SEC Info - Mfa Financial, Inc. - ‘10-Q’ for 9/30/02

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Mfa Financial, Inc. – ‘10-Q’ for 9/30/02

On: Monday, 10/28/02, at 10:55am ET · For: 9/30/02 · Accession #: 1193805-2-20 · File #: 1-13991

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

10/28/02  Mfa Financial, Inc.               10-Q        9/30/02    5:195K                                   E-Data Systems, Inc./FA

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      33    215K 
 2: EX-3.3      Articles of Amendment                                  1      8K 
 3: EX-10.1     Employment Agreement of Stewart Zimmerman              7     38K 
 4: EX-10.2     Employment Agreement of William S. Gorin               7     38K 
 5: EX-10.3     Employment Agreement of Ronald A. Freydberg            7     38K

10-Q — Quarterly Report
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Certifications Changes in Securities and Use of Proceeds Controls and Procedures Exhibits and Reports on Form 8-K Financial Statements Legal Proceedings Liquidity and Capital Resources Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Signatures
1	1st Page - Filing Submission
2	Item 1. Financial Statements
21	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
24	Liquidity and Capital Resources
26	Item 3. Quantitative and Qualitative Disclosures About Market Risk
28	Item 4. Controls and Procedures
29	Item 1. Legal Proceedings
"	Item 2. Changes in Securities and Use of Proceeds
"	Item 6. Exhibits and Reports on Form 8-K
31	Signatures
32	Certifications

10-Q 1st Page of 33 TOC ↑Top Previous Next ↓Bottom Just 1st
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 -----------------

 FORM 10-Q

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES        
EXCHANGE ACT OF 1934                                                

 For the quarterly period ended September 30, 2002

OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES       
EXCHANGE ACT OF 1934                                                

 For the transition period from ______________ to ______________

 Commission File Number: 1-13991

MFA MORTGAGE INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)

 -----------------

              Maryland                                      13-3974868
      (State or other jurisdiction of                       (I.R.S. Employer
        incorporation or organization)                       Identification No.)

350 Park Avenue, 21st Floor, New York, New York                    10022        
(Address of principal executive offices)                      (Zip Code)  

Registrant's telephone number, including area code: (212) 207-6400

 -----------------

   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of   
1934 during the preceding 12 months (or for such shorter period that the        
registrant was required to file such reports), and (2) has been subject to such 
filing requirements for the past 90 days. Yes |X| No |_|                        

      46,269,949 shares of Common Stock, $0.01 par value, were outstanding as of
October 28, 2002.                                                               

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 INDEX

                                                                            Page
                                                                            ----
PART I
 Financial Information

Item 1.   Financial Statements                                                  

Statements of Financial Condition as of September 30, 2002  
          (Unaudited) and December 31, 2001...............................     1

Statements of Operations (Unaudited) for the Three and Nine 
          Months Ended September 30, 2002 and September 30, 2001..........     2

Statements of Changes in Stockholders' Equity (Unaudited)   
          for the Nine Months Ended September 30, 2002,...................     3

Statements of Cash Flows (Unaudited) for the Nine Months    
          Ended September 30, 2002 and September 30, 2001.................     4

          Notes to the Financial Statements (Unaudited)...................     5

Item 2.   Management's Discussion and Analysis of Financial Condition           
          and Results of Operations.......................................    19

Item 3.   Quantitative and Qualitative Disclosures About Market Risk......    24

Item 4.   Controls and Procedures.........................................    26

 PART II
 Other Information

Item 1.   Legal Proceedings...............................................    27

Item 2.   Changes in Securities and Use of Proceeds.......................    27

Item 6.   Exhibits and Reports on Form 8-K................................    27

Signatures................................................................    29

Certifications............................................................    30

10-Q 3rd Page of 33 TOC 1st Previous Next ↓Bottom Just 3rd
MFA MORTGAGE INVESTMENTS, INC.
 STATEMENTS OF FINANCIAL CONDITION

                                                        [Enlarge/Download Table]

                                                                September 30,  December 31, 
(In Thousands, Except Share and per Share Amounts)                  2002           2001     
                                                                -------------  ------------ 
                                                                 (Unaudited)                
                                                                                            
Assets:                                                                                     
  Mortgage backed securities ("MBS")                             $ 3,446,534    $ 1,926,900 
  Cash and cash equivalents                                          112,839         58,533 
  Restricted cash                                                         --         39,499 
  Corporate debt securities                                               --          9,774 
  Corporate equity securities                                             --          4,088 
  Accrued interest and dividends receivable                           19,813         12,340 
  Other investments                                                    9,625          9,800 
  Interest rate cap agreements                                           934            513 
  Goodwill, net                                                        7,189          7,189 
  Prepaid and other assets                                             1,985            297 
                                                                 -----------    ----------- 
                                                                 $ 3,598,919    $ 2,068,933 
                                                                 ===========    =========== 

Liabilities:                                                                                
  Repurchase agreements                                          $ 3,197,135    $ 1,845,598 
  Accrued interest payable                                            16,114         11,387 
  Dividends payable                                                   14,951          7,718 
  Accounts payable                                                       839            606 
                                                                 -----------    ----------- 
                                                                   3,229,039      1,865,309 
                                                                 -----------    ----------- 

Commitments and contingencies (Note 10)                                                     

Stockholders' Equity:                                                                       
  Common stock, $.01 par value; 375,000,000 shares authorized,                              
     46,269,949 and 28,348,601 issued and outstanding at                                    
     September 30, 2002 and December 31, 2001, respectively              462            283 
  Additional paid-in capital                                         359,887        212,536 
  Accumulated deficit                                                (12,506)       (13,704)
  Accumulated other comprehensive income                              22,037          4,509 
                                                                 -----------    ----------- 
                                                                     369,880        203,624 
                                                                 -----------    ----------- 
                                                                 $ 3,598,919    $ 2,068,933 
                                                                 ===========    =========== 

The accompanying notes are an integral part of the financial statements.

1 

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MFA MORTGAGE INVESTMENTS, INC.
STATEMENTS OF OPERATIONS

                                                        [Enlarge/Download Table]

                                                            Three Months Ended         Nine Months Ended  
                                                              September 30,             September 30,     
                                                            2002         2001         2002         2001   
                                                          --------     --------     --------     -------- 
(In Thousands, Except per Share Amounts)                                    (Unaudited)                   
                                                                                                          
Interest and Dividend Income:                                                                             
MBS income                                                $ 36,672     $ 15,937     $ 93,458     $ 32,113 
Corporate debt securities income                               181          361          791        1,261 
Dividend income                                                 --          129           39          569 
Interest income on temporary cash investments                  178          261          706          598 
                                                          --------     --------     --------     -------- 
     Total Interest and Dividend Income                     37,031       16,688       94,994       34,541 
                                                          --------     --------     --------     -------- 

Interest Expense on Borrowed Funds                          17,830       10,276       46,560       22,626 
                                                          --------     --------     --------     -------- 

     Net Interest and Dividend Income                       19,201        6,412       48,434       11,915 
                                                          --------     --------     --------     -------- 

Other Income (Loss):                                                                                      
Income and gains (losses) from other investments               (52)         229          139        3,174 
Net gain (loss) on sale of investment securities              (363)        (124)        (115)        (375)
Other-than-temporary impairment on investment securities        --           --       (3,474)          -- 
                                                          --------     --------     --------     -------- 
     Total Other Income                                       (415)         105       (3,450)       2,799 
                                                          --------     --------     --------     -------- 

General and Administrative Expenses                          1,446        1,430        3,930        3,336 
                                                          --------     --------     --------     -------- 

     Net Income                                           $ 17,340     $  5,087     $ 41,054     $ 11,378 
                                                          ========     ========     ========     ======== 

Income per Share:                                                                                         
Net income per share - basic                              $   0.37     $   0.27     $   1.03     $   0.92 
Weighted average shares outstanding - basic                 46,257       19,035       39,801       12,331 

Net income per share - diluted                            $   0.37     $   0.27     $   1.03     $   0.92 
Weighted average shares outstanding - diluted               46,346       19,148       39,913       12,425 

The accompanying notes are an integral part of the financial statements.

2 

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MFA MORTGAGE INVESTMENTS, INC.
 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                                        [Enlarge/Download Table]

                                                                     Nine Months Ended
                                                                    September 30, 2002
                                                                    ------------------
                                                                        (Unaudited)   
                                                                                      
(In Thousands, Except per Share Data)                                                 
Common Stock (Par Value $.01):                                                        
Balance at December 31, 2001                                             $     283    
  Issuance of common stock, par value                                          179    
                                                                         ---------    
Balance at September 30, 2002                                                  462    
                                                                         ---------    

Additional Paid-in Capital:                                                           
Balance at December 31, 2001                                               212,536    
  Issuance of common stock, net of offering expenses                       146,789    
  Exercise of common stock options                                             438    
  Issuance of common stock to directors                                         60    
  Compensation expense for 1997 stock option plan                               64    
                                                                         ---------    
Balance at September 30, 2002                                              359,887    
                                                                         ---------    

Accumulated Deficit:                                                                  
Balance at December 31, 2001                                               (13,704)   
  Net income                                                                41,054    
  Cash dividends declared                                                  (39,856)   
                                                                         ---------    
Balance at September 30, 2002                                              (12,506)   
                                                                         ---------    

Accumulated Other Comprehensive Income:                                               
Balance at December 31, 2001                                                 4,509    
  Unrealized gain on available-for-sale securities during period, net       19,978    
  Unrealized loss on interest rate cap agreements                           (2,450)   
                                                                         ---------    
Balance at September 30, 2002                                               22,037    
                                                                         ---------    

Total Stockholders' Equity                                               $ 369,880    
                                                                         =========    

The accompanying notes are an integral part of the financial statements.

3 

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MFA MORTGAGE INVESTMENTS, INC.
STATEMENTS OF CASH FLOWS

                                                        [Enlarge/Download Table]

                                                                                          Nine Months Ended      
                                                                                    September 30,   September 30,
(In Thousands)                                                                          2002            2001     
                                                                                    -------------   ------------ 
                                                                                             (Unaudited)         
                                                                                                                 
Cash Flows From Operating Activities:                                                                            
  Net income                                                                         $    41,054     $    11,378 
  Adjustments to reconcile net income to net cash                                                                
   provided by operating activities:                                                                             
  Net (gain) loss  on sale of investment securities/other investments                        115          (2,507)
  Other-than-temporary impairment recognized on corporate                                                        
   investment securities                                                                   3,474             124 
  Amortization of premium on investments                                                  18,833           2,353 
  Amortization of goodwill                                                                    --             150 
  Increase in interest receivable                                                         (7,473)         (5,187)
  (Increase) decrease in prepaid and other assets and other                               (1,564)            206 
  Increase in accounts payable                                                               233             593 
  Increase in accrued interest payable                                                     4,727           4,299 
                                                                                     -----------     ----------- 
    Net cash provided by operating activities                                             59,399          11,409 
                                                                                     -----------     ----------- 

Cash Flows From Investing Activities:                                                                            
  Principal payments on MBS                                                              850,559         147,874 
  Proceeds from sale of MBS                                                                4,540           5,544 
  Proceeds from sale of corporate debt securities                                          5,664           2,516 
  Proceeds from sale of corporate equity securities                                        3,947           5,143 
  Purchases of MBS                                                                    (2,372,925)     (1,040,452)
  Purchases of corporate equity securities                                                    --            (392)
  Decrease (increase) in other investments, excluding reinvested real estate gains           175            (196)
                                                                                     -----------     ----------- 
    Net cash used in investing activities                                             (1,508,040)       (879,963)
                                                                                     -----------     ----------- 

Cash Flows From Financing Activities:                                                                            
  Decrease (increase) in restricted cash                                                  39,499         (10,503)
  Purchases of interest rate cap agreements                                               (2,872)             -- 
  Net increase in borrowings through repurchase agreements                             1,351,537         832,351 
  Net proceeds from common stock offering                                                146,968          67,088 
  Proceeds from exercise of stock options                                                    438              -- 
  Dividends paid                                                                         (32,623)         (6,343)
                                                                                     -----------     ----------- 
    Net cash provided by financing activities                                          1,502,947         882,593 
                                                                                     -----------     ----------- 

Net decrease in unrestricted cash and cash equivalents                                    54,306          14,039 
Cash and cash equivalents at beginning of period                                          58,533           8,400 
                                                                                     -----------     ----------- 
Cash and cash equivalents at end of period                                           $   112,839     $    22,439 
                                                                                     ===========     =========== 

Supplemental Disclosure of Cash Flow Information:                                                                
Cash paid during the period for interest                                             $    41,833     $    18,327 
                                                                                     ===========     =========== 

The accompanying notes are an integral part of the financial statements.

4 

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MFA MORTGAGE INVESTMENTS, INC.
 NOTES TO THE FINANCIAL STATEMENTS
 (UNAUDITED)

1. Organization                                                                 

      MFA Mortgage Investments, Inc. (the "Company" or "MFA"), formerly known as
America First Mortgage Investments, Inc., was incorporated in Maryland on July  
24, 1997. The Company began operations on April 10, 1998 when it merged with    
three partnerships (the "1998 Merger"), America First Participating/Preferred   
Equity Mortgage Fund Limited Partnership ("Prep Fund 1"), America First Prep    
Fund 2 Limited Partnership ("Prep Fund 2") and America First Prep Fund 2 Pension
Series Limited Partnership ("Pension Fund"), collectively referred to as the    
"Prep Funds".                                                                   

 The Company has elected to be taxed as a real estate investment trust
("REIT") for federal income tax purposes. Pursuant to the current federal tax   
regulations, one of the requirements of maintaining its status as a REIT is that
the Company must distribute at least 90% of its annual taxable net income to its
stockholders, subject to certain adjustments.                                   

     From the time of its inception through December 31, 2001, the Company was
externally advised by America First Mortgage Advisory Corporation (the          
"Advisor"), pursuant to an advisory agreement between the parties (the "Advisory
Agreement"). During the period the Company was externally managed, it had no    
employees of its own and relied on the Advisor to conduct its business and      
operations.                                                                     

   Pursuant to the consummation of the stockholder approved merger between
the Company and the Advisor (the "Advisor Merger"), the Company and the Advisor 
merged on January 1, 2002. As a result of the Advisor Merger, the Company became
self-advised commencing January 1, 2002 and thereafter has directly incurred the
cost of all overhead necessary to operate the Company. For accounting purposes, 
the Advisor Merger was not considered the acquisition of a "business" for       
purposes of applying Accounting Principles Board ("APB") Opinion No. 16,        
"Business Combinations" as superceded by FAS 141 and, therefore, the market     
value of the common stock issued, valued as of the consummation of the Advisor  
Merger, in excess of the fair value of the net tangible assets acquired was     
charged to operating income rather than capitalized as goodwill. An expense of  
$12,539,000 was incurred in connection with the Advisor Merger, of which        
$11,266,000 represented the market value of the 1,287,501 common shares the     
Company issued in the transaction. (See Note 3.)                                

   Effective August 13, 2002, the Company changed its name to MFA Mortgage
Investments, Inc. from America First Mortgage Investments, Inc. in order to more
clearly reflect its independent status and identity as a self-advised REIT.     

2. Summary of Significant Accounting Policies                                   

(a) Basis of Presentation                                           

      The accompanying interim unaudited financial statements have been prepared
according to the rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosures normally included in      
financial statements prepared in accordance with generally accepted accounting  
principles ("GAAP") have been condensed or omitted according to such rules and  
regulations, although management believes that the disclosures are adequate to  
make the information presented not misleading. The financial statements should  
be read in conjunction with the financial statements and notes thereto included 
in the Company's Annual Report on Form 10-K for the year ended December 31,     
2001. In the opinion of management, all normal and recurring adjustments        
necessary to present fairly the financial position at September 30, 2002 and    
results of operations for all periods presented have been made. The results of  
operations for the three-month and nine-month periods ended September 30, 2002  
are not necessarily indicative of the results to be expected for the full year. 

As more fully discussed in Note 7, the Company has investments in   
corporations and real estate limited partnerships, as a limited partner, which  
are accounted for under the equity method. Through September 30, 2002, the      
Company did not legally control any of the properties.                          

    The financial statements are prepared on the accrual basis of accounting
in accordance with GAAP. The preparation of financial statements in conformity  
with GAAP requires management to make estimates and assumptions that affect the 
reported amounts of assets and liabilities and disclosure of contingent assets  
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could      
differ from those estimates.                                                    

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MFA MORTGAGE INVESTMENTS, INC.
 NOTES TO THE FINANCIAL STATEMENTS
 (UNAUDITED)

(b) Credit Risk and Declines in Market Value                        

The Company limits its exposure to credit losses on its investment  
portfolio by requiring that at least 50% of its investment portfolio consist of 
MBS that are guaranteed as to principal and interest by an agency of the U.S.   
Government, such as Ginnie Mae, Fannie Mae and Freddie Mac ("Agency MBS") or    
rated in one of the two highest rating categories by at least one nationally    
recognized rating agency. The remainder of the Company's assets may be          
investments in: (i) multi-family apartment properties; (ii) limited             
partnerships, REITs or preferred stock of real estate related corporations or   
(iii) other fixed-income instruments, such as corporate debt securities, that   
provide increased call protection relative to the Company's MBS portfolio.      
Corporate debt that is rated below investment-grade will be limited to less than
5% of the Company's total assets. Agency and AAA rated MBS, substantially all of
which were adjustable rate MBS ("ARM-MBS"), comprised approximately 96% and 93% 
of the Company's total assets at September 30, 2002 and December 31, 2001,      
respectively. The Company did not have an allowance for credit losses at        
September 30, 2002 or December 31, 2001.                                        

A decline in the market value of any of the Company's investment    
securities that is considered by management to be other-than-temporary would    
result in the Company reducing the cost basis of the specific security through a
corresponding charge against earnings. Losses related to other-than-temporary   
declines in market value are determined based on management's review and        
interpretations of various factors. Management considers various criteria in    
assessing whether and to what extent an other-than-temporary impairment exists, 
including the expected cash flows, credit quality of the underlying mortgages,  
debtor, or investee entity, as applicable. Credit protection available to the   
related mortgage pool for MBS and various other market information available,   
including analysts assessments, public statements and filings made by the       
debtor, counterparty or other relevant party issuing or otherwise securing the  
particular security may also be considered. Because management's assessments are
based on factual as well as subjective information available at the time of     
assessment, the determination as to whether an other-than-temporary decline     
exists and, if so, the amount considered impaired is also subjective and,       
therefore, constitutes a material estimate, that is susceptible to a significant
change. (See Note 5.)                                                           

(c) MBS, Corporate Debt Securities and Corporate Equity Securities  

    Statement of Financial Accounting Standards ("FAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS 115"), requires   
that investments in securities be designated as either "held-to-maturity,"      
"available-for-sale" or "trading" at the time of acquisition. Securities that   
are designated as held-to-maturity are carried at their amortized cost.         
Securities designated as available-for-sale are carried at fair value with      
unrealized gains and losses excluded from earnings and reported in other        
comprehensive income.                                                           

Although the Company generally intends to hold most of its MBS until
maturity, it may, from time to time, sell any of its MBS as part of the overall 
management of its business. The available-for-sale designation provides the     
flexibility to sell its MBS in order to act on potential future market          
opportunities, changes in economic conditions and to facilitate future          
liquidity. As of September 30, 2002, all of the Company's investments in MBS    
were classified as available-for-sale. The Company had no investments in        
corporate equity or debt securities as of September 30, 2002.                   

If management were to decide to sell any security, whether          
held-for-investment or held for sale, unrealized losses at the time that the    
decision to sell is made would be charged against earnings in that period, if   
any. However, any gains would be deferred until realized.                       

    Other-than-temporary losses on investment securities, whether designated
as available-for-sale or held-to-maturity, as measured by the amount of decline 
in fair value attributable to factors that are considered to be                 
other-than-temporary, are charged against income resulting in an adjustment of  
the cost basis of such securities. Gains or losses on the sale of investment    
securities are based on the specific identification method.                     

  The Company's assets are comprised primarily of ARM-MBS, which include
"hybrid-MBS", issued through Ginnie Mae, Fannie Mae or Freddie Mac. The hybrid  
MBS in which the Company invests have a fixed interest rate for an initial      
period, which generally does not extend beyond 36 months, and thereafter        
typically convert into a one-year adjustable interest rate for the remaining    
term to maturity.                                                               

    Interest income is accrued based on the outstanding principal balance of
the investment securities and their contractual terms. Premiums and discounts   
associated with the purchase of the investment securities are amortized into    
interest income over the lives of the securities using the effective yield      
method, adjusted for actual prepayment activity.                                

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MFA MORTGAGE INVESTMENTS, INC.
 NOTES TO THE FINANCIAL STATEMENTS
 (UNAUDITED)

(d) Cash and Cash Equivalents                                       

Cash and cash equivalents include cash on hand and highly liquid    
investments with original maturities of three months or less. The carrying      
amount of cash equivalents approximates their fair value.                       

(e) Restricted Cash                                                 

      The Company's restricted cash represents cash held on deposit with certain
counterparties (i.e., lenders) to satisfy margin calls on repurchase agreements.
The margin calls result from the decline in the value of the MBS securing       
repurchase agreements, generally due to principal reductions on the MBS         
reflecting scheduled amortization and prepayments. At the time a repurchase     
agreement rolls (i.e., matures or reprices), the Company will apply the         
restricted cash against the repurchase agreement, thereby reducing the          
borrowing.                                                                      

(f) Other Investments                                               

     Other investments include indirect investments in six multi-family rental
properties. The investments are indirectly held through either investments in   
(i) non-voting preferred stock of corporations or (ii) limited partnership      
interests. Other investments, which are accounted for under the equity method,  
were acquired as part of the 1998 Merger. Certain of the properties that the    
Company received in the 1998 Merger were subsequently exchanged for other       
properties through non-taxable exchanges, known for tax purposes as a "Section  
1031 exchange."                                                                 

 Certain of the investments have a zero net carrying value and in some
cases are generating operating losses after depreciation. . Such investments    
have not been reduced below zero through recognition of allocated investment    
losses since the Company has no legal obligation to provide additional cash     
support to the underlying property entities, nor has it indicated any commitment
to provide this support. Earnings from such properties are recorded only to the 
extent that operating distributions are received. Each of the properties in     
which the Company has indirect interests is mortgaged, with the underlying      
investment properties serving as collateral. The Company has no liability for   
the mortgage loans, since (1) the Company's investment is as a limited partner  
or a member of a limited liability company and (2) the mortgages have           
non-recourse provisions, such that they are secured only to the extent of the   
mortgaged property.                                                             

(g) Derivative Financial Instruments - Interest Rate Cap Agreements 

 The Company utilizes interest rate cap agreements ("Cap Agreements"),
which are derivative instruments, for the purpose of managing interest rate     
risk. The Company has not entered, nor does it anticipate entering, into        
derivative transactions for speculative or trading purposes.                    

      In accordance with FAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" a derivative which is designated as a hedge is recognized as
an asset/liability and measured at fair value. To qualify for hedge accounting, 
at the inception of a Cap Agreement, the Company must anticipate that the hedge 
will be highly effective in limiting the Company's cost beyond the Cap Agreement
threshold on its matching (on an aggregate basis) anticipated repurchase        
agreements during the active period of the Cap Agreement. As long as the hedge  
remains effective, changes in fair value are included in the accumulated other  
comprehensive income component of stockholders' equity. Upon the Cap Agreement  
active period commencing, the premium paid to enter into the Cap Agreement is   
amortized and reflected in interest expense. The periodic amortization of the   
premium expense is based on an estimated allocation of the premium, determined  
at inception of the hedge, on a fair value basis. Payments received in          
connection with the Cap Agreement will be reported as a reduction to interest   
expense, net of premium amortization. If it is determined that a Cap Agreement  
is not effective, the premium would be reduced and a corresponding charge made  
to interest expense for the ineffective portion of the Cap Agreement. The       
maximum cost related to each of the Company's Cap Agreements is limited to the  
original purchase price (i.e., the premium) of each such instrument. In order to
limit credit risk associated with purchased Cap Agreements, the Company only    
enters into Cap Agreements with financially sound institutions, whose parent or 
holding company's long-term debt is rated "A" or better by at least one         
nationally recognized rating agency.                                            

    In order to continue to qualify for, and to apply, hedge accounting, the
Cap Agreements are monitored on a quarterly basis to determine whether they     
continue to be effective or, if prior to the strike date, whether the Cap       
Agreement is expected to be effective. If during the term of the Cap Agreement  
the Company determines that a Cap Agreement is not effective or that a Cap      
Agreement is not expected to be effective, the ineffective portion of the Cap   
Agreement will no longer qualify for hedge accounting and, accordingly,         
subsequent changes in its fair value will be reflected in earnings. (See Note   
8.)                                                                             

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MFA MORTGAGE INVESTMENTS, INC.
 NOTES TO THE FINANCIAL STATEMENTS
 (UNAUDITED)

(h) Repurchase Agreements                                           

The Company finances the acquisition of its MBS through repurchase  
agreements. Under a repurchase agreement, the Company sells securities to a     
lender and agrees to repurchase those securities in the future for a price that 
is higher than the original sales price. The difference between the sale price  
the Company receives and the repurchase price the Company pays represents       
interest paid to the lender. Although structured as a sale and repurchase       
obligation, a repurchase agreement operates as a financing under which the      
Company effectively pledges its securities as collateral to secure the loan     
which is equal in value to a specified percentage of the market value of the    
pledged collateral. The Company retains beneficial ownership of the pledged     
collateral, including the right to distributions. At the maturity of a          
repurchase agreement, the Company is required to repay the loan and concurrently
receives back its pledged collateral from the lender or, upon mutual consent    
with the lender, the Company may renew such agreement at the then prevailing    
financing rate. The repurchase agreements may require that the Company pledge   
additional assets to the lender in the event the market value of the existing   
pledged collateral declines, which is often the case as the principal balance of
collateral (i.e., MBS) and corresponding market value decrease through scheduled
amortization and prepayments. Through September 30, 2002, the Company did not   
have any margin calls on its repurchase agreements that it was not able to      
satisfy with either cash or additional pledged securities.                      

   The Company enters into repurchase agreements that generally range from
one month to 18 months in duration. Should a lender decide not to renew a       
particular agreement at maturity, the Company must either refinance elsewhere or
be in a position to satisfy the obligation. If, during the term of a repurchase 
agreement, a lender should file for bankruptcy, the Company might experience    
difficulty recovering its pledged assets and could have an unsecured claim      
against the lender's assets. To reduce its exposure, the Company enters into    
repurchase agreements only with financially sound institutions whose holding or 
parent company's long-term debt rating is "A" or better as determined by at     
least one of the nationally recognized rating agencies, where applicable. The   
Company will not enter into repurchase agreements with a lender without the     
specific approval of the Company's Board of Directors, if the minimum criterion 
is not met. In the event an existing lender is downgraded below "A," the Company
is required to obtain approval from the Company's board of directors before     
renewing or entering into additional repurchase agreements with that lender. The
Company generally aims to diversify its exposure by entering into repurchase    
agreements with at least four separate lenders with a maximum loan from any     
lender of no more than three times the Company's stockholders' equity. As of    
September 30, 2002, the Company had repurchase agreements with 12 separate      
lenders with a maximum loan amount of $581.2 million and a maximum net exposure 
(the difference between the amount loaned to the Company and the fair value of  
the security pledged by the Company as collateral) to a single lender of        
approximately $38.5 million. (See Note 9.)                                      

(i) Stock Based Compensation                                        

The Company's policy is to apply the intrinsic method of Accounting 
Principles Bulletin No. 25 ("APB 25") for options issued to its direct employees
and independent directors. Under the intrinsic method, no compensation expense  
is recorded when options are issued with an exercise price equal to the market  
price of the underlying security. The Company has not granted stock options     
since 1998.                                                                     

(j) Federal Income Taxes                                            

     The Company has elected to be taxed as a REIT under the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and the corresponding   
provisions of state law. The Company expects to operate in a manner that will   
enable it to continue to be taxed as a REIT. As such, no provision for current  
or deferred income taxes has been made in the accompanying financial statements.

     As of September 30, 2002, the Company had an aggregate of $6.5 million of
long-term capital losses for tax purposes, which can only be used to offset     
long-term capital gains.                                                        

8 

10-Q 11th Page of 33 TOC 1st Previous Next ↓Bottom Just 11th
MFA MORTGAGE INVESTMENTS, INC.
 NOTES TO THE FINANCIAL STATEMENTS
 (UNAUDITED)

(k) Earnings per Common Share ("EPS")                               

Basic EPS is computed by dividing net income by the weighted average
number of shares of common stock outstanding during the period. Diluted EPS is  
computed by dividing net income by the weighted-average common shares and common
equivalent shares outstanding during the period. For the diluted EPS            
calculation, the weighted average common shares and common equivalent shares    
outstanding are adjusted for the dilutive effect of unexercised stock options   
using the treasury stock method. Under the treasury stock method, common        
equivalent shares, which include the common stock options issued to employees   
and directors, are calculated assuming that all dilutive common stock options   
(i.e., options on which the exercise price is below the market price of the     
Company's common stock during the period) are exercised and the proceeds are    
used to buy back shares of the Company's outstanding common stock at the average
market price during the reported period. No common share equivalents are        
included in the computation of diluted earnings per share for any period in     
which their inclusion would be antidilutive. In addition, no common share       
equivalents are included in the computation of any diluted per share amount for 
a period in which a net operating loss is reported. (See Note 12.)              

(l) Other Comprehensive Income                                      

 FAS No. 130, "Reporting Comprehensive Income" requires the Company to
display and report comprehensive income, which includes all changes in          
Stockholders' Equity with the exception of additional investments by or         
dividends to stockholders. Comprehensive income for the Company includes net    
income and the change in net unrealized holding gains (losses) on investments   
and certain derivative instruments. (See Note 13.)                              

(m) Adoption of New Accounting Standards                            

    In July 2001, the FASB issued FAS No. 141, "Business Combinations" ("FAS
141") and FAS No. 142, "Goodwill and Other Intangible Assets" ("FAS 142") which 
provide guidance on how entities are to account for business combinations and   
for the goodwill and other intangible assets that arise from those combinations 
or are acquired otherwise. Pursuant to FAS 142 goodwill is no longer amortized, 
but instead is tested for impairment at least annually. As of the date of       
adoption, the Company had unamortized goodwill in the amount of $7,189,000. The 
Company's adoption of FAS 142 on January 1, 2002 did not have a material effect 
on the Company's financial statements. The Company recognized goodwill          
amortization of $50,000 and $150,000 for the three month and nine-month periods 
ended September 30, 2001, respectively.                                         

In October 2001, the FASB issued FAS No. 144, "Accounting for the   
Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 provides new  
guidance on the recognition of impairment losses on long-lived assets to be held
and used or to be disposed of and also broadens the definition of what          
constitutes a discontinued operation and how the results of a discontinued      
operation are to be measured and presented. The Company's adoption of FAS 144 on
January 1, 2002 did not have any impact on the Company's financial statements.  

  On April 30, 2002, the FASB issued FASB Statement No. 145 ("FAS 145"),
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement   
No. 13, and Technical Corrections." FAS 145 rescinds both FASB Statement No. 4  
("FAS 4"), "Reporting Gains and Losses from Extinguishment of Debt," and the    
amendment to FAS 4, FASB Statement No. 64 ("FAS 64"), "Extinguishments of Debt  
Made to Satisfy Sinking-Fund Requirements." Through this rescission, FAS 145    
eliminates the requirement (in both FAS 4 and FAS 64) that gains and losses from
the extinguishment of debt be aggregated and, if material, classified as an     
extraordinary item, net of the related income tax effect. However, an entity is 
not prohibited from classifying such gains and losses as extraordinary items, so
long as they meet the criteria in paragraph 20 of Accounting Principles Board   
Opinion No. 30, "Reporting the Results of Operations Reporting the Effects of   
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." While early adoption of FAS 145 is          
encouraged, certain provisions of FAS 145 are effective for fiscal periods      
beginning after May 15, 2002, while other provisions of FAS 145 are effective   
for transactions occurring after May 15, 2002. The Company's early adoption of  
FAS 145 in its entirety did not have a material impact on the Company's         
financial statements.                                                           

(n) New Accounting Pronouncements                                   

In June 2002, the FASB issued FASB Statement No. 146 ("FAS 146"),   
"Accounting for Costs Associated with Exit or Disposal Activities." FAS 146     
specifies, among other things, that a liability for a cost associated with an   
exit or disposal activity is incurred when the definition of a liability in     
Concepts Statement 6 is met. The provisions of FAS 146 are effective for exit or
disposal activities that are initialed after December 31, 2002, with early      
application encouraged. The Company's adoption of FAS 146 on January 1, 2003 is 
not expected to have a material impact on the Company's financial condition or  
results of operations.                                                          

9 

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MFA MORTGAGE INVESTMENTS, INC.
 NOTES TO THE FINANCIAL STATEMENTS
 (UNAUDITED)

   In October 2002, the FASB issued Financial Accounting Standard No. 147,
"Acquisitions of Certain Financial Institutions" ("FAS 147") which clarifies the
accounting treatment for acquisitions of financial institutions. In addition,   
this Statement amends FASB Statement No. 144, "Accounting for the Impairment or 
Disposal of Long-Lived Assets," to include in its scope long-term               
customer-relationship intangible assets of financial institutions such as       
depositor- and borrower-relationship intangible assets and credit cardholder    
intangible assets. FAS 147 is effective on October 1, 2002. The Company's       
adoption of FAS 147 is not expected to have a material impact on the Company's  
financial statements.                                                           

(o) Reclassifications                                               

 Certain prior period amounts have been reclassified to conform to the
current period presentation.                                                    

3. Advisor Merger and Other Related Party Transactions                          

(a) Advisor Fees and Advisor Merger                                 

   From the time of the 1998 Merger through December 31, 2001, the Advisor
managed the operations and investments of the Company and performed             
administrative services for the Company. Prior to the Advisor Merger, the       
Advisor was owned directly and indirectly by certain of the Company's directors 
and executive officers (see discussion below). For the services and functions   
provided to the Company, the Advisor received a monthly management fee in an    
amount equal to 1.10% per annum of the first $300 million of stockholders'      
equity of the Company, plus 0.80% per annum of the portion of stockholders'     
equity of the Company above $300 million. The Company also paid the Advisor an  
incentive fee for each calendar quarter equal to 20% of the dollar amount by    
which the annualized return on equity for such quarter exceeded the amount      
necessary to provide an annualized return on equity equal to the Ten-Year U.S.  
Treasury rate plus 1%. For the three and nine months ended September 30, 2001,  
the Company paid the Advisor a base management fee of $395,000 and $875,000,    
respectively, and incentive fees of $743,000 and $1,753,000, respectively.      
Included in the $1,753,000 fee for the nine months ended September 30, 2001 was 
$511,000 attributable to a $2.6 million gain on the sale of a property that     
closed during the first quarter of 2001.                                        

     The Company entered into an Agreement and Plan of Merger, dated September
24, 2001 (the "Advisor Merger Agreement"), with the Advisor, America First      
Companies L.L.C. ("AFC") and the stockholders of the Advisor. In December 2001, 
the Company's stockholders approved the terms of the Advisor Merger Agreement,  
which provided for the Merger of the Advisor into the Company on January 1,     
2002. The Company issued 1,287,501 shares of its common stock to the            
stockholders of the Advisor as merger consideration. As a result, the Company   
became self advised commencing January 1, 2002 and has since directly incurred  
the cost of all overhead necessary for its operation and administration. The    
market value of the common stock issued in the Advisor Merger, valued as of the 
consummation of the Advisor Merger in excess of the fair value of the net       
tangible assets acquired, was charged to operating income of the Company for the
year ended December 31, 2001.                                                   

Certain of the Company's directors and executive officers who were  
involved in discussions and negotiations relating to the Advisor Merger had, and
continue to have, interests that are affected by the Advisor Merger. At the time
of the Advisor Merger, AFC owned 80% of the outstanding capital stock of the    
Advisor. At that time, Michael Yanney, the Chairman of the Company's Board of   
Directors, and George H. Krauss, one of the Company's directors, beneficially   
owned approximately 57% and 17%, respectively, of AFC. In addition, Stewart     
Zimmerman, the Company's President and Chief Executive Officer, and William S.  
Gorin, the Company's Executive Vice President, Chief Financial Officer and      
Treasurer, collectively owned approximately 3% of AFC. At the time of the       
Advisor Merger, Messrs. Zimmerman, Gorin and Ronald A. Freydberg, the Company's 
Executive Vice President and Secretary, also owned, in the aggregate, the       
remaining 20% of the Advisor. Accordingly, the Advisor Merger resulted in these 
individuals receiving, in the aggregate, beneficial ownership of an additional  
1,287,501 shares of the Company's common stock valued at approximately $11.3    
million at the time of the Advisor Merger.                                      

    Because the Advisor Merger was between affiliated parties and may not be
considered to have been negotiated in a completely arm's-length manner, the     
Company's Board of Directors established a special committee, which consisted of
three of the Company's independent directors who had no personal interest in the
Advisor Merger, to direct the negotiations relating to the Advisor Merger on the
Company's behalf and to consider and make recommendations to the Board relating 
to the Advisor Merger.                                                          

10

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MFA MORTGAGE INVESTMENTS, INC.
 NOTES TO THE FINANCIAL STATEMENTS
 (UNAUDITED)

(b) Property Manager                                                

America First Properties Management Company L.L.C. (the "Property   
Manager"), which is a wholly owned subsidiary of AFC, provides property         
management services for the multi-family properties in which the Company has an 
interest. The Property Manager receives a management fee equal to a stated      
percentage of the gross revenues generated by the Company's properties under    
management, ranging from 3.5% to 4% of gross revenues, which are considered in  
line with market terms for such services. The Property Manager was paid fees of 
approximately $103,000 and $316,000 for the quarter and year to date period     
ended September 30, 2002, respectively, and $108,000 and $327,000 for the       
quarter and year to date period ended September 30, 2001, respectively, for     
managing the properties in which the Company has interests.                     

(c) Investments in Corporate Debt Securities                        

      As of September 30, 2002, the Company had no investments in corporate debt
securities, as all such securities remaining were sold during the quarter ended 
September 30, 2002. The Company had previously held corporate debt securities of
RCN Corporation ("RCN"), which were purchased between February 1999 and August  
2000, and Level 3 Corporation ("Level 3"), which were purchased between August  
1998 and August 2000. Mr. Yanney, the Chairman of the Company's Board of        
Directors, is a board member for both RCN and Level 3. One of the Company's     
Directors, W. David Scott, is the son of the individual who is the Chairman of  
both Level 3 and RCN. During the quarter ended September 30, 2002, the Company  
realized an aggregate net loss on the sale of the RCN and Level 3 securities of 
$363,000, comprised of gross gains of $928,000 on the sale of Level 3 securities
and gross losses of $1,291,000 million on the sale of RCN securities. The       
Company had recognized an other-than-temporary impairment charge of $2,453,000  
against the RCN securities in the fourth quarter of 2001 and $3,474,000 against 
the Level 3 securities during the first quarter of 2002. (See Note 5.)          

(d) Investment in Retirement Centers Corporation                    

   Since 1998, the Company has held all of the non-voting preferred stock,
representing 95% of the ownership and economic interest, in Retirement Centers  
Corporation ("RCC"), an entity formed following the 1998 Merger, which          
indirectly holds two rental income properties. (See Note 7.) Through September  
30, 2002, Mr. Gorin, the Company's Executive Vice President, Chief Financial    
Officer and Treasurer, held all of the voting common stock of RCC, representing 
5% of the ownership and economic interest in RCC. Mr. Gorin also serves as a    
director of RCC.                                                                

    On October 1, 2002, the Company entered into an agreement with Mr. Gorin
to purchase 100% of the voting common stock held by Mr. Gorin, representing a 5%
economic interest and 100% controlling interest in RCC, for $260,000. The       
purchase price was based on the estimated value of the underlying properties, as
determined by independent appraisers, net of the related mortgage indebtedness. 
As a result of the purchase of common shares, the Company now holds all of the  
outstanding securities of RCC.                                                  

4. Mortgage Backed Securities                                                   

    As of September 30, 2002 and December 31, 2001, all of the Company's MBS
were classified as available-for-sale and, as such, were carried at their       
estimated fair value. The following table presents the carrying value of the    
Company's MBS as of September 30, 2002 and December 31, 2001.                   

                               September 30,    December 31,
                               2002             2001
                               -------------    ------------
(In Thousands)                                    
    Fannie Mae Certificates     $2,017,178      $1,228,095
    Ginnie Mae Certificates          6,032          12,266
    Freddie Mac Certificates     1,210,670         472,908
    Commercial/multi-family         11,631          11,486
    Non-agency AAA                 201,023         202,145
                                ----------      ----------
                                $3,446,534      $1,926,900
                                ==========      ==========

   At September 30, 2002 and December 31, 2001, the Company's portfolio of
MBS consisted of pools of adjustable rate MBS with carrying values of           
approximately $3,439,727,000 and $1,915,380,000, respectively, and fixed rate   
MBS with carrying values of approximately $6,807,000 and $11,520,000,           
respectively.                                                                   

11

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MFA MORTGAGE INVESTMENTS, INC.
 NOTES TO THE FINANCIAL STATEMENTS
 (UNAUDITED)

     Fannie Mae MBS: Fannie Mae MBS are certificates issued by Fannie Mae that
are backed by pools of single-family and multi-family mortgage loans. Fannie Mae
guarantees to the registered holders of its certificates that it will distribute
amounts representing principal and interest on the mortgage loans in the pool   
underlying its certificates, and the full payment amount of any such mortgage   
loan foreclosed or otherwise finally liquidated, whether or not the principal   
amount is actually received. The obligations of Fannie Mae under its guarantees 
are solely those of Fannie Mae and are not backed by the full faith and credit  
of the U.S. Government. If Fannie Mae were unable to satisfy its obligations,   
distributions to holders of its certificates would consist solely of payments   
and other recoveries on the underlying mortgage loans and, accordingly, monthly 
distributions to holders of its certificates would be affected by delinquent    
payments and defaults on these mortgage loans.                                  

    Ginnie Mae MBS: Ginnie Mae MBS are certificates issued by a wholly owned
instrumentality of the U.S. Government within the Department of Housing and     
Urban Development that are backed mostly by pools of single-family mortgage     
loans. Ginnie Mae is authorized by the National Housing Act of 1934 to guarantee
the timely payment of principal and interest on its certificates which represent
an interest in a pool of mortgages insured by the Federal Housing Administration
or partially guaranteed by the Department of Veterans Affairs and other loans   
eligible for inclusion in mortgage pools underlying its certificates. The       
National Housing Act of 1934 provides that the full faith and credit of the U.S.
Government is pledged to the payment of all amounts that may be required to be  
paid under any guarantee by Ginnie Mae.                                         

   Freddie Mac MBS: Freddie Mac MBS are certificates issued by Freddie Mac
that are backed by pools of mortgage loans. Freddie Mac guarantees to the       
holders of its certificates the timely payment of interest and the ultimate     
payment of all principal on each holder's pro rata share of the unpaid balance  
of the underlying mortgage loans, but does not guarantee the timely payment of  
scheduled principal of the underlying mortgage loans. The obligations of Freddie
Mac under its guarantees are solely those of Freddie Mac and are not backed by  
the full faith and credit of the U.S. Government. If Freddie Mac were unable to 
satisfy its obligations, distributions to holders of its certificates would     
consist solely of payments and other recoveries on the underlying mortgage loans
and, accordingly, monthly distributions to holders of its certificates would be 
affected by delinquent payments and defaults on these mortgage loans.           

Commercial/multi-family MBS: The Company's investments in           
commercial/multi-family MBS are comprised of privately issued certificates that 
are backed by pools of single-family and multi-family mortgage loans. These     
securities are not guaranteed by the U.S. Government or any of its agencies. As 
of September 30, 2002 and December 31, 2001, all the Company's investments in   
commercial/multi-family MBS were rated "AAA" by at least one nationally         
recognized rating agency.                                                       

Non-Agency "AAA"MBS: Non-Agency "AAA" MBS are privately issued      
certificates that are backed by pools of single-family and multi-family mortgage
loans. Non-Agency "AAA" MBS are rated as such by at least one nationally        
recognized rating agency. "AAA" is the highest rating given by bond rating      
agencies and indicates the relative security of the investment. These securities
are not guaranteed by the U.S. Government or any of its agencies.               

    The following table presents the amortized cost, gross unrealized gains,
gross unrealized losses and fair value of MBS as of September 30, 2002 and      
December 31, 2001:                                                              

                               September 30,    December 31,
                               2002           2001
                               -------------    ------------
(In Thousands)                                    
    Current face cost          $ 3,349,763     $ 1,885,869
    Premium                         73,056          37,544
     Discount                          (540)            (79)
    Gross unrealized gains          25,574           8,339
     Gross unrealized losses         (1,319)         (4,773)
                               -----------     -----------

    Fair value                 $ 3,446,534     $ 1,926,900
                               ===========     ===========

5. Corporate Debt Securities                                                    

 As of September 30, 2002, the Company had no remaining investments in
corporate debt securities. The corporate debt securities previously held by the 
Company were comprised of "non-investment grade," "high yield securities."      
Corporate debt securities, which are not guaranteed by the U.S Government or any
of its agencies, are subject to substantially greater credit risk than is the   
Company's core investment portfolio, which is comprised primarily of Agency MBS.
As such, in addition to the market value impact related to changes in interest  
rates, corporate debt securities are also affected by, among other things,      
changes in the financial condition of the debtor, general market and economic   
conditions.                                                                     

12

10-Q 15th Page of 33 TOC 1st Previous Next ↓Bottom Just 15th
MFA MORTGAGE INVESTMENTS, INC.
 NOTES TO THE FINANCIAL STATEMENTS
 (UNAUDITED)

    During the quarter ended September 30, 2002, the Company sold all of its
remaining investments in corporate debt securities, realizing an aggregate net  
loss of $363,000, comprised of gross gains of $928,000 and gross losses of      
$1,291,000. The Company had previously recognized impairment charges on its     
investments in corporate debt securities equal to: (i) $3,474,000 on its Level 3
securities during the first quarter of 2002 and (ii) $2,453,000 on its RCN      
securities during the fourth quarter of 2001. During the second quarter of 2002,
the Company had designated all of its investments in corporate debt securities  
as available-for-sale, due to changes in the risk profile of the issuer.        

    The following table presents the amortized cost, gross unrealized gains,
gross unrealized losses and estimated fair value of the Company's corporate debt
securities by investment strategy classification as of December 31, 2001.       

                                        December 31,
                                      2001
                                        ------------

(In Thousands)                                              
Held-to-maturity securities:                                
Amortized cost/carrying value                 $ 7,627       
Gross unrealized gains                             --       
Gross unrealized losses                        (3,439)      
                                       -------
Estimated fair value                          $ 4,188       
                                       =======

Available-for-sale securities:                              
Amortized cost, as adjusted                   $ 2,147       
Gross unrealized gains                             --       
Gross unrealized losses                            --       
                                       -------
Estimated fair value/carrying value           $ 2,147       
                                       =======

Corporate Debt Securities -carrying value:                  
Held-to-maturity securities                   $ 7,627       
Available-for-sale securities                   2,147       
                                       -------
                                       $ 9,774
                                       =======

6. Corporate Equity Securities                                                  

The following table presents the cost, gross unrealized gains, gross
unrealized losses and fair value of the Company's corporate equity securities as
of December 31, 2001. The Company had no investments in corporate equity        
securities as of September 30, 2002.                                            

                                December 31,
                                2001
                                ------------
(In Thousands)                                      
Cost                                   $3,378       
Gross unrealized gains                    710       
Gross unrealized losses                    --       
                                ------
Carrying value/Estimated fair value    $4,088       
                                ======

  The Company sold all of its investments in corporate equity securities
during the first six months of 2002, realizing net gains of $569,000.           

13

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MFA MORTGAGE INVESTMENTS, INC.
 NOTES TO THE FINANCIAL STATEMENTS
 (UNAUDITED)

7. Other Investments                                                            

     Other investments consisted of the following as of September 30, 2002 and
December 31, 2001:                                                              

                                                    September 30,   December 31,
                                                   2002           2001
                                                    -------------   ------------
(In Thousands)                                                                  
Investment in and advances to RCC                      $5,328         $5,572    
Investments in and advances to real estate limited                              
partnerships and qualified REIT subsidiary            4,297          4,228  
                                                   ------         ------
                                                   $9,625         $9,800
                                                   ======         ======

As of September 30, 2002 and December 31, 2001, the Company had net 
indirect investments of $9,625,000 in six multi-family rental properties. These 
investments were held primarily through limited partnership interests and       
preferred stock holdings in various entities. As of September 30, 2002, an      
aggregate of approximately $47.9 million of non-recourse mortgage loans were    
secured by the underlying investment properties. (See below and Note 3(d).)     

    Income from the Company's other investments was as follows for the three
and nine-month periods ended September 30, 2002 and 2001:                       

                                         Three Months Ended    Nine Months Ended
                                          September 30,        September 30,
                                         ------------------    -----------------
                                         2002       2001      2002      2001
                                         ------     ------    ------    ------
(In Thousands)                                                                  
Gains on sale of underlying properties    $   --     $   --    $   --    $2,757 
Equity earnings (loss), net                  (52)       229       139       417 
                                         ------     ------    ------    ------
                                         $  (52)    $  229    $  139    $3,174
                                         ======     ======    ======    ======

Retirement Center Corporation                                                   

Through September 30, 2002, the Company owned 100% of the non-voting
preferred stock in RCC, which represented a 95% economic interest. The Company  
accounted for its investment in RCC using the equity method. On October 1, 2002,
the Company entered into an agreement to purchase 100% of the voting common     
stock in RCC, representing the remaining 5% economic interest. (See Note 3(d)). 

     As of September 30, 2002, RCC had (i) an indirect controlling interest in
a 128-unit apartment property located in Omaha, Nebraska, known as the          
"Greenhouse," which was acquired on January 12, 2000 and (ii) an indirect 88.3% 
interest in a 192-unit apartment property located in Lawrenceville, Georgia,    
which was acquired on January 18, 2001. The Company also indirectly holds the   
remaining 11.7% undivided interest in the Lawrenceville, Georgia property. In   
December 2000, the Company loaned Greenhouse Holding LLC (which holds the       
Greenhouse property), $437,000 to fund building renovations. This non-amortizing
loan, which was originally scheduled to mature on July 31, 2002, was extended   
until December 31, 2002. This is included in the above table in the Company's   
investment in and advances to RCC.                                              

  As of December 31, 2000, RCC owned a limited partnership interest in a
real estate limited partnership, which operated an assisted living center       
located in Salt Lake City, Utah. On January 2, 2001, the limited partnership,   
which owned the assisted living center, was liquidated with RCC receiving an    
undivided interest in the net assets of such partnership. RCC then sold its     
undivided interest in the net assets of this assisted living center. Such sale  
contributed approximately $2,063,000 ($2,574,000 less a related incentive fee of
approximately $511,000 reflected in other general and administrative expense) to
the Company's net income for the nine months ended September 30, 2001. The      
proceeds of such sale were utilized by RCC to acquire its indirect interest in  
the 192-unit apartment property in Lawrenceville, Georgia on January 18, 2001 as
discussed above.                                                                

      On October 1, 2002, the Company entered into a purchase and sale agreement
with Mr. Gorin to purchase 100% of the RCC common stock, representing a 5%      
economic and 100% controlling interest in RCC, held by Mr. Gorin for $260,000,  
The purchase price was based on the estimated value of the underlying properties
indirectly held by RCC, as determined by independent appraisers, net of the     
related mortgage indebtedness. As a result of this transaction, the Company now 
holds all of the outstanding securities of RCC.                                 

14

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MFA MORTGAGE INVESTMENTS, INC.
 NOTES TO THE FINANCIAL STATEMENTS
 (UNAUDITED)

Real Estate Limited Partnerships and Qualified REIT Subsidiary      

      Other investments include investments in and advances made to certain real
estate limited partnerships, some of which were acquired as part of the 1998    
Merger, and a Qualified REIT Subsidiary ("QRS"). Certain of the underlying      
properties have been exchanged for other properties through a non-taxable       
exchange, known for tax purposes as a "Section 1031 exchange." Through September
30, 2002, the investments in or advances made to the limited partnerships and   
the QRS were accounted for under the equity method of accounting. Certain of the
investments have a zero carrying value and, as such, earnings are recorded only 
to the extent distributions are received. Such investments have not been reduced
below zero through recognition of allocated investment losses since the Company 
has no legal obligation to provide additional cash support to the underlying    
property partnerships as it is not the general partner, nor has it indicated any
commitment to provide this support.                                             

8. Interest Rate Cap Agreements                                                 

The Company only enters into Cap Agreements with financially sound  
institutions whose holding or parent company's long-term debt rating is "A" or  
better as determined by at least one nationally recognized rating agency, where 
applicable. In the unlikely event of a default by the counterparty, the Company 
would not receive payments provided for under the terms of the Cap Agreement and
could incur a loss for the initial cost of entering into the Cap Agreement.     

 As of September 30, 2002, the Company had nine Cap Agreements with an
aggregate notional amount of $250 million which were purchased to hedge against 
increases in interest rates on its anticipated future 30-day term repurchase    
agreements. The following table presents information about the Company's Cap    
Agreements as of September 30, 2002:                                            

                                                        [Enlarge/Download Table]

                        Weighted     Weighted                             Estimated               
                         Average     Average                                Fair          Gross   
                         Active    Libor Strike  Notional  Unamortized  Value/Carrying  Unrealized
                         Period      Rate (1)     Amount     Premium        Value          Loss   
(Dollars in Thousands)  --------   ------------  --------  -----------  --------------  ----------
                                                                                                  
Months until active:                                                                              
Within six months       24 Months     5.750%     $ 50,000     $  350        $  60        $  (290) 
Six to nine months          --           --            --         --           --             --  
Nine to 12 months       18 Months     4.750       100,000      1,486          324         (1,162) 
12 to 24 months         18 Months     4.500       100,000      1,386          550           (835) 
                                                 --------     ------        -----        -------  
Weighted Average/Total  19 Months     4.850%     $250,000     $3,222        $ 934        $(2,287) 
                                                 ========     ======        =====        =======  

(1) The rate at which payments would become due to the Company under the terms  
of the Cap Agreement.                                                   

9. Repurchase Agreements                                                        

As of September 30, 2002, the Company had outstanding balances of   
approximately $3.20 billion under 178 repurchase agreements with a weighted     
average borrowing rate of 2.16% and a weighted average remaining maturity of    
approximately six months. As of September 30, 2002, the repurchase agreements   
had the following remaining maturities:                                         

(In Thousands)                                      
Within 30 days                       $  156,858     
31 to 60 days                           345,813     
61 to 90 days                            97,100     
3 to 6 months                         1,134,692     
6 to 9 months                           939,934     
9 to 18 months                          522,738     
                                ----------
                                $3,197,135
                                ==========

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MFA MORTGAGE INVESTMENTS, INC.
 NOTES TO THE FINANCIAL STATEMENTS
 (UNAUDITED)

   The repurchase agreements are collateralized by the Company's MBS which
had a carrying value of approximately $3.45 billion as of September 30, 2002.   
The Company's repurchase agreements generally bear interest at rates that are   
priced off of LIBOR.                                                            

10. Commitments and Contingencies                                               

(a) Securities Purchase Commitments                                 

At September 30, 2002, there were no commitments to enter into any  
security transactions.                                                          

(b) Lease Commitment                                                

During the second quarter of 2002, the Company entered into a       
noncancellable lease through 2012 for its corporate headquarters, which it moved
into during the third quarter of 2002. Additional office space was necessary to 
house the Company's operations, which prior to the Advisor Merger were partially
housed in Omaha, Nebraska. The lease provides for, among other things, annual   
rent of $338,000 though 2005, $348,000 from 2006 through 2008 and $357,000 from 
2009 through 2012.                                                              

11. Stockholders' Equity                                                        

(a) Dividends/Distributions                                         

    The following presents dividends declared by the Company from January 1,
2001 through September 30, 2002:                                                

                                                        [Enlarge/Download Table]

                                                                           Dividend per
        Declaration Date            Record Date          Payment Date         Share    
------------------------------  ---------------------  ------------------  ------------
                                                                                       
2002                                                                                   
September 12, 2002              September 30, 2002     October 30, 2002     $  0.280   
September 12, 2002              September 30, 2002     October 30, 2002        0.040*  
June 12, 2002                   June 28, 2002          July 30, 2002           0.280   
June 12, 2002                   June 28, 2002          July 30, 2002           0.020*  
March 12, 2002                  March 28, 2002         April 30, 2002          0.280   
March 12, 2002                  March 28, 2002         April 30, 2002          0.020*  

2001                                                                                   
February 12, 2001               April 16, 2001         April 30, 2001       $  0.165   
April 9, 2001                   June 30, 2001          July 16, 2001           0.175   
September 19, 2001              October 2, 2001        October 18, 2001        0.225   
December 12, 2001               December 28, 2001      January 30, 2002        0.280   

*     Represents a special dividend declared, in addition to the    
applicable quarterly dividend.                          

(b) Common Stock Offerings                                          

      On June 5, 2002, the Company issued 10,350,000 shares of its common stock,
$0.01 par value (the "Common Stock"), at $9.10 per share, raising net proceeds  
of approximately $88.8 million, and on January 18, 2002, the Company issued     
7,475,000 shares of its Common Stock at $8.25 per share, raising net proceeds of
approximately $58.2 million.                                                    

(c) Shelf Registration                                              

     On September 25, 2001, the Company filed a registration statement on Form
S-3 with the SEC under the Securities Act of 1933, as amended, (the "Act"), with
respect to an aggregate of $300,000,000 of Common Stock and/or preferred stock  
that may be sold by the Company from time to time pursuant to Rule 415 under the
Act. On October 5, 2001, the Commission declared the registration statement     
effective. As of September 30, 2002, the Company had approximately $80.1 million
remaining under this shelf registration statement.                              

(d) Stock Repurchase Plan                                           

  The Company did not repurchase any of its Common Stock during the nine
months ended September 30, 2002. Since implementing the stock repurchase program
during the fourth quarter of 1999, through September 30, 2002, the Company had  
repurchased and retired 378,221 shares at an aggregate cost of $1,924,000.      

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MFA MORTGAGE INVESTMENTS, INC.
 NOTES TO THE FINANCIAL STATEMENTS
 (UNAUDITED)

12. EPS Calculation                                                             

     The following table presents the reconciliation between basic and diluted
shares outstanding used in calculating basic and diluted EPS for the three and  
nine months ended September 30, 2002 and 2001:                                  

                                                        [Enlarge/Download Table]

                                                Three Months Ended  Nine Months Ended
                                                   September 30,     September 30,   
                                                ------------------  -----------------
                                                  2002      2001     2002      2001  
                                                 ------    ------   ------    ------ 
(In Thousands)                                                                       
                                                                                     
Weighted average shares outstanding - basic      46,257    19,035   39,801    12,331 

Add effect of assumed shares issued under                                            
  treasury stock method for stock options            89       113      112        94 
                                                 ------    ------   ------    ------ 
Weighted average shares outstanding  - diluted   46,346    19,148   39,913    12,425 
                                                 ======    ======   ======    ====== 

13. Other Comprehensive Income/Accumulated Other Comprehensive Income           

  Comprehensive income for the three and nine months ended September 30,
2002 and 2001 was as follows:                                                   

                                                        [Enlarge/Download Table]

                                                              Three Months Ended     Nine Months Ended  
                                                                September 30,          September 30,    
                                                            ---------------------  ---------------------
                                                              2002         2001      2002         2001  
                                                            --------     --------  --------     --------
(In Thousands)                                                                                          
                                                                                                        
Net income                                                  $ 17,340     $  5,087  $ 41,054     $ 11,378
Other comprehensive income:                                                                             
Net unrealized holding gains(losses) on available-for-sale                                              
  investment securities arising during the period             17,535        5,043    19,978        8,365
Unrealized losses on Cap Agreements                           (1,548)          --    (2,450)          --
                                                            --------     --------  --------     --------
Comprehensive income                                        $ 33,327     $ 10,130  $ 58,582     $ 19,743
                                                            ========     ========  ========     ========

     Accumulated other comprehensive income at September 30, 2002 and December
31, 2001 was as follows:                                                        

                                                        [Enlarge/Download Table]

                                                          September 30,  December 31,
                                                              2002          2001     
                                                          -------------  ------------
(In Thousands)                                                                       
                                                                                     
Unrealized gains on securities available-for-sale:                                   
  MBS                                                       $ 25,643      $  8,409   
  Corporate equity securities                                     --           710   
Unrealized losses on securities available-for-sale:                                  
  MBS                                                         (1,319)       (4,773)  
                                                            --------      --------   
                                                              24,324         4,346   

Unrealized appreciation (depreciation) on Cap Agreements      (2,287)          163   
                                                            --------      --------   
Accumulated other comprehensive income                      $ 22,037      $  4,509   
                                                            ========      ========   

14. 1997 Stock Option Plan and Employment Agreements                            

(a) 1997 Stock Option Plan                                          

The Company's 1997 Stock Option Plan, as amended (the "1997 Plan"), 
authorizes the granting of options to purchase an aggregate of up to 1,400,000  
shares of the Company's Common Stock, but not more than 10% of the total        
outstanding shares of the Company's Common Stock. The Plan authorizes the Board 
of Directors, or a committee of the Board of Directors, to grant Incentive Stock
Options ("ISOs"), as defined under section 422 of the Code, non-qualified stock 
options ("NQSOs") and dividend equivalent rights ("DERs") to eligible persons.  
The exercise price for any options granted to eligible persons under the 1997   
Plan shall not be less than the fair market value of the Common Stock on the day
of the grant. The options expire if not exercised ten years from the date of    
grant or upon certain other conditions.                                         

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MFA MORTGAGE INVESTMENTS, INC.
 NOTES TO THE FINANCIAL STATEMENTS
 (UNAUDITED)

    DERs on the ISOs vest on the same basis as the options and DERs on NQSOs
become fully vested one year following the date of grant. Dividends are paid on 
vested DERs only to the extent of ordinary income. DERs are not entitled to     
distributions representing a return of capital. Dividends paid on DERs attached 
to ISOs are charged to stockholders' equity when declared and dividends paid on 
DERs attached to NQSOs are charged to earnings when declared. For the nine      
months ended September 30, 2002 and 2001, the Company recorded charges of       
$429,000 and $283,000, respectively, to stockholders' equity (included in       
dividends paid or accrued) associated with the DERs on ISOs and charges of      
$2,700 and $2,500, respectively, to earnings associated with DERs on NQSOs. As  
of September 30, 2002, 452,500 DERs were outstanding, all of which were fully   
vested.                                                                         

ISOs granted to the executive officers of the Company, who were also
employees of the Advisor, were accounted for under the fair value method        
established under FAS 123, "Accounting for Stock Based Compensation" ("FAS 123")
resulting in option related expenses recognized over the vesting period.        
Management used the Black-Scholes valuation model to determine the option       
expense. Since the Company commenced operations in 1998, management used        
assumptions consistent with activity of a comparable peer group of companies,   
including an estimated option life, a volatility rate, a risk free rate and a   
current dividend yield for the 1998 and 1999 grants (or a dividend yield of 0%  
if the related DERs were issued).                                               

 Effective January 1, 2002, the status of the employees of the Advisor
changed such that they became employees of the Company. Accordingly, the        
unvested options outstanding as of January 1, 2002 were treated as newly granted
options to employees and accounted for under the APB 25, with the difference    
between the fair market value of the Company's Common Stock and option price    
expensed over the remaining vesting period of approximately seven months. For   
the nine months ended September 30, 2002, the Company recognized $48,000 of     
employee related compensation expense for stock options and recognized $138,000 
of stock option related expense for options granted to non-employees for the    
nine months ended September 30, 2001.                                           

  NQSOs were granted to the Company's directors as consideration for the
performance of their duties as directors. The Company treated the directors as  
employees for purposes of applying FAS 123 and, in accordance with its policy,  
accounted for the NQSOs under APB 25, as described earlier, with no expense     
recognized for the NQSOs, as the exercise price was equal to the market value of
the Company's Common Stock at the time of grant.                                

(b) Employment Agreements                                           

     On March 12, 2002, the Board of Directors adopted a compensation plan for
Messrs. Zimmerman, Gorin and Freydberg that took effect on August 1, 2002. Under
the new agreements, salaries to be paid to Messrs. Zimmerman, Gorin, and        
Freydberg will be equal to 0.25%, 0.20% and 0.20%, respectively, of the         
Company's tangible net worth, which will be calculated on a semi-annual basis on
each September 30 and December 31. In the event that the Company's annualized   
return on equity for any given six-month period were to fall below 10%, the     
salaries to be paid to Messrs. Zimmerman, Gorin and Freydberg with respect to   
the following six-month period would be adjusted downward to equal (i) 0.2375%, 
0.19% and 0.19%, respectively, of the Company's tangible net worth if its       
annualized return on equity was between 10% and 5% and (ii) 0.225%, 0.18% and   
0.18%, respectively, of the Company's tangible net worth if its annualized      
return on equity was less than 5%. Notwithstanding the foregoing, the annual    
base salaries payable to Messrs. Zimmerman, Gorin and Freydberg pursuant to the 
new compensation plan will in no event exceed $1,000,000, $750,000 and $750,000,
respectively. The Company also expects to enter into an employment agreement    
with Ms. Teresa Covello, the Company's Senior Vice President/Controller.        

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Item 2.                                                                         

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      
OPERATIONS                                                                      

     The following discussion should be read in conjunction with the financial
statements and notes thereto included in Item 1 of this Quarterly Report on Form
10-Q as well as in the Company's Annual Report on Form 10-K for the year ended  
December 31, 2001.                                                              

 GENERAL

    MFA Mortgage Investments, Inc. is a self-advised mortgage REIT, which is
primarily engaged in the business of investing in adjustable rate MBS. The      
Company's investment portfolio consists primarily of MBS issued or guaranteed as
to principal and interest by an agency of the U.S. Government, such as Ginnie   
Mae, Fannie Mae or Freddie Mac (collectively referred to as "Agency             
Securities"), and, to a lesser extent, high quality MBS, rated in one of the two
highest rating categories by at least one nationally recognized rating agency.  
The Company's investment strategy also provides for the acquisition of          
multi-family housing properties, investments in REIT securities and other       
securities. The Company's principal business objective is to generate net income
for distribution to its stockholders, resulting from the spread between the     
interest and other income it earns on its investments and the cost of financing 
such investments.                                                               

On August 13, 2002, the Company changed its name from America First 
Mortgage Investments, Inc. to MFA Mortgage Investments, Inc. The name change was
made in order to more clearly reflect MFA's independent status and identity as a
self-advised mortgage REIT.                                                     

The Company has elected to be taxed as a REIT for federal income tax
purposes. Pursuant to the current federal tax regulations, one of the           
requirements of maintaining its status as a REIT is that the Company must       
distribute at least 90% of its annual taxable net income to its stockholders,   
subject to certain adjustments.                                                 

The Company was incorporated in Maryland on July 24, 1997 and began 
operations on April 10, 1998 when it merged with the Prep Funds. As a result of 
the 1998 Merger, Prep Fund 1 and Prep Fund 2 were merged directly into the      
Company and Pension Fund became a partnership subsidiary of the Company. In     
December 1999, Pension Fund was liquidated and dissolved and, as a result, the  
Company acquired approximately 99% of the assets of Pension Fund. The remaining 
assets, consisting solely of cash, were distributed to the holders of Pension   
Fund securities who elected to remain in place following the 1998 Merger. As a  
result of the 1998 Merger, the Company issued a total of 9,035,084 shares of its
Common Stock to the former partners of the Prep Funds.                          

      Following the completion of the 1998 Merger through December 31, 2001, the
Company was externally advised and managed by the Advisor. As such, the Company 
had no employees and relied entirely on the Advisor to perform all of the duties
that are generally performed by internal management, as well as perform all back
office operations. Pursuant the Advisory Agreement, the Advisor provided the    
day-to-day management and administrative functions for the Company for a fee,   
which was calculated on a quarterly basis. The Advisor was a subsidiary of AFC. 

      On December 12, 2001, the Company's stockholders approved the terms of the
Advisor Merger Agreement, dated September 24, 2001, among the Company, the      
Advisor, AFC and the stockholders of the Advisor which provided for the Advisor 
Merger. The Advisor Merger became effective on January 1, 2002. As a result of  
the Advisor Merger, the Company became a self-advised REIT and, as such, is no  
longer be required to pay a fee to the Advisor under the Advisory Agreement, but
rather directly incurs all of the costs of operating the Company. In connection 
with the Advisor Merger, the employees of the Advisor became employees of the   
Company and the Company assumed the employment contracts of these individuals.  
The Company also acquired all of the tangible and intangible business assets of 
the Advisor.                                                                    

     The Company's core business strategy is to invest on a leveraged basis in
a portfolio of high-grade ARM-MBS, which primarily consist of Agency MBS.       
Beginning in September 2001, the Company began to significantly increase its    
asset base by leveraging equity raised through additional public offerings of   
the Company's Common Stock. As a result, the Company has experienced significant
growth in assets and earnings. The Company's total assets grew to approximately 
$3.60 billion at September 30, 2002 from $2.07 billion at December 31, 2001 and 
$1.44 billion as of September 30, 2001. As of September 30, 2002, approximately 
99% of the Company's assets consisted of Agency MBS, AAA rated MBS and cash. The
Company also has indirect interests in six apartment properties, containing a   
total of 1,473 rental units. Four of these apartment properties are located in  
Georgia, one is located in North Carolina and one is located in Nebraska.       

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    The results of the Company's operations are affected by various factors,
many of which are beyond the control of the Company. The results of the         
Company's operations primarily depend on, among other things, the level of its  
net interest income, the market value of its assets and the supply of and demand
for such assets. The Company's net interest income, which reflects the          
amortization of purchase premiums, varies primarily as a result of changes in   
short-term interest rates, borrowing costs and prepayment rates, the behavior of
which involves various risks and uncertainties. Prepayment rates as reflected by
the constant prepayment rate ("CPR") and interest rates vary according to the   
type of investment, conditions in financial markets, competition and other      
factors, none of which can be predicted with any certainty. The CPR on the      
Company's MBS portfolio averaged 29% and 28% for the three and nine months ended
September 30, 2002, respectively. In addition to these factors, borrowing costs 
are further affected by the credit worthiness of the borrower. Since changes in 
interest rates may significantly affect the Company's activities, the operating 
results of the Company depend, in large part, upon the ability of the Company to
effectively manage its interest rate and prepayment risks while maintaining its 
status as a REIT. During the quarter ended September 30, 2002, the Company had  
sold all of its remaining investments in corporate debt securities, realizing an
aggregate net loss of $363,000. The Company also has risks inherent in its other
investments, comprised of interests in multi-family real estate properties and  
hedging instruments. Because these investments represented less than 0.3% of the
Company's total assets at September 30, 2002, the risk related to these assets  
is limited; nonetheless, these investments have the potential of causing a      
material impact on the Company's operating performance in future periods.       

 RESULTS OF OPERATIONS

  It should be noted that due to the significant growth in the Company's
assets as well as the completion of the Advisor Merger on January 1, 2002, the  
amount and components of the Company's income and expenses for the quarter and  
year to date periods ended September 30, 2002 differ significantly from the same
periods in 2001.                                                                

Three Month Period Ended September 30, 2002 Compared to the Three Month Period  
Ended September 30, 2001                                                        

      Net income increased to $17.3 million for the three months ended September
30, 2002, reflecting basic and diluted earnings per share of $.37, from $5.1    
million, or basic and diluted earnings per share of $0.27, for the three months 
ended September 30, 2001. Comparing the third quarter of 2002 to the third      
quarter of 2001, the Company's core net revenue, comprised of net interest      
income, increased by $12.8 million, or 199%, to $19.2 million for the 2002      
period from $6.4 million for the 2001 period. This increase in net interest     
income reflects the significant growth in the Company's interest earning assets 
and interest bearing liabilities. During the three months ended September 30,   
2002, total interest and dividend income, net of amortization of premium and    
accretion of discounts, increased by $20.3 million, or 122%, to $37.0 million   
from $16.7 million for the three months ended September 30, 2001. This increase 
reflects the significant growth in the Company's interest earning assets, which 
were primarily funded through the leveraging of new equity capital raised       
through public sales of the Company's Common Stock. The Company's average       
interest-earning assets for the three months ended September 30, 2002 were $3.45
billion, compared to $1.14 billion for the third quarter of 2001. The increase  
in interest income generated by the growth in interest earning assets was       
partially offset by a decrease in the yield on interest earning assets, to 4.30%
from 5.87% for the comparable period in 2001 reflecting the declining interest  
rate environment.                                                               

The Company's interest expense on borrowed funds (i.e., repurchase  
agreements) increased by $7.6 million, or 74%, to $17.8 million for the three   
months ended September 30, 2002, compared to $10.3 million for the third quarter
of 2001, reflecting the significant increase in borrowings. The increase in     
interest expense related to the increase in the balance of repurchase agreements
was partially offset by a reduction in the average cost of funds, which         
decreased to 2.27% for the current quarter compared to 3.87% for the third      
quarter of 2001. The increase in borrowings was facilitated by the Company's    
increase in equity raised in capital market transactions. Between June 27, 2001 
and June 5, 2002, the Company issued approximately 36.2 million shares of its   
Common Stock through four public offerings, which generated aggregate net       
proceeds of approximately $273.6 million of additional equity capital that was  
invested on a levered basis. (See "Liquidity and Capital Resources" below.)     

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Because the Company's interest bearing liabilities (i.e., repurchase
agreements) reprice faster than its interest earning assets (primarily, hybrid  
MBS), the declining interest rate environment that began during 2001 has        
benefited the Company. The Company's interest rate margin (i.e., annualized net 
interest and dividend income divided by average interest earning assets) was    
2.25% for the current quarter compared to 2.29% for the third quarter of 2001.  
The net interest rate spread increased slightly to 2.03% for the current quarter
from 2.00% for the third quarter of 2001. The prepayment rate on the Company's  
MBS portfolio averaged 29% CPR during the third quarter of 2002. Given the      
positive slope of the yield curve, the Company expects adjustable-rate mortgage 
rates to remain below fixed mortgage rates. As of September 30, 2002, the       
Company's MBS portfolio had a weighted average coupon rate of 5.40% and an      
average purchase premium of 2.20%. The Company expects that prepayment speeds on
the MBS portfolio may increase in the fourth quarter of 2002. However,          
management believes that the potential impact on earnings of increased          
prepayments may be partially offset by declining borrowing costs.               

 Other investments generated a loss of $52,000 during the three months
ended September 30, 2002, compared to income of $229,000 during the third       
quarter of 2001. The Company's investment in multi-family apartment properties  
was intended to compliment the performance of its MBS portfolio, offering a     
degree of asset diversification. Given the significant growth of the Company's  
MBS portfolio during 2001 and 2002, these investments and their returns have    
become a relatively insignificant component of the Company's income, as the net 
investments in real estate represented approximately 0.3% of total assets as of 
September 30, 2002. However, gains and/or losses on the sale of any of these    
investments, if any, could significantly impact the results of operations for   
future periods. The Company is actively marketing its interests in certain of   
these properties for sale, as its focus is on managing the core asset portfolio 
of ARM-MBS. While management believes that in the present real estate market a  
sale of any one of the properties would result in a gain to the Company, no     
assurance can be given as to when or whether such sales will take place or      
whether they will ultimately result in a gain.                                  

      During the quarter ended September 30, 2002, the Company realized gains of
$928,000 and losses of approximately $1.3 million on the sale of debt           
securities. During the third quarter of 2001, the Company realized gains of     
$208,000 and losses of $332,000 on the sale of securities.                      

Prior to the January 1, 2002 Advisor Merger, the most significant   
component of the Company's general and administrative expenses were formula     
driven advisory fees. General and administrative expenses for the third quarter 
of 2002 reflect the Company's direct operating expenses following the Advisor   
Merger. Therefore, the expenses incurred during the third quarter of 2001,      
during which time the Company was externally managed, are not readily comparable
with those of the current period.                                               

     For the three months ended September 30, 2002, general and administrative
expenses (on an annualized basis) were 0.16% of average assets, compared to     
0.49% of average assets for the three months ended September 30, 2001, when the 
Company was externally managed. Although general and administrative expenses    
remained at approximately $1.4 million for the third quarter of 2002 and 2001,  
as a percentage of assets general and administrative expenses have been         
substantially reduced as a result of the Company becoming self managed through  
the Advisor Merger.                                                             

     During the quarter ended September 30, 2001, the Company paid the Advisor
total fees of $1.1 million. (See Note 3(a) to the Financial Statements.) For the
third quarter of 2002, employee compensation and benefits accounted for         
approximately $759,000, or 52%, of general and administrative expenses. Fees for
professional services, such as legal and accounting, office rent, corporate     
insurance and director compensation are the other major costs incurred in       
operating the Company.                                                          

Nine Month Period Ended September 30, 2002 Compared to the Nine Month Period    
Ended September 30, 2001                                                        

   Significant non-recurring items are reflected in both the 2002 and 2001
periods. During the first quarter of 2002, the Company recognized a charge of   
$3.5 million against its debt securities portfolio due to an                    
other-than-temporary decline in the market value of a corporate debt security.  
In addition, during the first nine months of 2001, the Company realized a gain  
of $2.6 million on the sale of an assisted living center. For tax purposes, the 
Company sets its dividend rates based on the Company's taxable income. The      
capital loss realized on the sale of the Company's investments in corporate debt
securities during the third quarter of 2002 represents a capital loss and, as   
such cannot be used to offset operating income. The tax loss will be carried    
forward and used to offset future long-term capital gains, if any. The gain     
realized on the sale of the assisted living center during the first nine months 
of 2001 was not realized for tax purposes and therefore did not impact the      
Company's taxable income.                                                       

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     Net income increased to $41.1 million for the nine months ended September
30, 2002, reflecting basic and diluted earnings per share of $1.03, compared to 
net income of $11.4 million, or $.92 per basic and diluted share, for the nine  
months ended September 30, 2001. Comparing the first nine months of 2002 to the 
first nine months of 2001, the Company's core net revenue, comprised of net     
interest income, increased by $36.5 million, or 306%, to $48.4 million for the  
2002 period from $11.9 million for the 2001 period. This increase in net        
interest income reflects the significant growth in the Company's interest       
earning assets and the related liabilities funding such assets.                 

    Interest and dividend income for the current nine-month period increased
by $60.5 million, or 175%, from $34.5 million for the first nine months of 2001.
Interest expense increased by $23.9 million, or 106%, to $46.6 million for the  
current nine-month period, compared with $22.6 million for the first nine months
of 2001. This increase reflects the significant increase in borrowings that was 
partially offset by a reduction in the cost of funds to 2.40% for the nine      
months 2002 from 4.56% for the nine months of 2001. The aggregate decrease of   
$1.0 million in income from corporate debt and equity securities reflects the   
declining investment in these instruments, as management has continued to       
emphasize investing in MBS. As of September 30, 2002, the Company had no        
remaining investments in corporate debt or equity securities.                   

     The Company realized a net other loss of $3.5 million for the nine months
ended September 30, 2002, compared to income of $2.8 million for the comparative
2001 period. During the current nine month period, a $3.5 million               
other-than-temporary impairment charge was recognized on corporate debt         
securities and an additional net loss of $363,000 was recognized upon the sale  
of these securities during the third quarter of 2002, as reflected in the net   
loss on the sale of investments of $115,000. During the nine months ended       
September 30, 2001, the Company realized a $2.6 million non-recurring gain on   
the sale of an assisted living center.                                          

     The $3.5 million impairment charge (which was recognized during the first
quarter of 2002) represents a loss of $.087 per share for the nine months ended 
September 30, 2002. This loss was entirely attributable to an investment in the 
corporate debt securities of Level 3. During the quarter ended September 30,    
2002, the Company sold all of its remaining corporate debt securities, including
the Level 3 securities, all of which were designated as available-for-sale.     

Prior to January 1, 2002, the Company's general and administrative  
expenses were primarily formula driven fees payable to the Advisor. For the nine
months ended September 30, 2001, the Company paid the Advisor total fees of $2.6
million. (See Note 3(a) to the Financial Statements.) During the nine months    
ended September 30, 2002, the Company incurred $3.9 million of operating        
expenses, or 0.18% of average assets on an annualized basis, Employee           
compensation and benefits accounted for $2.1 million of general and             
administrative expenses with the remainder expended primarily for professional  
services, including legal and accounting, corporate insurance, office rent on   
the Company's corporate headquarters. During the third quarter of 2002, the     
Company moved into its new headquarters, as the Company required additional     
space to accommodate its post Advisor Merger operations. (See Note 10(b) to the 
Financial Statements.)                                                          

 LIQUIDITY AND CAPITAL RESOURCES

    The Company's principal sources of liquidity consist of borrowings under
repurchase agreements, principal payments received on its portfolio of MBS, cash
flows generated by operations and proceeds from capital market transactions. The
Company primarily uses its funds to purchase MBS. In addition, to a lesser      
extent, the Company may invest in hedge instruments, such as the interest rate  
Cap Agreements. The Company also requires cash to pay dividends on its Common   
Stock and to fund its operating expenses. Although the Company may also invest  
in multi-family properties and other assets consistent with its operating       
policy, it currently has no plans to do so.                                     

Borrowings under repurchase agreements totaled $3.20 billion as of  
September 30, 2002, compared to $1.85 billion at December 31, 2001. This        
increase in leverage was facilitated by the increase in the Company's capital as
a result of the public stock offerings completed in January and June of 2002.   
The proceeds from the sale of the Company's Common Stock along with the         
incremental borrowings under repurchase agreements were used to purchase Agency 
and AAA rated ARM-MBS. At September 30, 2002, the Company's repurchase          
agreements had a weighted average borrowing rate of 2.16%, on loan balances of  
between $560,000 and $96.6 million. Since the first quarter of 2002, the Company
has entered into repurchase agreements with terms to maturity of up to 18       
months; prior to that time, the maximum term to maturity was 12 months at       
inception of the loan. These agreements generally have original terms to        
maturity ranging from one month to 18 months and interest rates that are        
typically based off of LIBOR. To date, the Company has not had any margin calls 
on its repurchase agreements that it was unable to satisfy with either cash or  
additional pledged collateral.                                                  

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  On January 18, 2002, the Company issued 7,475,000 shares of its Common
Stock, generating net proceeds of approximately $58.2 million in a public       
offering. In addition, on June 4, 2002, the Company issued 10,350,000 shares of 
its Common Stock generating net proceeds of approximately $88.8 million. As of  
September 30, 2002, the net proceeds of the January and June equity offerings   
were fully invested. At September 30, 2002, the Company had an assets-to-equity 
ratio of 9.7x. Over time, the Company expects to maintain this ratio within a   
range of 9x to 11x. Following the completion of the June 2002 equity offering,  
the Company had approximately $80.1 million remaining on its effective shelf    
registration statement, which was filed with the SEC on September 25, 2001 for  
the purpose of registering and offering, from time to time, shares of the       
Company's common and preferred stock.                                           

  To the extent the Company raises additional equity capital from future
sales of common and/or preferred stock pursuant to its shelf registration       
statement, the Company anticipates using the net proceeds primarily to acquire  
additional Agency and/or AAA rated ARM-MBS. Management may also consider        
additional interests in multi-family apartment properties and other investments 
consistent with its operating policies. There can be no assurance, however, that
the Company will be able to raise additional equity capital at any particular   
time or on any particular terms.                                                

      During the nine months ended September 30, 2002, principal payments on MBS
generated cash of approximately $850.6 million and operations provided a net of 
$59.4 million in cash. In addition, during the first nine months of 2002, the   
Company received proceeds of $9.6 million from the sale of corporate debt and   
equity securities and $4.5 million from the sale of MBS.                        

During the first nine months of 2002, as part of its core investing 
activities, the Company acquired $2.4 billion of MBS, all of which were either  
Agency or AAA rated adjustable rate or hybrid MBS. Other uses of funds during   
the nine-month period included payments of $32.6 million for dividends on the   
Company's Common Stock.                                                         

In order to reduce interest rate risk exposure on a portion of the  
Company's LIBOR-based repurchase agreements, the Company enters into Cap        
Agreements. As of September 30, 2002, the Company had nine Cap Agreements with a
total notional amount of $250.0 million, of which eight had been entered into   
during the nine-month period ended September 30, 2002 with aggregate premium    
cost of $2.9 million. A Cap Agreement will generate cash payments if the market 
interest rate specified in the Cap Agreement (i.e., LIBOR) increases beyond the 
strike rate specified in the Cap Agreement. The timing and amount of such cash  
flows on the Company's Cap Agreements, if any, cannot be predicted.             

      The Company's restricted cash balance represents cash held on deposit with
certain counterparties (i.e., lenders) to satisfy margin calls on repurchase    
agreements. Margin calls on the Company's repurchase agreement collateral are   
generally expected, as the value of the MBS securing repurchase agreements      
decline as the principal value of the MBS is reduced through scheduled          
amortization and prepayments. At the time a repurchase agreement rolls (i.e.,   
matures or reprices), the Company will apply the restricted cash against the    
repurchase agreement, thereby reducing the borrowing.                           

The Company believes it has adequate financial resources to meet its
obligations as they come due and to fund committed dividends as well as to      
actively pursue its investment policies. However, should market interest rates  
suddenly spike, margin calls due to a decline in the market value of the MBS    
collateralizing the Company's repurchase agreements could result, causing an    
adverse change in the Company's liquidity position.                             

 OTHER MATTERS

 The Company at all times intends to conduct its business so as to not
become regulated as an investment company under the Investment Company Act of   
1940, as amended (the "Investment Company Act"). If the Company were to become  
regulated as an investment company, then, among other things, the Company's     
ability to use leverage would be substantially reduced. The Investment Company  
Act exempts entities that are "primarily engaged in the business of purchasing  
or otherwise acquiring mortgages and other liens on and interests in real       
estate" (i.e., "Qualifying Interests"). Under the current interpretation of the 
staff of the SEC, in order to qualify for this exemption, the Company must      
maintain at least 55% of its assets directly in Qualifying Interests. In        
addition, unless certain mortgage securities represent an undivided interest in 
the entire pool backing such mortgage securities (i.e., "whole pool" mortgage   
securities), such mortgage securities may be treated as securities separate from
the underlying mortgage loan, thus, may not be considered Qualifying Interests  
for purposes of the 55% exemption requirement. Accordingly, the Company monitors
its compliance with this requirement in order to maintain its exempt status. As 
of September 30, 2002, the Company determined that it was in and has maintained 
compliance with this requirement.                                               

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 INFLATION

  Virtually all of the Company's assets and liabilities are financial in
nature. As a result, interest rates and other factors drive the Company's       
performance far more than does inflation. Changes in interest rates do not      
necessarily correlate with inflation rates and changes in inflation rates. The  
Company's financial statements are prepared in accordance with GAAP and our     
dividends are based upon our net income as calculated for tax purposes; in each 
case, our activities and statements of financial condition (i.e., balance       
sheets) are measured with reference to historical cost or fair market value     
without considering inflation.                                                  

FORWARD LOOKING STATEMENTS

      When used in this Quarterly Report on Form 10-Q, in future SEC filings, in
press releases or other written or oral communications, the words or phrases    
"will likely result," "are expected to," "will continue," "is anticipated,"     
"estimate," "project" or similar expressions are intended to identify           
forward-looking statements for purposes of Section 27A of the Act and Section   
21E of the Securities Exchange Act of 1934, as amended, and as such may involve 
known and unknown risks, uncertainties and assumptions.                         

These forward-looking statements are subject to various risks and   
uncertainties, including, but not limited to: increases in the prepayment rates 
on the mortgage loans securing the Company's MBS; changes in short-term and     
long-term interest rates and the market value of the Company's MBS and other    
investments; the Company's ability to use borrowings to finance its assets;     
risks associated with investing in real estate, including changes in business   
conditions and the general economy; changes in government regulations affecting 
the Company's business; and the Company's ability to maintain its qualification 
as a REIT for federal income tax purposes. These risks, uncertainties and       
factors could cause the Company's actual results to differ materially from those
projected in any forward-looking statements it makes.                           

   All forward-looking statements speak only as the date they are made and
the Company does not undertake, and specifically disclaims, any obligation to   
update any forward-looking statement to reflect events or circumstances after   
the date of such statements. Readers are cautioned that the Company's actual    
results could differ materially from those set forth in such forward-looking    
statements.                                                                     

Item 3. Quantitative and Qualitative Disclosures About Market Risk. 

   The Company seeks to manage the interest rate, market value, liquidity,
prepayment and credit risks inherent in all financial institutions in a prudent 
manner designed to insure the longevity of the Company while, at the same time, 
seeking to provide an opportunity to stockholders to realize attractive total   
rates of return through stock ownership of the Company. While the Company does  
not seek to avoid risk, it does seek, to the best of its ability, to assume risk
that can be quantified from historical experience, to actively manage such risk,
to earn sufficient compensation to justify the taking of such risks and to      
maintain capital levels consistent with the risks it does undertake.            

INTEREST RATE RISK

The Company primarily invests in adjustable rate and hybrid MBS. The
hybrid-MBS represent fixed rate coupons for a specified period, generally three 
years, and thereafter converts to a variable rate coupon. The Company's debt    
obligations are generally repurchase agreements of limited duration, which are  
periodically refinanced at new market rates.                                    

   The interest rates for most of the Company's adjustable rate assets are
dependent on the one-year CMT rate, while debt obligations, in the form of      
repurchase agreements, are generally dependent on LIBOR. These indexes generally
move in parallel, but there can be no assurance that this will continue to      
occur.                                                                          

      The Company's adjustable rate investment assets and debt obligations reset
on various dates that differ for the specific asset or obligation. In general,  
the repricing of the Company's debt obligations occurs more quickly than the    
repricing of assets. Therefore, on average, the Company's cost of funds may rise
or fall more quickly than does its earnings rate on the assets. Further, the    
Company's net income may vary somewhat as the yield curve between one-month     
interest rates and six-and 12-month interest rate varies.                       

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   The following table presents the Company's interest rate risk using the
static gap methodology. The table presents the difference between the carrying  
value of the Company's interest rate sensitive assets and liabilities at        
September 30, 2002, based on the earlier of term to repricing or the term to    
repayment of the asset or liability, scheduled principal amortization is not    
reflected in the table. Further, MBS can be prepaid before contractual          
amortization and/or maturity, which is also not reflected in the table. The     
table does not include assets and liabilities that are not interest rate        
sensitive.                                                                      

As of September 30, 2002, the Company's investment assets and debt  
obligations will prospectively reprice based on the following time frames:      

                                                        [Enlarge/Download Table]

                                                                         As of September 30, 2002                                
                                        -----------------------------------------------------------------------------------------
(In Thousands)                                                                           Two Years        Beyond                 
                                         Less than       Six Months     One Year to       to Year         Three                  
                                         Six Months     to One Year      Two Years         Three          Years          Total   
                                        -----------     -----------     -----------     -----------    -----------    -----------
                                                                                                                                 
Interest Earning Assets:                                                                                                         
  Adjustable Rate - MBS                 $   964,650     $   394,557     $   611,867     $ 1,468,653    $        --    $ 3,439,727
  Fixed-Rate - MBS                               --              --              --              --          6,807          6,807
  Cash                                      112,839              --              --              --             --        112,839
                                        -----------     -----------     -----------     -----------    -----------    -----------
    Total interest-earning assets         1,077,489         394,557         611,867       1,468,653          6,807      3,559,373

Interest Bearing Liabilities:                                                                                                    
  Repurchase agreements                   1,709,540       1,487,595              --              --             --      3,197,135
                                        -----------     -----------     -----------     -----------    -----------    -----------
    Total interest-bearing liabilities    1,709,540       1,487,595              --              --             --      3,197,135

Interest sensitivity gap                $  (632,051)    $(1,093,038)    $   611,867     $ 1,468,653    $     6,807    $   362,238
Cumulative interest sensitivity gap     $  (632,051)    $(1,725,089)    $(1,113,222)    $   355,431    $   362,238               

    The difference between assets and liabilities repricing or maturing in a
given period is one approximate measure of interest rate sensitivity. When more 
assets than liabilities reprice during a period, the gap is considered positive 
and it is anticipated that earnings will increase as interest rates rise and    
earnings will decrease as interest rates decline. When more liabilities reprice 
than assets during a given period, as is the case with respect to the Company   
for periods less than one year, the gap is considered negative. With a negative 
gap it is anticipated that income will decline as interest rates increase and   
income will increase as interest rates decline. The static gap analysis does not
reflect the constraints on the repricing of adjustable rate MBS in a given      
period resulting from periodic and life time cap features on these securities,  
nor the behavior of various indexes applicable to the Company's assets and      
liabilities.                                                                    

To a limited extent, the Company uses Cap Agreements as part of its 
interest rate risk management. The notional amounts of these instruments are not
reflected in the Company's balance sheet. The Cap Agreements that hedge against 
increases in interest rates on the Company's LIBOR-based repurchase agreements  
are not considered in the static gap analysis, as they do not effect the timing 
of the repricing of the instruments they hedge, but rather to the extent of the 
notional amount, cap the limit on the amount of interest rate change that can   
occur relative to the applicable of the hedged liability. The Company entered   
into Cap Agreements with an aggregate notional amount of $200 million during the
nine months ended September 30, 2002. These agreements are intended to serve as 
a hedge against future interest rate increases on the Company's repurchase      
agreements, which are typically priced off of LIBOR. The Company had total Cap  
Agreements of $250.0 million, with a weighted average strike rate for the       
one-month LIBOR of 4.85%. (See Note 8 to the Financial Statements.)             

 MARKET VALUE RISK

Substantially all of the Company's investments are designated as    
"available-for-sale" assets. As such, they are reflected at their estimated fair
value, with the difference between amortized cost and fair value reflected in   
accumulated other comprehensive income, a component of stockholders' equity.    
(See Note 13 to the accompanying financial statements included in Item 1.) The  
market value of the Company's MBS assets fluctuate primarily due to changes in  
interest rates and other factors; however, given that these securities are      
guaranteed by an agency of the U.S. Government, such fluctuations are generally 
not based on the underlying credit worthiness.                                  

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LIQUIDITY RISK

The primary liquidity risk of the Company arises from financing     
long-maturity assets with short-term debt in the form of repurchase agreements. 
The Company had no long-term debt at September 30, 2002. Although the interest  
rate adjustments of these assets and liabilities are matched within the         
Company's operating policies, maturities are not required to be nor are they    
matched.                                                                        

      The Company's assets which are pledged to secure short-term borrowings are
high-quality, liquid assets. As a result, the Company has not had difficulty    
rolling over (i.e., renewing) its short-term debt as it matures. However, the   
Company cannot give assurances that it will always be able to roll over its     
short-term debt. At September 30, 2002, the Company had cash and cash           
equivalents of $112.8 million available to meet margin calls on repurchase      
agreements and for other corporate purposes.                                    

PREPAYMENT AND REINVESTMENT RISK

   As the Company receives repayments of principal on its MBS, premiums on
the corresponding securities are amortized and amortization is netted against   
interest income, discounts on MBS are accreted to income and increase interest  
income reported. Premiums arise when the Company acquires a MBS at a price in   
excess of the principal value of the mortgages or par value if purchased at the 
original issue. Conversely, discounts arise when the Company acquires a MBS at a
price below the principal value of the mortgages, or par, if purchased at       
original issue. For financial accounting purposes, the premium is amortized     
using the effective yield method, which reflects the effect of prepayments on   
amortization of premium and accretion of discounts. In general, an increase in  
the prepayment rate will accelerate the amortization of premiums, thereby       
reducing interest income.                                                       

    For tax accounting purposes, the premium is amortized based on the asset
yield at the purchase date. Therefore, on a tax basis, amortization of premiums 
will differ from those reported for financial purposes. At September 30, 2002,  
the gross unamortized premium for adjustable rate MBS for financial accounting  
purposes was $73.1 million (2.1% of the carrying value of MBS) compared with    
$72.7 million for federal tax purposes.                                         

      In general, the Company believes it will be able to reinvest proceeds from
scheduled principal payments and prepayments at acceptable yields; however, no  
assurances can be given that, should significant prepayments occur, market      
conditions would be such that acceptable investments could be identified and the
proceeds reinvested.                                                            

Item 4. Controls and Procedures                                     

A review and evaluation was performed by the Company's management,  
including the Company's Chief Executive Officer (the "CEO") and Chief Financial 
Officer (the "CFO"), of the effectiveness of the design and operation of the    
Company's disclosure controls and procedures as of a date within 90 days prior  
to the filing of this quarterly report. Based on that review and evaluation, the
CEO and CFO have concluded that the Company's current disclosure controls and   
procedures, as designed and implemented, were effective. There have been no     
significant changes in the Company's internal controls or in other factors that 
could significantly affect the Company's internal controls subsequent to the    
date of their evaluation. There were no significant material weaknesses         
identified in the course of such review and evaluation and, therefore, no       
corrective measures were taken by the Company.                                  

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PART II. OTHER INFORMATION                                          

Item 1. Legal Proceedings                                           

     There are no material pending legal proceedings to which the Company is a
party or any of its assets are subject.                                         

Item 2. Changes in Securities and Use of Proceeds.                  

 On July 17, 2002, the Company issued an aggregate of 1,016 restricted
shares of Common Stock to Messrs. Yanney and Krauss, two of the Company's       
directors, reflecting 50% of the annual director's fee that is to be paid in    
Common Stock. The stock issued represented 50% of the prorated annual board fee 
which is payable to non-employee directors in Common Stock of the Company. The  
distribution was equal to the number of restricted shares of Common Stock       
determined by dividing $5,000 by the closing sale price of the Common Stock on  
the New York Stock Exchange on July 1, 2002, which was $9.85. These restricted  
shares of Common Stock were issued in a private transaction exempt from the     
registration requirements of the Act, by virtue of Section 4(2) and the rules   
promulgated thereunder.                                                         

Item 6. Exhibits and Reports on Form 8-K                            

(a)   Exhibits                                                      

       2.1   Agreement and Plan of Merger by and among the Registrant,
              America First Participating/Preferred Equity Mortgage Fund
          Limited Partnership, America First Prep Fund 2 Limited
                 Partnership, America First Prep Fund 2 Pension Series Limited
               Partnership and certain other parties, dated as of July 29,
                1997 (incorporated herein by reference to Exhibit 2.1 of the
               Registration Statement on Form S-4 dated February 12, 1998,
                  filed by the Registrant pursuant to the Securities Act of 1933
(Commission File No. 333-46179)).           

       2.2   Agreement and Plan of Merger by and among the Registrant,
                 America First Mortgage Advisory Corporation ("AFMAC") and the
                 shareholders of AFMAC, dated September 24, 2001 (incorporated
             herein by reference to Exhibit A of the Preliminary Proxy
            Statement dated October 9, 2001, filed by the Registrant
               pursuant to the Securities Exchange Act of 1934 (Commission
File No. 1-13991)).                         

   3.1   Amended and Restated Articles of Incorporation of the
                  Registrant (incorporated herein by reference to Form 8-K dated
           April 10, 1998, filed by the Registrant pursuant to the
        Securities Exchange Act of 1934 (Commission File No.
1-13991)).                                  

           3.2   Articles of Amendment to the Amended and Restated Articles of
        Incorporation of the Registrant dated August 6, 2002
                  (incorporated herein by reference to Form 8-K dated August 13,
            2002, filed by the Registrant pursuant to the Securities
        Exchange Act of 1934 (Commission File No. 1-13991)).

           3.3   Articles of Amendment to the Amended and Restated Articles of
          Incorporation of the Registrant dated August 16, 2002.

         3.4   Amended and Restated Bylaws of the Registrant (incorporated
              herein by reference to the Form 8-K dated August 13, 2002,
               filed by the Registrant pursuant to the Securities Exchange
Act of 1934 (Commission File No. 1-13991)). 

 4.1   Specimen of Common Stock Certificate of the Company
           (incorporated herein by reference to Exhibit 4.1 of the
                Registration Statement on Form S-4, dated February 12, 1998,
                  filed by the Registrant pursuant to the Securities Act of 1933
(Commission File No. 333-46179)).           

       10.1  Employment Agreement of Stewart Zimmerman dated August 1,
2002.                                       

            10.2  Employment Agreement of William S. Gorin dated August 1, 2002.

         10.3  Employment Agreement of Ronald A. Freydberg dated August 1,
2002.                                       

       10.4  Second Amended and Restated 1997 Stock Option Plan of the
               Company (incorporated herein by reference to the Form 10-Q,
                 dated August 10, 2001, filed with the Securities and Exchange
              Commission pursuant to the Securities Exchange Act of 1934
(Commission File No. 1-13991)).             

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Reports on Form 8-K                                                 

      The Registrant filed a Current Report on Form 8-K on August 12, 2002 under
Item 7 "Other Events" relating to a press release dated August 12, 2002.        

      The Registrant filed a Current Report on Form 8-K on August 13, 2002 under
Item 5 "Other Events" announcing the change of its name from America First      
Mortgage Investments, Inc. to MFA Mortgage Investments, Inc., effective August  
13, 2002.                                                                       

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Signatures

    Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the        
undersigned, thereunto duly authorized.                                         

Dated: October 28, 2002                 MFA INVESTMENTS, INC.                   

                        By /s/ Stewart Zimmerman
                                           -------------------------------------
                       Stewart Zimmerman
                                           President and Chief Executive Officer

                       By /s/ William S. Gorin
                                           -------------------------------------
                      William S. Gorin
                              Executive Vice President
                                       Chief Financial Officer/Treasurer
                                    (Principal Accounting Officer)

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CERTIFICATIONS

I, Stewart Zimmerman, certify that:                                             

1.    I have reviewed this quarterly report on Form 10-Q of MFA Mortgage        
Investments, Inc. (the "registrant");                               

2.    Based on my knowledge, this quarterly report does not contain any untrue  
      statement of a material fact or omit to state a material fact necessary in
  order to make the statements made, in light of the circumstances under
      which such statements were made, not misleading with respect to the period
covered by this quarterly report;                                   

3.    Based on my knowledge, the financial statements, and other financial      
information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
 flows of the registrant as of, and for, the periods presented in this
quarterly report;                                                   

4.    The registrant's other certifying officer and I are responsible for       
establishing and maintaining disclosure controls and procedures (as 
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                               

 a)    designed such disclosure controls and procedures to ensure that
      material information relating to the registrant, including its
       consolidated subsidiaries, is made known to us by others within
    those entities, particularly during the period in which this
quarterly report is being prepared;                     

     b)    evaluated the effectiveness of the registrant's disclosure controls
           and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and   

c)    presented in this quarterly report our conclusions about the  
            effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                   

5.    The registrant's other certifying officer and I have disclosed, based on  
  our most recent evaluation, to the registrant's auditors and the audit
   committee of the registrant's board of directors (or persons performing
the equivalent function):                                           

     a)    all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
     record, process, summarize and report financial data and have
           identified for the registrant's auditors any material weaknesses in
internal controls; and                                  

 b)    any fraud, whether or not material, that involves management or
       other employees who have a significant role in the registrant's
internal controls; and                                  

6.    The registrant's other certifying officer and I have indicated in this    
      quarterly report whether or not there were significant changes in internal
 controls or in other factors that could significantly affect internal
    controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and  
material weaknesses.                                                

Date: October 28, 2002                                                          

Stewart Zimmerman                                                 
-------------------------------------                             
Name:  Stewart Zimmerman                                                        
Title: President and Chief Executive Officer                                    

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I, William S. Gorin, certify that:                                              

1.    I have reviewed this quarterly report on Form 10-Q of MFA Mortgage        
Investments, Inc. (the "registrant");                               

2.    Based on my knowledge, this quarterly report does not contain any untrue  
      statement of a material fact or omit to state a material fact necessary in
  order to make the statements made, in light of the circumstances under
      which such statements were made, not misleading with respect to the period
covered by this quarterly report;                                   

3.    Based on my knowledge, the financial statements, and other financial      
information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
 flows of the registrant as of, and for, the periods presented in this
quarterly report;                                                   

4.    The registrant's other certifying officer and I are responsible for       
establishing and maintaining disclosure controls and procedures (as 
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                               

 a)    designed such disclosure controls and procedures to ensure that
      material information relating to the registrant, including its
       consolidated subsidiaries, is made known to us by others within
    those entities, particularly during the period in which this
quarterly report is being prepared;                     

     b)    evaluated the effectiveness of the registrant's disclosure controls
           and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and   

c)    presented in this quarterly report our conclusions about the  
            effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                   

5.    The registrant's other certifying officer and I have disclosed, based on  
  our most recent evaluation, to the registrant's auditors and the audit
   committee of the registrant's board of directors (or persons performing
the equivalent function):                                           

     a)    all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
     record, process, summarize and report financial data and have
           identified for the registrant's auditors any material weaknesses in
internal controls; and                                  

 b)    any fraud, whether or not material, that involves management or
       other employees who have a significant role in the registrant's
internal controls; and                                  

6.    The registrant's other certifying officer and I have indicated in this    
      quarterly report whether or not there were significant changes in internal
 controls or in other factors that could significantly affect internal
    controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and  
material weaknesses.                                                

Date: October 28, 2002                                                          

/s/ William S. Gorin                                              
-----------------------------                                     
Name:  William S. Gorin                                                         
Title: Executive Vice President and                                             
Chief Financial Officer                                           

31

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	1/1/03	11
	12/31/02	11	16	10-K
	10/30/02	18
Filed on:	10/28/02	1	33	8-K
	10/1/02	12	16
For Period End:	9/30/02	1	28
	9/12/02	18
	8/16/02	29
	8/13/02	7	30	8-K
	8/12/02	30		8-K
	8/6/02	29
	8/1/02	20	29
	7/31/02	16
	7/17/02	29
	7/1/02	29
	6/28/02	18
	6/12/02	18
	6/5/02	18	22
	6/4/02	25		8-K
	5/15/02	11
	4/30/02	11
	3/28/02	18
	3/12/02	18	20
	1/18/02	18	25
	1/1/02	7	24
	12/31/01	2	24	10-K
	12/28/01	18
	12/12/01	18	21	8-K, DEFS14A
	10/9/01	29		PREM14A
	10/5/01	18
	10/2/01	18
	9/30/01	2	24	10-Q
	9/25/01	18	25	S-3
	9/24/01	12	29	8-K
	9/19/01	18
	8/10/01	29
	6/30/01	18		10-Q, 10-Q/A
	6/27/01	22
	4/30/01	18		S-2
	4/16/01	18
	4/9/01	18
	2/12/01	18
	1/18/01	16
	1/2/01	16
	1/1/01	18
	12/31/00	16		10-K, 10-K/A
	1/12/00	16
	4/10/98	7	29	8-K, 8-K/A
	2/12/98	29		S-4
	7/29/97	29
	7/24/97	7	21
				List all Filings

7 Subsequent Filings that Reference this Filing

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 4/17/24  Mfa Financial, Inc.               8-A12B                 2:204K                                   Toppan Merrill/FA
 2/22/24  Mfa Financial, Inc.               10-K       12/31/23  138:24M
 1/11/24  Mfa Financial, Inc.               8-A12B                 2:207K                                   Toppan Merrill/FA
 2/24/23  Mfa Financial, Inc.               10-K       12/31/22  139:25M
 9/27/22  Mfa Financial, Inc.               S-3ASR      9/27/22    6:903K                                   Toppan Merrill/FA
 2/23/22  Mfa Financial, Inc.               10-K       12/31/21  138:24M
 2/23/21  Mfa Financial, Inc.               10-K       12/31/20  140:24M

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Filing Submission 0001193805-02-000020 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Mfa Financial, Inc. – ‘10-Q’ for 9/30/02

On: Monday, 10/28/02, at 10:55am ET · For: 9/30/02 · Accession #: 1193805-2-20 · File #: 1-13991

Quarterly Report — Form 10-QFiling Table of Contents

10-Q — Quarterly ReportDocument Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

7 Subsequent Filings that Reference this Filing

Quarterly Report — Form 10-Q
Filing Table of Contents

10-Q — Quarterly Report
Document Table of Contents