UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission File Number: 1-13991

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

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

     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 þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes þ No o

     81,661,343 shares of the registrant’s common stock, $0.01 par value, were outstanding as of October 31, 2005.

TABLE OF CONTENTS

TABLE OF CONTENTS

MFA MORTGAGE INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

The accompanying notes are an integral part of the Consolidated Financial Statements.

1

MFA MORTGAGE INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF INCOME

The accompanying notes are an integral part of the Consolidated Financial Statements.

2

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

The accompanying notes are an integral part of the Consolidated Financial Statements.

3

MFA MORTGAGE INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of the Consolidated Financial Statements.

4

MFA MORTGAGE INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

The accompanying notes are an integral part of the Consolidated Financial Statements.

5

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

1. Organization

     MFA Mortgage Investments, Inc. (the “Company”) was incorporated in Maryland on July 24, 1997 and began operations on April 10, 1998. The Company has elected to be treated as a real estate investment trust (“REIT”) for income tax purposes. In order to maintain its status as a REIT, the Company must comply with a number of requirements under federal tax law, including that it must distribute at least 90% of its annual taxable net income to its stockholders, subject to certain adjustments.

2. Summary of Significant Accounting Policies

     (a) Basis of Presentation

     The accompanying interim unaudited financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted according to such SEC rules and regulations. Management believes, however, that these disclosures are adequate to make the information presented therein not misleading. The accompanying 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, 2004. In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial condition of the Company at September 30, 2005 and results of operations for all periods presented have been made. The results of operations for the nine-month period ended September 30, 2005 should not be construed as indicative of the results to be expected for the full year.

     The accompanying 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.

     (b) Mortgage-Backed Securities

     Financial Accounting Standards (“FAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” requires that investments in securities be designated as either “held-to-maturity,” “available-for-sale” or “trading” at the time of acquisition. All of the Company’s MBS are designated as available-for-sale and are carried at their estimated fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income or loss, a component of stockholders’ equity.

     Although the Company generally intends to hold 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 Company with the flexibility to sell its MBS in order to act on potential market opportunities or changes in economic conditions to ensure future liquidity and to meet other general corporate purposes as they arise. Gains or losses on the sale of investment securities are based on the specific identification method. (See Note 4.)

     The Company’s adjustable-rate assets are comprised primarily of hybrid and adjustable-rate MBS (collectively, “ARM-MBS”) that are issued or guaranteed as to principal and/or interest by an agency of the U.S. government, such as the Government National Mortgage Association (“Ginnie Mae”), or a federally chartered corporation, such as Fannie Mae or the Federal Home Loan Mortgage Corporation (“Freddie Mac”). MBS that are issued or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac are commonly referred to herein as “Agency MBS.” Hybrid MBS have interest rates that are fixed for a specified period and, thereafter, generally reset annually.

     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 investment securities are amortized into interest income over the life of such securities using the effective yield method, adjusted for actual prepayment activity.

     (c) Cash and Cash Equivalents

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

6

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

     (d) Credit Risk

     The Company limits its exposure to credit losses on its investment portfolio by requiring that at least 50% of its investment portfolio consist of Agency MBS. Pursuant to the Company’s operating policies, the remainder of its assets may consist of investments in: (i) residential mortgage loans; (ii) residential MBS; (iii) direct or indirect investments in multi-family apartment properties; (iv) investments in limited partnerships, REITs or closed-end funds; or (v) investments in other fixed income instruments (corporate or government). At September 30, 2005, 87.2% of the Company’s assets consisted of Agency MBS and related receivables, 10.0% were MBS rated AAA by Standard & Poor’s Corporation, a nationally recognized rating agency, and related receivables and 2.0% were cash and cash equivalents; combined, these assets comprised 99.2% of the Company’s total assets. At September 30, 2005, the Company held MBS with a par value of approximately $6.3 million which were rated below AAA, of which approximately $1.5 million were rated BB and below (with $231,000 not rated). The MBS rated BB and below, including the non-rated MBS, were purchased at a discount, of which $341,000 reflects credit protection against future credit losses as of September 30, 2005.

     Other-than-temporary impairment losses on investment securities, as measured by the amount of decline in estimated 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. The following are among, but not all of, the factors considered in determining whether and to what extent an other-than-temporary impairment exists: (i) the expected cash flow from the investment; (ii) whether there has been an other-than-temporary deterioration of the credit quality of the underlying mortgages, debtor or the company in which equity interests are held; (iii) the credit protection available to the related mortgage pool for MBS; (iv) any other market information available, including analysts assessments and statements, public statements and filings made by the debtor, counterparty or other relevant party issuing or otherwise collateralizing the particular security; (v) management’s internal analysis of the security considering all known relevant information at the time of assessment; and (vi) the historical magnitude and duration of the decline in market value, when available. Because management’s assessments are based on factual information 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 material estimates that are susceptible to a significant change. At September 30, 2005 and December 31, 2004, the Company had no assets on which an impairment charge had been made.

     At September 30, 2005, the Company’s MBS that were rated below BBB had gross unrealized gains (the amount by which the estimated fair value exceeds the amortized cost) of $64,000 and no unrealized losses. These MBS were purchased at a deep discount, with a portion thereof recorded as credit protection against future credit losses under various economic environments. Through September 30, 2005, the Company had not recognized any additional impairments or credit reserves against any of its MBS, other than credit related discounts discussed above.

     (e) Real Estate Investments

     At September 30, 2005, the Company indirectly held 100% ownership interests in three multi-family apartment properties known as The Greenhouse, Lealand Place and Cameron at Hickory Grove (“Cameron”), all of which are consolidated with the Company. Each of these properties was acquired through tax-deferred exchanges pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”). (See Note 6.)

     The properties, capital improvements and other assets held in connection with these investments are carried at cost, net of accumulated depreciation and amortization, not to exceed estimated fair value. Depreciation and amortization are computed using the straight-line method over the estimated useful life of the related asset. Maintenance, repairs and minor improvements are charged to expense in the period incurred, while capital improvements are capitalized and depreciated over their useful life. The Company intends to hold its remaining real estate investments as long-term investments.

     (f) Repurchase Agreements

     The Company finances the acquisition of its MBS through the use of repurchase agreements, under which the Company sells securities to a lender and agrees to repurchase the same securities in the future for a price that is higher than the original sales price. The difference between the sale price that the Company receives and the repurchase price that 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 pledges its securities as collateral to secure a loan which is equal in value to a specified percentage of the estimated fair value of

7

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

the pledged collateral, while the Company retains beneficial ownership of the pledged collateral. 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, with the consent of the lender, the Company may renew such agreement at the then prevailing financing rate. Margin calls, whereby a lender requires that the Company pledge additional collateral to secure borrowings under its repurchase agreements with such lender, are routinely experienced by the Company as the current face value (i.e., par value) of MBS decline due to scheduled monthly amortization and prepayments of principal on MBS. In addition, margin calls may also occur when the fair value of the MBS pledged as collateral declines due to increases in market interest rates or other market conditions. Through September 30, 2005, 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 collateral.

     In the event that a counterparty were to decide not to renew a repurchase agreement at maturity, the Company must either refinance elsewhere or be in a position to satisfy this 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 may have an unsecured claim against the lender’s assets for the difference between the amount loaned to the Company and the estimated fair value of the collateral pledged to such lender. In order to mitigate its exposure to any counterparty-related risk associated with its repurchase agreements, the Company’s policy is to enter into repurchase agreements only with financial institutions that have a long-term debt rating of, or, to the extent applicable, have a holding or parent company with a long-term debt rating of, single A or better as determined by at least one nationally recognized rating agency, such as Moody’s Investors Service, Inc., Standard & Poor’s Corporation or Fitch, Inc. (collectively, the “Rating Agencies”), where applicable. If the minimum criterion is not met, the Company will not enter into repurchase agreements with a lender without the specific approval of the Company’s Board of Directors (the “Board”). In the event an existing lender is downgraded below single A, the Company will seek the approval of the Board before entering into additional repurchase agreements with that lender. The Company generally seeks 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. At September 30, 2005, the Company had repurchase agreements with 15 separate lenders with a maximum net exposure (the difference between the amount loaned to the Company plus accrued interest due to the counterparty and the fair value of the security pledged by the Company as collateral) to a single lender of $33.7 million. (See Note 7.)

     (g) Earnings per Common Share (“EPS”)

     Basic EPS is computed by dividing net income available to holders of common stock by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed by dividing net income available to holders of common stock by the weighted average shares of common stock and common equivalent shares outstanding during the period. For the diluted EPS calculation, common equivalent shares outstanding includes the weighted average number of shares of common stock outstanding adjusted for the effect of dilutive stock options outstanding using the treasury stock method. Under the treasury stock method, common equivalent shares are calculated assuming that all dilutive common stock equivalents are exercised and the proceeds are used to repurchase 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 any diluted per share amount for a period in which a net operating loss is reported. (See Note 10.)

     (h) Comprehensive Income

     Comprehensive income for the Company includes net income, the change in net unrealized gains and losses on investments and certain derivative instruments reduced by dividends on preferred stock.

     (i) Income Taxes

     The Company has elected to be taxed as a REIT under the provisions of 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 Consolidated Financial Statements.

     (j) Derivative Financial Instruments/Hedging Activity

     The Company hedges through the use of derivative financial instruments, comprised of Caps and Swaps (collectively, “Hedging Instruments”). The Company accounts for Hedging Instruments in accordance with FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“FAS 133”) as amended by FAS No.

8

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

138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”, and FAS No. 149 “Amendment of Statement 133 on Derivative Instrument and Hedging Activities.” The Company carries all Hedging Instruments at their fair value, as assets, if their fair value is positive, or as liabilities, if their fair value is negative. Since the Company’s derivatives are designated as “cash flow hedges,” the change in the fair value of any such derivative is recorded in other comprehensive income or loss for hedges that qualify as effective and is transferred from other comprehensive income or loss to earnings as the hedged liability affects earnings. The ineffective amount of all Hedging Instruments, if any, is recognized in earnings each quarter. To date, the Company has not recognized any change in the value of its Hedging Instruments in earnings as a result of the hedge or a portion thereof being ineffective.

     Upon entering into hedging transactions, the Company documents the relationship between the Hedging Instruments and the hedged liability. The Company also documents its risk-management policies, including objectives and strategies, as they relate to its hedging activities. The Company assesses, both at inception of a hedge and on an on-going basis, whether or not the hedge is “highly effective,” as defined by FAS 133. The Company discontinues hedge accounting on a prospective basis with changes in the estimated fair value reflected in earnings when: (i) it is determined that the derivative is no longer effective in offsetting cash flows of a hedged item (including hedged items such as forecasted transactions); (ii) it is no longer probable that the forecasted transaction will occur; or (iii) it is determined that designating the derivative as a Hedging Instrument is no longer appropriate. Through September 30, 2005, the Company had not discontinued hedge accounting for any of its Hedging Instruments.

     The Company utilizes Hedging Instruments to manage interest rate risk and does not anticipate entering into derivative transactions for speculative or trading purposes. In order to limit credit risk associated with the counterparties to derivative instruments, the Company’s policy is to enter into derivative contracts with financial institutions rated single A or better by at least one of the Rating Agencies at the time of purchase. (See Note 5.)

     Interest Rate Caps

     In order for the Company’s Caps to qualify for hedge accounting, upon entering into the Cap, the Company must anticipate that the hedge will be “highly effective,” as defined by FAS 133, in limiting the Company’s cost beyond the Cap threshold on its matching (on an aggregate basis) anticipated repurchase agreements during the active period of the Cap. As long as the hedge remains effective, changes in the estimated fair value of the Caps are included in other comprehensive income or loss. Upon commencement of the Cap active period, the premium paid to enter into the Cap 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, for the monthly components on an estimated fair value basis. Payments received in connection with the Cap, if any, are reported as a reduction to interest expense. If it is determined that a Cap is not effective, the premium would be reduced and a corresponding charge made to interest expense, for the ineffective portion of the Cap. The maximum cost related to the Company’s Caps is limited to the original price paid to enter into the Cap.

     The Company purchases Caps by incurring a one-time fee or premium. Pursuant to the terms of the Caps, the Company will receive cash payments if the interest rate index specified in any such Cap increases above contractually specified levels. Therefore, such Caps have the effect of capping the interest rate on a portion of the Company’s borrowings above a level specified by the Cap.

     Interest Rate Swaps

     When the Company enters into a Swap, it agrees to pay a fixed rate of interest and to receive a variable interest rate, generally based on the London Interbank Offered Rate (“LIBOR”). The Company’s Swaps are designated as cash flow hedges against the benchmark interest rate risk associated with the Company’s borrowings.

     All changes in the unrealized gains/losses on any Swap are recorded in accumulated other comprehensive income or loss and are reclassified to earnings as interest expense is recognized on the Company’s hedged borrowings. If it becomes probable that the forecasted transaction, which in this case refers to interest payments to be made under the Company’s short-term borrowing agreements, will not occur by the end of the originally specified time period, as documented at the inception of the hedging relationship, then the related gain or loss in accumulated other comprehensive income or loss would be reclassified to income.

     Realized gains and losses resulting from the termination of a Swap are initially recorded in accumulated other comprehensive income or loss as a separate component of stockholders’ equity. The gain or loss from a terminated

9

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

Swap remains in accumulated other comprehensive income or loss until the forecasted interest payments affect earnings. If it becomes probable that the forecasted interest payments will not occur, then the entire gain or loss would be recognized though earnings.

     (k) Equity Based Compensation

     The Company accounts for its stock based compensation in accordance with the fair value method under FAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” The Company values stock options based on the Black-Scholes model. (See Note 12a.)

     (l) Reclassifications

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

3. Related Parties

     (a) Advisory Services

     During the fourth quarter of 2003, the Company formed and became the sole stockholder of MFA Spartan, Inc., a Delaware corporation (“Spartan Inc.”). Spartan Inc. then formed and, pursuant to an operating agreement dated November 6, 2003, became the sole member of MFA Spartan I, LLC, a Delaware limited liability company (“Spartan I”). On November 7, 2003, Spartan I entered into a sub-advisory agreement, which was subsequently amended and restated on October 1, 2004, with America First Apartment Advisory Corporation (“AFAAC”), a Maryland corporation and the external advisor of America First Apartment Investors, Inc. (“AFAI”), pursuant to which Spartan I agreed, among other things, to provide sub-advisory services to AFAAC with respect to, and to assist AFAAC in connection with, AFAI’s acquisition and disposition of MBS and the maintenance of AFAI’s MBS portfolio. During the three and nine months ended September 30, 2005, the Company earned fees of $13,000 and $37,000, respectively, related to the sub-advisory services rendered by Spartan I to AFAAC. George H. Krauss, one of the Company’s directors, is a member of the board of directors of AFAI and beneficially owns 17% of America First Companies L.L.C. (“AFC”), which owns 100% of the voting stock of AFAAC.

     (b) Property Management

     America First PM Group, Inc. (the “Property Manager”), a wholly-owned subsidiary of AFAI, provides property management services for each of the multi-family properties in which the Company holds investment interests. In the fourth quarter of 2004, the Property Manager acquired certain property management rights and other assets, including the contractual right to manage the Company’s multi-family property interests, from America First Properties Management Companies L.L.C., a wholly-owned subsidiary of AFC. The Property Manager receives a management fee equal to a stated percentage of the gross receipts generated by these properties equal to 3% of gross receipts, increasing to a maximum of 4% of gross receipts upon attaining certain performance goals. The Company paid fees for property management services of approximately $37,000 and $106,000, respectively, for the three and nine month periods ended September 30, 2005 and approximately $32,000 and $94,000, respectively, for the three and nine month periods ended September 30, 2004. George H. Krauss, one of the Company’s directors, is a member of the board of directors of AFAI and beneficially owns 17% of AFC.

     4. Mortgage-Backed Securities

     At September 30, 2005 and December 31, 2004, all of the Company’s MBS were classified as available-for-sale and, as such, were carried at their estimated fair value, based on prices obtained from a third-party pricing service or, if pricing was not available for an MBS from such pricing service, the average of broker quotes was used to

10

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

determine the estimated fair value of such MBS. The following table presents certain information about the Company's MBS as of September 30, 2005 and December 31, 2004.

     At September 30, 2005 and December 31, 2004, the Company’s portfolio of MBS consisted of pools of ARM-MBS with carrying values of approximately $6.299 billion and $6.770 billion, respectively, and fixed-rate MBS with carrying values of approximately $6.8 million and $7.2 million, respectively.

     Agency MBS: Although not rated, Agency MBS carry an implied AAA rating. Agency MBS are guaranteed as to principal and/or interest by an agency of the U.S. government, such as Ginnie Mae, or federally chartered corporation, such as Fannie Mae or Freddie Mac. The payment of principal and/or interest on Fannie Mae and Freddie Mac MBS is guaranteed by those respective agencies and the payment of principal and/or interest on Ginnie Mae MBS is backed by the full faith and credit of the U.S. government.

     Non-Agency MBS: Non-Agency MBS are certificates that are backed by pools of single-family and multi-family mortgage loans, which are not guaranteed by the U.S. government or any of its agencies or any federally

11

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

chartered corporation. Non-Agency MBS may be rated from AAA to B by one or more of the Rating Agencies. AAA is the highest credit rating given by Rating Agencies and indicates that the obligor’s capacity to meet its financial commitment on the obligation is extremely strong. Certain Non-Agency MBS may also be non-rated.

     The following table presents components of amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value of the Company’s MBS at September 30, 2005 and December 31, 2004:

     At September 30, 2005, the Company had 149 MBS, with an amortized cost of $2.577 billion, that had unrealized losses for 12 months or more. All of the Company’s MBS that had unrealized losses for 12 months or more were either Agency MBS, which have an implied AAA rating, or Non-Agency MBS that were rated AAA, and as such none of the unrealized losses are considered to be credit related. In addition, the Company expects to retain such MBS in its portfolio. At September 30, 2005, these MBS had gross unrealized losses of $53.2 million.

     The following table presents the gross unrealized losses and estimated fair value of the Company’s MBS, aggregated by investment category and length of time that such individual securities have been in a continuous unrealized loss position, at September 30, 2005:

     During the nine months ended September 30, 2005, the Company sold an Agency MBS with an amortized cost of $53.1 million, generating a gross gain of $10,000. The Company did not experience any losses on the sale of MBS during the nine months ended September 30, 2005.

12

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

     The following table presents interest income and premium amortization on the Company’s MBS portfolio for the three and nine months ended September 30, 2005 and 2004:

5. Hedging Instruments/Hedging Activity

     In connection with the Company’s interest rate risk management process, the Company periodically hedges a portion of its interest rate risk by entering into derivative financial instrument contracts. Through September 30, 2005, such instruments have been comprised of Caps and Swaps, which in effect modify the repricing characteristics of the Company’s repurchase agreements and cash flows for such liabilities. The use of Hedging Instruments creates exposure to credit risk relating to potential losses that could be recognized if the counterparties to these instruments fail to perform their obligations under the contracts. In order to mitigate its exposure to any counterparty-related risk associated with its Hedging Instruments, the Company’s policy is to enter into derivative transactions only with financial institutions that have a long-term debt rating of, or, to the extent applicable, have a holding or parent company with a long-term debt rating of, single A or better as determined by at least one of the Rating Agencies at the time any such transaction is entered into. In the event of a default by the counterparty, the Company would not receive payments provided for under the terms of the Hedging Instrument, could incur a loss for the remaining unamortized premium cost of the Cap and could have difficulty obtaining its assets pledged as collateral for Swaps.

     The following table sets forth the impact of the Hedging Instruments on the Company’s other comprehensive income for the three and nine months ended September 30, 2005 and 2004, respectively:

     (a) Interest Rate Caps

     The Company’s Caps are designated as cash flow hedges against interest rate risk associated with the Company’s existing and forecasted repurchase agreements. At September 30, 2005, the Company had seven Caps with an aggregate notional amount of $360.0 million purchased to hedge against increases in interest rates on $360.0 million of its current and/or anticipated 30-day term repurchase agreements. The Caps had an amortized cost of approximately $2.2 million and an estimated fair value of approximately $2.1 million at September 30, 2005, resulting in a net unrealized loss of approximately $85,000, which is included as a component of accumulated other comprehensive loss. If the 30-day LIBOR were to increase above the rate specified in the Cap during its effective term, the Company would receive monthly payments from its Cap counterparty. For the three and nine months ended September 30, 2005, the Company received payments of $46,000 and $52,000, respectively, from counterparties related to its Caps. In the unlikely event of a default by the counterparty, the Company would not receive payments provided for under the terms of the Cap and could incur a loss for the remaining unamortized premium cost of the Cap.

13

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

     The following table presents the impact on the Company’s interest expense related to its Caps for the three and nine months ended September 30, 2005 and 2004, respectively:

     The following table presents information about the Company’s Caps at September 30, 2005:

     (1) The rates presented represent the weighted average 30-day LIBOR strike rate for Caps for the categories presented. Payments are due from the Cap counterparties when the 30-day LIBOR on the measurement day exceeds the LIBOR strike rate specified in the individual Cap agreement. At September 30, 2005, the 30-day LIBOR was 3.86%.

     (b) Interest Rate Swaps

     The Company’s Swaps have the effect of locking in a fixed interest rate related to a portion of its current and anticipated future 30-day term repurchase agreements.

     The following table presents information about the Company’s Swaps at September 30, 2005:

6. Real Estate Investments

     At September 30, 2005, the Company indirectly held 100% ownership interests in three multi-family apartment properties known as: (i) The Greenhouse, a 128-unit multi-family apartment building located in Omaha, Nebraska; (ii) Lealand Place, a 191-unit apartment complex located in Lawrenceville, Georgia; and (iii) Cameron, a 201-unit multi-family apartment complex in Charlotte, North Carolina.

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

     Real estate investments, all of which are consolidated with the Company, were as follows at September 30, 2005 and December 31, 2004:

     (1) Each of the three properties serves as collateral for its respective mortgage. The mortgages collateralized by The Greenhouse and Lealand Place are non-recourse, subject to customary non-recourse exceptions, which generally means that the lender’s final source of repayment in the event of default is foreclosure of the property securing such loan. The mortgage collateralized by Cameron is, under certain limited circumstances, guaranteed by the Company. At September 30, 2005, these mortgages had fixed interest rates ranging from 6.87% to 8.08% and maturities ranging from February 1, 2010 to February 1, 2011. In December 2000, the Company loaned Greenhouse Holdings, LLC (which owns The Greenhouse) $437,000 to fund building improvements and, in January 2005, loaned Lealand Place $150,000 to fund operations. These loans remained outstanding at September 30, 2005 and are eliminated in consolidation.

     The following table presents the summary results of operations for the Company’s real estate investments, all of which are consolidated with the Company, for the three and nine months ended September 30, 2005 and 2004:

7. Repurchase Agreements

     The Company’s repurchase agreements are collateralized by the Company’s MBS and typically bear interest at rates that are LIBOR-based. At September 30, 2005, the Company had outstanding balances of $5.741 billion under 440 repurchase agreements with 15 separate lenders. Such repurchase agreements had a weighted average borrowing rate of 3.19% and a weighted average remaining contractual maturity of 4.9 months. At September 30, 2005, all of the Company’s borrowings were fixed-rate term repurchase agreements. At December 31, 2004, the Company had outstanding balances of $6.113 billion under 375 repurchase agreements with a weighted average borrowing rate of 2.32%. At September 30, 2005 and December 31, 2004, the repurchase agreements had the following remaining contractual maturities:

15

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

8. Commitments and Contingencies

     (a) Lease Commitments

     At September 30, 2005, the Company had a lease through August 31, 2012 for its corporate headquarters, located at 350 Park Avenue, New York, New York. This lease provides for, among other things, monthly payments based on annual rent of $348,000 from August 1, 2005 through November 30, 2008 and $357,000 from December 1, 2008 through August 31, 2012. At September 30, 2005, the Company also had a lease for additional space at its corporate headquarters, which commenced in March 2005 and will run through July 31, 2007. This lease provides for, among other things, monthly payments based on annual rent of $152,000. In addition, the Company had a lease through December 2007 for its off-site back-up facilities located in Rockville Centre, New York, which, among other things, provides for annual rent of $23,000.

     (b) Securities purchase commitments and other commitments

     At September 30, 2005, the Company had commitments to purchase five Fannie Mae MBS with a par value of $620.0 million at an aggregate purchase price of $633.4 million.

9. Stockholders’ Equity

     (a) Stock Repurchase Program

     On August 11, 2005, the Company announced the implementation of a stock repurchase program (the “Repurchase Program”) to repurchase up to 4.0 million shares of its outstanding common stock. Subject to applicable securities laws, repurchases of common stock under the Repurchase Program will be made at times and in amounts as the Company deems appropriate. Repurchases of common stock will be made using the Company’s available cash resources. The Repurchase Program may be suspended or discontinued by the Company at any time and without prior notice. During the quarter ended September 30, 2005, the Company repurchased 322,600 shares of common stock at an average cost per share of $6.27. At September 30, 2005, 3,677,400 shares remained authorized for repurchase. (See Note 13b.)

     (b) Dividends on Preferred Stock

     The following table presents cash dividends declared by the Company on its preferred stock from April 27, 2004 (the date on which such securities were originally issued) through September 30, 2005:

16

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

     (c) Dividends/Distributions on Common Stock

     The following table presents cash dividends declared by the Company on its common stock from January 1, 2004 through September 30, 2005: