2020 has been a tough year for the mortgage and finance segment. COVID-19 crisis swept through the entire sector and there were big losses reported for the finance-related companies with regular dividend cuts. The crisis would get over with the economic growth anticipated during the second wave of Covid-19.
MFA Financial, Inc. operates as REIT in the United States. The company was incorporated in 1997 with the headquarters in New York City. The company makes regular investments in residential mortgage assets. This REIT gets taxed and would skip charging the federal income taxes on the distribution of at least ninety percent of the taxable income to its shareholders.
The beginning of the year had the stocks at $7.6 level but in late March with the market crash, the prices dropped to $0.32 levels. Majorly, mREITs work by borrowing for increasing the portfolio returns of mortgage-backed securities. The market issues in March and April required more cash from the companies for backing up their debt. MFA failed to do so and hence, it had to enter into forbearance with the creditors.
The dividend was suspended on common and preferred shares and attained the strategic investment plans from Athene and Apollo Global Management for settling the margin calls. The company’s present stats would make it run in a conservative mode.
The stocks came up to the value of $4.34 at the end of March. The book was reported at the end of March but it wasn’t the right time to do so. As of March 30, book value was $4.34 per share compared to $7.04 at the end of 2019. During this phase, the forced selling in the mortgage asset markets was trending and it was actually not advisable to do so. The company’s assets fell to a level of 20-50% and the stabilization was done when the Federal Reserve stepped in to buy mortgage-backed securities.
Activity in the second quarter
In the present market scenario, the residential whole loans, the agency mortgage-backed securities portfolio, and the servicing portfolio have fallen. Also, the book value per share has increased 2-3% from the March-end. MFA has reinstated the dividend only on the preferred shares. It is no longer relying on short-term financing via repurchasing agreements.
The delinquency rate of MFA stocks has decreased. The rates have reduced in FHA and VA loans. The market crises have affected the cash flows and obviously, would impact the income. The clarity on financial issues will be done by the revealing of second-quarter earnings by MFA Financial, Inc.