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ARMOUR Residential REIT, Inc. Message Board

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  • instantwinbutton instantwinbutton Jan 21, 2013 3:22 AM Flag

    Book value. Found it.

    It is also based off the last quarter. Mbs has fallen sense then.

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    • instant, I am going to disagree with you on this. Primarily because you haven't qualified what you mean by mbs have fallen since then.

      The book value of the loans is primarily based on constant prepayment rate. As rates fall, CPR increases for the most part because people like me are calculating that refinancing my current not at x% less interest rate offset by the $1400 closing fees will pay for itself in 8 months... so someone like me refinances expecting to make the $1400 back in 8 months for example.

      Rates have been low for some time and can't really get any lower, so CPR is going to be pretty strong (ie low). CPR might continue to get worse for another quarter as people who haven't yet decided to refinance finally make the plunge to do so. But for the most part my estimation is that CPR will remain strong.

      A strong CPR means a strong book value. So i am not sure that book value will drop after March. Possibly the Q1 book value will drop, but there after I don't expect it to.

      Sentiment: Buy

      • 2 Replies to eugene_picklewedge
      • book value is (assets-liabilities) / outstanding shares. The primary driver of book value is asset values that are valued at fair value (mark to market). When interest rates drop portfolio asset values increase, hence book value. Conversely when interest rates rise, the book value is negatively impacted.

        CPR, simply put, removes assets on the balance sheet and usually requires the Mreit to replace those assets with lower yielding assets. CPR has a greater effect on the Income Statement than the Balance Sheet and book value.

      • No. CPR changes depending on how Refinance activity is.. People see that rates have bottomed and slowly ticking up... They chose to refinance now rather then later at higher rates.. Ie.. Homeowners on the sidelines. Also underwater mortgages that were on the cusp of being able to refi but couldn't because of house value (equity) can now refi because home prices are going up. CPR isn't always a function of a new low rate.

 
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