What MFA Financial (MFA) Said on Its Q3 Earnings Call

Key Points

• MFA reported a $111.7 million third-quarter GAAP loss as market marks drove book value down 12.5% to $11.12 per share; management estimated economic book value had risen about 5% since quarter-end as rates rallied.
• Distributable earnings increased to $0.26 per share, or about $0.39 excluding one-time benefits and realized credit losses. However, swaps supporting roughly $0.08 per share quarterly earnings begin maturing at the end of 2026, and management said replacing that income will depend partly on market conditions.
• Legacy credit exposure continued to shrink: the multifamily portfolio fell below $300 million in unpaid principal, while loans at least 60 days delinquent improved to 6.7% from 7%. MFA also acquired more than $480 million of non-QM loans during the quarter.

MFA Financial NYSE: MFA reported a third-quarter loss and a double-digit decline in book value as rising interest rates and wider mortgage spreads weighed on its portfolio, though executives said distributable earnings improved and credit losses moderated.

The company recorded a GAAP net loss of $111.7 million, or $1.19 per basic common share, for the third quarter of 2026. Chief Financial Officer Mike Roper said the result was driven by approximately $153 million in net mark-to-market declines across assets, liabilities and hedges.

GAAP book value fell 12.5% from the end of the second quarter to $11.12 per share, while economic book value declined 13.3% to $11.44. Including the $0.36 common dividend, MFA’s quarterly total economic return was negative 10.6%.

CEO Craig Knutson said most of the book value decline reflected unrealized losses from marks. Roper said MFA estimated that economic book value had increased approximately 5% since the end of September, driven by a rally in interest rates.

Distributable Earnings Rise, but Swap Expirations Loom

Distributable earnings rose to $26.4 million, or $0.26 per share, from $0.12 per share in the second quarter. Realized credit losses on fair-value loans declined to $18.9 million. Before those losses, distributable earnings were $0.44 per share.

That pre-loss figure included approximately $0.05 per share in nonrecurring benefits from a refund of disputed servicing costs and a reduction in incentive compensation accruals, Roper said. Excluding those benefits, pre-loss distributable earnings were approximately $0.39 per share, up 11% from the prior quarter and 30% from a year earlier.

Roper cautioned that approximately $1.3 billion of interest-rate swaps with a 1.4% fixed payment rate would mature at the end of 2026 and into the first quarter of 2027. The swaps currently contribute approximately $0.08 per share per quarter to distributable earnings, he said.

Management sees opportunities to offset the lost carry through new investments, recycling capital and adding leverage, Roper said, although the pace will depend partly on market conditions. He said the board will continue to evaluate the dividend quarterly, taking into account the long-term earnings outlook, taxable income and other factors.

Asked about the dividend, Knutson said the operating environment was more challenging than it had been at the time of MFA’s August earnings call and that considerable uncertainty remained. The company’s focus, he said, was on the portfolio’s long-term earnings power and prudent deployment of capital.

Legacy Credit Exposure Shrinks

MFA continued to reduce its legacy multifamily portfolio, which fell below $300 million in unpaid principal balance and had a fair value of $263 million at quarter end. President and Chief Investment Officer Bryan Wulfsohn said the delinquent portion of the multifamily book had declined to $71 million.

Across the loan portfolio, the rate of loans 60 or more days delinquent improved to 6.7% from 7% at June 30. Knutson said the company believed its multifamily credit issues were largely behind it, particularly looking toward 2027, though he acknowledged more work remained to resolve the legacy book.

At subsidiary Lima One, third-quarter originations totaled $288 million, including $214 million of short-term transitional loans and $74 million of 30-year rental loans. Lima One sold $95 million of rental loans during the quarter, generating $2.4 million in gain-on-sale income.

Wulfsohn said Lima One had recently originated and distributed its first multifamily loans since the spring of 2024 under a new underwriting regime. The initial loans totaled about $5 million, and he said it was possible multifamily originations could exceed $100 million next year. The business plans to originate those loans for sale.

Investment Activity and Leadership Transition

MFA acquired more than $480 million of non-qualified mortgage loans during the quarter at an average coupon of 7.8% and an average loan-to-value ratio of 70%, Wulfsohn said. Non-QM remained the company’s largest asset class at nearly $6 billion. Shortly after quarter end, MFA sold $360 million of bonds in its 25th non-QM securitization.

The company also completed a new nonperforming-loan securitization in September after calling a 2024 deal, a transaction that Wulfsohn said unlocked $40 million in cash and financing capacity. He said agency securities represented roughly $4 billion, or nearly a third of the investment portfolio, and that current spreads offered the potential for returns on equity in the mid-to-high teens.

Knutson reiterated the leadership transition announced in October. He plans to retire as CEO at the end of June 2027, with Wulfsohn succeeding him on July 1. Wulfsohn is scheduled to join the board on Jan. 1, while Andrew Kail will join MFA as chief investment officer on the same date. Knutson said he expects to remain on the board after retiring.

About MFA Financial (NYSE:MFA)

MFA Financial, Inc NYSE: MFA is a real estate investment trust and specialty finance company focused on residential mortgage assets. The company invests in a range of mortgage-related investments, including agency and non-agency residential mortgage-backed securities, residential whole loans, mortgage servicing rights and other assets associated with the U.S. housing finance market.

MFA Financial generally seeks to generate income from its investment portfolio through interest payments, servicing-related income and other returns associated with residential mortgage credit.

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