MFA Financial, Inc. (MFA) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the MFA Second Quarter 2024 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Hal Schwartz. Please go ahead.

Thank you, operator, and good morning, everyone. The information discussed on this conference call today may contain or refer to forward-looking statements regarding MFA Financial, Inc., which reflect management's beliefs, expectations and assumptions as to MFA's future performance and operations. When used, statements that are not historical in nature, including those containing words such as will, believe, expect, anticipate, estimate, should, could, would or similar expressions, are intended to identify forward-looking statements. All forward-looking statements speak only as of the date on which they are made. These types of statements are subject to various known and unknown risks, uncertainties, assumptions and other factors, including those described in MFA's annual report on Form 10-K for the year-ended December 31, 2023, 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 2024 financial results. Thank you for your time. I would now like to turn this call over to MFA's CEO and President, Craig Knutson.

Thank you, Hal. Good morning, everyone, and thank you for joining us for MFA Financial's second quarter 2024 earnings call. With me today are Mike Roper, our CFO; Gudmundur Kristjansson; and Bryan Wulfsohn, our Co-Chief Investment Officers and other members of our senior management team. I'll begin with a high-level review of the second quarter market environment and touch on some of our results, activities and opportunities. Then, I'll turn the call over to Mike to review our financials in more detail, followed by Bryan and Gudmundur, who will review our portfolio, financing and risk management before we open up the call to questions. The second quarter of 2024 was another pretty volatile period, with 2-year treasuries drifting 40 basis points wider and ending April a little over 5% before rallying back to 4.75% at the end of the quarter. Similarly, 10-year treasuries sold off 50 basis points to 4.70% before rallying back to end the quarter at 4.40%. Despite the volatile rate environment, MFA posted a solid second quarter with distributable earnings of $0.44 and a respectable total economic return of 2.6%, driven by significant credit spread tightening during the quarter. During the quarter, we took advantage of this spread tightening and were able to opportunistically sell certain loans at prices well above our marks. Our GAAP and economic book values were flat for the quarter. In April, we completed a second senior unsecured bond offering of $75 million with a coupon rate of 9%. And in June, we paid off the remaining balance of $170 million of our convertible senior notes. In late May, we called an NPL securitization, which generated almost $80 million of liquidity. As we have discussed over the last several quarters, this optionality in the form of our callable securitizations provides us with an often underappreciated capability to optimize our liability framework in the quarters and years ahead and unlock significant capital that we can redeploy at attractive ROEs. We currently have about $1.2 billion UPB of callable securitizations outstanding. We continued to execute on our securitization strategy in the second quarter with a $365 million non-QM deal in April and a $192 million revolving RTL securitization in May. Subsequent to quarter end in July, we issued a $303 million rated RPL securitization, collateralized in part by loans from the aforementioned NPL deal that we called in May. During the quarter, overall delinquencies in our residential loan portfolio fell to 6.5% from 6.9% at the end of Q1. However, we did see delinquencies tick up in our multifamily transitional loan book. Like others in the industry, we've been watching this multifamily sector with a growing sense of unease over the last several quarters. Although rents have held steady in most markets, we have seen moderation from the rapid pace of rent appreciation experienced over the last several years. Additionally, the combination of higher cap rates and increased supply has hurt multifamily property values in many markets. Even for performing transitional loans, the higher-rate environment produces challenges for refinancing these bridge loans as they approach maturity. In our portfolio, the delinquency rate rose to 4.6% from approximately 3% at the end of Q1. In response to our concerns about difficulties in multifamily lending generally, we made the decision during the quarter to temporarily refocus our resources away from multifamily lending at Lima One. This decision comes after 3 straight quarters of significant declines in Lima's multifamily origination volumes, and it allows us to concentrate our efforts on what we believe is a more compelling opportunity set in single-family transitional and rental lending. Transitioning to Lima One more broadly, July 1st marked the 3-year anniversary of our acquisition of Lima One Capital and, in that time, we have originated over $6 billion of high-yielding loans for our balance sheet and issued over $3 billion of securitizations backed by Lima One collateral. Despite the current headwinds we are seeing in the multifamily space, we are excited about the opportunity going forward in both residential transitional and single-family rental lending, the 2 largest components of Lima's origination volume. As we enter the fourth year of our ownership of Lima One, we are also excited to announce the appointment of Josh Woodward as CEO of Lima One. Josh's appointment follows the retirement of Lima One's CEO, Jeff Tennyson after 6 years at the helm. We are grateful for his dedication and the contributions Jeff made during his tenure at Lima One. His leadership was instrumental in transforming Lima into an industry-leading, fully integrated, business-purpose lending platform. I also look forward to introducing our investors to Josh. Josh has been with Lima One for over 10 years and during that time, has overseen Lima's accounting, finance, servicing, treasury and capital markets teams. The month of July was very constructive for both rates and spreads and culminated with Chair Powell's Press Conference last week, which opened the door for a rate cut at the Fed's September meeting. This was followed by last Friday's payroll report, which had a seismic impact on both equity and rates markets. Two-year treasury yields are now 70 basis points lower than at the end of the second quarter. 2s, 10s, while slightly inverted, have converged significantly less than 10 basis points this morning, and we will likely see a return to a normal yield curve fairly soon into a Fed easing cycle. The yield curve has been inverted for 2 long years now, so a normal yield curve is going to feel like an exit from a long, dark tunnel. Finally, securitization spreads have been stable with the most recent non-QM deals pricing AAAs in the 130s or low 5% yields. These are all significant tailwinds for our business and our ability to generate income, and we're excited and energized about the second half of 2024, and I will now turn the call over to Mike Roper to discuss our financial results.

Thanks, Craig. At June 30, GAAP book value was $13.80 per common share and economic book value was $14.34 per common share, each effectively unchanged from March 31. We declared dividends of $0.35 per common share and delivered a quarterly total economic return of approximately 2.6% for the second quarter. MFA generated GAAP earnings of $41.9 million or $0.32 per basic common share, an increase from $23.2 million or $0.14 per basic common share in the first quarter. GAAP earnings included net unrealized gain on our residential whole loans of approximately $16 million. This gain was concentrated primarily in our non-QM and SFR loan portfolios, which benefited from credit spread tightening during the quarter, but was partially offset by unrealized losses on our multifamily transitional loans, as a result of the softness Craig mentioned in his earlier remarks. During the quarter, MFA generated distributable earnings of $45.6 million or $0.44 per basic common share, an increase from $0.35 in the first quarter. The increase in our DE was driven primarily by $0.06 of higher net interest income. For the quarter, net interest income was $53.5 million, an increase from $47.8 million last quarter. Net interest income increased across all of our major asset classes, reflecting our success in growing the portfolio over the last several quarters, primarily with high-yielding loans. Net interest income benefited from higher discount accretion related to an uptick in prepayment fees on our legacy RPL/NPL loan portfolio, which has carried at a significant discount to its unpaid principal balance. Net interest income also benefited from increased collections on loans previously on nonaccrual status as a result of higher reinstatements and other resolutions of delinquent loans during the quarter. Credit losses on loan resolutions were approximately $6.6 million for the second quarter versus approximately $1 million in the first quarter. In the second quarter, and historically, realized credit losses have been concentrated primarily on our carrying value loan portfolio, which does not have a direct impact on our GAAP or distributable earnings when incurred as they are reserved in advance by the CECL provision. Given the timing of our change to fair value accounting, we expect to see a shift in future quarters in the concentration of credit losses away from the carrying value loan portfolio and into the fair value portfolio. Expected credit losses on our fair value loans are reflected in mark-to-market changes each quarter, which are added back to DE. As a result, realized credit losses on the fair value loan portfolio only impact DE in the period in which such losses are incurred. As a result, going forward, we expect to see some level of increased volatility in our reported quarterly DE, driven by the timing of resolutions of our delinquent fair value loans and the amount, if any, of credit losses incurred thereon. Sticking with reporting matters. This quarter, we've made some updates to certain of our loan-related disclosures to better align our disclosure with our focus on non-QM and business-purpose lending. Specifically, we reclassified certain groupings of loans to provide additional information about our portfolio. We now disaggregate what we previously referred to as our purchase-performing loans to provide more product-level information for both our BPL and non-QM portfolios. Additionally, we've disaggregated our transitional loan portfolio into multifamily transitional loans and single-family transitional loans to bifurcate the portfolio based upon the underlying collateral. We also now combine what were previously referred to as our seasoned performing loans, our purchase credit deteriorated loans and our purchased nonperforming loans in a grouping we now refer to as legacy RPL/NPL loans. Finally, subsequent to quarter end, we estimate that our economic book value has increased by approximately 2% to 3% as a result of lower market interest rates. I'd now like to turn the call over to Gudmundur, who will speak to our portfolio highlights and the performance of Lima One.

Thanks, Mike. We continued to add high-yielding loans in the second quarter, where we acquired over $680 million of loans with an average coupon of approximately 9.6%. Credit statistics remain consistent with previous quarters with an average LTV of 65% and an average FICO score of 750 on loans acquired. Lima One originated BPLs accounted for about 60% of our acquisitions, while non-QM loans accounted for the remaining 40%. Total portfolio runoff increased 50% quarter-over-quarter with over $620 million paying off in the quarter. The weighted average coupon on loan payout was about 8.6%. Paydowns increased across the portfolio with most of the increase coming from the transitional loan portfolio with over $390 million paid off compared to about $240 million in the first quarter. Whole loan spreads tightened in the quarter and we took advantage of that and sold $12 million of newly originated Lima One rental loans at a healthy premium. The recent decline in rates and increased expectations around earlier and larger Fed rate cuts has led to more constructive environment for loan prices. We believe this will last for some time and that it will be beneficial to the Lima One franchise to add regular loan sales to our capital market activities in addition to our regular securitizations. We also added $176 million of agency MBS in the quarter, mostly 6% coupons at a yield of just under 6%, and grew that portfolio to about $700 million. We expect the second quarter additions will generate mid-teens ROE for our portfolio. All of these activities resulted in a modest portfolio growth to over $10 billion, while our portfolio asset yield increased by 21 basis points to 6.79% in the quarter. Our net duration increased slightly to 112 basis points at the end of the quarter as our swap shortened naturally with time and our portfolio grew modestly, however, our overall interest rate risk remains modest and little changed. Most new hedges we've added in the last few quarters have been longer-dated swaps, and as some of our short-dated swaps roll off in the next few quarters, we expect to hedge incremental interest rate risk as needed, with longer-dated swaps putting us in a position to benefit on the liability side from potential Fed fund cuts. Turning to Lima One. In the second quarter, Lima One originated about $410 million of BPLs, which was largely in line with our expectations at the end of the first quarter, and Lima has now originated over $6.4 billion since our acquisition 3 years ago. We saw an increase in longer-term rental loan demand in the quarter, which accounted for about 30% of origination volume, up from 15% to 20% in the last few quarters. As rates have trended down recently, we've seen an uptick in interest for that product and expect that to continue into the second half of the year. Our multifamily transitional volume has declined from a peak in the third quarter of 2023 and throughout this year as higher cap rates and increased stress in the market has caused more deal fallout and multifamily was only about 5% of origination volume in the second quarter. Given the reduction in activity and general stress in that market, we refocused our resources towards a growing opportunity in the single-family transitional and rental products, which are experiencing positive tailwinds from tighter securitization spreads and increased investor demand. With respect to origination volume, we expect third quarter origination to be down modestly from the second quarter. The 60-plus day delinquency rate on our business purpose loans originated by Lima One increased modestly in the quarter to 4.8%. The increase was primarily focused in the multi-family transitional loans, while we saw modest declines in delinquency rates for single-family transition loans and longer term rental loans. Credit monitoring and asset management are important parts of our BPL strategy and with MFA's extensive asset management experience and Lima's experience in servicing BPLs, we believe we are well set up to identify problems early and actively manage them, which allows us to deal with delinquencies effectively and efficiently. Finally, we expanded our transitional loan financing capacity in the quarter as we priced our fifth unrated revolving transitional loan securitization. We now have approximately $1 billion of these securitizations outstanding and have financed about $1.7 billion of loans to these revolving structures. I will now turn the call over to Bryan Wulfsohn who will discuss MFA's credit performance and securitization activities in more detail.

Thanks, Gudmundur. Securitization markets have performed well this year despite significantly increased supply, year-to-date Issuance of private label RMBS is about to eclipse all of the issuance in 2023 and spreads have remained attractive for well-established issuers like MFA. In April, we launched our 14th non-QM securitization selling $330 million in bonds backed by $365 million of loans. The bonds sold had a coupon of 6.7% and the loans underlying the transaction had a weighted average coupon of 8.4%. In addition, we issued our fifth transitional loan deal in May, selling $164 million in bonds at a coupon of 7.25% where the underlying loans had a coupon north of 10%. As Craig mentioned, we called bonds from our outstanding unrated NPL securitization in May, generating $80 million in liquidity. Subsequent to quarter end, we took the reperforming loans from that call deal and combined them with additional performing loans to issue a rated RPL securitization, selling $259 million in bonds at a cost of debt at approximately 5.8%. In the coming months, we expect to issue an unrated NPL securitization with the remaining loans together with other legacy loans currently on warehouse lines. We now have issued securitizations backed by over $9.5 billion in loans since 2020, and the percentage of our loan portfolio financed by securitization stands at approximately 65%. Slide 20 of our earnings presentation, you can see that many of our securitizations are currently callable and others will become callable in the coming quarters and years. As evidenced in the second quarter, we have the ability to call our collateral and unlock substantial nondilutive capital that can then be redeployed at mid-teens ROE. If interest rates continue to drop as they have in recent weeks, these call features could also provide optionality to reduce our borrowing costs. We expect that mortgage securitization will continue to be a significant component of our loan financing strategy since its nonrecourse, non-mark-to-market funding and further insulates our portfolio from volatile markets. Moving to our asset and credit performance. Prepayment speeds increased in the second quarter throughout our portfolio. The single and multifamily transitional loan portfolios saw large increases as the average term to maturity in both these portfolios is less than one year. Prepayments in our non-QM and legacy RPL/NPL portfolios increased moderately to 11 CPR. Lastly, our SFR loan portfolio exhibited a slight increase to 7 CPR from 6 CPR a quarter ago. Translating this into dollar terms, paydowns for the quarter were up 50% to over $600 million, which we then reinvested into higher-yielding assets. As Craig mentioned, 60-day delinquencies for our entire loan portfolio decreased to 6.5% from nearly 7% in the first quarter. Although multifamily delinquencies rose 4.5% from 3% last quarter, we did see modest improvements in our non-QM SFR and single-family transitional loan portfolios. Delinquencies in our legacy RPL/NPL portfolio declined by over 1.5 points during the quarter as our asset management team continues to work to achieve positive resolutions. As a reminder, our legacy loans were primarily originated before the financial crisis and purchased by MFA between 2014 and 2019, typically at very substantial discounts to par. Our in-house asset management team has worked through billions of dollars of defaulted loans in concert with our third-party servicers to obtain successful modifications and other workouts to the benefit of our borrowers and shareholders. We have and will continue to leverage our asset management capabilities to improve outcomes across our entire loan portfolio, including working through delinquent transitional loans with our in-house servicing team down at Lima One. We believe the combined expertise and experience of these teams puts MFA in a unique position to deliver for our investors. And with that, I'll turn the call over to the operator for questions.

[Operator Instructions] We will begin with the line of Stephen Laws with Raymond James.

Nice to see results, top and bottom line. I wanted to touch maybe dig in a little on the multifamily delinquencies. It seems like you pulled back on new originations, but as you manage through the existing portfolio, what do you expect those to do near term? When do you expect those DQs to peak? And kind of can you talk about your resolution efforts to push down that DQ number?

Sure. I was going to say it's hard to forecast when delinquencies would peak, but it's impossible. But just to put the delinquency numbers in perspective, the total 60-day delinquency balance as of June 30 was a little over $50 million. And the increase from March 31 was about $20 million on a portfolio of over $1 billion. So yes, it increased, but the numbers are obviously somewhat manageable. As Bryan mentioned, we have an asset management team that has a seller record of working through billions of dollars of delinquent loans for over a decade, right? We started purchasing NPLs and RPLs back as early as 2014. And because of this expertise and track record, I think we're uniquely capable of evolving the challenging situations that arise with delinquent or defaulted borrowers. I'll also point out that our multifamily loan portfolio is different from most others and that these are small balance transitional multifamily loans with an average balance of about $3.2 million. That said, the properties that collateralize these loans are often unique situations and the outcome from defaulted loans are one-off circumstances, which makes it really difficult to forecast. These resolutions could occur quickly or they could take months or years to resolve. And the outcomes could range from a full payoff to a loss. So it's difficult to forecast the timing and severity in any sort of accurate fashion.

Great. Understood, and I appreciate the comments around that. I wanted to touch a little bit on just the shift in interest rate and outlook. I appreciate the update on order book value and the sensitivity table in the press release. Can you talk about on that, is that sensitivity table really look at existing fair value marks? Or can you talk about how a shift in prepayment speeds might allow you to recover some of the portfolio discount at a faster pace and kind of how you think about the [indiscernible] readout?

Yes. So I think you're referring to I guess, the shock table in the press release, which shows the sensitivity to changes in interest rates.

That's right. Yes.

Yes. So I mean, at the end of the day, we do have positive interest rate duration. And so to that extent, if rates are coming down, that tends to be positive for our book value. And the other thing is we do have -- as rates come down as well, on top of that, you may see an increase in prepayment and prepayment activity. And because of our loan book is marked at a discount, any prepayments there tend to be positive, both to income and book value. And as it relates to just the curve in general, steepening of the curve is going to help from lowering our cost of funds perspective. And as we mentioned in the opening remarks, we, from a hedging perspective, have been focused and we'll be focused more on hedging the long end of the curve and creating some optionality on the front end to allow the liabilities to reprice, and so there's a couple of things here. One, just the book value, but also as loans at a discount prepay, it's positive for income.

We'll now go to the line of Bose George with KBW.

As you noted, the non-QM activity has been really robust this year. As rates go down, can you just talk about your expectations for that market presumably increased strength, but just any thoughts about how that plays out, especially as the conforming market might become a little stronger as well.

Yes. I mean on the non-QM side, what we have seen, we were able to be pretty active in the second quarter and adding, what we have seen is rates have sort of have come down a bit, and we've seen spreads tighten on the securitization side, demand for the loans has picked up significantly. So we have seen premiums on that paper reach levels that we haven't seen in the past, say, several years. And because of that competitiveness, we're somewhat sanguine on adding to that portfolio significantly given that the premiums that are out there in the marketplace. We have other ways, multiple ways to source loans, so one way is flow and other is bulk. So we're focusing more so now on flow channels versus bulk. It's just the bulk bids are very competitive. And as rates come down, we do expect to see more supply of non-QM, and we're hopeful that premiums will moderate somewhat in the coming months and quarters, and that will allow us to be a bit more competitive in adding to that portfolio as well.

And Bose, I think some of those premiums that Bryan talked about are just there are loans that were originated recently but probably at higher rates than where they'd get originated today. So it stands to reason with rates rallying that those are going to command premiums. But I think the origination coupons, if you will, are likely going to trace rates.

Okay. That makes sense. And then actually I had a question on Table 6, where you have the LTV by the different credit buckets, for the single-family rental credit bucket 60-plus LTV, that's a lot higher than the LTV of the typical portfolio. So I mean, are borrowers who have the higher LTV going delinquent more? Or just curious why that's the case where the case isn't similar for the other categories?

Yes, Bose. No. Thanks for the question. I think so the LTVs there are related to delinquent situation with respect to a handful of borrowers where it's concentrated in areas that have experienced economic stress and kind of lower home price appreciations. And so it's more of a unique situation with respect to that, but it is loans that are in the foreclosure process and then we're working through, but that's what that relates to.

We'll next go to the line of Eric Hagen with BTIG.

This is Jake Katsikas on for Eric. You guys have a rough estimate for how much mark-to-market upside you would experience in the portfolio if the Fed were to cut rates by 50 basis points next month?

Yes. So we show a shock table on Table 7 of the press release, which we're actually referring to earlier. I think you said a 50 bps cut would imply about a 3% upside in our equity.

Right. And then shifting back over to the non-QM portfolio. How do you think delinquency rates would respond to higher levels of unemployment and how much production of non-QM do you expect we would see in the market in general under those conditions of higher unemployment?

Yes. I mean if we saw a higher level of unemployment, obviously, we would expect delinquencies to go up. What gives us comfort there is the LTVs on our non-QM portfolio are pretty low. If you look in the presentation, similar HPA adjusted in the mid-50s. So for our existing book, we're really not all that concerned if there was an uptick in delinquencies. As it relates to new origination, yes, sure. I'm sure if the economy was to struggle more, right, as you know, non-QM loans are made to a lot of business owners and the like. And if they're seeing stress, maybe there would be a little bit less production. But at the same time, if a business sort of continues to need to run and they need financing and they have a lot of trapped equity in their homes, a cash out refinance or potentially a second lien is a lifeline for them to keep your business going. So there's sort of offsetting factors that we could see that would impact non-QM production going forward.

We'll now go to the line of Doug Harter with UBS.

On the potential for resecuritizing, can you talk about the, kind of try to help us size the puts and takes of freeing up equity versus a lot of those deals are much lower coupon, just how you're thinking about it, how close you are to being able to execute profitably, some of those resecuritizations?

Sure, Doug. So, obviously the coupon on the outstanding securities factors into the decision about whether to call deals. I'll just point out that the lowest coupons are obviously on the most senior bonds, they're sold as AAA bonds, typically, and those are the first ones to pay down. So while we might have a pretty low coupon on the AAAs that are outstanding, we might have a small amount of that outstanding. So we really look at the whole deal in totality. But rest assured, we run the numbers. And if some of those deals, I think that we did back in early '21, where we sold AAAs below 1% yields, those probably aren't in the money until those AAAs pay down more. So it's just, it's part of the calculus that goes into it. But you know, the example that we used in this quarter of calling an NPL deal, so that's an NPL deal that's been out for quite some time. We called that deal, many of the loans in that deal are now re-performing, right, which is a testament to our asset management group that we turn non-performing loans into reperforming loans, and we're then able to securitize those into a reperforming loan deal, which is a rated deal, so it obviously trades at lower yields than a non-rated deal would. So that's just one other example of some of the optionality that we have in that portfolio.

Great. And then I guess obviously it's still kind of early days from the recent volatility, but kind of what is your outlook for securitization spreads, kind of as we move forward here in the third quarter?

As I said in my prepared remarks, the securitization spreads have been pretty stable lately. I think, if you see a big rally in rates, intermediate-term, you'll probably see a little bit wider spreads on securitizations just because of the sort of yield sticker shock. But the demand has been really good. Bryan mentioned that we've already equipped 2023's volume of securitization. So the buyers are there and deals or tranches are typically oversubscribed. So, it's a pretty good dynamic for that market. But I think a strong rally in rates, you could see a temporary modest widening of spread.

One of the important aspects, always like the risk of higher rates, is it's kind of off the table for a lot of investors, which caused spreads to widen, mostly in 2022 and 2023. And so we probably saw a peak of securitization spreads in call it September and October in 2023. And so as rates have come down and the fear of further Fed hikes is off the table, and we're now firmly focused on rates lower, that has broad spreads lower and stability. Yes, there will be pockets of volatility, but I think that's very constructive for spreads and securitizations going forward.

[Operator Instructions] We'll now go to the line of Steve Delaney with Citizens JMP.

Look, congratulations on a strong quarter and building your portfolio to $10 billion. That's a nice round number. $20 billion, I guess, is the next one, right, Craig. What is your investment capacity do you guys think you have with your current capital base and liquidity? And as part of that, you sold some loans. So are there additional underperforming loans in the portfolio that you might be able to sell to upgrade the overall portfolio return?

Sure. So, I think where we currently sit and where leverage sits, I'm not sure there's room to grow the portfolio materially, certainly not the $20 billion and not the $15 billion. But you're right, Steve, there are always tweaks and there are maybe loan sales or collapsing securitizations that unlock equity. So, I think, future portfolio growth is probably going to be around that. I think each of the asset classes are appropriately levered. So, while there could be some growth, absent additional equity or outside capital, I think portfolio growth will be modest at best.

And just, Steve, on the loan sales that we did in the quarter, these were newly originated loans where we just saw an increased premium in the marketplace, as we mentioned on the call, and a good execution to sell those. So it's also about a healthy premium, and I think, as you mentioned, that is an important part of our flexibility. And I think going forward, it will probably have more of those things where if premiums stay elevated in this rate environment in terms of rental loan sales.

Well, it looks like the yield curve we're going to get benefit both on short term and I think longer term as well. I'm kind of focused on the fixed rate side, and for you guys -- right now, and for you guys, it's the single-family rental product, right, that is your primary fixed-rate product. Am I right on that? Of course, I'm talking about the origination side with Lima. I'm not talking about buying NQMs and that type of thing. So is that where a lower coupon on fixed-rate SFR, investor loans, is that an opportunity, a segment of your business that could really pick up with the lower rates?

Yes, that's correct. I think as rates come down, there's going to be more opportunities there simply because that's the debt service coverage ratio product. And so as that debt service cost comes down, more loans make sense, more deals make sense, and there's also going to be more activity in the marketplace. That product was a much larger part of our origination mix on the Lima side back in '21 and '22, it was closer to like 30% to 35% of the origination volume, as opposed to in 2023, when it was closer to 15% to 20%. And so, yes, we do think that there's potential optionality there from a volume perspective.

And you think you could have some sort of the fix and flips or the residential bridge, those people might be still carrying it SOFR-based products, but as rates come down, you think that you could see some flipping there. And how does that work play into an improved securitization opportunity if that trend occurs?

So RTL, our fix and flip loans, they have a fixed rate coupon. Really Yes. But you're right. I mean so what we're seeing in the marketplace is, securitization execution has improved a lot throughout this year. And on the RTL side, spreads have come in probably from the high 200s all the way down to 200 or even inside of that on new deals. So I think that is an opportunity to improve the liability side as well because some of our older deals will get callable and so on and so forth. But I think with respect to the RTL market at large, there's also increased competition. You see new [ entrants ] come in and kind of hold their hands that were dormant in '22 and '23 kind of resurface. So I would expect coupons to come down a little bit on the RTL product itself on the loan side and probably more competition, but we should also see increased activity on the flipping side throughout the year as we started to see a little bit in the latest data has come out.

Appreciate all the comments and congrats again on a strong quarter.

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

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