Ladies and gentlemen, thank you for standing by. Welcome to the MFA Financial Incorporated Third Quarter 2013 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a questions-and-answer session instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Danielle Rosatelli. Please go ahead.

Good morning. The information discussed on this conference call today may contain or refer to forward-looking statements regarding MFA Financial, Inc., which reflects 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, plan, continue, intend, should, could, would, may 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, but not limited to those relating to changes in interest rates and the market value of MFA’s investment securities; changes in the prepayment rates on the mortgage loans securing MFA’s investment securities; changes in the default rates and management’s assumptions regarding default rates on the mortgage loans securing MFA’s MBS; MFA’s estimates regarding taxable income and the timing and amount of distributions to stockholders; MFA’s ability to maintain its qualification as a real estate investment trust for federal income tax purposes; and MFA’s ability to maintain its exemption from registration under the Investment Company Act of 1940. These and other risks, uncertainties and factors including those described in MFA’s Annual Report on Form 10-K for the year ended December 31, 2012, its quarterly reports on Form 10-Q for the quarters ended March 31 and June 30, 2013 and other reports that it may file from time-to-time with the Securities and Exchange Commission 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 third quarter 2013 financial results. Thank you for your time. I would now like to turn this call over to Stewart Zimmerman, MFA’s Chief Executive Officer.

Good morning, and welcome to MFA’s third quarter 2013 earnings call. Joining me this morning on the call are Bill Gorin, President; Stephen Yarad, Chief Financial Officer; Craig Knutson, Executive Vice President; Ron Freydberg, Executive Vice President; Terry Meyers, Senior Vice President; Harold Schwartz, Senior Vice President and General Counsel; Kathleen Hanrahan, Senior Vice President and Chief Accounting Officer; Gudmundur Kristjansson, First Vice President. Today, we announced financial results for the third quarter ended September 30, 2013. I will briefly discuss recent financial results and other significant highlights for MFA. I will then ask Bill Gorin and Craig Knutson to present certain of this information in greater detail during their webcast slide presentations following my remarks. This quarter 2013 and other highlights include the following; third quarter net income per common share of $0.19 and core earnings per common share of $0.18. In the third quarter, we declared two dividends, we declared a special cash dividend of $0.28 per share of common stock on August 1, 2013, we paid the stockholders’ on August 30, 2013. In addition, on September 26, 2013 we declared a regular quarterly dividend of $0.22 per share of common stock, which was paid to stockholders on October 31, 2013. On September 11, 2013 we timely filed our 2012 tax return an amount equal to all taxable income for years prior to 2013 has been distributed to stockholders. We currently estimate for the first nine months of 2013 our taxable income was approximately $297 million. Including the dividend paid on October 31, 2013, we have distributed approximately 236 million in dividends in 2013 not allocated to prior years. Book value per common share was $7.85 as of September 30, 2013 due primarily to the special dividend of $0.28. Book value declined from $8.19 as of June 30,…

Thank you Stewart, turning to Slide 3, you will see there that as Stewart mentioned the net income for common share was $0.19, core earnings was $0.18 and the estimated taxable income per common share was $0.23, so taxable income again exceeded net income. In the third quarter, we declared two dividends, there was a third quarter dividend of $0.22, in addition, there was a special cash dividend of $0.28. So, in total, two dividends was $0.50. Even after these dividends our estimated undistributed taxable income for common share as of the end of the quarter was $0.17 per share. Now despite change in interest rates and prepayment speeds, our key metrics have remained consistent over the last year. If you look at the yield on an interest earning assets over last four quarters, it's been a little bit over 4%. The net interest spread has stayed approximately 2 in a quarter and the debt equity ratio has been very consistent about 3.1 for each of the last four quarters. Now in a period of very low interest rates and grades volatility why are we seeing this result in terms of interest earning assets, spread and leverage. The answer is when we diversified into owning both credit and interest rate portfolio; we find the two assets are performing differently in an opposite directions. While the yield on agency assets has trended down over the last four quarters, similar to other interest rate sensitive assets. The yield that are non-agency assets have gone up and this is because of the improving credit performance which is increasing the yield we're realizing on these assets, that is why the yield has remained consistent over the last four quarters and basically that is the key to our strategy. Now moving to Slide 5, we…

Thank you Bill. So Page 10 we show a graph of the non-agency portfolio LTVs. So the average portfolio LTV, the average LTV on the loans underlying this portfolio, they have declined from about 105% in January of 2012 to less than 85% in September of 2013. So because these LTVs are lower, lower LTVs means that we expect that future defaults will be less than what we have seen in the past, there is less likelihood that loans will default in the future, the lower the LTV today. In addition loans that do default we'd expect to see lower loss severities and finally lower LTVs also should translate to higher voluntary prepayments which since we purchased these securities at a discount is a good thing. You will also note in the press release we showed that we moved $71 million in the third quarter from our credit reserve to accretable discounts and the total of $312 million from our credit reserves to accretable discounts since January of 2012. Again this is largely due to this improving LTV. So why are the LTVs lower? As you know loan to value ratio is the loan amount divided by the property value, and so simply showing here on this slide the property values underlying these loans have increased, nearly half of our portfolio 45.4% of the underlying loans are located in California, and you can see we're broken up by county here. What we have seen happened to home prices in these counties in the last year. So again property value goes up, the denominator of the LTV ratio goes up which drives the LTV ratio down, you can see that in many of these communities we have seen better than 20% appreciation in home prices in the last 12 months. So…

Thank you Bill and Craig and I think it was a terrific slide presentation, very, very well done. Having said that what I would like to do is open the call for questions.

Thank you. (Operator Instructions). And we'll go to line of Dan Altscher with FBR Capital Markets. Please go ahead.

Question for you on the non-agency book. It looked like the cost of funds kicked up a quarter-over-quarter. That related to the new swaps that were put on, are we seeing it there or is there something else maybe that's going there?

No you hit the nail in the head Dan, that's exactly what it was. I think the overall funding cost was very similar to what it had been in prior quarters, but for the first time we have allocated swap expense to the non-agency costs.

So is it actually just an accounting allocation issue or is it -- those are the actual swaps, they are being allocated there?

It's allocated over the entire portfolio so we look at all the contributors to duration and we attribute swap costs accordingly.

I think I got it. A question on the transition rates swaps, I think which is fantastic and really speaks on it. Is that -- its core logic but are those the actual transition rates for your specific portfolio or are those more generic kind of transition rates for a subset of non-agency?

No this is our specific portfolio.

Just one quick question off it on the un-distributable taxable income, is that right to be thinking maybe that as a potential bucket of special dividends on a go forward basis if all else is equal?

It’s not to be considered a bucket of special dividends, it is cash we’ve yet to distribute on taxable income that’s been earned, but whether it becomes part of the waiver dividend or a special dividend you really can’t say.

And next we’ll go to the line of Steve DeLaney with JMP. Please go ahead.

Stewart I think we should start at least me personally about congratulating you for your outstanding 15 year career at MFA. Leading the Company and building this high quality portfolio, we see the results of this quarter. Thank you for that. Yes, so guys turning to the portfolio and book value, we certainly understand the $0.28 special dividend. We were looking for something even adjusting for the 28 may be closer to the $8 range. And it’s not that much lower, but just kind of curious. I am sure it was just a matter of Yarad’s assumptions on non-agency prices and hybrid ARMs both of which can be very subjective. Wondering if you could give us the way you see the market, just general market color on both non-agency prices and agency hybrid ARM prices since September 30? Thanks. JMP Securities: Stewart I think we should start at least me personally about congratulating you for your outstanding 15 year career at MFA. Leading the Company and building this high quality portfolio, we see the results of this quarter. Thank you for that. Yes, so guys turning to the portfolio and book value, we certainly understand the $0.28 special dividend. We were looking for something even adjusting for the 28 may be closer to the $8 range. And it’s not that much lower, but just kind of curious. I am sure it was just a matter of Yarad’s assumptions on non-agency prices and hybrid ARMs both of which can be very subjective. Wondering if you could give us the way you see the market, just general market color on both non-agency prices and agency hybrid ARM prices since September 30? Thanks.

So, Steve as far as non-agency; non-agency’s are certainly up in price since the end of September. Again, it depends on the particular bond and type of security, but I would say in general non-agency prices are up a point, probably a little bit more than that.

Yes, hi this is Gudmundur. On the agency side, since quarter end prices in our universe are up by about quarter of a point.

So Gudmundur are you saying like your seasoned hybrids you’d be seeing a quarter of a point on those bonds and… JMP Securities: So Gudmundur are you saying like your seasoned hybrids you’d be seeing a quarter of a point on those bonds and…

Well when I say quarter of a point I am just talking in generically about both the hybrids in the 15 years, but if you want us to talk specifically about the hybrids.

Yes. JMP Securities: Yes.

So, we had some spread widening obviously in the second quarter and then in the third quarter as well. And I would say as of today they were probably three traits about two-thirds of the spread widening, it’s not back to the absolute lows we saw earlier in the year. But a majority of the spread widening has definitely been recovered.

Okay, because we have seen some price indications from some of the dealer showing gains as much of a half a point or three quarters of a point, I mean would those be -- given that spread tightening would those be out of line? JMP Securities: Okay, because we have seen some price indications from some of the dealer showing gains as much of a half a point or three quarters of a point, I mean would those be -- given that spread tightening would those be out of line?

No, it’s going to depend on the type of product, so the lower coupon longer duration hybrids. Even talk -- say lower coupon 701s and 1001s they did widen more so they have recovered more of the widening in terms of spread and price terms. So that would not be inconsistent now.

And one final one I guess Bill you and I had talked in the past about RMBS 2.0 and you guys are watching that. But one of the concerns you’d expressed specially with 30-year fixed rate collateral and rates near these -- still near historical lows you’d expressed a concern about duration risk related to RMBS 2.0. I was just curious now that your portfolio is performing you don’t have to do anything -- any time soon or anything radical, but if -- we are hearing that more 51s are being originated in the jumbo space. And I was curious if you saw the potential for transactions that involved 51 collateral ARMs versus 30 year fixed if your view towards that type of transaction would maybe change? JMP Securities: And one final one I guess Bill you and I had talked in the past about RMBS 2.0 and you guys are watching that. But one of the concerns you’d expressed specially with 30-year fixed rate collateral and rates near these -- still near historical lows you’d expressed a concern about duration risk related to RMBS 2.0. I was just curious now that your portfolio is performing you don’t have to do anything -- any time soon or anything radical, but if -- we are hearing that more 51s are being originated in the jumbo space. And I was curious if you saw the potential for transactions that involved 51 collateral ARMs versus 30 year fixed if your view towards that type of transaction would maybe change?

So Steve if I remember the very beginnings of RMBS 2.0 I believe those first securitizations were actually off of hybrids.

They were the early Redwood deals, yes. JMP Securities: They were the early Redwood deals, yes.

Right, but I think what the market discovered was the bank originated them, the bank wanted to keep them. And that is why you saw RMBS 2.0 evolve towards a fixed rate model. I still think that bank’s portfolios are very competitive versus the execution on securitization of hybrids deal. Does that answer your question?

Yes, that isn’t a question that’s the situation we have today and whether you are talking about 51 or 30 year I was just curious if paper did become available whether it was through private mortgage banks or community banks, if the ARM product generally would be more attractive to you than the 30 year product. JMP Securities: Yes, that isn’t a question that’s the situation we have today and whether you are talking about 51 or 30 year I was just curious if paper did become available whether it was through private mortgage banks or community banks, if the ARM product generally would be more attractive to you than the 30 year product.

And also as you know the execution on the securitizations have gotten somewhat more costly.

Yes. JMP Securities: Yes.

So it was hard for securitization to compete with the bank before so probably somewhat harder now.

And next we’ll go to the line of Douglas Harter with Credit Suisse Securities. Please go ahead.

You guys showed in that one slide where taxable earnings were $0.04 to $0.05 above your earnings. Is that a trend that’s likely to sort of stay in that range or is there something that will change the taxable earnings gap? Credit Suisse: You guys showed in that one slide where taxable earnings were $0.04 to $0.05 above your earnings. Is that a trend that’s likely to sort of stay in that range or is there something that will change the taxable earnings gap?

Yes, as we’ve talked about before we expect the numbers to get closer overtime. So, we would not -- it's hard to forecast, it’s hard to forecast earnings and taxable earnings both. But I would say that taxable earnings will probably trend down over the next couple of quarters.

And then you guys also talked about the increased correlation on interest rates with your non-agencies, has that held as rates have fallen sort of from the beginning of September. Credit Suisse: And then you guys also talked about the increased correlation on interest rates with your non-agencies, has that held as rates have fallen sort of from the beginning of September.

Yes, I think generally it has, you know I think much of the reasons that those securities begin to exhibit more duration is that they're trading at higher dollar prices, right, so the higher dollar prices mean that there's less upside in the future if you will of credit improvement so I don't think it's completely unexpected but I would say in general we think they've continued to trade with the same duration we observed in the beginning of the third quarter.

We can't think of any asset that isn’t highly dependent on what the Fed says at their meetings. Therefore, non-agencies fall into that bucket.

And next we'll go to the line of Rick Shane with JP Morgan, please go ahead.

Given rate volatility last quarter how you handle both the asset side and the swap structure the timings probably pretty relevant. It strikes me in terms of the assets that you kind of stay pat, but love to understand the timings of what you did with the swaps, was is sort of steady throughout the quarter did you take advantage of the decline in rates later in the quarter, just a little bit of color there.

Well you're right, we didn’t change the asset base over the time. In terms of exact dates and time when we added the swaps, you know the average cost is 213 for five to 10 years, I don't know if we timed it right to the exact day buy we did take advantage of swings in the interest rates to add the swaps as you would imagine.

Okay, great that's what we're trying to figure out. What's one of these things we're trying to figure out if you know in August as rates were starting to move really quickly, you sort of were aggressive or you took advantage of what happened in September.

Look what we're trying to communicate we did not add the swaps because we didn’t know what the Fed's going to go day to day, we added the swaps and we started adding at the end of the second quarter due to the fact that we saw increased correlation between the non agency assets and interest rates, so it was added systemically as we saw this interest rate sensitivity go up from a non-agency portfolio but it was not a forced response to the interest rate sensitivity of our agency book and uncertainty about interest rates.

Got it, okay, that's very helpful and do you think you'll continue to do that at this point I mean, can you give us a little bit of sense of what is maturing within the legacy swap portfolio as well?

Well one, we're happy where we are in terms of the assets and the hedges that we have, I think the swap run down over the next, it's very over the next quarter I think we only have about 40 million or so of swaps running off, forcing the good ones to run off the cost about 4% and then after that the next two quarters are low run offs then it really picks up in the second half of next year.

Great, Bill thank you very much, I just wanted to say congratulations Steward it's been a pleasure following you over the years, we wish you all the very best and to everybody who was promoted in light of all this congratulations to you guys as well.

Thank you very much for these thoughts I appreciate it.

And next we to the line of Nick Agrawal with Wells Fargo, please go ahead.

So as for a, sort of a double digit increase in HPA, how you guys looking at the HPA environment over the next 12 months? How much of that do you think is already discounted as non-agency assets?

Well the first thing I would say is our future projections for defaults are not really predicated on an assumption that home prices will continue to go up by 10% or 20%. So we really look at HPA in the rearview mirror rather than estimate what it does in the future. So I think our credit reserve changes are really based on observable facts within our portfolio. So it’s things like the transition rate, it’s things like the LTV and again those lower LTVs not only did those lower are expected future defaults and loss severities but we’re also seeing higher voluntary prepayment rates.

Sure. So on that point with higher voluntary prepayment rates, I mean obviously that’s been increasing from roughly 14 at the beginning of 12 to 18 now. Give us a sense of sort of 1% drop in the current LTV how much hires voluntary prepayments may come out of the portfolio.

It’s pretty hard to draw a straight line between those the other thing that I would caution is the CPR number that you see so that 18% that includes the effect of defaults or actually the net recoveries on defaults. So the voluntary prepay rate for the three month period which you’ll see in the FICO table in the 10-Q is 12.4%. But it’s very hard to draw a straight line between the two of those. It’s a lot of different facts. And again it’s not, we don’t do this across the whole portfolio we do it on a bond by bond basis.

All right. Thanks guys.

I mean some of the critical numbers are when the LTV was greater than 100% it was not a irrational to default because you improve your credit you can go buy the house next door at a lower price. Now that the LTVs have improved and they’re in the 80, whether it’s the mid-80s or low 80s, you’re not going to know as a homeowner you know mark-to-market your home every night when you go home and decide to make your mortgage payment. So perhaps the next critical number might be when it gets below 80% then it really becomes easier to refi.

That’s a fair point. I appreciate the answer. Thanks.

And next we’ll go to line of Henry Coffey with Sterne, Agee. Please go ahead. Henry Coffey - Sterne, Agee & Leach: Good morning everyone. If you just keep on keeping on we own the stock with stable book value, non-agency bonds go higher I think we’ve all noticed that hybrid values are going higher you continue to pay dividends so we make 11% or 12% true a long, long time without a lot of discretion that’s a pretty good thing. Conversely if you look out on the horizon are there asset classes and areas of investment where you can deploy capital and grow earnings or conversely would you ever thing above buying back stock?

So, the answer to the first part of the question is yes we continue to find good investment opportunities that generate low double digit ROEs which is all we’ve ever really tried to achieve because if you go for 15 or 20s you taking more risk and we’re very happy in the 10% to 12% ROE return for the risk ratio. in terms of share buybacks what’s important to point out is we’ve actually returned a lot of capital to shareholders this year in terms of the specials so that’s what share buyback is, returning capital because you can’t make good investments and we can make good investments. There are actually was one day this quarter despite the fact we’re paying the special, the stock got so low that we actually did buy that day I think the stock was closed to 7 on that day. So we’re aware of both things but we continue to believe that what we do is very high value added that people can’t do this on their own and that the double digit ROE investment opportunities are still there. Henry Coffey - Sterne, Agee & Leach: Thank you.

And next we’ll go to line of Jordan Hymowitz with Philadelphia Financial. Please go ahead.

Thanks guys. I’ve a question if you look at the charts on page 10 which is the non-agency LTV chart and the chart three later, four later of the non-accretable discount. I don’t understand how, now there were an 80% unless there was a big tower how that non-accretable discount the amount coming down and start coming down appreciably as basically how 55% coverage down toward this morning with 26%, with 20% discount but be 80, so it’ll be 60% LTV you know I’m saying?

I hear what you’re saying but one thing that you need to keep in mind is the average portfolio LTV is exactly that, it’s an average portfolio LTV. So the loans that have 60% LTVs unfortunately they don’t the loans that have a 120% LTVs.

Let me ask the question, what percent of loans still have over 100% LTV?

I don’t have that here, but it’s not insignificant.

But it’d be more than 25%?

I don’t know Jordan. We’ll try to provide that for the next quarter.

That’d be great. And also now that Stewart’s leaving have you thought about changing the colors at all especially because that dark green is difficult to read?

By the way congratulations on [indiscernible] did very well Jordan.

We’d be glad to discuss this offline.

And next, we will go to line of Daniel Furtado with Jefferies. Please go head.

Good morning, everybody. Thank you for opportunity. Just to kind of a finer point question, I guess, Henry and potentially Steve asked this earlier but just wondering, if when you’re looking out as we see more opportunities would be the word to use either between the securitization market, the risk sharing market, nonperforming loans, MSRs, we’re seeing a lot of different things kind of crop up in the REIT specially hybrid on the REIT side of the diversified REIT site, and I know that you’re targeting the low double digit ROEs and you’re finding that opportunities there, but is there anything that you find incrementally interesting if you think about the next prominent strategy if there is one, would you go down one of these paths or for foreseeable future is that just the keep the course you’ve been?

Well, we have seen different investment opportunities, but it would be premature to talk about it publically.

The only thing I would like to add to that, over the last let’s call it 15 years, we have looked at, I don’t know, how many different opportunities. Most of which we turned down because we have enjoyed the strategy that’s been so successful. How Bill and Craig will look at this going forward, I think it will be continuity. They will always look at opportunities. Those opportunities come to provision that will be fine, but as in terms of what the basic strategy of the company has been, I think you find it to be on a continuous basis.

Understood, thank you for that and then the second question is, touch little bit more on this credit reserve, just so that I understand, the current yield 733 is based on about projected defaults of 32% of the underlined loans, you’re saying that the 60-day plus bucket or the 60-day bucket only represents 17, so basically about another doubling of losses assuming all those 60s go belly-up then you’re assuming another not quite doubling but almost doubling 15% versus 17%, I’m just wondering do your forward projections and I know Craig you look at this on a bond-by-bond basis, but generally speaking do you forward projections assume incrementally worsening credit performance. Because it seems that just from a percentage basis that to get another 15% of potential loss you would necessarily have to assume while rate starts to take back higher?

Not necessarily, Dan. I think you’re right we look at this on a bond-by-bond basis and basically what we do is we bucket the loans in each bond by LTV. So the column that we’re really referring to here would be primarily the loans that we still believe have LTVs over 100% because those are the one that we feel are at risk in the future, and I will tell you that we’re defaulting a lot less than 100% of those loans that we think have LTVs over 100, but again, its quarter-by-quarter, bond-by-bond thing. Also keep in mind that in many cases where we’re reviewing bonds every nine months or so. So when we sit down and review a bond, we may find that we have nine months of home price appreciation which gives us some reason to change that credit reserve. So it’s not necessarily a month-to-month thing, there is a little bit more of time period between the two.

Understood, thank you for that clarity, appreciated.

And next, we’ll go to line of Chris Donat with Sandler O'Neill. Please go head.

Hi, good morning, and thanks for taking my questions. Another question about the Slide 10 with the LTVs and just in the move from 105 to 85, can you give us some rough sense of how much of that is home price appreciation and how much is amortization, I would guess it’s sort of 10% to 20% of the move is amortization but just wondering if you provide a sense around there?

Yes, the majority of it is home price appreciation but again more than half of the portfolio was also amortizing and to the extent that those amortizing loans are post-reset hybrids. The rates are pretty low 3% or so. So, they probably amortized to the tune of about 3% a year, so you’re numbers are probably about right, you know, if had to guess I would say maybe about 20% is due to amortization.

And then looking ahead, it should be sort of steady state there, I mean just looking at your Non-Agency has got 1.5 billion to 30 year but then obviously the biggest part is the 3.1 of the ARMs with less than 2 years.

So going forward, certainly the amortization component, I think you can expect it will be steady. In fact, the amortization component may increase somewhat as loans begin amortizing that have been in IOs periods as far as the more significant contributor to LTV declines which is home price appreciation. As I said before, we don’t inject projections of future home price increases our credit reserve analysis.

Right, right, I appreciate that you don’t but I think the market as times is always tempted to do things like that, so anyway just trying to figure out what sort of bankable on the amortization side versus what can be applied from analyst to investor perspective. And then just question on net interest income also seems like service steady function, you’ve got a little bit of headwind from higher hedging, bit of a tailwind from accretable discount. Anyway going forward net interest income seems roughly like it should be stable here. Any thoughts there?

We’re not going to make a forecast on that.

Okay, I thought I would try at least. Okay, appreciate that.

And next we’ll go to line of Mike Widner with KBW. Please go ahead.

Thanks guys. Good morning. So let me just ask about on the non-agency side just to start there. Obviously you guys bought a lot of those securities at much cheaper prices, so prices are lot higher now therefore the yields available for incremental capital are lower now plus on top of that you’re now allocating swaps against those sort of cost of funding just higher. So just I mean where do you see the incremental net spread if you were to put an extra dollar or capital to work today on the non-agency side?

So Mike I would say again it depends on the bond obviously but in general I would say the yields available on these securities today are 5% give or take loss adjusted yields.

Yes, that’s not quite [indiscernible] unfair unfortunately.

No, it’s not.

And I guess again the question I mean we haven’t seen the breakdown of kind of how you’re allocating swaps against them but you had been running sort of 2.5ish cost of funds but now you’re showing more like 2.9, so I mean is it fair to say that 2.9 is still a representative of funds cost for buying new assets today?

Now I would say as you know we have a significant amount of longer term financing in place for non-agencies and that is more expensive than funding is incrementally. So I would say incremental funding repo for non-agencies again it really depends on the bonds but it could be as low as say 1.5%.

And that’s a repo cost as opposed to a fully loaded with swaps and everything cost?

That’s correct.

I would like to point out what Craig mentioned that the yield would be five or maybe slightly less that’s for a lower duration non-agency asset where you don’t really have to add incremental hedge so really is yield less of cost of funds.

Okay, so in any case then I mean we’re still looking at if I use that number 5% and 1.5ish if you’re doing repo financing and not putting swaps, I mean you’re looking at 3.5 kind of net spread which is still pretty good but I guess how do you feel like that compares to the agency side with durations pretty much already having expanded and spread still descent over there?

So just your numbers I am using the average leverage you see I think you see the non-agency yield is between 10 and 12. And the agency number would not be very different.

So I guess that which really brings us back to the question explosive capital allocation and you’re roughly 70-30 or so off top my head I mean where we stand right now I mean do you have any preference on either side there is a long time when you weren’t buying any agencies at all and then you sort of went to redeploying capital within their respective segments roughly speaking. And so how do you see that right now?

Yes, I don’t know if there ever was a redeployment we were at a happy, we were at a ratio where we’re happy with, and what happened was the non-agencies gained so much value that we had to add agencies to keep the relationship the same. So I think we’re comfortable with the ratio we have now, we don’t really see that changing and it really did not change and we’re buying agencies is because of non-agencies were appreciating so rapidly.

Okay, and so then going forward from here as payment as principle gets repaid and there is bond mature and all that I mean how do you see the where would you put your incremental dollars of capital today?

Right now we don’t see the ratio changing.

Okay, fair enough. I think you covered pretty much everything else and I appreciate it and congrats on good portfolio management and keeping the book value stable once everything is backed out. And Stewart congrats on all that stuff as well everyone else already said it.

Thank you, Mike I appreciate it.

And next we’ll go to the line of Howard Henick with ScurlyDog Capital. Please go ahead.

You kind of solved doctor’s question before but I’ll ask slightly differently. You added a bunch of duration which I think makes total sense in this environment given the appreciation and price of the non-agencies. But I don’t understand how you can add that much duration on the swap side and not affect spread. And so I’ll ask the question how does that not affect the spread going forward and also the dividend?

You mean negative duration or duration?

Yes you’re rating duration on the swap side I’ve tried the figures, so you’re rating duration on the swap side so your duration of equity went down, correct?

Yes, so there is a higher cost of funds. But fortunately, we’ve had increasing yields of non-agencies.

Right, so you think they also, you're saying basically that you think your spread going forward etcetera [indiscernible] this point is no different than your spread retroactively?

We’re not telling you where our spread will be after this period, we’re not forecasting that. But we’re telling you there is moving parts and we are pointing out what those moving parts are. So we haven’t really ducked anything.

Okay, so you’re no, okay I just still don’t understand that answer. And the other question which I think you basically talked to Mike about you think right now the incremental capital basically between non-agency and agency is roughly flat both yielding on a fully levered basis with the leverage on the agencies being lower of 10 to 12 correct? So you think there is no real difference at this point in terms of choosing which one to put in which one is cheaper? For a long time the question was always answered, all the non-agencies are definitely cheaper. Now you’re saying they’re kind of equally interesting?

No, we said the ROEs were approximately the same we didn’t say the interest rate risks were the same.

No, that what I meant the ROEs, the fully hedged ROEs for as much hedge as you’re going to do it?

The answer to your question the best way you can answer it is yes they’re somewhat similar to the somewhat [indiscernible] pursue but then the question is in terms of deployment of capital where we think it’s most advantageous. And again as Bill said we’re not going to look forward and go to that discussion today but again there were times where we feel very comfortable with the agencies and there were times we feel a lot more comfortable with the non-agencies. And that will be dependent on the marketplace.

And my last question is obviously the non-agency leverages are a lot less, what is it roughly 2.1 versus roughly 6 or 7.01, is that correct, ballpark?

Yes.

And would you consider increasing the leverage on the non-agencies to increase returns?

We have never gone in that direction, we’ve never chased, we’ve never included leverage as we were trying to hit a bogy. That’s not the way the Company has been run for the last 15 years. I think that Bill and Craig will follow a similar, come with similar philosophy in terms of running this Company properly and not chasing a bogy.

And next we’ll go to the line of Arren Cyganovich with Evercore. Please go ahead.

I was just curious of what you see in terms of new non-agency paper, I guess new legacy books have they been opening up at all, given the increases in price? I know that DeMarcus talked about kind of looking to sell some of the more, or getting the GACs to sell some of the less liquid pieces of their retained portfolios, just your thoughts on any kind of new supply coming to market? Evercore Partners: I was just curious of what you see in terms of new non-agency paper, I guess new legacy books have they been opening up at all, given the increases in price? I know that DeMarcus talked about kind of looking to sell some of the more, or getting the GACs to sell some of the less liquid pieces of their retained portfolios, just your thoughts on any kind of new supply coming to market?

So this is legacy non-agency new supply?

Yes. Evercore Partners: Yes.

So, yes the GACs have sold often on through the course of this year. Typically what they have sold have been much bolder vintage, much higher dollar priced type paper. So while they have sold some of that paper, it hasn’t necessarily fit us. Here we do see paper is still available. It’s not as plentiful as it was a year ago certainly. But we are still able to add in small pieces.

And then lastly if the administration gets its way and can put a new director into the FHFA do you see any kind of impact to your business from a new director? Evercore Partners: And then lastly if the administration gets its way and can put a new director into the FHFA do you see any kind of impact to your business from a new director?

It’s kind of tough, it depends on who the director is, it depends on what decisions they make. But the answer is I am very, very comfortable about going forward. And what I found over the last, well it’s more than 15 years but in terms of how my career has been, whenever there is confusion there is always opportunity. And I think this Company will -- we will always look for those types of opportunities that will continue to exist.

And next we’ll go to the line of Jason Arnold with RBC Capital Markets. Please go ahead.

First I want to say Stewart huge congrats on your retirement I look forward to hearing about your plans enjoying your spare time. I guess in terms of questions just obviously and then we’ve seen a lot of volatility in interest rates here in the past quarter. Just wondering if you could update us on your macro views on the rate end of the equation? RBC Capital Markets: First I want to say Stewart huge congrats on your retirement I look forward to hearing about your plans enjoying your spare time. I guess in terms of questions just obviously and then we’ve seen a lot of volatility in interest rates here in the past quarter. Just wondering if you could update us on your macro views on the rate end of the equation?

Well, one we try to run the Company so that we’re not dependent on having the best call on the fed because it’s not clear that we would. It seems to us that the fed truly doesn’t know what they are going to do or when they are going to do it exactly, therefore I don’t know how we would have that view. Had fiscal policy been more responsive to the economy I think the fed sees this as a world of under consumption where you have a risk of debt driven deflation. They probably would have tapered. But they really, I think the fed really doesn’t have the flexibility to tinker with their very accommodative monetary policy until there is a rational fiscal policy which unfortunately is not happening. So we don’t have a strong call, we do think this trend of under consumption or over supply is a longer term trend and while the fed may tinker on the margins on QE it’s going to remain, monetary policies to remain very accommodative as far as we could see.

And at this time I am showing no questions in queue.

Well, thank you very much for the personal remarks you folks have made relative to me. Again I have still enjoyed working with all of you and I don’t know may be our paths will cross again. Having said that I know the Company is looking forward to the next conference call which would be relative to our fourth quarter 2013 earnings call. And again thank you very much.

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