MFA Financial (MFA) Q4 2021 Earnings Call Transcript

MFA Financial (MFA -1.40%)
Q4 2021 Earnings Call
Feb 23, 2022, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the MFA Financial, Inc. fourth quarter 2021 earnings call. [Operator instructions] And as a reminder, today's conference call is being recorded. I would now like to turn the conference over to Mr.

Hal Schwartz. Please go ahead.

Hal Schwartz -- Senior Vice President, General Counsel and Secretary

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, 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 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 fourth quarter 2021 financial results.

Thank you for your time. I would now like to turn this call over to MFA's CEO and president, Craig Knutson. 

Craig Knutson -- Chief Executive Officer and President

Thank you, Hal. Good morning, everyone. I'd like to thank you for your interest in and welcome you to MFA's financial fourth quarter 2021 financial results webcast. Also with me today are Steve Yarad our CFO; Gudmundur Kristjansson and Bryan Wulfsohn our co-chief investment officers; and other members of senior management.

The fourth quarter of 2021 was a stark wake up call for the fixed income market. After languishing in a 15 basis point to 25 basis point range for nearly 18 months since late March of 2020, 2-year treasuries rose 50 basis points from the end of September to the end of December, and the curve flattened significantly as 10 years ended the quarter, essentially unchanged from September 30. The first six weeks of 2022 have been even more volatile, with 2s higher by 75 basis points, 5s by 55, and 10s by 40. The rate environment had an inevitable negative impact on our fair value assets.

But MFA nevertheless turned in a respectable fourth quarter in a very strong 2021. We added so for interest rate swaps in the fourth quarter and have continued to manage our duration exposure into this year. We are certainly not immune to interest rate risk. We're still waiting for that vaccine, but between a relatively short duration assets or successful execution of $2.6 billion of securitizations last year, and our nimble hedging response to a dramatic rate moves more recently, we think we've weathered the storm reasonably well.

That said, this is no time for complacency. With inflation seemingly raging, the Fed on the move in a very tense geopolitical environment, making it impossible to predict interest rate movements, particularly in the short-term. Away from rates, MFA focus on residential mortgage credit serves as a terrific offset to interest rate risk. As continued, very strong housing trends bolster the value of the underlying assets, securing the mortgages we own and lower 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. Please turn the Page 4. We reported GAAP earnings of $35.9 million dollars, or $0.08 per share for the fourth quarter.

These results were driven largely by $42.6 million of unrealized and non-cash net losses on fair value loans. Lima One had a strong contribution to our earnings for the second consecutive quarter. Despite the volatile quarter, book value was relatively stable, with GAAP book value down less than 1%, an economic book value down less than 2%. Economic return for the quarter was 1.5%  for GAAP and essentially flat on economic book value.

Please turn to Page 5. We acquired $1.4 billion of loans in the fourth quarter, and we grew our loan portfolio by $830 million to$7.9 billion after portfolio runoff. These purchases included $950 million of non-QM loans and $500 million of business purpose loans. We completed 3 securitizations totaling $937 million during the fourth quarter, including two agency eligible investor loan deals and one-single family rental loan deal, or net interest income increased versus Q3 by 13% to $70.1 million in the fourth quarter.

We continue to make excellent progress in liquidating REO properties as we capitalize on strong housing trends, selling over $50 million of REO properties for a net gain of over $10 million. And finally, we've opportunistically continued to repurchase MFA common shares, adding $8.5 million shares at an average price of $4.42 during the fourth quarter. Please turn to Page 6. To briefly review the full year 2021, we achieved extraordinary portfolio growth, particularly considering the paucity of investments available in the early part of the year.

Our purchase of Lima One was a transformational, and timely transaction as we fortified our ability to source attractive assets. We completed 8 securitizations totaling $2.6 billion, locking in very attractive fixed rate term financing. As we pointed out every quarter, we continued to grow our net interest income, increasing this important and reliable earnings driver by 47%  for the year to $242 million and $70 million in the fourth quarter. Mortgage investors rarely talk about let alone brag about their REO portfolios, but we sold almost $190 million of REO properties in 2021 for a net gain of $23.5.

As a rule, REO property resolutions tend to be the least desirable and profitable outcomes when working out non-performing loans, but our asset management team turn this into a profit generating enterprise in 2021. Our book value increased by about 5% during the year 2021, despite a rough fourth quarter in rates in our economic returns for the year, we're also very respectable. We also purchased just over $20 million shares during the year at an average price of $4.26. Please turn to Page 7.

This slide illustrates the components of our investment portfolio, and also the nature of our asset based financings. While the liability pie chart shows $2.6 billion of mark-to-market borrowing, about half of this borrowing is that a significant discount to our available borrowing amount. This under levering, creates a cushion that increases the amount of asset price decline that would need to occur before we receive a margin call. So while this borrowing is technically mark-to-market or conservative borrowing practice produces a considerable synthetic margin buffer.

Please turn to Page 8. So finally, in the feel good department and just to demonstrate that it's not solely about the numbers, I'm happy to report three significant accolades for MFA. For the third year in a row, MFA was included in the Bloomberg Gender-Equality Index. We were recognized as one of 418 public companies across 45 countries and regions for our commitment to and support of gender equality.

Additionally, MFA has been certified for the second consecutive year as a great place to work by the Great Place to Work Institute. This award is based on anonymous employee feedback through an engagement survey that we conducted through this organization. This important validation of our culture is a testament to our people. Management does not make MFA a great place to work or people do.

If management has a role, it's simply to hire great people, and our team collectively creates our culture. In today's work from home world, this recognition is also an important distinction for hiring, as recruitment is virtually all virtual these day. And lastly, MFA has again been recognized by 50/50 women on boards, and we have achieved their highest rating level for gender balance. And now I'd like to turn the call over to Steve Yarad to discuss additional details of our financial results.

Steve Yarad -- Chief Financial Officer

Thank you, Craig. Please turn to Slide 9 for an overview of our fourth quarter 2021 financial results. MFA's results for the fourth quarter was solid overall, particularly given the challenging rate environment. We continue to see the impact of the successful execution of our asset aggregation strategy and financing initiatives with another quarter of loan portfolio and net interest income growth.

In addition, second consecutive record quarter for originations at Lima One resulted in another meaningful contribution to our overall results. Earnings of $0.08 per common share were impacted by valuation changes on loans, partially offset by gains on hedges and securitized debt held at fair value, as well as a significant gain on a minority investment. After removing the impact of these items from the quarterly results, the residual net income of $47.3 million, or $10.8 per common share, is in line with our fourth quarter dividend of $0.11 per common share. I will now provide some additional details for the key components of our Q4 results, which include; Net interest income of $70.1 million was $8.3 million, or 13% higher sequentially; Residential whole loan net interest income again increased this quarter by 7%, again, reflecting portfolio growth and the ongoing impact of securitizations, which has lowered the cost of financing; And net interest spread came in at 2.98% unchanged from the prior quarter.

Our overall CECL allowance and our carrying value loans decreased for the seventh quarter in a row and at December 31, was $39.5 million down from $44.1 million at September 30 and less than half where it began the year. The decrease reflects continued run off of our carrying value loan portfolio, and adjustments to macroeconomic and loan prepayment speed assumptions used in our credit loss modeling. This reversal and other net adjustments to [Inaudible] some reserves positively impacted net income for the quarter by $3.5 million. Actual charge-offs experience continues to be relatively low.

For the full year, charge-offs for $3.4 million. In 2020, charge-offs were $2.4 million. Pricing across our residential whole loan portfolio was impacted by the volatile rate environment. For loans held at fair value, net losses of $42.6 million were recorded.

It should be noted that for the full year, loans held at fair value generated $16.7 million of net gains. Further, in the fourth quarter, unrealized losses on the fair value loan portfolio were partially offset by $7.2 million of gains on TBAs, swap hedges, and securitized debt held at fair value. Included in this quarter results is a $24 million gain on a minority investment in one of our residential whole loan origination partners. During the quarter, this company successfully completed a capital transaction with a third party unaffiliated to MFA.

As a result of this transaction, GAAP required that we revisit the carrying value of our minority stake. We recorded a significant impairment write-down and investment back in Q1 of 2020, when COVID related uncertainties were very high and in origination companies were essentially shut down. Based on the terms of this new capital investment, which included a $4 million principal repayment to MFA, we adjusted the carrying value of our investment to the fair value implied by the transaction. This resulted in a significant reversal of the prior impairment, as well as a gain for the amount of principal repayment received.

Lima One also contributed $13 million of origination, servicing, and other fee income during the quarter, reflecting a second consecutive record quarter for origination volumes. Gudmundur will discuss this in more detail shortly. Finally, our operating and other expenses excluding amortization of Lima One intangible assets, were $41 million for the quarter. This includes approximately $13.7 million of expenses, primarily compensation related at Lima One.

Lima utilizes a sales commission structure where incentives increase as cumulative production targets are achieved. This will typically result in higher incentive compensation in Q3 and Q4 each year, particularly given the record production volumes achieved by Lima since acquisition. MFA only G&A expenses were approximately $15 million for the quarter, which is in line with the prior quarter. Other loan portfolio related costs, meaning those not related to Lima One loan origination and servicing, were $12.3 million, which is higher than a typical quarterly run rate, as it includes approximately $5.2 million of securitization deal related expenses.

Because we have elected the fair value option on recently completed securitization deals, GAAP does not permit us to capitalize these costs. And with that, I will now turn the call over to Bryan Wulfsohn. 

Bryan Wulfsohn -- Co-Chief Investment Officer

Thank you, Steve. Turn to Page 10. 2021 was one of the hottest years for home prices in over two decades. Prices increased year-over-year rate of almost 20%, fueled by historically low rates, coupled with limited supply.

In recent months, we have seen rates move higher with the 30-year conforming mortgage rate hovering around 4%. Increased mortgage rates should have a dampening effect on home prices. However, the severe lack of supply may still continue to push prices higher, albeit at a reduced rate. Labor market is strong.

Unemployment is at 4%, and wages are rising at some of the fastest levels in recent history. MFA is focused on mortgage credit, continues to perform well and benefits from the current economic tailwinds. Turning to Page 11. MFA was active in the fourth quarter, adding $950 million of nine-term loans to the portfolio.

We grew our base of originators over the quarter and strengthened existing relationships. Currently in the market with securitization and although we have seen widening in spreads, we expect to continue to be a programmatic issuer of securitizations as it is still the most efficient form of non-mark-to-market term financing. The credit on our portfolio has improved significantly from the onset of COVID in 2020. 60 plus day delinquencies are now down to 3.5%.

We have yet to suffer a credit loss on our non-QM portfolio, as a few loans taken to REO were subsequently sold for gains. Many loans that experienced delinquencies end up getting paid in full as our borrowers have equity in the property to sell their property themselves. The weighted average original LTV for borrowers that are 90 plus days delinquent is 65, and that does not account for any potential home price appreciation post origination. Turning to Page 12.

After September's announcement from the FHFA and Treasury to suspend the 7% cap on investor loan purchases for Fannie Mae and Freddie Mac for at least one year. Pricing for agency investor loans became less attractive and we significantly slowed purchases in the fourth quarter. We utilize TBA hedges against his portfolio, which helps protect against rate moves and spread widening over the quarter. We executed on our second securitization of this collateral in the fourth quarter of 2021, and expect to execute a third in the coming months.

We do not expect further growth to this segment of the portfolio out of more favorable environment relating to loan pricing and or securitization execution. Turning the Page 13. Our REO portfolio of approximately $900 million continues to perform well, 81% of our portfolio remains less than 60 days delinquent. And although the percentage of the portfolio 60 days delinquent and status was 19%, almost 30% of those borrowers continue to make payments.

Prepay speed in the fourth quarter increased further to a three month CPR of 18%, combination of the length of time our borrowers have remained current on their mortgage and home price appreciation and unlocked refinancing opportunities for many of our borrowers. We have a small amount of borrowers still receiving COVID assistance and believe that any impact from COVID will be minimal on the retail portfolio going forward. Turning to Page 14. Our asset management team continues to drive strong performance of our NPL portfolio.

The team has worked in concert with our servicing partners to maximize outcomes on our portfolio. 38% of loans that were delinquent at purchase are now either performing or paid in full. 49% have either liquidated or REO to be liquidated. Our sales of REO properties have continued at an accelerated pace at advantageous prices.

Over the quarter, we again sold almost 3 times as many properties as the number of loans converting to REO. 13% still a non-performing status. Our modifications have been effective, It's almost three quarters are either performing or have 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 a Gudmundur to walk you through our business purpose loans. 

Gudmundur Kristjansson -- Co-Chief Investment Officer

Thanks, Brian. Turning to Page 15. We closed the acquisition of Lima One on July 1, 2021, and realized an immediate impact on MFA's results in the second half of the year. As Lima One originated approximately $1 billion of high yielding business purpose loans in the second half of 2021, all of which were absorbed MFA's balance sheet.

Fourth quarter activity was particularly robust, with over $600 million originate and in the fourth quarter, a 50% increase, over third quarter origination, and a record quarter for the company. First quarter is usually the slowest month in the BPO space, but we maintain strong momentum into 2022 with approximately $200 million originated in January. A key benefit of the acquisition is Lima's ability to provide MFA with a reliable flow of high quality, high yielding asses, that are difficult to source in the marketplace. When we announced the transaction in May, we mentioned that we believe that Lima had the potential to grow substantially beyond the run rate at the time of $1.2 billion in annual origination, that has played out faster than we expected as Lima originated over $1.6 billion in 2021, about 33% more than we expected at the time of acquisition.

This tremendous result is in many ways due to the time and energy we spent around the deal closing to develop a clear strategic plan for Lima One business, including short and long-term goals for the management team, as well as exceptional execution by the management team throughout the second half. We have improved financing costs, and expanded financing options by adding multiple new warehouse lines and issuing securitizations. We passed some of those efficiencies onto Lima's borrowers in more competitive pricing across most of Lima's product offerings. This is a lot of Lima to be more competitive, and grow volumes across all of our loan product offerings.

With Lima track record, increased volume, and strategic marketing efforts, we continue to see Lima's brand in the BPO space grow. They're widely recognized as one of the nation's leading BPO lenders, and uniquely offer a diverse set of BPO products for short and long term investment strategies. The increased volume would not be possible without the strong operational infrastructure Lima One has built, which has shown an impressive ability to scale up origination volume quickly while maintaining origination quality. We are excited about the progress we have made this year with Lima One, and continue to see great opportunities to grow their origination footprint and gain market share.

As you mentioned earlier, the first quarter is off to a great start, and we expect origination volume in 2022 to exceed 2021. In addition to the benefit of adding assets to our balance sheet, Lima has a profitable company. The amount generated $10.2 million of net income from origination and servicing activities in the quarter, representing an annualized return on allocated equity of approximately 30%. And finally, we closed our second business purpose master loan securitization in the fourth quarter, with approximately 90% of the collateral consisting of Lima One originated loans.

With increased rental loan acquisition volume from the Lima One acquisition, we expected to our third business purpose rental loan securitization in the first half of 2022. Turn to Page 16. Here we will discuss the fix and flip portfolio. The portfolio grew by $137 million, or 23% in the quarter.

Loan acquisition activity rate remained elevated due to Lima One acquisition as we added approximately $220 million UPB with over $370 million max loan amounts in the fourth quarter, and have added over $110 million max loan a month in January. As a reminder, fix and flip loans financed the acquisition, rehabilitation, and construction of homes. Typically, a certain amount of the loan is held back in the form of a construction hold back, which explains the difference between UPB on day one and the max loan amount, which represents a fully funded loan at the completion of projects. With a persistent increase in fix and flip acquisition activity, we are actively exploring securitization options for our fix and flip portfolio, and expect to make securitization a consistent part of our fix and flip financing strategy.

The UPB of 60 plus days delinquent loans were relatively unchanged at $109 million in the fourth quarter, but declined significantly in 2021 as it dropped by over $50 million. 60 plus days delinquency as a percentage of UPB declined 3% to 15% at the end of the fourth quarter. A few things to note here is that, all the loans that are 60 plus days delinquent except one were originated prior to April 2020, and are simply working their way through the appropriate loss mitigation activities. And, Lima one originated fix and flip loans held by MFA have only about 4% 60 plus days delinquency, speaking to the quality of the origination and servicing.

The strong housing market, generally favorable economic conditions, and the efforts of our BPO and asset management teams have led to good progress and seriously delinquent loans. We continue to see a sizable amount of loans pay off and full out of serious delinquency. And loans payoff in full from serious delinquency, we often collect default interest, extension fees, and other fees of payoff. For loans where there's meaningful equity in the property these can add up.

Since inception, we have collected approximately $6.5 million in these types of fees across our fix and flip portfolio. Turning to Page 17. Our single-family rental loan portfolio continues to deliver attractive yields, and accepted strong credit performance, with 60 plus day delinquencies declining 90 basis points in the quarter to 2.6%, and fourth quarter portfolio of 5.16%. Purchase activity remained elevated in the fourth quarter as we added approximately $250 million of single family rental loans in the quarter.

As a result, our portfolio grew by 29% in the quarter to over $920 million at the end of the year. Acquisition activities have remained robust in the first quarter, as we've already added over $80 million in the month of January. The acquisition of Lima One has significantly boosted our ability to source single family rental loans, and we believe that we will continue to grow our single family rental loan portfolio in the near future. We issued our second rental on securitization in the fourth quarter.

The deal was backed by approximately $284 million of loans, we sold bonds representing about 91.5% of loan UPB with the weighted average coupon of approximately 2.15%. Approximately 75% of our single family rental portfolios financed with non-mark-to-market financing almost 60% through securitizations. We've done two single family rental securitization, and expect to continue to programmatically execute securitizations to efficiently finance our single family rental loss. And with that, I will turn the call over to Craig for some final comments.

Craig Knutson -- Chief Executive Officer and President

Thank you, Gudmundur. We believe that we produced solid results in a difficult fourth quarter of 2021, and we're very pleased with our results and the successful execution of our strategic initiatives for the year. Our portfolio growth coupled with securitization financing, should enable us to continue to produce consistent net interest income. A thriving Lima One will continue to provide us with the means to generate high quality assets at attractive yields.

And MFA's focus on residential mortgage credit should position us well as we enter a year that will surely challenge investment strategies that are dependent solely on rates. Cynthia, would you please open up the line for questions?

Questions & Answers:

Operator

Certainly. [Operator instructions] We will take our first question from the line of Bose George with KBW. One moment. And your line is open, please go ahead.

Craig Knutson -- Chief Executive Officer and President

We have a hard time hearing you. I don't know if it's your phone.

Mike Smith -- Keefe, Bruyette and Woods -- Analyst

Sorry. Is that better? 

Craig Knutson -- Chief Executive Officer and President

Pretty much better.

Mike Smith -- Keefe, Bruyette and Woods -- Analyst

This is actually Mike Smith on for Bose. I was just wondering if you could provide some color on the volatility in the securitization markets. Have you seen some of the older inventory cleared? And how long do you think the volatility could persist for?

Craig Knutson -- Chief Executive Officer and President

Sure. Bryan, you want to talk about non-QM?

Bryan Wulfsohn -- Co-Chief Investment Officer

Yeah, sure. We've seen a significant amount of supply come to market over the past several months, and that's continued through the beginning of the year. We've seen spreads move around approximately 50 basis points to 60 basis points up at the triple-A level. And really the only thing that turns that is time.

We think that due to this rate move, and what we've seen on the origination side of things in the [Inaudible], things have been slowing down. So if that continues that supply demand imbalance will correct itself. But, the only way we see that happening is through the passage of time. There's not really a catalyst that we see that's going to snap spreads back or anything like that. 

Mike Smith -- Keefe, Bruyette and Woods -- Analyst

Gotcha. That's helpful color. And then, have you seen any changes in loan prices to reflect the wider spreads in the securitization market?

Bryan Wulfsohn -- Co-Chief Investment Officer

We've seen some movement and loan pricing, but not to the extent of spread movement that we've seen on the securitization side. And this is historically what we've seen, a loan pricing, whenever we see movement in spreads of securitization, it's there. There is some move, but it's not the full extent of the move. So, if you are thinking that spreads might have moved on securitization, 50 basis points to 60 basis points, it might be 20 basis points to 25 basis points and loan pricing.

Mike Smith -- Keefe, Bruyette and Woods -- Analyst

That's helpful color. And then, just one more for me. What do incremental returns on new investments look like? And, how do you view this versus potentially buying back stock at up 10 plus 10% dividend yield? 

Craig Knutson -- Chief Executive Officer and President

So I think, we always look at the stock price, we bought back stock consistently through the year at discounts to book. I don't think it's an either-or type proposition that either we make investments or we buy back stock. We bought back $20 million shares, but at the end of the day, it's not a liquidity constrained decision. I think, on the asset side, we're still looking probably worst case at high-single digit, low-double digit returns.

And on business purpose loans and some of the fix and flip loans where where those securitizations, even though those are getting more expensive these days, those are probably closer to 20% type ROE. So there's still attractive ROEs to be have. As Bryan said, we haven't seen loan prices completely adjust this current market levels, and that probably puts a little bit of a damper on enthusiasm to purchase loans until the prices do correct to reflect securitization executions now. But I think, that will certainly happen in time. 

Gudmundur Kristjansson -- Co-Chief Investment Officer

Yeah. I think in terms of attractive of investments in returns that we're making. In 2021, it was unusually attractive year given the fact that rates were so low. And securitization execution was so efficient.

So as we now move into Q1 of 2022, I think we're seeing more of a normalization of the environment where there's a better balance between the yields taken on the asset versus the cost of funds. So, we view the current environment as it's continuing to be attractive to execute securitization, go forward is different. What happens to rates? You've got to be mindful of how you manage from interest rates and so on and so forth. What we continue to find good, good opportunities. 

Mike Smith -- Keefe, Bruyette and Woods -- Analyst

Great. Appreciate you taking my questions. Thanks again, guys. 

Craig Knutson -- Chief Executive Officer and President

Thanks, Mike.

Operator

Thank you. Next, we will go to the line of Eric Hagen with BTIG. And your line is open.

Eric Hagen -- BTIG -- Analyst

Hey, thanks. Good morning. Maybe a couple from me. Can you say how much stock you've repurchased to date and what's your book value is? Number two, what would you say is the yield on newly issued non-QM loans?  Like, how does it compare to the 385 that you show for the existing portfolio? 

Craig Knutson -- Chief Executive Officer and President

Sure. Steve, you want to? --

Steve Yarad -- Chief Financial Officer

Thanks for the questions. So, we if you look at that press release, you could see that on Page 2, we give an update as to what the stock repurchases have been through the 18th of February. And you can read that for yourself, but we've got about $45 million left under the current authorization for stock repurchases, and we've been we've been actively put repurchasing stock so far since the end of the year. In terms of book value, for January, we've closed the books for January, obviously, we haven't really started closing the books for February yet.

We've been very pleased with the way the portfolio is held up through January. We've added swaps in January and as a result of that and the other hedging activities that we had in place, we started in the fourth quarter. We haven't seen any meaningful decline in book value through the end of January. It's flattish to just marginally down, even taking into account and accrual the dividend, which we don't recall the dividend until it's declared.

So very pleased with that performance through January and into into February. We've added more swaps as well to date. So, I think in the press release, we talk about our duration being 1.3, right now it's closer to 1, given the additional hedging that we've done.

Craig Knutson -- Chief Executive Officer and President

Bryan, you want to talk about yield levels on non-QM?

Bryan Wulfsohn -- Co-Chief Investment Officer

Yeah, sure. Our new investments today, the yields are somewhere in the order of plus or minus 4%, where you can after this rate move. 

Eric Hagen -- BTIG -- Analyst

Got it. And then, within the rehab portfolio. Can you say how many loans make up that portfolio? And then should we expect the unfunded commitments? I think, it's like $285 million to be had over the course of a year? Or is the timeline something? Can you just describe the timeline for those unfunded commitments? Thanks. 

Gudmundur Kristjansson -- Co-Chief Investment Officer

Yes. I'll deal with the unfunded commitments first. On average fix and flip loans, outstanding anywhere from 6 to 12 months, and probably the average [Inaudible] to pay off our loans tends to be around 10 months to 11 months. So as you think about that, usually this is like if you just focus on a single loan and it's drawn down over time.

So it probably would take it until 9 to 10 months to be fully drawn, and its market and sold an underlying property. I think that's that's the right way to think about that. The undrawn commitment amounts to be drawn down over the course of anywhere from 9 to 10 months. In terms of the number of loans, I do not have that in front of me, but the average loan size is in the context of think about $300,000, something like that.

And so, if you use that as a proxy, you can get to the loan count. I think we can also follow up with you, if that's important to you. 

Eric Hagen -- BTIG -- Analyst

That's helpful. Thank you.

Operator

Thank you. Our next question comes from the line of Doug Harter with Credit Suisse. And your line is open.

Josh Bolton -- Credit Suisse -- Analyst

Morning, guys. It's Josh Bolton on for Doug. I'm curious, you're high little thoughts around aggregation risk as you're putting getting these loans in the door, and then planning on securitizing. How much risk is there? How long does it take in the different buckets to get the size to securitize? And how do you manage through that risk of holding those loans until the pricing of the deal can happen? Thanks.

Craig Knutson -- Chief Executive Officer and President

Sure. Thanks for the question. I think, it varies by product. So, non-QM is probably the largest size or most prolific and until the fourth quarter of last year, managing that accumulation period was not really all that difficult because interest rates and spreads didn't really change very much.

I think you can see what we did hedging the portfolio in the fourth quarter and then, as Steve said, into January and February, and look at our book value, which Steve basically said was was flat in January. So I think, we are managing that, that risk. And the securitization market, as Bryan said, was a little bit crowded at the end of the year. And, Bryan did mentioned before, we're out with a securitization.

So we're not waiting to securitize, to wait for spreads to come back in. It's still makes sense to do, is it as attractive as it was early last year? No. But in all honesty, every time we sold triple-A bonds at less than a 1% yield, we pinched ourselves to make sure that we were awake, so we recognized different from what it was. It was a great opportunity last year.

But that's probably not the norm going forward.

Gudmundur Kristjansson -- Co-Chief Investment Officer

As Steve pointed out earlier, we coming at the end of last year and into Q1, we have significantly increased interest rate hedges because rates have become more volatile and the outlook for rate is more uncertain. So we are mindful of that GAAP between acquisition and securitization. And we expect to continue to headset efficiently and alluded before in terms of the easy investor deals, we utilize TBA shorts because those price more closer to [Inaudible] product versus rates in general. And so, that's an important mix of how we manage that, but where we are in the market with deals every single quarter and it's part of our business model to execute does. 

Josh Bolton -- Credit Suisse -- Analyst

Great. Appreciate the comments. Thanks, guys. 

Operator

Thank you. And allowing a few moments, I'm showing no further questions in queue.

Craig Knutson -- Chief Executive Officer and President

OK. Well, we want to thank everyone for your interest in MFA Financial, and we look forward to our next update when we announce first quarter results in May.

Operator

[Operator signoff]

Duration: 45 minutes

Call participants:

Hal Schwartz -- Senior Vice President, General Counsel and Secretary

Craig Knutson -- Chief Executive Officer and President

Steve Yarad -- Chief Financial Officer

Bryan Wulfsohn -- Co-Chief Investment Officer

Gudmundur Kristjansson -- Co-Chief Investment Officer

Mike Smith -- Keefe, Bruyette and Woods -- Analyst

Eric Hagen -- BTIG -- Analyst

Josh Bolton -- Credit Suisse -- Analyst

More MFA analysis

All earnings call transcripts