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THORNBURG MTG INC Message Board

  • MINCE38 MINCE38 Apr 21, 2004 3:21 PM Flag

    TMA vs. NFI

    Can someone explain the difference between NFI and TMA and NLY business model. Also what exactly is the benefit of an ARM and is that the same as what NLY calls their "barbell" strategy of having different time notes so they can trade in and out of em more easily.

    Also, when TMA says they originate the loan, exactly how do they do that. So many reits claim they originate the loan but I doubt they all use the NFI model. I betcha a lot of newbies would appreciate an answer to this.

    thanks in advance.

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    • You are basically correct, but

      1. TMA still makes most of its money the way NLY does, by playing the yield spread. TMA and NLY follow rather different portfolio strategies, and TMA has been much the more stable performer.

      2. NLY management has been making in advisory fees by managing other mREIT's portfolios. This activity has been in a separate business entity (FIDAC) owned by NLY management. NLY is now acquiring this business which may signal the beginning of a diversification of NLY's business.

    • Here's a quick and dirty attempt to answer your questions:

      NLY is strictly a leveraged portfolio of bought mortgage backed securities that are (hopefully) financed at a positive interest rate spread - thus generating a profit. It has no mortgage origination or servicing capability. NLY management views success as providing its investors with a premium return over the yield on the 10 year note - thus it really is a leveraged bond fund as opposed to a MREIT.

      TMA is a closed cirlce, fully integrated MREIT. Though it does buy some loans from others, its business model is focused on generating large dollar amount ARMs with good credit customers on a low loan to value basis. TMA then keeps and services these loans in their own portfolio - they NEVER generate mortgages with the intent to sell them to others in order to generate short term profits. Since TMA never generates a loan unless it can make a suitable financing spread and works hard to keep existing customers happy, it is IMO the most "bullet proof" of all the MREITS in terms of weathering different economic, interest rate environments. It should also be noted that TMA - out of a $20B mortgage portfolio - has only suffered 5 losses on individual loans over the past several years.

      IMH is a lot like NFI in its business model. It does everything including generating low credit mortgages - "everything" being defined as originating, servicing, financing (including providing financing for others), packaging, and selling mortgage backed securities, as well as maintaing a substantial investment portfolio for itself. Unlike NFI, however, IMH tends to package and sell these low credit loans to others and tends to keep the higher quality loans in its own portfolio.

      AHH IMO represents the best qualities of both TMA and IMH.

      I presently own TMA, AHH, IMH and for the first time yesterday, I bottom fished NFI under $33. I only use NLY as a short term trading vehicle.

      I hope this helps.

      • 3 Replies to northbeachfl2000
      • NLY has averaged $ .41 per quarter in dividend payments for the last 25 quarters. TMA has averaged $ .39 per quarter during the same 25 quarters.

        I understand that the stock market is a forward pricing mechanism, but I suggest that maybe an over 50% premium for TMA over NLY is a little rich right now....

        I also think the 'sweet' spot for NLY's strategy is just starting. A very steep yield curve combined with declining prepayment expenses will be very positive for them...

      • Thank you. You have been quite helpful! I am curious though, if companies like NLY have been reporting record earnings, and supposedly management is very judicious in watching defaults and spotting them rising, and I assume they make more money for more risk and TMA must make less money for less risk, why would one be safer than the other. So aside for the less riskier loans, are NFI and TMA sort of the same except for the retail outlets NFI has? I mean, they are both holding the paper in the end, yes? I wonder if there are any reits that take no risk by just originating the loan and selling it for a quick profit and move on to the next one. Hmmm...

        Also,I personaly thought that NLY was the safest as they would seem to benefit by rising rates as the spread usually widens as rates rise, yes? (I owned it at 15 and then when it went to 20 and started tanling I sold it like a dope.) I also have taken a huge hit that keeps me up at night still, on NFI. I read that the ceo JUST BOUGHT A MILLION dollars of the stock(NFI) which "should" make me feel better, but with all the lawsuits pending against it, I wonder if its just a smoke screen.

        thank you.

      • Northbeach! Congratulations on a very informative post. I have been long on TMA, probably will add on dips. (Hope I don't get the chance.)

 

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