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Mortgage REIT lays groundwork for securitization

A subsidiary of MFA Financial Inc., a mortgage-focused real estate investment trust that has purchased packages of reperforming and nonperforming whole loans as part of a strategy of investing in credit-sensitive assets, has filed documentation with the SEC for a potential securitization of seasoned mortgages.

Beaumont Securities Holdings LLC's asset-backed securitizer report includes copies of various third-party due diligence reviews on loans that may be packaged in MFA 2017-RPL1 Trust.

The filing, which is the first submitted to the SEC to date by Beaumont Securities Holdings, did not provide additional details regarding a prospective transaction. MFA Financial listed Beaumont Securities Holdings among its subsidiaries in a previous 10-K filing. The asset-backed securitizer report was signed by Bryan Wulfsohn, a Beaumont Securities Holdings vice president who also serves as an MFA Financial senior vice president.

The mortgage REIT reported $1.35 billion in reperforming and nonperforming loans as of March 31, down from $1.41 billion at year-end 2016 but up from $1.02 billion on the same date in 2016. It reported that reperforming whole loans were yielding 5.65% net of servicing costs during the first quarter relative to a cost of funds of 3.19%. MFA Financial described bid prices for both reperforming and nonperforming whole loans as being "firm" during the quarter in a development they suggested during a May conference call might have resulted in part from "a strong bid by Wall Street banks."

The mortgage REIT also held $2.45 billion of three-year "step-up" securities, which represent securitized financial instruments backed largely by reperforming and nonperforming loans where the coupon in many cases increases up to 300 basis points at 36 months from the time of issuance or sooner. The net yield on those securities totaled 4.02% in the first quarter relative to a 2.30% cost of funds. Nonperforming and reperforming loans accounted for $1.89 billion and $278.9 million of the "step-up" portfolio, respectively, as of March 31, the mortgage REIT said in its most recent 10-Q.

Speaking June 1 during an investor conference, MFA Financial President and COO Craig Knutson said a securitization of reperforming loans is an idea that has "certainly been on the table."

He has not ruled out an eventual securitization of reperforming loans when asked in past public forums about the potential for transactions of the kind. In November 2015, for example, Knutson said he viewed reperforming loans as an "attractive asset," but also "an expensive liability." While he said at the time that he viewed MFA Financial as being a better buyer of reperforming loans than a seller, Knutson said that a securitization was "certainly a possibility."

In his June 1 comments, which also came in response to a question, Knutson said: "I think we're either a buyer or a seller. If those [spreads] continue to tighten and if the Fed continues to raise rates, [then] yes, we could certainly be an issuer of those securities."

Active securitizers of seasoned performing, reperforming or nonperforming loans have included the likes of New Residential Investment Corp., DLJ Mortgage Capital Inc., Bayview Asset Management LLC, Mill City Holdings, and FirstKey Mortgage LLC through its Towd Point Mortgage Trust platform.