MFA Financial NYSE: MFA reported a negative total economic return for the first quarter of 2026 as higher rates, wider mortgage spreads and market volatility weighed on book value, while management pointed to portfolio growth, securitization activity and cost reductions as key priorities for the year.
Chief Executive Officer Craig Knutson said the quarter unfolded in two distinct market environments. Fixed income markets began the year with strong investor demand and low volatility, continuing the trend from the second half of 2025. He said mortgages performed well early in the quarter, helped by a directive for the government-sponsored enterprises to purchase $200 billion of agency mortgage-backed securities.
However, Knutson said conditions changed abruptly after the onset of a war in Iran, which increased volatility, pushed rates sharply higher and drove oil prices up. He said higher energy prices renewed inflation concerns and led markets to price in fewer, or potentially no, rate cuts later in the year.
“Mortgage spreads widened significantly against this backdrop and contributed to an economic return for MFA in the Q1 of negative 1.2%,” Knutson said. He added that despite volatility and geopolitical tension, markets remained “open and orderly.”
Book Value Declines as Mark-to-Market Losses Weigh on Results
Chief Financial Officer Michael Roper said MFA’s GAAP book value was $12.70 per share at March 31, while economic book value was $13.22 per share. Both were down approximately 3.8% from the end of 2025.
The company paid a common dividend of $0.36 per share during the quarter and delivered a quarterly total economic return of negative 1.2%. MFA generated a GAAP loss of approximately $1 million, or $0.11 per basic common share. Roper said the results were hurt by approximately $28.8 million of net mark-to-market losses on the portfolio, driven by higher rates and wider spreads.
Net interest income rose to $59.2 million from $55.5 million in the fourth quarter. Roper attributed the increase to rate cuts late last year and growth in the investment portfolio, partially offset by $3.5 million of interest income reversals tied to loans moving to non-accrual status in the transitional loan portfolio.
Distributable earnings were approximately $31.1 million, or $0.30 per share, up from $0.27 per share in the prior quarter. Roper said the increase reflected a $0.03 benefit related to a lease modification and roughly $0.02 of higher mortgage banking income at Lima One, partially offset by higher REO carrying costs and realized credit losses on fair value loans.
Company Adds Supplemental Earnings Measure
MFA introduced a new non-GAAP measure of distributable earnings that excludes realized credit losses on residential whole loans held at fair value. Roper said the company added the disclosure to provide more context as credit losses from its legacy multifamily portfolio continue to affect distributable earnings.
Roper said resolving nonperforming loans does not affect distributable earnings until well after the loans have already been marked down in GAAP results and book value, which can obscure the current earnings power of the portfolio. He said MFA expects credit losses on the legacy transitional loan portfolio to accelerate meaningfully in the second quarter before beginning to normalize in the back half of 2026 and into the first half of 2027.
In response to an analyst question, Roper said the company’s expectation that distributable earnings will reconverge with the $0.36 quarterly dividend later this year refers to the reported distributable earnings figure, rather than the supplemental measure excluding realized credit losses.
Portfolio Grows as MFA Completes Non-QM Securitizations
MFA grew its investment portfolio to $12.5 billion in the first quarter. President and Chief Investment Officer Bryan Wulfsohn said the company acquired more than $1 billion of residential mortgage assets, including $471 million of non-QM loans, nearly $400 million of agency securities, $300 million of TBAs and $219 million of business purpose loans originated by Lima One.
Non-QM remained MFA’s largest asset class, with the book growing to $5.5 billion. Wulfsohn said new non-QM loans added during the quarter had an average coupon of 7% and a loan-to-value ratio of 68%. He said credit performance in the non-QM book remained strong, with a default rate just above 4%.
The company completed two non-QM securitizations in March. The first was its 22nd non-QM deal, involving the sale of $326 million of bonds at an average coupon of 5.12%. The second was a re-securitization of more than $400 million of seasoned non-QM loans from two earlier deals. Wulfsohn said the transaction unlocked approximately $40 million of cash and additional financing capacity and is expected to be accretive to earnings.
MFA also expanded its agency portfolio, which now exceeds $3.5 billion. Wulfsohn said the company took advantage of wider spreads late in the quarter by establishing a $300 million TBA position. Since quarter end, he said spreads had tightened by about 10 basis points.
Lima One Pipeline Improves, Expenses Remain in Focus
Lima One originated $219 million of business purpose loans in the first quarter, including $145 million of new transitional loans and $74 million of rental term loans. Wulfsohn said MFA continued to sell longer-duration rental loans to third-party investors, selling $81 million during the quarter and generating $2.7 million of gain-on-sale income.
Mortgage banking income at Lima One increased 34% from the fourth quarter to $7.7 million. Wulfsohn said monthly submissions and the origination pipeline reached their highest level since 2024. He said the recent opening of a wholesale channel and the relaunch of multifamily lending are expected to support future earnings contributions.
On expenses, Roper said MFA entered into agreements in February to relocate its corporate headquarters in New York without paying early lease termination fees. The move resulted in $2.4 million of accelerated non-cash depreciation expense in the first quarter, with an additional $5 million expected in the second quarter. After those charges, the company expects run-rate expense reductions of approximately $4 million per year from the relocation, or nearly $40 million over the remaining term of the prior lease.
Roper said MFA now estimates its expense reduction initiatives have achieved nearly $20 million per year of run-rate overhead savings compared with 2024 levels.
Legacy Multifamily Loans Drive Delinquency Increase
Wulfsohn said delinquencies in MFA’s residential loan portfolio rose to 7.8% during the quarter, driven primarily by elevated default activity in the legacy multifamily book, which has been in runoff for the past two years. He said the delinquency rate had already declined to 7.3% since quarter end as the company made further progress resolving nonperforming loans.
In the question-and-answer session, Roper said just over $100 million of capital was tied up in the remaining multifamily transitional portfolio at quarter end. He said MFA’s guidance for distributable earnings to reconverge with the dividend includes anticipated paydowns of troubled assets and redeployment into target assets.
Roper also said MFA expects multifamily credit losses in the second quarter to be in the “mid-to-high teens” before beginning to normalize later in the year and into 2027, though he cautioned that the timing of resolutions can vary significantly from quarter to quarter.
Management said MFA’s economic book value was approximately flat to the end of the first quarter as of the close of business on the Friday following quarter end.
About MFA Financial NYSE: MFA
MFA Financial, Inc, headquartered in New York City, is a real estate investment trust that specializes in investing in residential mortgage loans and mortgage-related securities. The company's primary objective is to generate attractive risk-adjusted returns through net interest income and capital appreciation. As a mortgage REIT, MFA Financial focuses on constructing a diversified portfolio of agency and non-agency residential mortgage assets, leveraging its expertise in acquiring, financing and servicing mortgage products.
MFA Financial's investment portfolio encompasses a wide range of mortgage instruments, including adjustable-rate and fixed-rate mortgage loans, interest-only securities, and agency mortgage-backed securities guaranteed by government-sponsored entities.
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