MFA Financial Book Value Falls 12.5% in Q3 2026

MFA Financial, Inc. (NYSE: MFA) reported a sharp decline in book value and a GAAP loss for the third quarter of 2026 as higher Treasury yields, wider mortgage spreads and fair-value changes weighed on its residential mortgage portfolio. Credit performance improved sequentially, however, and distributable earnings before realized credit losses exceeded the quarterly common dividend.

GAAP book value fell 12.5% during the quarter to $11.12 per common share at Sept. 30, from $12.71 at June 30. Economic book value, a non-GAAP measure that adjusts certain residential whole loans and securitized debt to fair value, declined 13.3% to $11.44 per share. Including the $0.36 common dividend, MFA recorded a total economic return of negative 10.6%.

The mortgage REIT posted a GAAP net loss of $1.19 per common share. The results included substantial fair-value losses on residential whole loans and securities, partly offset by gains on derivatives and securitized debt measured at fair value.

Net interest income was $61.5 million, up from $59 million in the second quarter. Portfolio asset yield rose to 6.01% from 5.96%, while the effective cost of funds declined to 4.38% from 4.40%, lifting the net interest spread to 1.63% from 1.56%.

Credit losses weigh on distributable earnings

Non-GAAP distributable earnings were $26.4 million, or $0.26 per common share, compared with $0.12 per share in the second quarter. The measure remained below the $0.36 quarterly dividend after being affected by losses on legacy multifamily transitional loans.

Realized credit losses on residential whole loans totaled $18.9 million, down from $24.5 million in the prior quarter. Excluding those losses, distributable earnings were $45.3 million, or $0.44 per share, up from $0.35 per share in the second quarter and above the common dividend.

The portfolio’s 60-day-or-more delinquency rate declined to 6.7% from 7.0% at June 30. Delinquent single-family transitional loans fell to $75 million from $92 million, while delinquent multifamily transitional loans decreased to $71 million from $88 million. The legacy multifamily transitional portfolio continued to run off, falling to $299 million of unpaid principal balance from $360 million at the end of June.

Credit pressure remained concentrated in parts of the portfolio. At Sept. 30, 23.7% of multifamily transitional loans, 16.9% of seasoned reperforming and nonperforming loans, and 10.8% of single-family transitional loans were at least 60 days delinquent. The corresponding rates for Non-QM and single-family rental loans were 4.4% and 2.8%, respectively.

Portfolio activity and Lima One originations

MFA ended the quarter with a $12.8 billion investment portfolio, including $5.8 billion of Non-QM loans and $3.9 billion of Agency mortgage-backed securities. The company acquired more than $1.6 billion of residential mortgage loans and securities while recording $1.5 billion of portfolio runoff and asset sales.

Activity included $481 million of Non-QM loan purchases, $288 million of business-purpose loan originations through Lima One and a net $134 million addition to Agency MBS. MFA also rotated $750 million of Agency MBS into higher-coupon specified pools. Loans acquired during the quarter carried an average coupon of 7.8%.

Lima One originated $214 million of single-family transitional loans and $74 million of rental loans, based on maximum loan amounts that include committed but undrawn funds. MFA sold $95 million of recently originated single-family rental loans, generating a $2.4 million gain. Lima One reported $7.4 million of mortgage banking income, and the presentation described its origination pipeline as stable.

MFA said the higher-rate environment and wider spreads increased prospective returns on new investments, with incremental return on equity expected in the mid-to-high teens. The company also expects levered returns on Agency MBS in that range.

Financing, liquidity and leadership transition

Recourse leverage increased to 3.4 times at Sept. 30 from 3.0 times at June 30. Including securitized debt, overall leverage was 7.1 times. MFA reported $361 million of liquidity, comprising $120 million of unrestricted cash and $241 million of unpledged Agency MBS.

The company continued to emphasize securitized and other non-mark-to-market financing for its loan portfolio. During the quarter, it re-securitized $447 million of primarily seasoned reperforming and nonperforming loan collateral, unlocking $40 million of capital and reducing mark-to-market borrowing by $28 million. In October, it securitized $382 million of newly originated Non-QM loans.

MFA had $6.1 billion of interest-rate derivatives at quarter-end, including a net $357 million of new hedges maturing in five to 10 years. The hedges generated $12 million of net positive carry, although $1.3 billion of swaps are scheduled to mature in the fourth quarter of 2026 or first quarter of 2027.

The company also reiterated its leadership succession plan. Craig Knutson is scheduled to retire as chief executive on June 30, 2027 and is expected to remain on the board. Bryan Wulfsohn will join the board on Jan. 1, 2027 and become CEO on July 1, while Andrew Kail will join MFA as chief investment officer on Jan. 1.

MFA identified interest-rate and fair-value volatility, mortgage spread movements, credit defaults, prepayment behavior, hedging effectiveness and access to financing as key uncertainties. Other risks include the continued wind-down of legacy multifamily assets, Lima One’s origination and credit performance, regulatory changes, the availability of loans for investment and the company’s ability to retain its REIT status.