Ladies and gentlemen, thank you for standing by, and welcome to the MFA Financial Second Quarter 2021 Conference Call. At this time, all lines are in a listen only mode. Later, we will conduct a question and answer session. Instructions will be given to you at that time. And as a reminder, today's conference call is being recorded.
I would now like to turn the conference over to Hal Schwartz. Please go ahead.
Thank you, operator, and good morning, everyone. The information discussed on this conference call today may contain or refer to forward looking statements regarding MFA Financial Inc, which reflect management's beliefs, expectations and assumptions as to MFA's future performance and operations. When used, statements that are not historical in nature, including those containing words such as will, believe, expect, anticipate, estimate, should, could, would or similar expressions are intended to identify forward looking statements. All forward looking statements speak only as of the date on which they are made. These types of statements are subject to various known and unknown risks, uncertainties, assumptions and other factors, including those described in MFA's annual report on Form 10 ks for the year ended December 31, 2020, and other reports that it may file from time to time with the Securities and Exchange Commission.
These risks, uncertainties and other factors could cause MFA's actual results to differ materially from those projected, expressed or implied and any forward looking statements it makes. For additional information regarding MFA's use of forward looking statements, please see the relevant disclosure in the press release announcing MFA's Q2 2021 financial results. Thank you for your time. I would now like to turn this call over to MFA's CEO and President, Craig Knudson.
Thank you, Hal. Good morning, everyone. I'd like to thank you for your interest in and welcome you to MFA Financial's 2nd quarter 2021 financial results webcast. Also with me today are Steve Yarid, our CFO Gudmundur Christensen and Brian Wolfson, our Co Chief Investment and other members of senior management. The Q2 of 2021 was a difficult period for mortgage investors, particularly for those invested in agencies.
Strong economic data and early Fed chatter about tapering Pushed mortgage spreads wider and a rally in rates coupled with a flattening curve caused prepayment levels to remain elevated. While never completely immune to general mortgage market trends, MFA's investment strategy intentionally mitigates Many of these interest rate risks through asset selection that emphasizes credit versus interest rate sensitivity and shorter duration assets that again limit interest rate risk. Our portfolio performed quite well during the Q2 of 2021 and our book value was stable. On the credit side, continued very strong housing trends have bolstered the value of the underlying assets Securing the mortgages that we own, thus lowering LTVs. Robust housing prices have also created a strong tailwind for delinquent mortgages and REO properties as these trends lead to improved resolutions and outcomes.
MFA's tireless efforts to find attractive new investments were also rewarded in the 2nd quarter as our asset acquisitions exceeded runoff for the first time since late 2019. This progress is due to continued growth from many of our origination partners as well as our ability to analyze and source new investment opportunities. With financial markets awash in liquidity, sourcing attractive investment opportunities has been very challenging this year, But we are starting to fire on all cylinders and we feel good about our continued growth prospects. Please turn to Page 4. We reported GAAP earnings of $0.13 per share for the 2nd quarter, largely driven by a solid increase in net interest income.
Contributions from credit loss reserve reversals were more modest this quarter versus Q1, dollars 8,800,000 versus $22,800,000 as were unrealized gains on fair value loans, dollars 6,000,000 in Q2 versus $31,000,000 in Q1. GAAP book value was $4.65 up 0 point 0 $2 from March 31 and economic book value was $5.12 up $0.03 from March 31. Economic return, both GAAP and economic, for the 2nd quarter was 2.6% and this follows economic returns in Q1 of 3.6% and 5%, respectively. Our leverage ticked up slightly over the quarter to 1.8:one versus 1.6:one And we paid a $0.10 dividend to shareholders on July 30, which was a 33% increase from the dividend paid in April. Please turn to Page 5.
Digging into the numbers a little more, our efforts to lower interest expenses through securitizations had a visible impact on our 2nd quarter earnings as interest expense declined by $4,500,000 or 15% from the Q1. And the larger of the 2 securitizations executed in the 2nd quarter had limited impact on the full quarter because it priced on June 10. Net interest income for the 2nd quarter increased by $8,000,000 or 16% versus the prior quarter. We continue to make excellent progress in liquidating REO properties As we capitalize on strong housing trends and for borrowers who are still negatively impacted by COVID, we've been able to offer modifications and or repayment plans to allow them to stay in their homes, restore their payment status to current and retain the equity in their homes. Please turn to Page 6.
As previously announced, we completed the acquisition of Lima 1 on July 1, And we're very excited to welcome the LimaOne team to the MFA family. We expect that this transaction will significantly increase our purchase of business purpose loans And providing and by providing a strong capital base and expertise in securitization, we will also further enhance Again, continuing the theme of aggressively taking advantage of available market opportunities, we executed 2 additional securitizations on over $850,000,000 of UPB at attractive levels in the 2nd quarter. As you can see on this page, AAA yields on bonds sold Debt for both deals was in the 130s. We expect to complete at least 2 additional securitizations in the 3rd quarter. Please turn to Page 8.
We illustrate our investment portfolio and summarize our asset backed financing on this slide. Our investment portfolio grew by $300,000,000 in the 2nd quarter, which is a milestone of sorts as it is the 1st quarter in the last 6 quarters that our portfolio has increased. New loan acquisitions in the 2nd quarter were $857,000,000 which is more than 2 times the last three quarters combined. The composition of our portfolio has not changed materially since March 31, other than for the addition in Q2 of agency eligible investor loans, which Brian will discuss shortly. On the financing side, you can see that 2 thirds of our asset backed financing is non mark to market with over 70% of the non mark to market financing And I will now turn the call over to Steve Yarra to discuss additional details of our financial results.
Thanks, Craig. Please turn to Slide 9 for an overview of our Q2 2021 financial results. As Craig has already noted, MFA delivered solid results for the Q2, highlighted by higher net interest income and our residential whole loan investments. Before diving into the details, I want to point out 2 important changes that impact the way our results are presented this quarter. Firstly, We changed the way we present interest income on residential whole loans on which we have elected the fair value option at acquisition.
Prior to this quarter, We presented the coupon payments received along with noninterest income from fair value loans and other income on our income statement. We now present interest income on loans accounted for at fair value as part of net interest income, while noninterest income, which primarily reflects market value changes, continues to be presented in other income. Prior period comparative amounts For interest income and net interest income discussed on this call as well as in our press release issued this morning and 10 Q, which we expect to file later today, I reclassified to conform to this new presentation approach. Secondly, as we noted in our last earnings call, Starting this quarter, we decided to elect the fair value option for all acquisitions of purchased performing lines. This includes Acquisitions of NonQM, fix and flip, single family rental and agency eligible investor loans.
Purchased performing loans acquired prior to this quarter continue to be accounted for at carrying value. So we will continue to present the economic book value metric to capture the impact of fair value changes for these loans. We believe these changes in accounting method and presentation will serve to simplify the reporting of our results over time. Further, we can now present interest yield and net interest spread information for all loans in our portfolio, which should make our results easier to review and more comparable to our peers. In addition, we believe that using fair value accounting is the best way to properly capture the impact of Lima 1's origination and Net income to common shareholders was $58,500,000 or $0.13 per share.
The key items impacting our results are as follows: Net interest income of $59,000,000 was $8,000,000 or 16% higher sequentially. As Craig also noted, interest expense again declined primarily due to the ongoing efforts to use securitization and other forms of more durable and lower cost financing. Interest income on our loan portfolio was also approximately $5,000,000 higher, primarily driven by higher prepayments and lower delinquency levels on purchased credit deteriorated and purchased nonperforming loans. Similarly to the prior quarter, Interest income from our securities investments included approximately $8,000,000 of accretion on an MSR term loan investment that was redeemed at par, but that we had and impairment charge on in Q1 of 2020. Our net interest spread increased to an impressive 3.02% this quarter.
And while additional securitizations will continue to meaningfully benefit funding costs, overall spread levels should moderate in future periods as prepayment fees declined in line with seasonal factors. We reduced our overall seesaw allowance on carrying value lines to $54,300,000 reflecting lower loan balances and adjustments to estimated levels of future unemployment and home price appreciation used in our credit loss modeling. This reversal and other net adjustments to our CECL reserves positively impacted net income for the quarter by $8,900,000 After the significant increase in CECL reserves taken in Q1 2020 When uncertainty related to COVID-nineteen economic impacts were at their highest, we have reduced our CECL reserves by approximately $90,000,000 in the subsequent five quarters. Actual charge off experience continues to remain very modest with approximately $1,600,000 of net charge offs taken in the 6 month period ended June 30, 20 Pricing on loans held at fair value continues to be firm. Net gains of $6,000,000 were recorded, primarily reflecting the impact of market value changes.
Finally, our operating and other expenses were $22,800,000 for the quarter, in line with the previous quarter.
And with
that, I will now turn the call over to Brian Wilson.
Thank you, Steve. Turning to Page 10. Housing has continued to push higher over the quarter. The pace of annual home price increases have reached levels not seen in over 40 years. Historically low rates, demographic trends and a severe lack of supply have all contributed to the rise in prices.
The unemployment rate has broken through 6% and is expected to continue to move lower with the economy reopening. All of these factors combined with monetary and fiscal support have played a part in keeping mortgage credit performance strong and bode well for the continued credit performance in the near term. Turning to Page 11. NonQM origination volume increased over the quarter as rates offered to borrowers have been dropping. We purchased over $370,000,000 over the 2nd quarter, which is an increase of 85% over the previous quarter.
Prepaidment speeds increased over the quarter with the drop in rates to NonQM borrowers. The 3 months average CPR for the portfolio was 40. We executed on a securitization in the 2nd quarter, bringing the total amount of collateral securitized to approximately $1,750,000,000 We expect to bring another securitization of NonQM loans in the Q3. These securitizations have lowered our financing costs and at the same time have provided additional stability to our borrowings. Securitization combined with non mark to market Term facility has resulted in over 70% of our NonQM portfolio to be financed with non mark to market leverage.
We expect to continue to be a programmatic issuer of securitizations as it is currently the most efficient form of financing for our portfolio. Turning to Page 12. COVID impacted our borrowers significantly as many of our borrowers are owners of small businesses were affected by shutdowns across the country. We instituted a deferral program at the onset of the pandemic in an effort to help our borrowers manage through the crisis. Through our servicers, we granted almost 32% of the portfolio temporary payment relief, which we believe helped put our borrowers in a better position for long term payment performance.
Subsequent to June of 2020, we reverted to a forbearance program instead of a deferral as the economy opened up. The forbearance program instituted is largely now determined by state guidelines. In the second quarter, we saw Sirius delinquency rates improved by 0.10 percent and 30 day delinquencies dropped by 1.4%. In addition, almost 40% of those delinquent loans made a payment in June. Many delinquent borrowers are on repayment plans, which will cause them to cure their delinquency status over the next 6 to 12 months.
As the economic recovery continues, the portfolio's credit performance should continue to improve. Our strategy of targeting lower LTV loans should mitigate losses under a scenario with elevated delinquencies. In many cases, borrowers which no longer have the ability to afford their debt service will sell their home in order to get the return of their equity. Turning to Page 13. Updated letter agreements between the Treasury and the GSEs relating to the 2,008 senior preferred stock purchase agreement restricted the percentage of loans purchased by the GSEs backed by investor properties and second homes to 7%.
This change created a dislocation in the marketplace, acquiring originators to look for alternative outlets for their loans backed by investor properties. We were able to source over $300,000,000 of this product in the second quarter from our existing originator relationships at attractive prices. We expect to execute on our first securitization of this collateral in the Q3 with more to follow should the opportunity persist. This is another example of our ability to adapt to an ever changing environment and a testament to our strong originator relationships in a competitive market environment. Turning to Page 14.
Our RPL portfolio of $1,000,000,000 has been impacted by the pandemic, but continues to perform well. 81% of our portfolio remains less than 60 days delinquent. And although the percentage of 60 the portfolio 60 days of delinquent in status was 26%, A quarter of those borrowers continue to make payments. Prepayment speeds in the 2nd quarter moderated a bit, will continue to be elevated at a 3 month CPR of 15 as mortgage rates continue to be historically low and more borrowers gain equity with the increase While 30% of our RPL borrowers were impacted by COVID, we have worked with our servicers to provide assistance to borrowers and have seen improvement in delinquency levels over the quarter. Turning to Page 15.
Our asset management team Continues to push performance of our NPL portfolio. The team has worked in concert with our servicing partners to maximize outcomes on our portfolio. This page shows the outcomes for loans that were purchased prior to the year ended 2019. 38% of loans that were delinquent at purchase are now either performing or paid in full. 47% have either liquidated or REO to be liquidated.
Our sales of REO properties have continued at an accelerated pace At advantageous prices, we have been able to cut the REO portfolio in half since the pandemic began. 15% are still in nonperforming status. Our modifications have been effective as almost 3 quarters are either performing or paid in full. We are pleased with these results as they continue to outperform our assumptions at the time of purchase. And now, I'd like to turn the call over to Gudmundur to walk you through our business for fixed loans.
Thanks, Brian. Turning to Page 16. We closed the previously announced acquisition of Lima 1 on July 1. We're We're very excited about this transaction, and I would like to give a shout out to the entire MFA and LimaOne teams We'd worked diligently and collaboratively towards closing this transaction quickly. LegalOne is a leading nationwide originator of business Short and long term borrowing strategies in the BPO space by offering a diverse set of products, including fix and flip and new construction loans, long term rental loans and small balance multifamily value add and bridge loans.
Lima has originated over $3,000,000,000 since inception and has The acquisition enhances our position as a significant capital provider to the BPL space, which we believe offers some of the most attractive opportunities to deploy capital in the residential market space. This acquisition will provide MFA a reliable access to high quality, high yielding assets that are difficult to source in the marketplace. At closing of the acquisition,
we added
1 $152,000,000 of business purpose loans to our balance sheet. The integration of Lima 1 into the MFA family has been smooth and efficient. The working relationship we have built over the last 4 years across our organizations has been a tremendous asset in the integration and allowed Lima 1 to continue to originate high quality loans and serve its customers without any issues. One of the key initiatives has been to quickly use MFA's balance sheet and reputation to substantially improve the financing of Lima's assets and origination going forward. We've already refinanced expensive financing, a BPO securitization and subordinate debt that Lima needed to put in place during 2020, which will save over 500 basis And we are in the process of adding additional financing lines to meet the expected growth of the business going forward.
Turn to Page 17, where we will discuss the fix and flip portfolio. Our portfolios declined modestly by about 32,000,000 In the Q2, as principal paydowns continued to exceed loan acquisitions, limited acquisitions last year led to our current seasoned loan portfolio, where we see completed projects getting sold quickly into a strong housing market, leading to high repayment rates. We expect this trend to change going forward as purchase activity has picked up meaningfully. 2nd quarter loan acquisitions More than doubled from the Q1 as we acquired $68,000,000 in UPB and $118,000,000 in max loan amount in the quarter. As a reminder, Fix and Flip Loans finance the acquisition, rehabilitation and construction of homes.
Typically, a certain amount of the loan is held back in the form of a 3rd quarter acquisitions are on track to increase even further as we've already added in excess of $160,000,000 max loan amount of fixed With the acquisition of Lima as well as other seller relationships, we expect purchase activity to be strong going forward expect the fixed and split portfolio to grow again in the 3rd quarter. The fixed and split portfolio delivered strong income in the 2nd quarter with average portfolio yields of approximately 6.4% in the quarter. The housing market continues to be extremely strong with record low mortgage rates and low levels of inventory supporting annual home price appreciation in excess of 15%. In addition, we continue to see unemployment declining and overall economic activity improving across the country. The combination of these positive economic fundamentals, Low initial LTVs on our loans and the efforts of our experienced asset management team continues to lead to acceptable outcomes on our delinquent loans.
60 plus day delinquent loans continued to decline and dropped $29,000,000 to $120,000,000 at the end of the second quarter. And what is really encouraging is that we continue to see a solid amount of loans pay off in full out of 60 plus. For loans where there is meaningful equity in the property, these can add up. Since inception, we have collected approximately $4,800,000 in these types of fees across our fixed and flip portfolio. 60 plus day delinquency as a percentage of UPB declined 4% to 28% and remains elevated, but keep in mind that we have purchased over $2,100,000,000 of fix and flip loans and had over $1,500,000,000 payoff in full.
Due to the short term nature of fixed and flip loans with expected payoff in about 6 to 12 months, delinquent loans can be outstanding for longer than performing loans due to the time it takes to complete foreclosure. As our purchase activity was limited last year and performing loans paid off, the billing as you percentage increased As one would naturally expect as our portfolios rank. As we now grow our portfolio again and continue to have positive outcomes on seriously delinquent loans, We expect both the dollar amount as well as percentage delinquency to continue to decline going forward. And so far in the 3rd quarter, We continue to see positive delinquency trends. Finally, the fixed income loan reserves continued to trend down in the second quarter, declining by $2,100,000 primarily due to improved economic expectations and a strong housing market.
Turning to Page 18. Our single family rental loan portfolio continues to deliver attractive yields and strong credit performance. The portfolio yield has remained steady in the mid to high 5% range post COVID and was 5.76% in the 2nd quarter. Underlying credit trends remained solid and 60 plus day delinquencies declined 90 basis points to 4.9% at the end of the second quarter. Purchase activity increased significantly from the Q1 as we purchased $102,000,000 of single family rental loans in the 2nd quarter and grew the Cinco Family Rental portfolio for the Q2 in a row.
The pace of acquisitions has continued to accelerate into the Q3 and we have already added approximately $100,000,000 in the month of July. The acquisition of Lima 1 will significantly bolster our ability to source single family rental loans, and we believe that we will be able to continue to grow our acquisition volume as well as our single family rental portfolio in the near future. Over 2 third of our single time investment portfolio is financed with non mark to market financing and over 50% through securitizations. We priced our 1st single family rental securitization in the Q1 of 2021 where the weighted average coupon of bonds sold was only 106 basis points. Going forward, we expect to programmatically execute single family rental securitizations to finance our rental loans with the next deal expected in the Q4.
And with that, I will turn the call over to Craig for some final comments.
Thank you, Gudmundur. We are pleased with the results of the Q2 of 2021 And even more excited about the future at MFA. Our investment initiatives are picking up steam as our asset acquisitions outpaced runoff for the first time since late 2019. We're continuing to execute our strategic plan to lower and term out borrowing costs, and we're beginning to see the results of this activity in our income statement. The strength of the housing industry has obvious positive implications for our mortgage credit investments.
And our acquisition of Lima 1 is an important initiative that will enhance our ability to deploy future capital in the BTL sector and grow our future earnings power. Operator, please open up the line for questions.
We will go to the line of Bose George with KBW.
This is actually Mike Smith on for Bose. A couple of questions on Lima 1. Was there any goodwill created as a result of the transaction?
Mike, this is Steve Jarrod. So The transaction didn't close until July 1. So there will be some goodwill with the transaction. We're still working through the purchase price allocations and some other items of that nature. So we'll discuss that more fully on our next earnings call.
LumaOne's results aren't consolidated into MFA's results until the Q3, but they're not consolidated as of June 30.
Okay, great. That's helpful. And then last quarter you guided to, I think it was $0.08 to $0.12 of accretion from the transaction 2021. I was just Wondering, is that still the case for 2021? And then how are you thinking about accretion into 2022?
So I think that accretion number that we talked about was an estimate for a 12 month period, not for the calendar year 2021. And again, it's very early to tell and a lot of things are changing, but I have no reason to think That that's inaccurate or that that's changed materially since we've talked on the last call.
Okay, great. That's helpful. And One thing we've heard a lot is just the competition returning to the BPL space. I was just wondering if
you could talk through some of
the economics on the loans that you purchase From Lima 1 versus other originators and just how that looks?
Yes, it's a great question. This is Gunnar, I'll take that. So yes, I mean The space has gotten more attention, certainly because rates are low and there's a Decent amount of competition to acquire assets in general, and that's why we believe it is important and was one of The reasons going into the acquisitions to have solid control over the sourcing of the assets. And so by acquiring Lima 1, We have acquired 1 of the leading originator in the space, one has established relationships with various Investors as well as it's shown the track record to originate in excess of $1,000,000,000 of loans a year. So from that perspective, we feel that we have taken full position in ability to source the assets relative to some other people who have to go out and identify various sellers and find multiple sellers to acquire loans.
So I think That is an important distinction that we have now achieved through the acquisition of Lima 1. In terms of In terms of the economics, look, I mean, the loans that Lima originates, we put them on our balance sheet at cost. So the question is, what does that mean? Look, I mean, so usually on the BPL side, the fixed and flip side, you're acquiring loans and a net coupon. And the originator retains anywhere from 100 basis points up to 200 basis points on the servicing spread.
So if an originator is creating a loan with an 8% coupon, an investor would acquire it at a pass through rate of 6%. For us, we put the full 8% coupon on our balance sheet. So from that perspective, we reap the benefit from the full coupon of the loan, which It's obviously beneficial. On the single family rental side, those loans trade at premium in the marketplace. Again, we'll put those loans on our cost, which probably is a benefit of up to 100 basis points to 150 basis points in terms of difference in So I hope that answers some of your questions.
And I guess if I missed one, just feel free to follow-up.
No, that's very helpful. Thanks.
And then just one more for me. Have can you provide an update on how book value has trended since quarter end?
So we don't really have marks yet for month end July, but I have no reason to think that Book value has changed appreciably since June 30.
Great. Thanks for taking the questions.
Thanks, Mike.
Thank you. Next, we will go to the line of Doug Harter with Credit Suisse. And your line is open.
Excuse me, I was on mute there. This is John Kowachowski on for Doug Harter. Just a few questions. So first, you discussed The securitizations in the quarter and I believe you mentioned that you foresee 2 in 3Q and I believe the Blended cost was somewhere in the range, what was it, 130 bps, I think, on the 2 that you did this quarter, is that correct?
It was in the 130s, yes.
In the 130s, okay. Thank you. If you could just give us some color kind of going forward as So what you think sort of what you'll see blended or the sizing of the securitizations in 3Q and going forward and maybe if you think you can continue to get your cost funds down with
Yes. I mean securitization spreads have come in a bit. So incrementally, we'll see better funding costs. But as we continue to move away from some of our higher cost funding The lower cost funding, it won't be as dramatic as it has been in the past, but there still is room for improvement.
Okay, great. And now you just see that for, I guess, maybe the next two quarters and at some point it's going to start to floor out here? Or do you see it going on 12 months Or prior to that?
Well, it's really a function of future acquisitions, right? I mean as acquisitions continue to grow, you should That we'll continue to securitize.
Okay. Okay, great. And second question is exciting with the Additions surpassing runoff this quarter, what do you think your capacity for growth is sort of going forward here? Do you see that being The trend kind of on a go forward basis and sort of could you size that?
I mean, at this point, it's too early to try to size that. I think I said in my prepared remarks that We feel pretty good about our future growth prospects. So it's been a difficult year to source attractive investments because Nothing is really cheap and there's a lot of money chasing everything out there. But I think we worked really hard this year On existing originated relationships, on establishing some new ones and it takes time, but I think we saw a pretty significant impact in the second And that won't go away. In terms of absolute numbers, it's impossible to predict what they'll be.
But like I said, we feel pretty good.
Okay, great. Thank you so much.
Thank you. And for any other questions or comments, press And we will go to the line of Eric Hagen with BTIG. And your line is open.
Hi, Joe. Thanks. Good morning. Hope you guys are well.
I want to hear about how you're thinking about risk management in the NonQM portfolio On the outlook for credit losses maybe more generally. I mean, obviously, the pay downs have
been faster since rates are
low and HPA is strong. And so I'm curious What it says about the borrowers that haven't been able to refi, including the portion which are still classified as seriously delinquent and what the resolution looks like for those folks?
Sure. Thanks, Eric. So when we looked at the portfolio and you said 60 plus is around 7% change percent, but 40% of those borrowers are making payments. So when we offer it up Either forbearance or deferrals and borrowers are sort of still struggling coming out of the pandemic instead of Bringing themselves current by making one lump sum payment, we put them on repayment plans. So what that does is Those borrowers really will become current over the next 6 to 12 months as they make their as they follow through on their repayment plan Because it takes some time, their delinquency status doesn't really catch up until the end of that plan.
So we're showing A higher level of delinquency now, but in actuality like the when you think about what's paying versus what's not paying, it's something like 3% to 4%, that's not paying.
And Eric, I would also point out on Page 11, we show that The weighted average LTV of that non Q1 portfolio is 63.6% and that's based on originations. So given what Housing prices have done. Obviously, the mark to market LTV is probably considerably lower at this point. So I think that's probably the best risk mitigant right there is LTV. But as Brian says, if we put borrowers on repayment plans and it takes 12 months for them to catch up, They're going to show us delinquent until they've completely caught up.
And then a follow-up on Lima 1. I think you guys said last quarter, maybe you reiterated it today, you expect around $1,000,000,000 to be onboarded over the next year. And you'd maybe look to capitalize that with around $200,000,000 to $300,000,000 And so I'm curious if your expectations there have changed. And I think you also noted that there's some new financing lines that you were looking into. So curious what the structure and cost of that funding is expected to look like?
So yes, that's the right expectation. That hasn't changed. I mean, I think, NIMA, as Craig said in his comments, They're on track to do $1,300,000,000 this year. So as you think of an annual run rate, they surely have the capacity to do $1,300,000,000 and we think they're very well set up to grow beyond that. So we're kind of excited about that.
And so that expectation has not changed. And look, I mean, yes, we're I think We're working on various financing initiatives. And as you also know, we have securitized Single family rental loans earlier this year, so that type of origination that comes out of Lima is right to roll into a securitization, And we expect to do another one of those in the Q4 of this year. As it relates to the fix and flip loans, I think what will happen over time is that we'll have a combination of warehouse financing, which we already have in place, as well as Look into and look to issue our own revolving securitization structure to finance some of those assets. And that's where some of the synergies comes in where MFA can use our expertise in the capital markets to more efficiently finance the fix and flip loans over time.
As it relates to cost, I mean financing costs, You can broadly say on fix and flip loans, they're probably anywhere from mid to high 2% to low 3%, Depending on if you're on a warehouse line or you do a securitization, that kind of seems to be what we're seeing.
I'd be hearing that you're looking into a securitization for those loans. One more for me. I guess I'm I'm surprised to see a big delinquent pipeline for the fix and flip simply because HPA has just been so strong and there's this It feels like there's this clear incentive for investors to get their property on the market. And so I'm just hoping for some color around potentially clearing that pipeline in order to be able to focus really on the product that's coming in from legal loan going forward?
Sure. Yes, as I said in my prepared remarks, some of these things relate to the imbalance or difference between The fact that delinquent loans, opposite to 30 year mortgages, Is outstanding longer in the fix and flip space as opposed to performing loans? Because performing loans on average have a lifespan of 6 to 12 months. And delinquent loans that you are carrying today, they may actually be from 2018 or 2019 instances Right. As opposed to most of the performing loans have already paid off.
And so as our purchase activity was somewhat limited last year and we had sizable prepayments in the portfolio over the last 9 to 12 months. The percentage has increased simply because our portfolio is smaller. But more importantly, over the last 6 to 9 months, we have seen in each quarter the delinquency decline. In fact, the 60 plus day UPB has come down by over $60,000,000 over the last three quarters. And so what we're really seeing is that there's some delays getting to properties because of foreclosure moratorium and delays last year.
But on the resolutions that we have had Both payoffs out of $60 plus and if I remember correctly, I think $25,000,000 paid off in full out of $60 plus in the last quarter. So those would be owners that said, oh, okay, I have so much equity in the property, I need to figure out how to get it. And so and the other is, the REO that we have foreclosed on and then liquidated, our losses to principal have been de minimis. So from that perspective, we feel pretty positive on our progress and we continue to reduce That population over time with really positive outcomes. And again, the key is home prices, as Craig pointed out, are rising at over 15% annually.
And so from that perspective, it supports obviously all collateral in terms of the base value.
And does that conclude your conference, Eric your questions, Eric?
Yes. Okay.
Thank you very much. And at this time, I'm showing no further questions in queue. Please continue.
Okay. Thank you. So I want to thank everyone for your interest in MFA Financial, and we look forward to our
call for today. Thank you for your participation and for using AT and T Executive Teleconference Service. You may now disconnect.