Company: MFAN
Filing Date: 2025-08-06
Form Type: 10-Q
Source: 0001055160-25-000013
Chunk: 50

Company: MFA FINANCIAL, INC.
Filing Date: 2025-08-06
Form: 10-Q
Item: Part I, Item 2
Chunk 50
---
, borrowing costs on our financing agreements will change more quickly than the yield on our assets.  In a rising interest rate environment, the borrowing costs may increase faster than the interest income on our assets, thereby reducing our net income.  In order to mitigate compression in net income based on such interest rate movements, we may use Swaps or other derivatives to lock in a portion of the net interest spread between assets and liabilities or otherwise hedge interest rate risk.

When interest rates change, the fair value of our residential mortgage assets could change at a different rate than the fair value of our liabilities.  We measure the sensitivity of our portfolio to changes in interest rates by estimating the duration of our assets and liabilities.  Duration is the approximate percentage change in fair value for a 100 basis point parallel shift in the yield curve.  In general, our assets have higher duration than our liabilities, and in order to reduce this exposure, we have historically used Swaps and other derivatives to reduce the gap in duration between our assets and liabilities.

The fair value of our re-performing and non-performing residential whole loans is in part dependent on the value of the underlying real estate collateral, past and expected delinquency status of the borrower as well as the level of interest rates.  For certain loans that were re-performing or non-performing when purchased and where the borrower has brought the loan current, but nonetheless may be less likely to prepay due to weak credit history and/or high LTV, we believe these loans exhibit positive duration.  We estimate the duration of these residential whole loans using management’s assumptions.  

The fair value of our Business purpose and Non-QM loans is typically dependent on the value of the underlying real estate collateral, as well as the level of interest rates.  Because these loans are primarily newly or recently originated performing loans, we believe these investments exhibit positive duration.  Given the short duration of our Single-family and Multifamily transitional loans, we believe the fair value of these loans exhibits little sensitivity to changes in interest rates.  We estimate the duration of these Business purpose and Non-QM loans using management’s assumptions.

86  

The fair value of our non-performing residential whole loans is typically dependent on the value of the underlying real estate collateral and the time required for collateral liquidation.  Since neither the value of the collateral nor the liquidation timeline is generally sensitive to interest rates, we believe their fair value exhibits little sensitivity to interest rates. We estimate the duration of our non-performing residential whole loans using management’s