take a look at NLY - thats what you should be expecting on your mreit investment. Not some lousy 14% return on riskier assets. You are getting nothing for their increased risk profile. NLY, HTS, CMO have all proven they can return great yields to shareholders using the tried and true AGENCY BACKED assets. I would nt want MFA over any of the others until you are getting at least 16% which would be inline with the others - and again, with 16% you would be getting a similar return but on higher risk. Isnt there a demand for more oompensation when the risk increases? - liek in every other business, i.e. credit cards, stocks, f'in poker hands, junk bonds etc etc.
HTS mgmt is too conservative and is not taking advantage of their leverage. It is inevitable that they will reduce their div as the interest rates go up.
This is better place to park $ for now.
well all the same.
ill load up on dips and dips relative to the others, like buy mfa today sell cmo
and once they spin off ill play the spin off versus the others.
segregatoin will be better for comparison and trading then.
I consider MFA and IVR to be the least risky of the ones I own, MFA, AGNC, CMO, IVR because their private label MBS portion of their portfolio give MFA has less interest rate risk, less prepayment risk, and unlike Agency only mREITS, MFA will benefit from a warming economy.
1. Less interest rate risk because their private label MBS yield so well. I believe that their private label MBS credit enhancements will continue to hold up against the defaults and that they will continue to yield 16% on MFA's cost. Because the private label MBS are nominally unlevered their NIM stays at 16% even when rates rise. Even if they have managed to obtain leverage for their private label MBS by that time, their NIM on the private label MBS will still be more than triple the NIM on Agency MBS. It's better to suffer NIM compression starting from the huge spread on a private label MBS than from the narrow spread Agency MBS.
2. Less prepayment risk because prepayment is good for MBS bough below book (private label) and bad for MBS bought at a premium to book (Agency MBS). When the economy picks up and people start doing move-up housing buys and cash out refis again, loans that get paid off at face value are immediately accretive because the private label MBS were bought well below face value. This is in contrast to GSE MBS bought at a premium to book which will create underfunded dividends, and tax liabilities, due to the loss on the premium to book value that mREITS paid to acquire them. That's because the GSE's will pay off only the face value, not the premium, upon any refinances or loan payoffs.
Factors 1 and 2 work synergistically in MFA's favor relative to competitors when the economy starts to heat up. When to economy has been heating up for a bit, say 18 months from now, the Fed will start to jack up the rate, which will compress the NIM for their Agency only competitors more than it will for MFA. The economy heating up will simultaneously start harming the MFA's Angency only competitors via elevated prepayment speeds more than it will harm MFA.
Furthermore the elevated liquidity available in a heating economy may allow MFA to obtain leverage on their private label MBS which will help their dividend. The heating economy will also lower defaults and strengthen the credit enhancements, improving the quality of the asset and making them more attractive to borrow against. These factors all happening at the same time will result in MFA being able to maintain or increase it's dividend for longer into the recovery than peers.
In summary MFA prepares itself now during the down economy to outperform their Agency only competitors in the future up economy. that being said, I still plan on exiting all my mREIT positions, including MFA, when I anticipate the onset of FFR raises. That's not because I think MFA will be unable to sustain it's divvy as long as the FFR is less than say 3%, but rather because I don't think Mr. Market will differentiate between Agency Only and hybrid mREITS and I anticipate that MFA's share price will take a drubbing along with the others once the rate hikes begin. I still highly value MFA's ability to keep it's divvy up in a hot economy because that still high and rising dividend will hopefully provide cover fire for my profitable retreat from the position.
YOUR ANALYSIS IN MY OPINION POINTS TO FAVORABLE PERFORMANCE FROM NON-AGENCY PLAYERS. The problem is you highlight mfa non-agency portfolio, but then wouldnt one reasonably assume that they should just exit mfa and go all non-agency.
You assume that just because mfa has purchased assets below book that there is less risk because they were at steep discounts - maybe, but last i looked junk is almost always trading below book. Hey run and scoop up those General Motors Bonds, a crude example, but nim compression isnt MFA risk in non-agency - rapidly rising default rates not backed is the main risk.
IYR has about 20% non agency - how much does mfa have of their total portfolio - when that portion sours, if it does, that will be mfa's risk, in the meantime they are earning a solid return. But hey those banks in Florida, Nevada, and Arizona were earning great money as long as those higher risk borroweres were paying. Guess what they are paying their loans anymore and many banks have gone under or suffered. Once again that is the risk.
Either way, still a decent match up, i like mfa on dips, and anh on dips, more so than the others, but certainly i like anh the most.
lgregor is still a clown regardless.
Don't forget AGNC. Below book, higher yield, strong trend, similar profile.
I own AGNC, MFA and NLY. MFA and NLY have announced increased dividends, no announcement yet from AGNC. . .can we expect the same?
agnc is high risk to me as they only own fixed mbs and are heavily leveraged. These stocks are not the same. Mfa is lowest risk IMO because they own adjustables only and are leveraged less. Yes, they own some non gov't mbs, but they bought them at huge discounts that have now but all disappeared, greatly increasing BV. When interest rates finally go up, and they will go up, mfa's adjustables will adjust up. All the other companies mba's will stay the same causing a lowere Book value. They will all go down when rates go up, but imo mfa will handle it the best.