MFAN

Management Statement and Operational Highlights:

• Higher Capital Deployment: With increased clarity on interest rates, lower market volatility, and portfolio liquidity from agency portfolio, MFA is increasing deployment of excess liquidity into target asset classes, including Agency MBS. The ladder of outstanding securitizations is a potential source of additional capital.
• Expense Reductions: Took hard look at operating expenses, with goal to reduce run rate G&A expenses by 7%-10% vs 2024 levels. Already realized significant savings, with more expected in 2026.
• Accelerating Resolution of Nonperforming Loans: Team has experience resolving nonperforming loans, with progress made in reducing the multifamily transitional loan portfolio and delinquent loans. Freeing up capital from these loans will allow investment in target asset classes with higher ROEs.
• Capital Structure Modification: Began program to modify capital structure, issuing additional preferred stock and repurchasing common stock at a discount to economic book value, which is accretive and not shrinking equity base.
• Portfolio Activity: Acquired $1.2 billion of loans and securities in target asset classes during Q3, including $453 million of non-QM loans, $473 million of agency securities, and $260 million of Lima One-originated loans.
• Lima One Progress: Hired new talent, rolled out technology initiatives, planning to resume multifamily lending in early 2026 and launch wholesale origination channel, with plans to grow origination volume to drive mortgage banking income growth.

Guidance:

• Expect to see growth in distributable earnings (DE) in future quarters as progress is made on strategic initiatives.
• Anticipate DE will reconverge with the level of common dividend by mid-2026.
• Plan to deploy excess liquidity into target asset classes, including increasing allocation to Agency MBS.

Segment Performance:

• Non-QM Loans: Over $5 billion in size, with loans purchased in Q3 carrying an average coupon of 7.6% and an LTV of 68%. Delinquency rate is just over 4%. Issued 19th and 20th non-QM securitizations during the quarter, selling $673 million of bonds at an average coupon of 5.4%.
• Agency MBS: Grew to $2.2 billion during the third quarter, adding almost $500 million of securities. Subsequent to quarter end, acquired an additional $900 million of Agency securities. Portfolio interest rate exposure remained stable with duration decreasing slightly just under 1 year.
• Lima One: Originated $260 million of business purpose loans in Q3, a 20% increase from Q2. This included $200 million of single-family transitional loans and over $60 million of new rental loans. Contributed $5.6 million of mortgage banking income to earnings. The delinquency rate for the entire loan portfolio declined by 50 basis points to 6.8% in Q3, with progress made in resolving nonperforming loans, including the multifamily transitional loan portfolio being almost half of what it was a year ago and delinquent loans down from $86 million to $47 million in 2025.

Risks:

• Statements on this call contain forward-looking statements subject to various known and unknown risks, uncertainties, assumptions, and other factors that could cause actual results to differ materially from those projected. These include risks described in MFA's annual report on Form 10-K for the year ended December 31, 2024, and other SEC filings.

Q: 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?

A: Yes. We strip out 100% of the losses in that $0.32 number. This is not a 0 loss business. The losses flowing through DE have been reflected in book value in some cases years ago, and there is a gain associated with resolutions which are really old news and can be positive to book value when resolved.

Q: 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?

A: In terms of margins, they are pretty healthy. On the short term, collecting 1 point to 2 points on origination and a servicing strip on the back end. Growth in volume of origination would drive increased mortgage banking income.

Q: 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?

A: In terms of equity allocation, we could see some marginal growth, but don't see it dramatically changing after the additional purchase of $900 million post quarter end.

Q: 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?

A: We think mid-teens ROEs are achievable. The move into multifamily plus the wholesale will drive growth. In terms of credit box, moving somewhat up in market and quality and thinking more about bridge versus value add.

Q: 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?

A: From a leverage perspective, still around plus or minus 8. Using cleared swaps as well as SOFR futures from ERIS. SOFR futures have lower initial margin, reducing initial margin by $16 million-$17 million, which can be redeployed into mid-teens ROE assets, unlocking earnings power of the portfolio.