The mortgage-backed securities that MFA acquires are primarily secured by pools of hybrid and adjustable-rate mortgage loans on single family residences. Hybrid mortgage loans have interest rates that are fixed for a specified period and, thereafter, generally adjust annually to an increment over a pre-determined interest rate index. Interest rates on the hybrid and adjustable-rate mortgage loans collateralizing MFA's mortgage-backed securities are based on an index rate, such as the one-year constant maturity treasury rate, the London Interbank Offered Rate or the 11th District Cost of Funds Index.
MFA utilizes repurchase agreements, which typically bear interest rates reflective of the short-term London Interbank Offered Rate, to finance the acquisition of its hybrid and adjustable-rate mortgage-backed securities and other assets. MFA primarily generates net income by maintaining a positive spread between the interest and other income it earns on its investments and the cost of financing such investments and its operating costs. Unlike more traditional financial institutions, such as savings and loans and banks, MFA avoids the expense of a costly infrastructure and, due to its REIT status, corporate level taxation.