder, these credit losses do not impact DE until actually realized. And as Mike Roper has emphasized for the last few quarters, these loans were marked down in 2024 and earlier when they went delinquent.

Our fair value assets are mark-to-market every quarter. So the economic credit loss was realized through GAAP earnings and a reduction in book value a long time ago. Said another way, these realized credit losses that reduced distributable earnings in the second quarter are old news. Mike will provide additional color on the actual resolution amount versus the marks on these loans in his prepared remarks.

We were active in the second quarter, sourcing $876 million of loans and securities across our target asset classes. These included $503 million of non-QM loans, $131 million of Agency MBS and $217 million of business purpose loans at Lima One. We issued our 18th non-QM securitization in early May. We sold $38 million of newly originated SFR loans and $24 million of delinquent transitional loans. Our overall leverage at the end of the quarter was 5.2x, and our recourse leverage was 1.8x.

Once again, the second quarter demonstrated that MFA's investment portfolio, our balance sheet composition and risk management approach are positioned to deliver results across multiple scenarios and weather unexpected market volatility and uncertainty.

And I will now turn the call over to Mike Roper to discuss financial results.

Thanks, Craig, and good morning. At June 30, GAAP book value was $13.12 per share and economic book value was $13.69 per share, each down about 1% from the end of March. MFA again paid a common dividend of $0.36 and delivered a total economic return of positive 1.5% for the quarter. MFA generated GAAP earnings of $33.2 million or $0.22 per basic common share in the second quarter.

Our GAAP results were driven by growth in our net interest income to $61.3 million as well as modest net mark-to-market gains. This marks the third consecutive quarter we've grown our net interest income, driven by additions of higher-yielding assets over the last several quarters. Net interest income also benefited from a nonrecurring $2.6 million acceleration of discount accretion on our MSR-related assets, which were redeemed during the quarter.

During Q2, we continued to make meaningful progress resolving nonperforming loans. We reduced overall portfolio 60-plus day delinquency from 7.5% to 7.3% and lowered the balance of loans on nonaccrual status by $33.6 million compared to last quarter. In addition to our more traditional asset management activities, we resolved approximately $24 million of some of our most challenged transitional loans via loan sale during the quarter. We expect to utilize additional loan sales in the second half of this year to continue to accelerate the resolution of underperforming assets, allowing us to unlock and redeploy capital at mid- to high-teen ROEs.

Importantly, because our assets are predominantly accounted for at fair value, the expected losses associated with these potential sales and resolutions have already been recorded in our GAAP results and in book value in prior periods, in some cases, years ago as unrealized losses. We mark our portfolio each quarter to what we and our third-party pricing services believe are the levels at which the loans would trade in the secondary market to a level net of expected credit losses.

Confirming this belief, during the quarter, we resolved the current approximately $200 million UPB of previously nonperforming loans. After reversing previously recognized fair value marks on these assets, the net impact on our GAAP results and our book value for the quarter was a net gain of over $0.03 per share. We believe this net gain on asset resolution highlights the quality of our loan marks and of our financial reporting.

Moving to our distributable earnings. DE for the quarter was $24.7 million or $0.24 per share, a decline from $0.29 per share in the first quarter. The decline was driven primarily by credit losses on fair value loans, which totaled $0.10 per share for the quarter, approximately $0.06 higher than in Q1 as well as a $0.02 increase in the dividend rate on our Series C preferred, which began floating on March 31. As Craig mentioned, our DE, excluding credit losses, was $0.35 per share, nearly in line with our common dividend.

For the quarter, our consolidated G&A expenses totaled $29.9 million, a decline from $33.5 million in the first quarter. Second quarter results included severance and related transition costs of $1.2 million, the result of expense reduction initiatives across both MFA and Lima One. We expect that once complete, these initiatives will further improve our cost structure, lowering our run rate G&A expenses by 7% to 10% per year from 2024 levels or approximately $0.02 to $0.03 per quarter.

Though we expect some short-term pressure on distributable earnings, particularly over the next 2 quarters, we have confidence in both the current earnings power of the portfolio and the current level of our common dividend. We continue to expect that our DE will begin to reconverge with the level of our common dividend in the first half of 2026. Finally, subsequent to quarter end, we estimate that our economic book value has increased by approximately 1% to 2% since the end of the second quarter.

I'd now like to turn the call over to Bryan, who will discuss our investment activities in the second quarter.

Thanks, Mike. We grew our investment portfolio to $10.8 billion in the second quarter. We continue to focus on our target asset classes of non-QM loans, business purpose loans and agency securities. We sourced and purchased over $500 million of non-QM loans during the quarter. These loans carry an average coupon of 7.8% and an average LTV of 66%. We established relationships with 2 new originators during the quarter and we will look to add more moving forward.

Underwriting standards in the non-QM space remain prudent and mid- to high-teen ROEs remain achievable with securitization funding. The market continues to be supportive of non-QM issuance as the total bonds sold by all issuers so far this year has already nearly eclipsed the total from all of last year. We completed our 18th non-QM securitization in May, selling $291 million of bonds at an average coupon of 5.76%. As Craig mentioned, credit spreads were volatile during the quarter, especially in April when AAAs widened to as much as 175 basis points over treasuries. But spreads tightened over the remainder of the quarter back to where they were before the trade war turmoil started.

On Monday of this week, we priced our 19th non-QM securitization and were able to improve pricing due to strong investor demand. We again added to our Agency MBS portfolio during the quarter, growing our position to $1.75 billion. Our focus remains on low pay-up securities, generally 5.5% that we were able to purchase at modest discounts to par. We plan to grow our agency position further as long as spreads remain attractive.

Turning to Lima One. Lima originated $217 million of business purpose loans during the quarter, a slight uptick from the first quarter. This included $167 million of single-family transitional loans with an average coupon north of 10% and $50 million of new 30-year rental loans with an average coupon of 7.5%. As a reminder, we continue to sell newly originated rental loans to third-party investors.

Lima as a whole contributed $6.1 million of mortgage banking income for the quarter, an increase from $5.4 million in the first quarter. Lima again had success adding to its sales force, hiring 15 new loan officers during the quarter. Although origination volumes are down both at Lima as well as across the industry, we expect these new hires, along with significant progress on technology initiatives to lead growth in origination volume and profitability in the latter half of this year.

Moving to our credit performance. As Mike mentioned, the 60-plus day delinquency rate for our entire loan portfolio declined to 7.3% in the second quarter. Default rates for our non-QM and rental loans remained exceptionally low at approximately 4% and fell to an all-time low in our legacy RPL/NPL book. We continue to be hard at work addressing our nonperforming transitional loans. We sold $24 million of delinquent transitional loans during the quarter and expect to sell more later this year.

Although the default rate percentage rose again for our single-family transitional portfolio, it's important to note that loan delinquencies actually declined by $2 million, and we received $269 million of principal repayments, up from $249 million in the first quarter. We again resolved $35 million of previously delinquent multifamily loans during the quarter and received $99 million of principal repayments.

And with that, we'll turn the call over to the operator for questions.

[Operator Instructions] Our first question today is coming from Bose George from KBW.

Actually, first, I'm going to ask about where you see the economic return for the portfolio. So the -- like you talked about there's this $0.10 of credit. There's a couple of cents that we get from the expense side that gets us above the dividend. I mean, is that kind of the economic return? Or is there sort of incremental upside as you redeploy some of the capital that's in the troubled loans at the moment?

Thanks for the question, Bose. I think a couple of parts to your question there. So we talk about the economic return of the portfolio regularly on these calls as well as internally and with our Board and setting dividend policy. And one of the sort of downsides of DE and really any accounting metric is that it's backward looking.

When we think about the earnings power of the portfolio, we try to think about the go-forward earnings power. And if you think about the sort of ROEs the portfolio is generating on a mark-to-market basis, that's really how we think about the economic earnings power of the portfolio. For example, we have some loans that were purchased in 2021 that are held at a pretty significant discount with a coupon rate of, call it, 4%. Because that asset is accounted for at fair value, if you think about the total economics of that, whether it shows up in interest income or in the mark, that asset clearly is earning more than 4% today.

So when we take that sort of mark-to-market ROE and do the same thing on the hedges and the liabilities and then you layer in your expenses and the P&L that Lima is generating associated with their origination platform, the economic earnings power is much closer to the 10% dividend yield already.

I think the second part of your question as far as additional upside, I think the answer is definitely yes. I mean we've been running with quite a bit of dry powder for some time now. Our recourse leverage is 1.8x. And even ignoring the $275 million of cash, we have a lot of capacity to turn up that leverage number a bit. So there's definitely some upside there. And you'll see that we've added a large number of assets again this quarter as we have for the last several quarters.

And Bose, just to clarify one thing, Mike said that the 10% dividend yield, he means the 10% dividend yield on our book value, not on the stock price.

That's right.

Okay. Yes, absolutely makes sense. And then in terms of the different areas where you can allocate capital, like where do you see the best ROEs at the moment?

I mean, we still -- we like really all 3. You saw we were most active in non-QM and all 3 being non-QM, agency and business purpose loans. Our hope is over time to sort of grow the business purpose loan originations, which have the highest sort of face ROE. And as we've mentioned, we're hiring people down in Lima One, and we do expect to see growth in that origination. So really, it's continuing to deploy across all those 3. But if Lima could do more origination, we would definitely have -- prefer that over the other 2.

Next question today is coming from Steve Delaney from Citizens JMP.

The 15 new loan officers hired, I understand that's at Lima One. Could you comment on that? Are these going to be generalist producers? Is there any product specialty that you're trying to develop? And I guess, most importantly, is there any new geo? Have you opened offices in any new states as a result of the new producers?

Yes. The focus is generally, I would say, West and Midwest in terms of the hires. We believe them to be sort of high-quality hires coming over from competitors. And if you think about the ramp process, right, somebody comes online, it takes them a few months to get comfortable with the product and the processes that Lima One has versus where they may have been previously. So it's sort of -- we're seeing growth now, but we do expect to see much more aggressive growth sort of back half of this year and into next year as these people really start producing.

Yes. Okay. And how many total producers, you may have mentioned it, I apologize, now as we sit today at Lima One?

Yes. We were pushing, I think, 50, and the goal is to continue growing that, I think, closer to 80.

Okay. So there's some runway still to go there. Okay. I think that's good. Thank you for the clarity on the dividend coverage. I was looking at Page 16 in the deck, and it's helpful, but the unrealized and realized gains and losses don't let us kind of count on our own with the deck and without Mike help this morning, really -- we can't really back into coverage based on realized losses. So just throw that out for consideration as far as the way you show it in the deck. But good progress all around strategically, and I realize that the losses are a work in process, and we've got a little bit ways to go to get all that behind us. But thank you for the time this morning.

Thanks, Steve.

Thanks, Steve.

Thanks, Steve.

Your next question today is coming from Jason Stewart from Janney Montgomery Scott.

Just to follow a little bit on Bose's question. You talked about growing Lima One. But as we think about the balance sheet going into the easing cycle and maybe post steepener on the yield curve, like how do you envision capital allocation trending between the businesses on the balance sheet?

Yes. I mean, really, if you think about a steepener, right, Lima One is still originating assets that have coupons north of 10%. So if you have steepener and the short end comes down, maybe that coupon goes from 10% to 9% or to 8.5% or something like that. But the borrowing costs against those is also going to come down commensurate. So right now, in securitization, you can get funding in the 5 handles, right?

So if that front end were to come down, you would see that cost of funds drop into probably the low 5s, 4% handle. So it's still very sort of accretive to us to originate those loans. And when you look across non-QM, it does benefit our existing portfolio and incremental loans will fund incrementally better, but I would expect those loan prices to be bid up more aggressively as the curve does steepen. So it may be a more competitive environment and may compress yields somewhat there.

Okay. And then thinking through the post steepener, and I guess more specifically then on the agency, would that be a strategy you deemphasize at that point in a flatter curve environment and redeploy that capital into Lima One and other strategies?

That's right. It really is -- we view these current spread levels as opportunistic to deploy capital in Agency MBS. If those spreads were to come in, we would redeploy those assets and that portfolio into our other credit assets.

Okay. That's helpful. And then just a follow-up from -- I think last quarter, you had said something about $40 million-ish of discount on multi-transitional. Just comparing quarter-to-quarter, would that compare to the -- I think you had $33.6 million. What's the right comparison to look at there quarter-to-quarter?

Yes. So that number there is effectively the discount in terms of the mark on those assets. So I think it is $34 million this quarter. But if you think about those transitional loans, they're very short duration. So they are much less sensitive to moves in market interest rates. So I think we sort of think about that discount there as does buyer of these loans as a credit discount effectively.

Okay. Got you. So you've worked through the vast majority of that this quarter. I got you.

So just to clarify, that discount has declined from, I think it was 40% or 45% to about 35%. So yes, we worked through a lot of it, but there's -- as I said in my prepared remarks, there's still some wood to chop over the next couple of quarters here.

The next question today is coming from Jason Weaver from JonesTrading.

Sort of similar to Steve's there, with the buildup at Lima One, can you comment on the sort of distribution potential for new transitional loans if we were to see a bit more relief in rates ahead, whether you expect securitization financing or loan sales to become a more attractive option under that -- under those conditions?

So on the -- we've been selling the rental loans. So those are the term loans, right? And part of that reasoning is when you originate $30 million or $20 million of those a month, it takes some time to get those ready to go in securitization. And taking on that spread risk for an extended period of time doesn't necessarily make sense when you have a bid on the other side that's very strong. So we have been taking advantage of that bid and selling those loans to third parties.

When you think about the shorter-term transitional loans, pretty much all of those loans are -- would be eligible to go into securitizations. And those have a revolving structure in nature. So as we sort of do more loans, right, they're really replacing old loans that are paying off. So we have 4 deals outstanding currently.

If we were to grow originations, which we expect to do, maybe you're taking from 4 deals to 5 or 6 outstanding. But you have to make sure that you have that volume in place to fill back the payoff that you're receiving on the other side. And in terms of the split, if you were to look at that breakdown, it's probably 45% to 50% ground up and then the rest being bridge and traditional Fix and Flip type loans.

And Jason, I'd just add one thing. The 30-year rental product is obviously more rate sensitive than the transitional loans. So lower short rates, steeper curve, it's likely that volume would pick up on that product.

Got it. That's helpful. And I want to go back to in the prepared remarks, you mentioned the $24 million in loan sales and you expect to do more in the second half. Talk about the relative merits there. Is that a question of just coincidence you were able to find a buyer on that side? Or is that becoming actively more attractive than pursuing the entire sort of workout process?

Yes. It's just a balance, right? It's -- you're currently -- you're working out loans and you would test the market to see where those bids are. If the bids are attractive, we would look to move on. If the workout is the best outcome, then we'll just work the loan out ourselves. So it's just a balance, and we sort of look at every loan individually to determine what's the best outcome.

[Operator Instructions] Our next question is coming from Eric Hagen from BTIG.

On the single-family rental and single-family transitional loans, do you think developers are getting the rental income in like the exit that they expected? Or is there a lot of range around that outcome because of the execution risk is higher with tariffs and other higher input costs and such?

In terms of the execution, right, a lot of our sort of development loans that we do are really -- they're build and flip to sell, not necessarily rent. So it's really -- the prices that they are achieving in the market are sort of matching the ARV set out in the appraisal. So we're not really seeing a ton of pressure in regards to that as it relates to tariffs. Could it potentially impact things online? Sure, but we have yet to see a material impact thus far, and we sort of track these month-to-month. So we're not really seeing that.

In terms of the -- if we do have rents, we've seen -- they've been able to cover future debt service because these loans really get refinanced away from us. So that's what we're seeing. I mean we're -- that's what one would expect. We're not really seeing material pressure there either.

Yes. Okay. That's helpful. You guys break out the loan book by origination year, which is really helpful. But which of the vintages would you maybe label as having higher relative risk versus lower risk just based on when they were originated?

Yes. I mean I'd say for -- if you look at the, say, multifamily book, the '23 vintage was probably tougher for us. I mean if you look at the other parts of the book, right, our LTVs are very low. So we're not really worried about losses there. And when you think about on the non-QM side where we've seen some increased delinquencies, it's really, again, 95 times out of 100, we see delinquency, you see that property gets listed for sale and the borrower just sells it, and we don't really even have to go through any loss mit activities. So we're sort of -- we've been really vintage agnostic as it comes to those portfolios.

Okay. If I could sneak in one more. I mean, is there a catalyst aside from lower interest rates, which could accelerate the call in the non-QM portfolio, the callability?

I mean it's really an algebra exercise, Eric. So it's pretty easy for us to do. So lower rate environment, yes, theoretically, there are more deals that would be callable. In addition, with lower rates, our preferred Series C would reset to a lower coupon. So there's marginal benefits in a few different ways. If you look at the bulk of the floating rate borrowing, it's for the most part, offset with swaps. So lower rate environment is not necessarily going to have a big impact there. But on the edges, lower rates are certainly helpful.

And I think, Eric, just to add, there could be a deal with respect to the call rights that's maybe out of the money. But if you think about the deleveraging embedded in some of those callable deals, it doesn't necessarily have to be a lower rate to reissue it to still increase the ROE of the portfolio because you're unlocking a lot of capital with the relever.

We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you, everyone, for your interest in MFA Financial. We look forward to speaking with you again in November when we announce our third quarter results.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.