Q1 2024 MFA Financial Inc Earnings Call

Participants

Harold Schwartz; Senior Vice President, General Counsel, Secretary; MFA Financial Inc

Craig Knutson; President, Chief Executive Officer, Director; MFA Financial Inc

Michael Roper; Chief Financial Officer, Senior Vice President; MFA Financial Inc

Gudmundur Kristjansson; Co-Chief Investment Officer; MFA Financial Inc

Bryan Wulfsohn; Co-Chief Investment Officer; MFA Financial Inc

Stephen Laws; Analyst; Raymond James & Associates, Inc.

Bose George; Analyst; Keefe, Bruyette, & Woods, Inc

Steven Delaney

Doug Harter; Analyst; UBS Group AG

Brian Violino; Analyst; Wedbush Securities Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the MFA Financial Q1 2024 earnings call. And at this time, all participants are in a listen only mode Later, we will have a question and answer session and instructions for queuing up will be provided for you at that time. Should you require operator assistance during the call, press star zero on your phone keypad. And as a reminder, this conference call is being recorded.
I would now like to turn the conference call over to your host, Mr. Hal Schwartz. Please go ahead.

Harold Schwartz

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-K for the year ended December 31, 2023, 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 in 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 first quarter 2024 financial results. I thank you for your time. I would now like to turn the call over to MFA's CEO and President, Craig Knutson.

Craig Knutson

Thank you, Hal, and good morning, everyone, and thank you for joining us for MFA Financial's fourth quarter first quarter 2024 earnings call. With me today are Mike Roper, our CFO, Gudmundur Kristjansson, and Bryan Wulfsohn, our Co-Chief Investment Officers and other members of our senior management team. I'll begin with a high-level review of the first quarter market environment and MFA's results and then touch on some of our first quarter results, activities and potential opportunities. Then I'll turn the call over to Mike to review our financials in more detail, followed by Brian and good Mondher, who will review our portfolio financing and risk management.
Before we open up the call for questions, the first quarter of 2024 began benign. We enough until a blow up January payroll report released in early February, which has been followed by somewhat unexpectedly resilient economic data and persistently stubborn inflation numbers, all of which have sent rates modestly higher two year treasuries ended the quarter up 37 basis points and 10-year treasuries ended the quarter up 32 basis points.
While a far cry from some of the bond market volatility experienced over the last two years. We are nevertheless reminded that the Passave interest rates is still very much uncertain and the market has crossed out many of the rate cuts that had been expected at the beginning of the year.
Agency mortgage spreads have widened somewhat since the beginning of the year, but they're still considerably tighter about 25 basis points than they were last October, away from agencies. Credit is also tighter versus the October wise that we saw with corporates 20 basis points to 25 basis points tighter and high yield over 100 basis points tighter non-QM triple A's are 40 basis points to 45 basis points tighter than the October wides. And the demand for traunches below triple A's is substantially better than it was last late last year, we've seen a positive development in the BPL securitization space in the form of a rated RTL. securitization in February. This single A. and DBRS rating has led to materially tighter levels on the senior tranche and is expected to expand the buyer base for the securities sold to finance these assets.
Economic data is clearly driving the bond market and continued strong prints push rates higher in April. Friday's employment report reversed some of this trend, but twos are still 20 basis points in 10 basis points to 30 basis points above the yields that we saw at the end of the first quarter. Future Fed actions continue to be very much data dependent.
And so far, the data has eliminated any sense of urgency for a Fed rate cut and that they posted a solid first quarter with distributable earnings of $0.35. We added over $650 million of high yielding assets, the majority of which came from Lima One, where the average coupon of these originations was 10.4%.
Higher interest rates did modestly impact our book value for the first quarter with GAAP and economic book value down by 1.3% and 1.7%, respectively. We continued to execute securitizations with a $193 million RTL. deal in early February and a $365 million non-QM deal subsequent to quarter end in April.
On the capital front, we issued a very successful senior unsecured bond in January, raising $115 million with a coupon of eight and seven eights. We followed this deal with another issuance of $75 million of a similarly structured bond in April with a coupon of 9%, despite the fact that 5-year treasuries were 65 basis points higher than when we issued our eight and seven eight bond in January.
These two issuances were very timely, enabling us to raise $190 million with a weighted average coupon below 9%, setting us up comfortably to pay off the remaining $169.7 million of our convertible bond that's due in June. Both bonds have five year maturities, but we retain valuable optionality as they're callable at par after two years, should we find ourselves in a more favorable rate environment in a couple of years? We also have considerable optionality in our liabilities with a total of 30 securitizations outstanding.
Page 19 of our earnings deck lists all of our outstanding securitizations, together with relevant details of each deal, including the call date in the last column. Although many of these bonds carry low coupons, the weighted average coupons of outstanding bonds will increase over time as senior bonds pay off. In some cases, it can make sense to call a deal and relever the underlying loans in a new securitization, even if the cost of debt is marginally higher than in the existing deal, I call and re-lever could unlock significant additional liquidity, which we can redeploy at attractive ROEs. These call rights provide an often underappreciated option that we have to optimize our liability framework in the years ahead.
And I'll now turn the call over to Mike Roper to discuss our financial results.

Michael Roper

Bankrate, as Craig highlighted in his opening remarks.
During the quarter, MSA again delivered strong financial results, generating distributable earnings that covered the quarterly dividend and achieving book value stability in challenging market conditions. At March 31, GAAP book value was $13.80 per common share and economic book value was $14.32 per common share, representing decreases from December 31 of 1.3% and 1.7%, respectively.
Given our net duration of approximately one, our book value was negatively impacted by higher rates across the yield curve, but benefited from credit spreads tightening. During the quarter, we declared dividends of $0.35 per common share and delivered a total economic return of 0.7% for the quarter, and they generated GAAP earnings of $15 million or $0.14 per common share and distributable earnings of $36.1 million, or $0.35 per common share.
The decrease by $0.14 versus last quarter and increased by $0.05 from the first quarter of 2023. The decrease versus last quarter was primarily driven by nonrecurring items totaling $0.11 per share that benefited our fourth quarter results Additionally, mortgage banking income at Lima One declined by $0.03 per share as a result of lower origination volumes in the first quarter.
Net interest income for the first quarter was $47.8 million, an increase from $46.5 million in the fourth quarter. As a reminder, our GAAP net interest income does not include the benefit of the positive carry on our interest rate swaps.
Net interest income, inclusive of swap carry was approximately $77 million for the first quarter, unchanged from last quarter and an increase of approximately $15.7 million from the first quarter of 2023. During the quarter, our Board of Directors authorized a $200 million share repurchase program, and we filed a $300 million at-the-market program, enabling us to issue shares from time to time in the open market. We have not utilized either of these programs to date, but believe they offer us the flexibility to act efficiently should market conditions warrant in the future.
Finally, subsequent to quarter end, we estimate that our economic book value has declined by approximately 1% as a result of higher market interest rates.
I'd now like to turn the call over to good lender, who will speak to our portfolio highlights and the performance of Lima.
One.

Gudmundur Kristjansson

Thanks, Mike. Continued to see attractive investment opportunities in the first quarter and added about $650 million of loans with an average coupon of approximately 10% in the quarter.
Lima One originated PPL's accounted for 70% of our acquisitions, while non-QM loans accounted for the remaining 30%. Credit characteristics were strong with an average LTV of 64% and average FICO score of [744] loans acquired in the quarter.
Portfolio runoff was roughly unchanged quarter-over-quarter at $422 million. The average coupon paid of loans were 8.7% as rates declined sharply in the fourth late in the fourth quarter and early in the first quarter, we took advantage of improved pricing on some of our seasoned local coupon, non-QM and SFR loans and sold about $150 million of loans at a $2 million gain compared to year end markets all of these activities resulted in our portfolio remaining relatively unchanged at $10 billion.
Portfolio asset yield increased by 12 basis points to 6.58% in the quarter. We see expected returns on equity in the mid 10s area for first quarter additions and continue to see similar returns available in the current environment. The labor market remained strong in the first quarter with non-farm payroll growth accelerating and the unemployment rate remaining close to historical lows at under 4%. Home prices also remained resilient and after rising by about 6% last year continued to trend higher in the first quarter as low supply of homes continues to outweigh low affordability.
These macro trends of housing and labor market resilience provide ongoing support to our credit portfolio, an uptick in inflation and surprisingly, strong economic data. It data in the first quarter led to a modest increase in interest rates as market participants reduced their expectations for rate cuts in 2024. Rates have risen further in the second quarter, largely reversing the decline rates we experienced at the end of 2023 and the market and unexpected, but one to two rate cuts this year versus six at the beginning of the year.
Our interest rate risk management approach continues to emphasize protecting the portfolio and our cost of funds from interest-rate volatility. To that end, we've maintained a relatively short net duration and prioritize stability of funding costs through securitization issuance and swap hedges at mostly cover or floating rate liabilities with over $3 billion of swaps and about $4.8 billion of fixed rate securities debt outstanding.
We entered the quarter with a net duration of about 90 basis points, which contributed to the modest book value decline we experienced in the quarter.
Turning to Lima, one, our Lima One strategy continued to deliver organically created high quality and high yielding credit investments for our portfolio. Since our acquisition in the middle of 2021, Lima One has originated over $6 billion of business purpose loans for our balance sheet and has been a key part in driving up our asset yields over the last couple of years.
In the first quarter level, when originated about $430 million in line with our expectation at the end of 2023, shorter term transitional loans accounted for 80% of origination and longer term DSCR, rest of loans made up the remaining 20%.
Credit through health profile remained strong with an average LTV of 65% and average FICO score of 749 on loans originated in the quarter, we expect origination volume to be roughly unchanged in the second quarter in the mid $400 million range to 60 plus day delinquency rate.
REPL. loans originated by Lima One increased modestly in the quarter to 4.7%, but remains low. And in line with our modeling expectations, the increase was primarily concentrated in the shorter term transitional loans while the longer term rest of loans decreased modestly.
Credit Monitoring and asset management remain important parts of our BPO strategy servicing done in-house by Lima One and MFAs extensive asset management experience, we believe we are uniquely set up to manage delinquencies effectively and efficiently.
Finally, we expanded our RTL financing capacity in the quarter as we price our fourth unrated revolving RTL securitization. We now have over $800 million of RPL securitizations outstanding and a financial $1.4 billion of loans to these revolving structures.
I will now turn the call over to Brian Wilson will discuss MFA's credit performance and securitization activities in more detail.

Bryan Wulfsohn

Thanks, good lender. Market appetite for securitized bonds continued to show improvement in the first quarter following the trends leading into year end. Capitalizing on this demand, we issued our fourth unrated revolving securitization in February of transitional loans originated by Lima, one.
We sold 160 million of bonds collateralized by $193 million of loans. The bonds sold carried a coupon of slightly over 7% and the loan securitized carry coupon approaching 11% in April, we issued another non-QM securitization selling 330 million of bonds, backed by $365 million of loans. The bonds sold have coupon of 6.7% and the loans underlying the transaction had a weighted average coupon of 8.4%. #
We have now issued securitizations backed by over $9.5 billion in loans since 2020, and the percentage of our loan portfolio financed by securitizations increased to approximately 70%.
On slide 19 of our presentation, you can see that many of our securitizations are currently callable and others will become callable in the coming quarters and years. As Craig previously mentioned, those call features provide the potential to relever our collateral, unlocking substantial non-dilutive capital that can be redeployed at mid-teens ROE.
Our strategy is not dependent on lower rates, but should we find ourselves again in a lower interest rate environment, the call features also provide optionality to reduce our borrowing costs. We believe that mortgage securitization will continue to be a significant piece of our loan financing strategy since it is nonrecourse, non-mark-to-market funding and further insulates the portfolio from volatile markets leading to our credit performance.
Coming off the past two years of record low delinquencies, we have seen a normalization in our loan portfolio, 60 plus day delinquencies in our purchased performing portfolio have increased to 4.3% from 3.8% at the end of the year.
The increase came from both our RPL and non-QM portfolios, 60 plus day delinquencies in our legacy RPL NPL portfolio remained stable at 24% as our in-house asset management team works through delinquent loans, achieving positive outcomes, both through modifications and property related resolutions. The team has extensive experience working through billions of defaulted loans and continues to work closely with our servicers to improve outcomes on defaulted loans, including generating gains on our legacy RPLs and NPLs and mitigating potential losses on our newly originated loans. We're proud of our asset management capabilities since it gives us comfort growing our purchase performing portfolio and provides optionality should distressed loan opportunities arise in the future.
Prepayment speeds in our portfolio were relatively stable over the quarter across all loan types. Non-qm, SFR and legacy RPL/NPL have maintained CPRs in the mid to high single digits. The transitional loan portfolio had an annualized repayment rate, 33%. We had another quarter of paydowns totaling over $400 million in addition to the loan sale previously mentioned, which are reinvested into higher yielding assets.
Lastly, we continue to sell REO properties out of our portfolio for the quarter, we sold 73 properties for $24.2 million, resulting in $2 million in gains.
And with that, I'll turn the call over to the operator for questions.

Question and Answer Session

Operator

It is gentlemen, if you'd like to ask a question, please press one then zero on your phone keypad. You will hear an indication you've been placed in the queue and can we move yourself by pressing one zero a second. Once again for questions, please press one then zero at this time. Our first question comes from Stephen Laws with Raymond James.
Go ahead, please.

Stephen Laws

Good morning.
I appreciate the comment even though Bart, just wanted to follow up, I guess first on the credit performance, you mentioned normalization here as we've moved off of the rate lows, but 4.3% kind of where you think that will peak or plateau talk about the time line of resolution process once something gets to 60 day kind of how do you how to time line go once you resolve those problems?

Craig Knutson

So, Steve, it really depends on the loan type, right, because we have some of the legacy, but rather re-performing non-performing loans. So that's a that's one time line, which is probably been pretty lengthy in terms of newly originated loans, you know, it really varies by product type on we can maybe split it out into non-QM and BPL, if that would be helpful for you and maybe talk a little bit about the two of those.

Stephen Laws

Yes, that'd be great.
Sure.
As it relates to non-QM and really both A lot depends on the geography and the foreclosure timelines, depending on the state, whether it's judicial or non-judicial, but a lot of times we see of our non-QM portfolio or because of the equity position in that the borrower has in the home right. Nine times out of 10. They're just going to sell the property. So those resolutions can happen relatively quickly inside a year. If you get a a prolonged battle right that that could take one to three years depending on how long the judicial process to fix?

Craig Knutson

Yes. Then just look, I mean, from a macro perspective, as Brian touched on in the opening remarks, all delinquencies were probably abnormally low coming out of COVID with the incredible amount of stimulus that came from the government and monetary policy. So when you look at our delinquencies, they trended down into late 22 early 23. But for some perspective, I mean, the 60 plus on the transition loan portfolio right now is similar to what it was in the middle of 22.
And so it feels to us. And when you look across the broader consumer sectors and you look at delinquency trends across credit products, that there is a normalization process going on and that seems to make sense, given amount of tightening in terms of monetary policy rate dropped 500 basis points or things of that nature. And you know the same thing as Brian said, applies to the transitional loan portfolio in terms of resolution and really depends on state versus judicial versus non-judicial and the ability to get to the to the property. But importantly, on the transitional side, there is multiple ways. We approach that. It depends on the state of the art of the project.
We tried to work closely with the borrower and if it is a viable project. We can make sure that he is in a position to complete it to the extent we need to pursue foreclosure. We'll of course, do that. And they'll rely on our asset management capabilities as well as the underwriting, of course, at origination to make sure we can have acceptable solutions.

Stephen Laws

Right.
And as a follow-up, I just wanted to touch on kind of your thoughts around dividend sustainability of the TrueBlue earnings, right.
On top of the dividend level. As you look out, you mentioned your prepared remarks, attractive mid-teen returns on new investments, the ability to kind of call and relever some deals which frees up additional capital for new investments on other side, looks like you've got some swaps that kind of mature late this year, early next year and in this higher for longer rate outlook, how do you view those two things and the benefits versus the higher cost as the swaps mature with the ability to maintain the current dividend level?
Thank you.

Craig Knutson

So, Steve, without obviously forecasting our dividend, I think we've handily covered the dividend for the last year. Or more on. And I think given the portfolio and the the net interest income, that's that solid or increasing, I think we feel pretty good about our earnings capability going forward.

Stephen Laws

I appreciate the comments points.

Craig Knutson

Thanks, Stephen.

Operator

And forgo to most George with KBW.

Bose George

good morning. I guess one follow-up on Steven's credit question. What are the typical losses on resolution and how does that compare with where you are carrying the loans, fair value loans?

Craig Knutson

So both I would say for all, first of all, the fair value when loans are delinquent, they get marked as delinquent loans. And so those that gets reflected right away in fair value marks on.
Second, in terms of losses, you know, again, we have a lot of history and we can certainly talk about the legacy reperforming and nonperforming loan book. Book yield is Bryan and good Munder bolstered the timelines are fairly long. So we may have some data on some loans from losses. But I don't really know that it's all that instructive because this is a long process. And after the resolution is that the property gets sold, as Brian said, because of the homeowner has significant equity, that's typically a payoff in full on. So the you know, I could give you we could give you loss numbers, but they really don't reflect what ultimately ends up happening because we just need more time. And I'm not talking about months, I'm talking about years in some cases.
Yes, I think the other thing to keep in mind for us is that if you think about the products we're acquiring, I mean, so for example, here on the BPL side, the transitional loans, they have a coupon of anywhere from 10% to 12%. And when we think about risk-adjusted returns, risk-adjusted yields, we're factoring in some some assumption about credit costs and credit losses. And so we do assume that yields are lower than the coupon that's coming in. That's how we think about it. But in that context, it's still providing quite attractive risk adjusted returns.
And to Craig's point, I mean, look, over the last two to three years, home prices were obviously significantly high and rising out of COVID, which obviously helped out in terms of loss mitigation. So we've had some really good outcomes, but we understand and we know that we're dealing with credit underwriting and credit investments. So there's going to be some credit costs associated with it.

Bose George

So.
Okay, that's helpful. We are thinking really about the BPL side, just but.
Yes, that's helpful commentary.
And then just one modeling question, just on the expense line view of the comp and benefits was a little higher was, I guess, year-end bonus stuff embedded? Will that kind of normalize a little bit into the second quarter?
Thanks for the question, both.
Yes.

Craig Knutson

So I guess a few things on G&A. First, you're exactly right that we had a sort of nonrecurring adjustment to our expense accrual in the fourth quarter that decreased that line item by about $3 million. So it makes a little bit less comparable than the second big change there. And there's a couple of smaller ones and sort of offset.
But the second big change there is the acceleration of amortization of non-cash stock based comp expense related to awards made to retirement eligible employees. So that expense would normally be amortized over the course of three years. But GAAP requires us to effectively recognize it in the first quarter. And you'll see that there's about $1 million left of that for the second quarter. But going forward, that will that'll go back to zero for the rest of the year.

Bose George

Okay, great. That's helpful.
Thanks.
Thanks, Bose.

Operator

Next we'll go to excuse me.
Next, we'll go to Steve Delaney with Citizens' JMP Group.

Steven Delaney

Good morning, everyone.
Thanks for taking the questions. In your deck, you comment on in returns on securitizations, looking at Lima One, obviously, that was a very significant acquisition and it's proprietary. Do you have a lot more control there than have a device flow in QM.s industry?
I just wondered if you could comment on specifically on the theme of securitizations as far as between bridge and can be of some precedent for know, just the product mix and how those can you tighten down a little bit from mid 10s kind of returns on securitizations generally.
Thanks very much.

Craig Knutson

Thanks, Steve.
It's a great question. And I think your observation is a good one when we're saying mid 10s, we're kind of characterizing I guess could we turn on average and we'll understand we'll do sometimes better sometimes worse.
But to your point, the securitization that we did in the first quarter on the transitional loan securitization in the average coupon on the loans going into the deal was about 10.9% as the average coupon on the bonds sold was about 7.10%. So you can see that there's a significant amount of spread that to the tune of over 350 basis points.
And so we sold 80% of the deals and we kept the rest of it, but you can quickly get up to kind of 20% plus returns based upon how much leverage we're doing in the deal and how much we're selling. And you know, as it relates to kind of securitization execution, spreads have continued to come in this year on spreads on the kind of a one on the RTO side, we're probably as wide as three 50 over the curve in October of 23.
And now they're probably hovering over to 50 over on the on unrated side. And then on the on the on the rated type of execution, you have the potential to do better. So we think yes, I mean those returns are quite effective as it relates to the longer term DSCR loans, we are creating assets that yield roughly, call it around high 78% yields and the securitization cost of funds probably right now is anywhere in the kind of mid sixes. And so we're doing probably mid to high teen returns there as well.

Steven Delaney

Right.
That's great color.
And I think the it was worth pointing out that since you only know one now you really can't control your risk return profile there, working with the Street and to that point. Obviously, we're getting no rate relief, but can you comment good month or just generally on what the pipeline looks like looking out over the next six months or so for Lima One, what are what are they hearing from borrowers? Are they still busy as ever in terms of looking at new opportunities? Just some color on the pipeline. Thanks.

Craig Knutson

Yes, I think so with Lima, one, one of the strengths of the of the brand and the company's, so the breadth, breadth of product that they that they originate. So on the on this transitional loans are shorter term products on Lima, originate, single-family bridge and transitional loans that involve some amount. We have single-family new construction and small-balance multifamily transition alone.
So there is various code pockets of marketplaces that we originate. And so those can have different dynamics in terms of supply and demand. So from our perspective, what we've seen is we've been able to often maintain steady levels of origination when you know, various parts of that are changing. And then the fourth lever is, of course, a longer term, a DSCR rental loans.
And so what we saw, for example, in 22 and 23, when rates rose, our more origination shifted into the short-term transitional loans as opposed to the longer-term rental loans. And so fast-forward to today, I think that the initial rate shock, of course, over the last two years has has kind of subsided in a way that the market participants have already now started to build high rate into their expectations, about executions and things of that nature as it relates specifically to the the operators on the ground.
So supply of homes is less than it has been historically. And it's one of the factors we have highlighted as being very supportive of home prices. And that's why home prices have risen immuno affordability for new homebuyers is low. Now what that means is that from the fix-and-flip operators, sometimes they don't they'll have fewer properties to a to pick from.
So we've seen some of that. So in the traditional call it, call it quick lift or easy flow through people are trying to do library have to turn around fast. That activity has slowed down a bit, but the new construction or the heavy retail component on it feels like it's relatively unchanged. And there's a decent amount of demand there because the housing supply is still very old in the United States.
And there's a lot of deficit of housing units relative to household formation, which we think will continue to support the market going forward. And I guess the last piece from a from a color perspective as well, it feels like there is a little bit more competition in our space because rates have stabilized and the attractive nature of these returns. You do see more capital coming into this space, which is both good, positive and negative is positive on the securitization side because it allows us to execute efficiently, but also means we have to compete a little bit more for the borrowers on the origination side.

Steven Delaney

That was great color.
Good under. Thank you so much and congrats to the team on hitting the $10 billion portfolio benchmark.
Well, thank you.

Operator

Next we'll go to Doug Harter with UBS.
Please go ahead.

Doug Harter

Thanks.
Hoping we could talk a little bit more about the potential to call your prior securitizations.
One, I guess, how are you seeing the you're seeing enough investment opportunities that you would need the capital?
And when you and when you factor in the higher cost of funds, I guess, how are you thinking about the level of accretion and today from freeing up that capital?

Bryan Wulfsohn

I mean, today, Brian, if you think of that.
But the immediate potential size, we have some unrated deals that were issued a few years ago that had paid down significantly. So say if we called one of those deals that might unlock $70 million to $80 million in liquidity where the cost might be, say 200 basis points to 250 basis points more for that financing but the ROEs generated are net-net mid mid to high 10s. So it definitely makes sense. And for us to execute that type of transaction for some of the other deals, right it's not an immediate thing. It's more the next two to three years where we're going to have opportunities to call those.

Michael Roper

And Doug, just to add a little more color to Brian's example. So if you think about our non-performing loan resecuritization done a few years ago calling that deal would and as Brian said, will unlock additional liquidity, but a substantial number of the loans in that deal are likely now performing, and those could be securitized as rated reperforming loan deals, which which trade at obviously lower yields than an unrated. Our nonperforming loan deal.
So there's just there's a lot of nuance in this, and it's just something that we that we want to point out is something that we're keenly aware of and there are opportunities that will continue to be opportunities to optimize that liability structure.

Bryan Wulfsohn

Yes, Doug, just to put a pin in that, the of we think of it, this also assumes a significant optionality from the liability structure. So to the extent that the world can change and it could evolve in many different ways. So to the extent that rates are lower for example, if the Fed is cutting rates and the curve is steeper, the most of these deals are priced on the front end of the curve. So to the extent that the curve is steeper in the future. It just gives us an optionality to recycle capital for after the same cost or better over the next couple of years. And so for equity investors. I think it is important to understand that optionality, and that's really kind of what we're trying to point out for the next couple of years.

Doug Harter

Got it. And but yes. Just I guess understanding if you don't call the deals and I guess, are they cash flowing on or are they still kind of or the subordinate cash cash-flowing? Are they still sort of paying down the seniors?
Yes, it's just how to think about the alternative if you decide not to call the deals?

Craig Knutson

So again, it depends on the deal, Doug, so in some rare cases, there might be a step-up after so many years where the coupon will step up on. But in most cases, we're not obliged to call the deal I think on the on the RTL side, after the revolving period ends, there's more incentive to call the deal because you can't add new loans to the deal. But it's really deal and type of deal specific.

Doug Harter

All right.
I appreciate the answers.
Thank you.
Sure.
Thanks, Doug.

Operator

Our next question comes from Brian Villano with Wedbush. Please go ahead.
Great.
Thanks.

Brian Violino

Good morning. Just curious if there is any notable extension or modification activity this quarter for the transitional book like we've seen from other BPL lenders over the last couple of quarters and if so under what terms were those made?
Yes.

Craig Knutson

Great question, and thank you. So key for our portfolio. The percent announced extended relative to UPB at the end of first quarter is about 12%. And you bet ticked up a little bit from about 8% to 9% at the end of last quarter, but really remains relatively modest in historical context, I think the normal course of business of extension happened, and that's nothing that is unusual about that. It's usually borrower needs additional time to kind of market and sell a completed project, it could be delays in completing. We have a construction and the project importantly remains feasible and attractive.
And then on the small balance, multifamily, because you may need additional time to lease up the property and get it into a stabilized state for longer-term financing.
Then the important part about all this does is like we don't extend delinquent loans. So again, you have to be current to qualify for an extension. And then in the normal course of business, we see extending loans pay off. I think last quarter probably $35 million to $40 million of funded loan payoffs that were previously extended. So from our perspective, it's normal course of business and it come to the territory.

Brian Violino

Great, thanks.
And just one more on the You announced a new stock repurchase an ATM program earlier in the quarter. Doesn't sound like either of those were used recently, but just curious on thoughts in terms of under what sort of conditions you would look to?
We aren't either one of those programs.

Craig Knutson

Sure, Tom.
So look, our ATM program, I think expired almost a year and a half ago so our recent refresh of the ATM program was simply that we know we don't really feel that we're capital constrained and we've recently demonstrated the ability to raise money through an unsecured bond at much more favorable terms for shareholders than issuing common stock at a substantial discount to book. Also point out that we simultaneously refreshed our share repurchase authorization. And I would characterize both actions BRIAN as administrative in nature.

Brian Violino

Got it. Okay.
Thanks very much.
Thank you.

Operator

At this time, we have no additional questions in queue.
All right.

Craig Knutson

Well, thank you everyone for your interest in MFA Financial, and we look forward to speaking with you again in August when we announced second quarter results.

Operator

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