2007 Letter to stockholders
Dear Fellow Stockholders:
MFA provides its stockholders with attractive returns through leveraged investments in high-quality hybrid and adjustable-rate MBS. In 2007, the results of this strategy spoke for themselves. Our portfolio spreads and the dividends to common stockholders trended up in each of the four quarters. As of December 31, 2007, approximately 99% of our assets consisted of MBS issued or guaranteed by a federally chartered corporation (Fannie Mae and Freddie Mac), or an agency of the U.S. government (Ginnie Mae), other MBS rated “AAA” by Standard & Poor’s Corporation, MBS-related receivables and cash.
In light of continuing concerns regarding the residential mortgage and housing markets, we are pleased with our strategy of investing in high-quality assets.
Concerns about increased mortgage delinquencies have led investors to question the underlying risk and value of MBS across the ratings spectrum. Banks, brokers and insurers have announced billions in losses from exposure to the U.S. mortgage credit market. These losses have reduced financial industry capital.
While we have consistently maintained an assets-to-equity multiple of approximately 9x–10x (or a debt-to-equity multiple of approximately 8x–9x), we have determined that in this current period of financial industry stress the prudent strategy is to generally lower our target debt-to-equity multiple to approximately 7x–9x. Our focus will continue to be in high-quality agency MBS, which are liquid and financeable.
We believe this strategy will reduce the uncertainty reflected in MFA’s share price and will position MFA to take advantage of profitable opportunities that we believe will be available in the future. One major initiative for 2008 is the expected initial public offering of MFResidential Investments, Inc. This new company will employ a different focus than MFA by primarily investing in non-agency residential MBS, residential mortgage loans and other real estate-related assets. MFResidential, which will be externally managed by a subsidiary of MFA, is expected to generate investment management fee income for MFA and additional value for MFA’s stockholders.
Our core business model, our proven and experienced management team and our corporate values should give you, our stockholders, strong reason to be optimistic about our future. On behalf of the Board of Directors and employees of MFA, we thank you for your continued investment and confidence.
Stewart Zimmerman
Chairman of the Board
President and CEO
March 20, 2008
