Feb 13, 2009
Executives
Stephanie Coyle Stewart Zimmerman - Chairman and CEO Bill Gorin - President and CFO Ron Freydberg - EVP and CIO
Analysts
Andrew Wessel - JPMorgan Jason Arnold - RBC Capital Markets Mike Widner - Stifel Nicolaus & Company Steven DeLaney - JMP Securities Bose George - KBW Matthew Howlett - Fox-Pitt Kelton
Operator
Welcome to the fourth quarter '08 earnings teleconference call. (Operator Instructions) I would now like to turn the conference over to our host Ms.
[Stephanie Coyle]. Please go ahead.
Stephanie Coyle
Good morning. The information discussed on this conference call today may contain or refer to forward-looking statements regarding MFA that reflect management’s belief’s expectations and assumptions as to MFA’s future performance and operations.
When used statements, which are not historical in nature including those containing words such as believes, expect, anticipate, estimate, plan, continue, intend, should, 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 loan securing MFA's investment securities, MFA's ability to borrow to finance its assets, changes in government regulations affecting MFA's business, MFA’s ability to maintain its qualification as a real estate investment trust for federal income tax purposes, MFA’s ability to maintain its exemption from registration under the Investment Company Act of 1940 and risks associated with investing in real estate related assets including changes in business conditions and the general economy. 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, 2008 and other reports that it may file from time-to-time with the Securities & Exchange Commission could cause MFA’s actual results, performance and achievements 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 MFA’s Annual Report on Form 10-K for the quarter ended December 31, 2008 and/or the press release announcing MFA’s fourth quarter 2008 financial results. I thank you for your time.
And I would now like to turn this call over to Stewart Zimmerman, MFA’s Chief Executive Officer.
Stewart Zimmerman
Good morning, this is Stewart Zimmerman, CEO of MFA Financial, and I welcome you to the MFA investor call announcing our fourth quarter 2008 financial results. Joining me this morning are Bill Gorin, President and Chief Financial Officer; Ron Freydberg, Executive Vice President and Chief Investment Officer; Teresa Covello, Chief Accounting Officer, Tim Korth, General Counsel, Craig Knutson, Senior Vice President, Kathleen Hanrahan, Senior Vice President and [Deborah Yang, First Vice President].
Today we reported net income of $44.6 million or $0.21 per share of common stock for the fourth quarter ended December 31, 2008. On December 11, 2008, we announced our fourth quarter dividend of $0.21 per share of common stock, which was paid on January 30, 2009 to stockholders of record as of December 31, 2008.
As of December 31, 2008, our book value per share of common stock was $5.29. Subsequent to year-end, our Agency MBS portfolio gained value with book value per share as of January 31, 2009 increasing to $5.80.
MFA's primary focus remains high quality hybrid and adjustable-rate mortgage backed securities. Due to recent market volatility and dislocation throughout the financial system, we continue to maintain a modest leverage multiple.
While repo funding is available at attractive rates from a growing group of counterparties, it is our view that the banking system remains fragile in light of the probable credit impact of the current economic recession. At December 31, 2008, our debt-to-equity multiple was 7.2 times and our liquidity position was $467 million, consisting of $360 million (sic) of cash and $106 million of unpledged mortgage backed securities.
Even with this conservative capital structure, our quarterly dividend annualized provided investors with a 16% yield relative to our year-end book value. Based on current LIBOR and repo rates, we expect our overall funding costs will begin a multi-month downward trend beginning in February.
We currently expect that first quarter 2009 earnings per share will be in a range from $0.21 to $0.23. A further positive trend is that, while our book value per share includes a negative swap valuation of $237 million as of December 31, 2008 from our existing interest rate hedges, we expect a partial recovery of this amount over the course of 2009 due to both scheduled amortization of $963 million and the rolldown of the remaining average term of our existing swaps.
Under swap agreements, the company pays fixed rates of interest averaging 4.21% of the notional balance totaling $3.97 billion, with an average maturity of 29 months as of December 31, 2008. During the fourth quarter of 2008, our portfolio spread, which is the difference between our interest-earning asset portfolio, including cash balances, net yield of 5.19% and our 3.82% cost of funds, was 137 basis points.
During the fourth quarter, our MBS net spread, which is the difference between our MBS net yield of 5.29% and our cost of funds was 147 basis points. During the fourth quarter our MBS net spread which is a difference between our MBS net yield of 5.29% and our cost of funds was 147 basis points.
In the fourth quarter of 2008, our costs for compensation and benefits and other G&A expense were $3.4 million. Our primary focus remains high quality and higher coupon Agency hybrid mortgage backed assets.
Hybrid MBS have an initial fixed interest rate for a specified period of time and, thereafter, generally reset annually. In addition, as part of our long-term strategy to grow our asset management business, we have funded MFResidential Assets I, LLC, to build a track record in the non-Agency MBS sector under our non-Agency portfolio management team led by Craig Knutson.
To-date, MFR LLC has acquired the most senior, meeting the highest priority to cash flow tranches of residential mortgage backed securities and at an highly discounted weighted average price of 51% of bonds of the securities and with an average credit support of 12%. In this current market, our MFR LLC team is assembling a non-Agency MBS portfolio with what we project to be loss adjusted yields in the mid to high teens without the use of any leverage.
At December 31, 2008, Agency MBS and related receivables constituted approximately 94% of our assets, senior most tranches of non-Agency MBS, including MFR LLC, were approximately 2%, and cash was approximately 4%. They are mainly of our assets consisting primarily of real estate, other MBS assets and goodwill, represented less than 1% of total assets.
The average cost basis of our Agency MBS portfolio was 101.28% at par at December 31, 2008. Our MBS assets continue to be financed with multiple funding providers through repurchase agreements.
As of December 31, 2008, our portfolio was financed with 19 counterparties. Assuming a 15% Constant Prepayment Rate or CPR, approximately 23% of the mortgage backed securities our portfolio are expected to prepay or have their interest rates reset within the next 12 months, with a total of 79% expected to reset or prepay during the next 60 months.
We take into account both coupon resets and expected prepayments when measuring the sensitivity of a MBS portfolio to changing interest rates. In measuring our assets-to-borrowing repricing gap, we measure the difference between the weighted average months until coupon adjustment or projected prepayments on our MBS portfolio, and the months remaining on our repurchase agreements, including the impact of interest rate swap agreements.
Assuming a 15% CPR, the weighted average time to repricing or assumed prepayment for our MBS portfolio, as of December 31, 2008, was approximately 36 months and the average term remaining on a repurchase agreement, including the impact of interest rate swaps, was approximately 16 months, resulting in a Repricing Gap of approximately 20 months. The prepayment speed on our MBS portfolio averaged 8.5% CPR during the third quarter of 2008.
I thank you for your continued interest in MFA and at this time I would like to open the call for questions. Operator?
Operator
Thank you. (Operator Instructions).
And we'll go to line of Andrew Wessel with JPMorgan. Please go ahead.
Andrew Wessel - JPMorgan
Hey guys, good morning.
Stewart Zimmerman
Good morning Andrew.
Andrew Wessel - JPMorgan
Just, I guess a couple of questions. One little housekeeping just on G&A.
Pretty big drop in the quarter is that, I image that isn't going to be a run rate, but could you just kind of give us some help there?
Bill Gorin
You're right. That's not the run rate.
It was a reversal of bonus accruals in the fourth quarter.
Andrew Wessel - JPMorgan
Okay, great. And then the other question I have and I think its broader one is, really looking at the amount of issuance that's going out right now and seeing at least the people with on that are applying to get into fixed rate products.
What are your thoughts 6 to 12 months down the road, in terms of availability for hybrid on products, to continue to execute the strategy? Do you see either, its advantageous right now to take on 15 or 30-year fixed products or do you think that that's going to be kind of force your hand due to the availability of products.
Any color would be helpful there?
Stewart Zimmerman
Andrew, actually I was going to (inaudible) in the week they asked me a similar question. And the answer is we really have not seen a problem in looking at hybrid assets.
Sometimes and all these new originations they maybe in fact in secondary market, but there certainly is no shortage of assets to look at. Obviously it makes more sense today for a borrower to get a fixed rate rise in the data, that you know, a 3-1, 5-1, 7-1 to 10-1 for the most part, but its still a viable market and again based on what is being produced, and based on what's available in the secondary market but doesn't seem that we're going to have any problem buying assets.
Andrew Wessel - JPMorgan
Great, thank you very much.
Stewart Zimmerman
Thank you.
Operator
And next we'll go to the line of Jason Arnold with RBC Capital Markets. Please go ahead.
Jason Arnold - RBC Capital Markets
Hi. Good morning guys.
Just wondering if you can share your thoughts on prepayments speed from a big picture perspective and then perhaps with respect to your portfolio in particular?
Stewart Zimmerman
As we said in the press release and as I mentioned to you, prepaid were about 8.50 CPR, with regards from this might or might not do just as our prepaids are going to with regard to, if not where they are going to go, I'm not a 100% sure. But again, are we going to go back to the levels of August of '03, my guess is we're not going to get there.
However, they certainly will pick up, we feel our best estimate. And in light of that, and the cost of that, yet we are staying at a very modest leverage ratio.
And we will have a larger cushion than we might have in a more normal more not sequence. But again with the larger cushion lower leverage, we can certainly meet all of our obligation.
Jason Arnold - RBC Capital Markets
Perfect. Yeah I agree 2003 is not going to return the prepays of 50% are not likely here any time soon.
Okay, one more question I guess is, could you give us a little bit more color on MFResidential, specifically the assets held in the strategy right now and then kind of your game plan going forward?
Stewart Zimmerman
Sure. In terms of types of assets, it’s the senior most tranches of residential mortgage backed securitization.
Securitization underline collaterals between all same price, and as you can see, to the whole company where 94% agency, 4% cash, and 2% in senior most tranches. We don’t see that changing very much, but what's important is, to build track record in the space to seed MFR, so that the opportunity is there.
We could launch a new company and generate asset management fees for MFA. What I would like to point out that our goal is to have a 10-K out by the end of the day.
So, some of the other numerical questions hopefully would be satisfied that way. But our goal is to get the K out the same day we announce earnings.
Jason Arnold - RBC Capital Markets
Great, perfect. Yes, it certainly seems like a good time to buy these pieces of these heavily rated deals at such a low price, so great thank you so much.
Stewart Zimmerman
Thank you.
Operator
Next we go to the line of Mike Widner with Stifel Nicolaus. Please go ahead.
Mike Widner - Stifel Nicolaus & Company
Hey, good morning guys congratulations on a solid quarter and thanks for taking the questions. I just had two quick follow-ups to cover the earlier questions.
First on the prepayments speeds, I recognized there is a lot of unknowns there, just wondering if you got the data from January and what prepayments speeds in January looked like relative to Q4?
Stewart Zimmerman
Yeah, actually we do and the CPR is approximately 8%.
Mike Widner - Stifel Nicolaus & Company
So actually you were 8.5 for Q4 and actually slower in January?
Bill Gorin
Right, it was slight slower, but having said that, I was again, as you know following-up on I think it was just a question before from Jason. Now I would say the same thing relative to your question Michael.
We have to assume that prepays are going to pick up. And again as I said, I am sorry to be somewhat redundant.
I don’t think you go back to August of '03, but you have to be prepared that possibly our prepays (inaudible) significantly we wanted to be prepared for that.
Mike Widner - Stifel Nicolaus & Company
As (inaudible) it makes a lot of sense and consistent with what everyone else is saying. You are the first to comment on January prepay speeds in the call and I expect it somewhere in the 12 to 15 range, so eight is surprising.
Let me, I mean one other question. I guess I am just going to follow-up on also from Jason.
On MFR if and when you do spin that out, you know, as the market gets better. What would you envision the financial relationship between MFR and MFA being, would it be a external management fee structure or would it be some other sort of profit sharing or how would you envision that working?
Bill Gorin
It would be a discreet copy that we would own some percentage of and it would be externally advised, similar to may or may never (inaudible) MFR public in the middle of last year. So it would be a similar structure to post public offering we tried earlier this year.
Mike Widner - Stifel Nicolaus & Company
So basically, MFA is an external manager and partial owner and you'd collect for the dividend stream as well as management fee?
Bill Gorin
Correct.
Mike Widner - Stifel Nicolaus & Company
All right, that sounds great. I appreciate you taking the call guys.
Bill Gorin
Thank you.
Operator
And next we go to line of Steven DeLaney with JMP Securities. Please go ahead.
Steven DeLaney
Good morning gentlemen.
JMP Securities
Good morning gentlemen.
Stewart Zimmerman
Good morning.
Steven DeLaney
I know you're happy to have 2008 behind you.
JMP Securities
I know you're happy to have 2008 behind you.
Stewart Zimmerman
Thank you, Steve.
Steven DeLaney
We all are. I know there is a lot of questions, the other guys have had good questions on the prepays, but I just wanted to ask a specific question, especially, Mike was surprised with the eight, and that surprises me a little too.
I wanted to ask a question that gets behind that, because we all saw, fixed coupons move from 18, when we saw the factors last week, we saw the fixed stack and a blend moved from 8% to 17% and I think, you know that gives more of the headlines. But here's what -- when we were digging through the products late Friday, we noticed a huge difference in the speed in hybrid's.
If it was an [I/O] it was much, much slower than an amortizing hybrid. So in other words, I think, the LIBOR I/Os went from like 8 to 10 CPR and the regular amortizing LIBOR were up in the low 20s.
The amortizing hybrids. So Mike, here is the question.
Can you estimate for us what percentage since you are a hybrid player, what percentage of your portfolio in your hybrids would it be I/O paper?
JMP Securities
We all are. I know there is a lot of questions, the other guys have had good questions on the prepays, but I just wanted to ask a specific question, especially, Mike was surprised with the eight, and that surprises me a little too.
I wanted to ask a question that gets behind that, because we all saw, fixed coupons move from 18, when we saw the factors last week, we saw the fixed stack and a blend moved from 8% to 17% and I think, you know that gives more of the headlines. But here's what -- when we were digging through the products late Friday, we noticed a huge difference in the speed in hybrid's.
If it was an [I/O] it was much, much slower than an amortizing hybrid. So in other words, I think, the LIBOR I/Os went from like 8 to 10 CPR and the regular amortizing LIBOR were up in the low 20s.
The amortizing hybrids. So Mike, here is the question.
Can you estimate for us what percentage since you are a hybrid player, what percentage of your portfolio in your hybrids would it be I/O paper?
Stewart Zimmerman
You see for 10 years we have been telling people that the volatility of the CPR for hybrids is a lot a less than fixed rates.
Steven DeLaney
No question.
JMP Securities
No question.
Stewart Zimmerman
And sometimes the fact support us. In addition we do try to do a superior job in predicting prepays and I think you'll understand whether we don’t want to layout everything that we do.
But I think your question touched upon one of the differences which is interest only versus amortizing.
Steven DeLaney
And the point being that we think generally those borrowers might be lets say less credit worthy or more challenged than a guy that we take on full amortizing payment.
JMP Securities
And the point being that we think generally those borrowers might be lets say less credit worthy or more challenged than a guy that we take on full amortizing payment.
Stewart Zimmerman
But there is more than that. If they are only paying interest only the interest rate maybe lower on the 30-year...
Steven DeLaney
Fair enough, yes.
JMP Securities
Fair enough, yes.
Stewart Zimmerman
But the payment would be higher because it is amortized.
Steven DeLaney
Makes sense. Okay, but you don’t want to comment on what percent are I/O's is what you are saying so.
JMP Securities
Makes sense. Okay, but you don’t want to comment on what percent are I/O's is what you are saying so.
Stewart Zimmerman
Steve I really don’t.
Steven DeLaney
Okay, fair enough.
JMP Securities
Okay, fair enough.
Stewart Zimmerman
You'll the K and we breakdown a lot of information, but certain stuff we would like to keep [in-house].
Steven DeLaney
Okay, great. Then on the continuous offering plan it looked like in fourth quarter that you guys did about 13 million shares in that plan, new shares and it was about twice what you did in the third quarter.
Can you give us any color as to what, you know, looking out over the next couple of quarters would it be more like 3Q or more like 4Q, I assume you are going to continue to use the plan?
JMP Securities
Okay, great. Then on the continuous offering plan it looked like in fourth quarter that you guys did about 13 million shares in that plan, new shares and it was about twice what you did in the third quarter.
Can you give us any color as to what, you know, looking out over the next couple of quarters would it be more like 3Q or more like 4Q, I assume you are going to continue to use the plan?
Stewart Zimmerman
Only where it kind of makes some sense for us. We had the opportunity to raise the money through the equity plan which is relevantly efficient from a cost basis and we did it at (inaudible) with some very, very positive crisis for the company.
So, those situations continue to arise here we will continue to look at the plan.
Steven DeLaney
Okay. Thanks, Stewart.
And one final thing, the swaps actually your notional swaps actually went down, which you actually showed us. When, I think Bill for the first, you put that table in the 10-Q that showed a couple of $100 million we're going to be coming up in the fourth quarter.
Will that table be in the 10-K as well?
JMP Securities
Okay. Thanks, Stewart.
And one final thing, the swaps actually your notional swaps actually went down, which you actually showed us. When, I think Bill for the first, you put that table in the 10-Q that showed a couple of $100 million we're going to be coming up in the fourth quarter.
Will that table be in the 10-K as well?
Bill Gorin
Yes, Steve.
Steven DeLaney
Okay, great. So, I think $237 million that Stewart alluded to something over a $1 share and based on what we saw in the third quarter.
We should be seeing $0.40 to $0.50 of that coming back over the next year by my rough estimate?
JMP Securities
Okay, great. So, I think $237 million that Stewart alluded to something over a $1 share and based on what we saw in the third quarter.
We should be seeing $0.40 to $0.50 of that coming back over the next year by my rough estimate?
Bill Gorin
Most of the things being equal interest rates don't go down again.
Steven DeLaney
Well exactly, and of course we're not worried about them going up, which would actually be beneficial, but yes, if we got another obviously another 20, 30 down on swaps that we wouldn't get as much of that for sure. Well, guys thanks a lot for the comments.
JMP Securities
Well exactly, and of course we're not worried about them going up, which would actually be beneficial, but yes, if we got another obviously another 20, 30 down on swaps that we wouldn't get as much of that for sure. Well, guys thanks a lot for the comments.
Stewart Zimmerman
Thank you. Thanks Steve.
Operator
And next we'll go to the line of Bose George with KBW. Please go ahead.
Bose George - KBW
Hey, good morning guys. Nice quarter.
Just had a couple of little things left, just on the portfolio spread that you mentioned the 137 basis points? Is that the number that we compared to the 161 last quarter as opposed to the 147 basis points spread on MBS?
Stewart Zimmerman
Well it was 161 quarter before and 138 the quarter before that.
Bose George - KBW
Okay. And that's comparable with the 137 this quarter.
Stewart Zimmerman
That's correct. That will be apples-on-apples.
Bose George - KBW
Okay. And then just in terms of repo funding costs, I was just wondering what you guys are seeing out there for one month repo.
And also you're seeing dealers willing to take haircuts back down or do you not particularly care since you've got a lot of excess capital anyway?
Ron Freydberg
This is Ron, answer to the second question first. We have seen the haircuts sort of trend down a little bit.
We don’t envision it going back to the 2% and 3% that we saw 18 months ago, but it has come down and one month repo trades up 1%.
Bose George - KBW
Okay, great. Thanks.
Bill Gorin
Thank you.
Operator
And next we'll go to the line of (inaudible). Please go ahead.
Unidentified Analyst
Good morning I had a couple of questions. Getting back to the non-agency portfolio, do you have a target percentage of assets you'd like to get that portfolio to before looking at the spin-out possibilities again?
Stewart Zimmerman
Yeah there is. This is Stewart.
There is an absolute number, but again I think the point that Bill was making for and I'd like to reiterate, is that the percentages that you see here are not going change spread. So, again it's 94, 4 and 2, so again you're at or above 2% chances are that's not going to change one heck of a lot.
So, your 94% in agency you have some cash receivables and you've got give or take 2% in the non-agency.
Unidentified Analyst
Great, and then just a couple of other quick questions. So, your actual CPRs are running closer to 8, 8 plus range.
Did I hear that correctly?
Stewart Zimmerman
This quarter ended for 12/31/08 was 8.5 and the question was asked, as Bill answered where was it January and looks like it was about 8.
Unidentified Analyst
Right, so my question is, your modeling I think of 15. If I've read that correctly, at what point do you, kind of true that up during the year.
And then what's the ultimate impact on earnings?
Bill Gorin
That 15, is looking at a mismatch. So, that 15 has nothing to do with our earnings.
Unidentified Analyst
Okay.
Bill Gorin
So that's over the light 15 estimated, nothing to do with one month or one quarter or three quarters worth of numbers. It does not impact the earnings.
Unidentified Analyst
But aren't you amortizing the premium more quickly at 50?
Stewart Zimmerman
No. We're amortizing the premium based on actual results, we true up…
Unidentified Analyst
Okay. All right, that was my question.
Stewart Zimmerman
Yeah. I know some people do it differently.
We true up quarterly.
Unidentified Analyst
Okay. And I guess lastly, how are you financing the non-agency, the 2% of assets and what's the haircut there?
Stewart Zimmerman
Incremental assets, we are using only equity.
Unidentified Analyst
Okay.
Stewart Zimmerman
The three existing assets have been a repo as long as we own them. They remain there.
Unidentified Analyst
Okay, great. Thank you very much.
Stewart Zimmerman
Thank you.
Operator
And next we'll go to the line of Matthew Howlett with Fox-Pitt Kelton. Please go ahead.
Matthew Howlett - Fox-Pitt Kelton
Thanks guys. Just on new acquisition spreads.
What are you seeing in the marketplace now and how do you look at hedging here?
Stewart Zimmerman
Well, in the marketplace, if you look at anyway the ranks in [3 ones and 10 ones]. If you assume a 40% hedge, what you see going out 12 months or so you see anywhere from two and a quarter, 275 basis points of spread.
Matthew Howlett - Fox-Pitt Kelton
Okay. And then with assuming you still like the up in coupon trade with premium here that the Fannie Mae 5.5 coupons roughly 103.
It’s a lot higher than what you have with the existing book. How do you feel about adding premiums in the marketplace here?
Unidentified Company Representative
I've been in this business for a long time and what I learned a long time ago is you don’t pay. You don’t really want to pay it's a very, very significant premium when the optionality is a 100% on the side of the borrower.
So, we are not a big premium payer company. We never really have been.
So to put a lot of products on and a lot of new assets on the three plus, in terms of premium meaning a 130 or even a price higher to that is not something, that I think we would find acceptable. So that's not where you really want to go and plus the back, over time one of the questions we have to ask ourselves and possibly may be you ask looking at our company.
While interest rates are going to be a little bit higher at some point in the cycle. I don't know what that means one year or three years or four years, but at sometime in the cycle they're going to be higher.
And you want to have a portfolio of a few billion dollars or 3.5% coupons at a three point premium. You're right, you're not going to have a lot of prepay risk before you’re going to have some duration risk that's going to be very interesting.
So that's not exactly where we want to be. So, I think here and there, we'll certainly look at some assets and see if it makes some sense for us, but I don't think we're going to be a big buyer at a three to four point premium.
Matthew Howlett - Fox-Pitt Kelton
Great. Thank you very much.
Stewart Zimmerman
Thank you.
Operator
(Operator Instructions) And we'll go to the line of [Shaun Gallagher] with JGC Management. Please go ahead.
Unidentified Analyst
Good morning, everyone. You noted that you're seeing agency repo rates sub 1% right now.
Could you be a little more specific there, it seems like those rates should be around 45 to 50 basis points, and then could you just comment on how those financing rates were affected by all the turmoil in the fourth quarter?
Stewart Zimmerman
That's a part of it. And then the other folks in (inaudible) if I don't give an adequate answer, by steps.
We [find most people can be, define yourself] between one and three lines. If you're short of that timeframe you're going to be over LIBOR, the longer part of that timeframe, you're going to be lost LIBOR.
Three months now, is like 124, one month is 45, 46 basis points. So that kind of gives you an idea, I mean…
Unidentified Analyst
The numbers is too important with LIBOR.
Stewart Zimmerman
LIBOR. Yes, I'm sorry but I’d say that's one month LIBOR or three month LIBOR, I'm sorry that's quiet a lot of LIBOR.
Those are the basic numbers.
Bill Gorin
And right now, we're funding at LIBOR plus for one month and LIBOR minus for three months. You know, I said it was sub 1% because it varies you know by between 5 to 10 basis points on any kind of day, but you know it's somewhere between where LIBOR is 1% it can't depend on a day and the counterparty.
Stewart Zimmerman
The reason we're not being specific is we get competitive bids on our repo each day and I don't want all repo providers to know exactly what we're paying. So we're not trying to hide anything, it's for competitive reasons that we're being a little vague.
Unidentified Analyst
Okay. And then just relative to the fourth quarter, how much better is that, I know it is on a versus LIBOR basis?
Stewart Zimmerman
Well, what we said in the press release is that we're going to continue to see downward pressure on our funding costs. I mean, as funding cost should continue to go down.
So if you look at where we were at the end of 12/31/08, we had put on a number of repo's, sometimes a little more expensive then you would like simply to get over year-end, because we didn't know what the turmoil in the market. We felt uncertainty was better than not being certain.
So in fact, that's the decision that we made which in retrospect, I would make the same decision all over again. So that was a little bit higher cost than it might have been, but again as you know, by LIBOR, LIBOR has trended down and the fact is, that we've been able to have our funding costs to go in the same direction.
Unidentified Analyst
Thanks guys and just last question. Our haircuts for agency, security still in that 5% to 7% range?
Stewart Zimmerman
Yeah. Generally that's about the number depending on how far I have to go.
Unidentified Analyst
Thanks very much.
Stewart Zimmerman
Thank you.
Operator
And next we'll go to the line of (inaudible) with Steven Capital. Please go ahead.
Unidentified Analyst
Good morning guys. Good quarter.
Most of my questions have been answered. I did want to get your take on some of the announcements on the TALF and maybe the public private funds that are out there, and how those might impact your non-agency portfolio.
And just in general and obviously with the MFResidential growing a little bit. Its opportunistic, but just maybe talk about what prices you're seeing on the stuff that's on your books and where you expect them to go?
Bill Gorin
The TALF proposals as you know, our moving targets. And we don't need to be spokesman, certainly they explain it well.
But it's our understanding that this new proposal is really focused on consumer receivables. So it's not specific to our MBS as you know.
And also there is the concept of separating new securitizations versus old securitizations in terms of TALF funding. Is that what's your question is?
To give you some ambiguity there is some very exciting potential there.
Unidentified Analyst
Right.
Stewart Zimmerman
Although, there's a long way to go between without them riding and what will exist. But there are something's there that I was very excited.
Unidentified Analyst
Okay, thanks
Stewart Zimmerman
Thank you.
Operator
And at this time, I am showing no further questions in queue.
Stewart Zimmerman
Well thank you operator. I'd like to thank everybody for the questions and for being part of the conference call today.
We look forward to speaking with you next quarter and thank you.
Operator
And ladies and gentlemen, this conference call will be available for a replay starting today at 12 PM through February 20th at 12 midnight. You may access the AT&T teleconference replay system at any time by dialing 1800-475-6701 and entering the access code 986420.
For international participants, the number to call is 1320-365-3844. Those numbers again are 1800-475-6701 and 1320-365-3844 with an access code of 986420.
That does conclude your conference call for today. Thank you for your participation and for using AT&T executive teleconference service.
You may now disconnect.