New York-based MFA Mortgage Investments Inc. has adjusted its balance-sheet strategy. While the company has consistently maintained an assets-to-equity multiple of approximately 9x-10x (or a debt-to-equity multiple of approximately 8x-9x), it says it has subsequently determined that in this period of financial industry stress, the proper strategy is to generally lower the target debt-to-equity multiple to 7x-9x.
To effect this change in leverage strategy, the company has sold approximately $1 billion in mortgage-backed securities (MBS). The assets sold consist of approximately $950 million of agency MBS and $50 million of AAA-rated non-agency MBS at a realized loss of approximately $15 million.
Concurrently, the company has terminated repurchase agreements at no cost and approximately $525 million of associated interest rate swap agreements at a cash cost of approximately $31 million.
‘We believe that while many financial institutions may face the risk
of systemic margin calls, our strategy is to get ahead of the curve and reduce leverage consistent with our own discipline,’ MFA states. ‘We believe this strategy will reduce the uncertainty reflected in MFA's share price and will allow MFA to be positioned to take advantage of the many profitable opportunities that we believe will be available in the future.’