Company: MFAN
Filing Date: 2025-08-06
Form Type: 10-Q
Source: 0001055160-25-000013
Chunk: 56

Company: MFA FINANCIAL, INC.
Filing Date: 2025-08-06
Form: 10-Q
Item: Part I, Item 2
Chunk 56
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 hedges, will not always move in tandem.  Consequently, changes in credit spreads can result in volatility in our financial results and reported book value.

Liquidity Risk

The primary liquidity risk we face arises from financing long-maturity assets with shorter-term borrowings primarily in the form of repurchase agreement financings.  We pledge residential mortgage assets and cash to secure our financing agreements.  Our financing agreements with mark-to-market collateral provisions require us to pledge additional collateral in the event the market value of the assets pledged decreases, in order to maintain the lenders contractually specified collateral cushion, which is measured as the difference between the amount borrowed and the market value of the asset pledged as collateral.  Should the value of our residential mortgage assets pledged as collateral suddenly decrease, margin calls under our repurchase agreements would likely increase, causing an adverse change in our liquidity position.  Additionally, if one or more of our financing counterparties chose not to provide ongoing funding, our ability to finance our long-maturity assets would decline or be available on possibly less advantageous terms.  Further, when liquidity tightens, our repurchase agreement counterparties may increase our collateral cushion (or margin) requirements on new financings, including repurchase agreement borrowings that we roll with the same counterparty, reducing our ability to use leverage.

As of June 30, 2025, we had access to various sources of liquidity, including $275.7 million of cash and cash equivalents.  Our sources of liquidity do not include restricted cash.  In addition, as of June 30, 2025, we had unencumbered residential whole loans and Agency MBS of $82.9 million and $97.5 million, respectively.  

Prepayment Risk

Premiums arise when we acquire an MBS or loan at a price in excess of their unpaid principal balance.  Conversely, discounts arise when we acquire an MBS or loan at a price below their unpaid principal balance.  Premiums paid are amortized against interest income and accretable purchase discounts on these investments are accreted to interest income.  Purchase premiums, which are primarily carried on our Single-family rental and Non-QM loans, are amortized against interest income over the life of the investment using the effective yield method, adjusted for actual prepayment activity.  An increase in the prepayment rate, as measured by the CPR, will typically accelerate the amortization of purchase premiums, thereby reducing the interest income earned on these assets.  Fees payable by borrowers on the