DEF 14A 1 v178637_def14a.htm


United States
Securities and Exchange Commission
Washington, D.C. 20549
   
SCHEDULE 14A
   
(Rule 14a-101)
   
INFORMATION REQUIRED IN PROXY STATEMENT
    
SCHEDULE 14A INFORMATION
     
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.  )
    
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¨ Preliminary Proxy Statement                                              ¨ Soliciting Material Under Rule 14a-12
¨ Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
x Definitive Proxy Statement
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MFA Financial, Inc.
(Name of Registrant as Specified In Its Charter)

 
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
 
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 2010
 
To the Stockholders of MFA Financial, Inc.:
 
The 2010 Annual Meeting of Stockholders (the "Annual Meeting") of MFA Financial, Inc., a Maryland corporation ("MFA" or the "Company"), will be held at The New York Palace Hotel, 455 Madison Avenue, New York, New York, on Thursday, May 20, 2010, at 10:00 a.m., New York City time, for the following purposes:
 
 
(1)
To elect three directors to serve on MFA's Board of Directors (the "Board") until MFA's 2013 Annual Meeting of Stockholders and until their successors are duly elected and qualify;
 
 
(2)
To amend and restate MFA's Amended and Restated 2004 Equity Compensation Plan by replacing it with the 2010 Equity Compensation Plan, which will increase the number of shares of common stock available for grant by MFA under the plan to 20,000,000 and makes certain other changes as described in the enclosed proxy statement;
 
 
(3)
To ratify the appointment of Ernst & Young LLP as MFA's independent registered public accounting firm for the fiscal year ending December 31, 2010; and
 
 
(4)
To transact such other business as may properly come before the Annual Meeting or any postponements or adjournments thereof.
 
The close of business on March 23, 2010 has been fixed by the Board as the record date for the determination of the stockholders entitled to notice of, and to vote at, the Annual Meeting or any postponements or adjournments thereof.
 
We hope that all stockholders who can do so will attend the Annual Meeting in person.  Whether or not you plan to attend, in order to assure proper representation of your shares at the Annual Meeting, we urge you to submit your proxy voting instructions to MFA by using our dedicated internet voting website, our toll-free telephone number or, if you prefer, the mail.  By submitting your proxy voting instructions promptly, either by internet, telephone or mail, you can help MFA avoid the expense of follow-up mailings and ensure the presence of a quorum at the Annual Meeting.  If you attend the Annual Meeting, you may, if so desired, revoke your prior proxy voting instructions and vote your shares in person.
 
In order to submit proxy voting instructions prior to the Annual Meeting, you have the option of authorizing your proxy (a) through the internet at www.proxyvote.com and following the instructions described on the notice of access card previously mailed to you or on your proxy card, (b) by toll-free telephone at 1-800-690-6903 and following the instructions described on the notice of access card previously mailed to you or on your proxy card or (c) by completing, signing and dating your proxy card and returning it promptly in the postage-prepaid envelope provided.
 
Your proxy is being solicited by the Board.  The Board recommends that you vote in favor of the proposed items.
 
 
By Order of the Board
   
 
   
 
Timothy W. Korth
 
General Counsel, Senior Vice President and Corporate Secretary
 
New York, New York
April 6, 2010
 

 
 
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 2010
 
This Proxy Statement is being furnished to stockholders in connection with the solicitation of proxies by and on behalf of the Board of Directors (the "Board") of MFA Financial, Inc., a Maryland corporation ("MFA," the "Company," "we," "our" or "us"), for use at MFA's 2010 Annual Meeting of Stockholders (the "Annual Meeting") to be held at The New York Palace Hotel, 455 Madison Avenue, New York, New York, on Thursday, May 20, 2010, at 10:00 a.m., New York City time, or at any postponements or adjournments thereof.
 
In order to submit proxy voting instructions prior to the Annual Meeting, stockholders have the option to authorize their proxy by internet, telephone or mail.  Stockholders are requested to vote their shares of our common stock, par value $0.01 per share (the "Common Stock"), by proxy at the Annual Meeting by using the dedicated internet voting website or toll-free telephone number provided for this purpose.  Alternatively, stockholders may authorize their proxy by completing, signing and dating their proxy card and returning it in the postage-prepaid envelope provided.  Specific instructions regarding the internet and telephone voting options are described on the notice of access card previously mailed to you and on your proxy card.  Stockholders who authorize their proxy by using the internet or telephone voting options do not need to also return a proxy card.
 
Shares of Common Stock represented by properly submitted proxies received by us prior to the Annual Meeting will be voted according to the instructions specified on such proxies.  Any stockholder submitting a proxy retains the power to revoke such proxy at any time prior to its exercise at the Annual Meeting by (i) delivering prior to the Annual Meeting a written notice of revocation to Timothy W. Korth, our General Counsel, Senior Vice President and Corporate Secretary, at MFA Financial, Inc., 350 Park Avenue, 21st Floor, New York, New York 10022, (ii) submitting a later dated proxy or (iii) voting in person at the Annual Meeting.  Attending the Annual Meeting will not automatically revoke a stockholder's previously submitted proxy unless such stockholder votes in person at the Annual Meeting.  If a proxy is properly completed, submitted without specifying any instructions thereon and not revoked prior to the Annual Meeting, the shares of Common Stock represented by such proxy will be voted FOR the election of the three directors to serve on the Board until our 2013 Annual Meeting of Stockholders and until their successors are duly elected and qualify, FOR the amendment and restatement of our Amended and Restated 2004 Equity Compensation Plan (the "2004 Equity Compensation Plan") by replacing it with the 2010 Equity Compensation Plan (the "2010 Equity Compensation Plan"), which will increase the number of shares of Common Stock available for grant by us to 20,000,000 and makes certain other changes as described in this Proxy Statement and FOR the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2010.  As to any other business which may properly come before the Annual Meeting, the persons named as proxy holders on your proxy card will vote the shares of Common Stock represented by properly submitted proxies in their discretion.
 
This Proxy Statement, the Notice of Annual Meeting of Stockholders and the related proxy card are first being sent and made available to stockholders on or about April 6, 2010.
 
ANNUAL REPORT
 
This Proxy Statement is accompanied by our Annual Report to Stockholders for the year ended December 31, 2009, including financial statements audited by Ernst & Young LLP, our independent registered public accounting firm, and their report thereon, dated February 11, 2010.
 
VOTING SECURITIES AND RECORD DATE
 
Stockholders will be entitled to one vote for each share of Common Stock held of record at the close of business on March 23, 2010 (the "Record Date") with respect to (i) the election of the three directors to serve on the Board until our 2013 Annual Meeting of Stockholders and until their successors are duly elected and qualify, (ii) the amendment and restatement of the 2004 Equity Compensation Plan by replacing it with the 2010 Equity Compensation Plan,
 

 
(iii) the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2010 and (iv) any other proposal for stockholder action that may properly come before the Annual Meeting or any postponements or adjournments thereof.  Abstentions and broker non-votes are each included in the determination of the number of shares present at the Annual Meeting for the purpose of determining whether a quorum is present.  A broker non-vote occurs when a nominee holding shares for a beneficial owner (i.e., a broker) does not vote on a particular proposal because such nominee does not have discretionary voting power for that particular matter and has not received instructions from the beneficial owner.  Under a rule amendment adopted by the New York Stock Exchange (the "NYSE") for stockholder meetings held on or after January 1, 2010, brokers are no longer allowed to vote shares held in their clients' accounts on uncontested elections of directors unless the client (as beneficial owner) has provided voting instructions.  Similarly, brokers do not have discretionary voting authority with respect to the proposal to approve the 2010 Equity Compensation Plan.  The ratification of the appointment of our independent registered public accounting firm is, however, a proposal for which brokers do have discretionary voting authority.  Abstentions and broker non-votes, if any, will have no effect on the election of directors or the ratification of the appointment of Ernst & Young LLP.  For purposes of the vote to approve the 2010 Equity Compensation Plan, which amends and restates the 2004 Equity Compensation Plan, abstentions and broker non-votes will have the same effect as votes against the proposal, unless holders of more than 50% in interest of all securities entitled to vote on the proposal casts votes, in which event broker non-votes will have no effect on the result of the vote.
 
The presence, in person or by proxy, of holders of Common Stock entitled to cast a majority of all the votes entitled to be cast at the Annual Meeting shall constitute a quorum.  The disposition of business scheduled to come before the Annual Meeting, assuming a quorum is present, will require the following affirmative votes:  (i) for the election of directors, a plurality of all the votes cast at the Annual Meeting, (ii) for the amendment and restatement of the 2004 Equity Compensation Plan by replacing it with the 2010 Equity Compensation Plan, a majority of all the votes cast on the proposal, provided that the total vote cast on the proposal represents over 50% in interest of all securities entitled to vote on the proposal, and (iii)  for the ratification of the appointment of our independent registered public accounting firm, a majority of all the votes cast on the proposal.
 
As of the Record Date, we had issued and outstanding 280,759,597 shares of Common Stock.
 
1. ELECTION OF DIRECTORS
 
Board of Directors
 
In accordance with our Charter and Bylaws, the Board is currently comprised of nine directors, Stewart Zimmerman, Stephen R. Blank, James A. Brodsky, Edison C. Buchanan, Michael L. Dahir, William S. Gorin, Alan L. Gosule, Robin Josephs and George H. Krauss, and is divided into three classes, with Messrs. Blank, Buchanan and Gorin constituting the Class I directors, Messrs. Dahir and Krauss and Ms. Josephs constituting the Class II directors and Messrs. Zimmerman, Brodsky and Gosule constituting the Class III directors.  One class of directors is elected at each annual meeting of our stockholders for a term of three years.  Each director holds office until his successor has been duly elected and qualified or the director's earlier resignation, death or removal.  The term of the Board's Class III directors expires at the Annual Meeting.  The terms of the other two classes of directors expire at MFA's 2011 Annual Meeting of Stockholders (Class I directors) and MFA's 2012 Annual Meeting of Stockholders (Class II directors).
 
Upon the recommendation of the Nominating and Corporate Governance Committee of the Board, Messrs. Zimmerman, Brodsky and Gosule have been nominated by the Board to stand for re-election as Class III directors by the stockholders at the Annual Meeting to serve until our 2013 Annual Meeting of Stockholders or until their respective successors are duly elected and qualify.  It is intended that the shares of Common Stock represented by properly submitted proxies will be voted by the persons named therein as proxy holders FOR the re-election of Messrs. Zimmerman, Brodsky and Gosule as Class III directors, unless otherwise instructed.  If the candidacy of Messrs. Zimmerman, Brodsky and Gosule should, for any reason, be withdrawn prior to the Annual Meeting, the proxies will be voted by the proxy holders in favor of such substituted candidates (if any) as shall be nominated by the Board.  The Board has no reason to believe that, if re-elected, Messrs. Zimmerman, Brodsky and Gosule will be unable or unwilling to serve as Class III directors.
 
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The Board has determined that all of our current directors are qualified to serve as directors of the Company.  The biographies of each of the Board's nominees standing for re-election and our continuing directors set forth below contain information regarding each person's service as a director, business experience and education, director positions held currently or at any time during the last five years, information regarding certain legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills that caused the Board and its Nominating and Corporate Governance Committee to determine that the person should serve as a director on the Board in 2010.  In addition to the specific information set forth in these biographies, each of our directors also possess the tangible and intangible attributes and skills which we believe are necessary to be an effective director on the Board, including experience at senior levels in areas of expertise relevant and beneficial to our business and industry, a willingness and commitment to assume the responsibilities required of a director of the Company and the character and integrity we expect of directors of the Company.
 
Nominees for Re-Election as Class III Directors
 
The following information is furnished regarding the nominees for re-election as Class III directors by the holders of Common Stock.
 
Stewart Zimmerman, 65, has served as our Chief Executive Officer and as a director since 1997 and was appointed Chairman of the Board in 2003.  From 1997 through June 2008, Mr. Zimmerman also served as our President.  From 1989 through 1997, he initially served as a consultant to The America First Companies and became Executive Vice President of America First Companies, L.L.C. ("America First").  During this time, he held the following positions:  President and Chief Operating Officer of America First REIT, Inc. and President of several America First mortgage funds, including America First Participating/Preferred Equity Mortgage Fund, America First PREP Fund 2, America First PREP Fund II Pension Series Limited Partnership, Capital Source L.P., Capital Source II L.P., America First Tax Exempt Mortgage Fund Limited Partnership and America First Tax Exempt Fund 2 Limited Partnership.  Prior to 1989, Mr. Zimmerman held various positions with other financial-related companies, including Security Pacific Merchant Bank, EF Hutton & Company, Inc., Lehman Brothers, Bankers Trust Company and Zenith Mortgage Company.  Mr. Zimmerman is a graduate of Michigan State University.
 
We believe that Mr. Zimmerman's qualifications to serve on the Board include his position as our Chief Executive Officer, including his responsibility for day-to-day operations of the Company, his extensive knowledge of mortgage-backed securities and the fixed income, mortgage banking and specialty finance industries and his substantial knowledge of our business operations, corporate culture and investment strategies.
 
James A. Brodsky, 64, has served as a director of MFA since 2004.  Mr. Brodsky is a partner in, and a founding member of, the law firm of Weiner Brodsky Sidman Kider PC in Washington, D.C. and has practiced law with that firm and its predecessor since 1977.  Mr. Brodsky provides legal advice and business counsel to publicly traded and privately held national and regional residential mortgage lenders on secondary mortgage market transactions (including those involving Fannie Mae, Freddie Mac and Ginnie Mae), mergers and acquisitions, asset purchases and sales, mortgage compliance issues, and strategic business initiatives.  Prior to 1977, Mr. Brodsky was a Deputy Assistant Secretary with the U.S. Department of Housing and Urban Development.  He currently serves as general counsel of the National Reverse Mortgage Lenders Association and is Co-Founder and Chairman of the Open Door Housing Fund (a revolving fund resource for the preservation and re-development of affordable housing in the Washington, D.C. area).  Mr. Brodsky is a graduate of Cornell University and received a Juris Doctorate degree from Georgetown University and a Masters of Science in Electrical Engineering from Columbia University.
 
We believe that Mr. Brodsky's qualifications to serve on the Board include his significant experience as a lawyer and founding member of a national law firm specializing in residential mortgage finance, his extensive knowledge of the origination and servicing of, and the regulatory aspects relating to, residential mortgage loans, his experience with the federal executive branch agencies that regulate and directly affect the residential mortgage sector and his general experience with corporate governance, finance and other related matters.
 
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Alan L. Gosule, 69, has served as a director of MFA since 2001.  Mr. Gosule is a partner in the law firm of Clifford Chance US LLP ("Clifford Chance") in New York, New York and has practiced law with such firm and its predecessor since 1991.  From 2002 to August 2005, he served as the Regional Head of Clifford Chance's Real Estate Department for the Americas and, prior to 2002, was the Regional Head of such firm's Tax, Pension and Employment Department for the Americas.  Prior to 1991, Mr. Gosule practiced law with the firm of Gaston & Snow, where he was a member of such firm's Management Committee and the Chairman of the Tax Department.  Mr. Gosule currently serves as a member of the board of directors of Home Properties, Inc., where he is a member of the audit and corporate governance/nominating committees, F.L. Putnam Investment Management Company and Pioneer Natural Resources GP LLC, the general partner of Pioneer Southwest Energy Partners L.P., and as a member of the board of trustees of the Ursuline Academy.  Mr. Gosule is a graduate of Boston University and received a Juris Doctorate degree from Boston University Law School and an LLM in Taxation from Georgetown Law School.
 
We believe that Mr. Gosule's qualifications to serve on the Board include his significant experience as a lawyer and partner of a major international law firm, his extensive knowledge of tax law and related matters, including real estate investment trusts, and his considerable experience in advising, and his service on the boards and committees of, other public and private companies.
 
The Board recommends a vote FOR the re-election of Messrs. Zimmerman, Brodsky and Gosule as Class III directors.  Proxies solicited by the Board will be voted FOR Messrs. Zimmerman, Brodsky and Gosule, unless otherwise instructed.
 
Continuing Class I Directors
 
The following information is furnished regarding our Class I directors (who will continue to serve on the Board until our 2011 Annual Meeting of Stockholders or until their respective successors are duly elected and qualify).
 
Stephen R. Blank, 64, has served as a director of MFA since 2002.  Since 1998, Mr. Blank has been a Senior Resident Fellow, Finance, at the Urban Land Institute ("ULI"), a non-profit education and research institute which studies land use and real estate development policy.  Prior to joining ULI, Mr. Blank served from 1993 to 1998 as Managing Director – Real Estate Investment Banking of CIBC Oppenheimer Corp.  From 1989 to 1993, Mr. Blank was Managing Director of the Real Estate Corporate Finance Department of Cushman & Wakefield, Inc.  From 1979 to 1989, Mr. Blank served as Managing Director – Real Estate Investment Banking of Kidder, Peabody & Co.  From 1973 to 1979, Mr. Blank was employed by Bache & Co., Incorporated as Vice President, Direct Investment Group.  Mr. Blank currently serves as a member of the board of directors of Home Properties, Inc., where he is a member of the audit and compensation committees, and as Chairman of the board of trustees of Ramco-Gershenson Properties Trust, where he is Chairman of the audit committee and a member of the compensation committee.  From May 1999 to February 2007, Mr. Blank was a member of the board of directors of BNP Residential Trust, Inc.  Mr. Blank is a graduate of Syracuse University and received a Masters of Business Administration degree in Finance from Adelphi University.
 
We believe that Mr. Blank's qualifications to serve on the Board include his extensive knowledge of the real estate industry as evidenced by his position at ULI, his experience in the investment banking industry, including his expertise in public and private real estate finance, and his substantial service on the boards and committees of other public and private companies.
 
Edison C. Buchanan, 55, has served as a director of MFA since 2004.  Since 2001, Mr. Buchanan has been Corporate Advisor at The Trust for Public Land, a non-profit land conservation organization.  In 2000, Mr. Buchanan served as Managing Director and Head of the Domestic Real Estate Investment Banking Group of Credit Suisse First Boston.  From 1997 to 2000, he was a Managing Director in the Real Estate Investment Banking Group at Morgan Stanley.  From 1981 to 1997, Mr. Buchanan was a Managing Director of various groups in the Investment Banking Division at Dean Witter Reynolds, Inc.  Mr. Buchanan currently serves as a member of the board of directors of Pioneer Natural Resources Company, where he is Chairman of the compensation and development committee and a member of the nominating and corporate governance committee, and as Chairman of the board of directors of The Commonweal Conservancy.  Mr. Buchanan is a graduate of Tulane University and received a Masters in Business Administration degree from Columbia University.
 
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We believe that Mr. Buchanan's qualifications to serve on the Board include his extensive experience in the investment banking industry, including his expertise in public and private real estate finance, his considerable experience in capital markets, financial and other related matters and his service on the boards and committees of other public companies.
 
William S. Gorin, 51, has served as a director of MFA since March 2010.  Mr. Gorin has also served as our President since June 2008 and as our Chief Financial Officer since 2001.  From 1997 until June 2008, he also served as our Executive Vice President.  From 1998 to 2001, Mr. Gorin served as our Executive Vice President and Secretary.  From 1989 to 1997, he held various positions with PaineWebber Incorporated/Kidder, Peabody & Co. Incorporated, serving as a First Vice President in the Research Department.  Prior to that position, Mr. Gorin was Senior Vice President in the Special Products Group.  From 1982 to 1988, Mr. Gorin was employed by Shearson Lehman Hutton, Inc./E.F. Hutton & Company Inc. in various positions in corporate finance and direct investments.  Mr. Gorin is a graduate of Brandeis University and received a Masters of Business Administration degree from Stanford University.
 
We believe that Mr. Gorin's qualifications to serve on the Board include his position as our President and Chief Financial Officer, his extensive knowledge of mortgage-backed securities and capital markets, his substantial knowledge of our business operations and investment strategies and his overall experience in the investment banking industry, including his expertise in corporate finance.
 
Continuing Class II Directors
 
The following information is furnished regarding our Class II directors (who will continue to serve on the Board until our 2012 Annual Meeting of Stockholders or until their respective successors are duly elected and qualify).
 
Michael L. Dahir, 61, has served as a director of MFA since 1998.  Since 1988, Mr. Dahir has been the Chairman and Chief Executive Officer of Omaha State Bank in Omaha, Nebraska.  From 1974 to 1988, Mr. Dahir held various positions with Omaha National Bank, including Senior Vice President and head of the Commercial Banking Services division, and was also Senior Vice President and Chief Financial Officer of the bank's parent company, FirsTier Holding Company.  Mr. Dahir is a non-practicing certified public accountant.  Mr. Dahir is Chairman of the Jesuit Partnership Council of Omaha, serves on the board and executive committee of Catholic Charities and is a member of the board of directors of Legatus International.  Mr. Dahir is a graduate of Creighton University.
 
We believe that Mr. Dahir's qualifications to serve on the Board include his considerable experience in banking and financial matters, including his current position as Chairman and Chief Executive Officer of Omaha State Bank and his past position as Senior Vice President and Chief Financial Officer of a publicly-traded bank, his experience as a certified public accountant and his significant exposure to our business and industry through length of service on the Board.
 
George H. Krauss, 68, has served as a director of MFA since 1997.  Mr. Krauss has been a consultant to The Burlington Capital Group, LLC ("Burlington") since 1997.  From 1972 to 1997, Mr. Krauss practiced law with Kutak Rock LLP, serving as such firm's managing partner from 1983 to 1993, and, from 1997 to 2006, was Of Counsel to such firm.  Mr. Krauss currently serves as a member of the board of directors of infoGROUP, Inc., where he is Chairman of the nominating and corporate governance committee and a member of the compensation committee, and as a member of the board of managers of Burlington, which is the general partner of America First Tax Exempt Investors, LP.  Mr. Krauss was a member of the boards of directors of Gateway, Inc., from 1991 to October 2007, West Corporation, from January 2001 to October 2006, and America First Apartment Investors, Inc., from January 2003 to September 2007.  Mr. Krauss is a graduate of, and received a Juris Doctorate degree and a Masters in Business Administration degree from, the University of Nebraska.
 
We believe that Mr. Krauss' qualifications to serve on the Board include his significant experience as a managing partner of a major law firm, his substantial service on the boards and committees of other public and private companies, his considerable legal and business experience in corporate, mergers and acquisitions and regulatory matters and his significant exposure to our business and industry through length of service on the Board.
 
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Robin Josephs, 50, has served as a director of MFA since January 2010.  From 2005 to 2007, Ms. Josephs was a managing director of Starwood Capital Group L.P., a private equity firm specializing in real estate investments.  From 1986 to 1996, Ms. Josephs was a senior executive with Goldman Sachs & Co. serving in the real estate group of the investment banking division and, later, in the equity capital markets division.  Ms. Josephs currently serves as a member of the board of directors of iStar Financial, where she is lead director and serves as a member of the audit, compensation and nominating and governance committees, and Plum Creek Timber Company, Inc., where she serves on the audit and compensation committees.  From January 2005 to December 2005, Ms. Josephs was a member of the board of directors of Instinet Group Incorporated.  Ms. Josephs is a trustee of the University of Chicago Cancer Research Foundation and the Tourette Syndrome Association.  Ms. Josephs is a graduate of The Wharton School of the University of Pennsylvania and received a Masters in Business Administration degree from Columbia University.
 
We believe that Ms. Joseph's qualifications to serve on the Board include her significant knowledge of the specialty finance and real estate industries, her extensive experience in the investment banking industry, including her expertise in public and private real estate finance and equity capital markets, her substantial service on the boards and committees of other public and private companies and her experience with corporate governance, finance and other related matters.
 
In accordance with our Charter, vacancies occurring on the Board as a result of (i) the removal from office, resignation or death of a director and (ii) an increase in the number of directors serving on the Board may be filled only by a majority of the remaining directors in office.
 
There is no familial relationship among any of the members of our Board or executive officers, except that William S. Gorin, our President and Chief Financial Officer and a director, and Ronald A. Freydberg, our Executive Vice President and Chief Investment and Administrative Officer, are brothers-in-law.
 
2. APPROVAL OF THE 2010 EQUITY COMPENSATION PLAN
 
We are asking our stockholders to approve the 2010 Equity Compensation Plan, which amends and restates the 2004 Equity Compensation Plan to, among other things, increase the number of authorized shares of Common Stock reserved for issuance under the plan to 20,000,000 shares and extend the term of the plan to May 20, 2020.  The 2010 Equity Compensation Plan is intended to promote our long-term growth and profitability by providing us with the tools to remain competitive in attracting, motivating and retaining highly qualified and skilled employees that are essential to our long-term success.
 
The Board strongly believes that it is essential to our continued success to increase the number of shares of Common Stock reserved for issuance to 20,000,000 shares under the 2010 Equity Compensation Plan.  As compared to the 2004 Equity Compensation Plan, the 2010 Equity Compensation Plan increases the number of shares of Common Stock available for grant by MFA from 3,500,000 shares to 20,000,000 shares in the aggregate, which increase of 16,500,000 shares represents approximately 5.9% of our outstanding shares of Common Stock as of the Record Date.  The Board believes that equity compensation is a very effective retention tool that provides incentive, rewards performance and aligns the interests of our stockholders with those of our employees, officers and directors.  The Board believes that the increased number of shares available for issuance under the 2010 Equity Compensation Plan will allow us to continue awarding equity-based compensation, which is an increasingly important component of our overall compensation program, and represents a reasonable amount of potential equity dilution over the stated 10-year term of the plan.
 
The 2010 Equity Compensation Plan was adopted by the Board, upon the recommendation of the Compensation Committee of the Board, on March 4, 2010, subject to stockholder approval at the Annual Meeting.  Stockholder approval of the 2010 Equity Compensation Plan will enable us to compete effectively in the competitive market for talent.  The closing sales price of our Common Stock on March 23, 2010 as reported on the NYSE was $7.30.  If the 2010 Equity Compensation Plan is not approved at the Annual Meeting by our stockholders, no awards will be made under this plan.
 
The following is a summary of the principal features of the 2010 Equity Compensation Plan.  The summary, however, does not purport to be a complete description of all the provisions of the 2010 Equity Compensation Plan and is subject in all respects to the actual plan document, a copy of which is attached hereto as Appendix A.
 
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Summary of the 2010 Equity Compensation Plan
 
Purpose.  The 2010 Equity Compensation Plan is intended to provide incentives to key employees, officers, directors and others expected to provide significant services to MFA and any of its subsidiaries which, with the consent of the Board, participates in the 2010 Equity Compensation Plan (the "Participating Companies"), including the employees, officers and directors of the Participating Companies, to encourage a proprietary interest in the Company, to encourage such key employees to remain in the employ of the Participating Companies, to attract new employees and to provide additional incentives to others to increase their efforts in providing significant services to the Company and the other Participating Companies.
 
Administration.  The 2010 Equity Compensation Plan will be administered by the Compensation Committee of the Board, which, in accordance with the terms thereunder, shall consist solely of persons who are, at the time of their appointment, "non-employee directors" under Rule 16b-3(b)(3)(i) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, to the extent that relief is sought under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), "outside directors" under the rules under Section 162(m) of the Code, or, if no such committee exists, by the Board.  References below to the Compensation Committee include a reference to the Board for any periods in which the Board is administering the 2010 Equity Compensation Plan.  The acts of a majority of the members present at any meeting of the Compensation Committee at which a quorum is present, or acts approved in writing by the entire committee, shall be the acts of the Compensation Committee for purposes of the 2010 Equity Compensation Plan.
 
The Compensation Committee generally has the full authority to administer and interpret the 2010 Equity Compensation Plan, to authorize the granting of awards, to determine the eligibility of an employee, director or other eligible person to receive an award, to determine the number of shares of Common Stock to be covered by each award, to determine the terms, provisions and conditions of each award and to take any other actions and make all other determinations that it deems necessary or appropriate in connection with the 2010 Equity Compensation Plan or the administration or interpretation thereof.
 
Eligibility and Types of Awards – General.  Eligibility for awards under the 2010 Equity Compensation Plan will be determined by the Compensation Committee.  Directors, officers and employees of the Participating Companies and other persons expected to provide significant services (of a type expressly approved by the Compensation Committee as covered services for these purposes) to the Participating Companies are eligible to be granted stock options ("Options"), restricted stock, phantom shares (also referred to as restricted stock units), dividend equivalent rights ("DERs") and other stock-based awards under the 2010 Equity Compensation Plan.
 
Available Shares.  Subject to adjustment upon certain corporate transactions or events, a maximum of 20,000,000 shares of Common Stock may be granted under the 2010 Equity Compensation Plan (all of which may be issued as Options).  In addition, subject to adjustment upon certain corporate transactions or events, a participant may not receive Options for more than 1,500,000 shares, or awards other than Options of more than 1,500,000 shares, of Common Stock in any one year under the 2010 Equity Compensation Plan.  As of the date of this Proxy Statement, an aggregate of 2,462,273 shares of Common Stock have been issued or are subject to outstanding awards under the 2010 Equity Compensation Plan by virtue of having been issued or subject to outstanding awards under the 2004 Equity Compensation Plan.  Shares of Common Stock that have been the subject of grants of restricted stock, phantom shares or Options that have been forfeited or that expire or terminate without having been exercised or paid, as the case may be, will not count towards the 20,000,000 share limitation and will be available for issuance under the 2010 Equity Compensation Plan.  In addition, no award may be granted under the 2010 Equity Compensation Plan to any person who, assuming exercise of all Options and payment of all awards held by such person, would own or be deemed to own more than 9.8% of the outstanding shares of Common Stock.  Unless the 2010 Equity Compensation Plan is previously terminated by the Board, new awards may be granted under the 2010 Equity Compensation Plan until the tenth anniversary of the date that such plan was approved by the Company's stockholders.
 
Stock Options.  The terms of specific Options, including whether Options shall constitute "incentive stock options" for purposes of Section 422(b) of the Code ("ISOs"), shall be determined by the Compensation Committee.  The exercise price of an Option shall be determined by the Compensation Committee and reflected in the applicable
 
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award agreement.  The exercise price of ISOs may not be lower than 100% (110% in the case of an ISO granted to a 10% stockholder) of the fair market value of the Common Stock on the date of grant.  The exercise price for any other Option so issued shall not be less than the fair market value on the date of grant.  Each Option will be exercisable after the period or periods specified in the award agreement, which will generally not exceed 10 years from the date of grant (or five years in the case of an ISO granted to a 10% stockholder).  Options will be exercisable at such times and subject to such terms as determined by the Compensation Committee.  Subject to the provisions of the applicable award agreement, (i) upon a termination of a participant's employment or other service by the Participating Company for any reason other than death, retirement or disability, a participant shall have the right, subject to certain restrictions, to exercise his or her Option at any time within three months after such termination to the extent that such Option had vested at the date of termination; provided, however, that if the participant dies while employed by the Participating Company or within three months after such a termination, his or her Option may be exercised, to the extent that it had vested at the date of death, within 12 months after such death, (ii) upon a termination of employment or other service by the Participating Company for cause or by the participant for any reason other than death, retirement or disability, any Options that are not exercised in full prior to such termination shall be cancelled and (iii) upon a termination of employment or other service for disability or retirement, a participant may exercise his or her Option within 24 months after such termination to the extent that such Option had vested at the date of termination.
 
Each member of the Compensation Committee shall automatically be granted non-qualified stock options ("NQSOs") to purchase shares of Common Stock and DERs upon the date such person is initially appointed to the Compensation Committee.  This amount of NQSOs and DERs shall be determined under the 2010 Equity Compensation Plan from time to time.  Currently, members of the Compensation Committee are granted NQSOs to purchase 5,000 shares of Common Stock and 1,250 DERs upon appointment to the Compensation Committee.  Each Option granted to a Compensation Committee member shall become exercisable commencing one year after the date of issuance (unless otherwise provided in the applicable award agreement) and shall expire 10 years thereafter.
 
Restricted Stock.  The Compensation Committee shall have authority to award shares of restricted stock to eligible persons.  Restricted stock will vest over such periods as the Compensation Committee shall determine at the time of grant and provide in the applicable award agreement.  The Compensation Committee may impose other conditions on the award of restricted stock.  Restricted stock will be subject to such restrictions as the Compensation Committee shall determine, including restrictions on sale, transfer or other alienation.
 
Subject to the provisions of the applicable award agreement, upon a termination of employment or other service by reason of death, retirement, disability or by the Participating Company for any reason other than cause during the applicable restriction period, all restrictions on restricted stock granted to the applicable participant will immediately lapse.  Subject to the provisions of the applicable award agreement, upon a termination of employment or other service for all other reasons during the applicable restriction period, all shares of restricted stock still subject to restrictions shall be forfeited to the Company.
 
Phantom Shares.  The Compensation Committee shall have the authority to award phantom shares to eligible persons.  The Compensation Committee may provide that any phantom share will expire at the end of a specified term and may impose conditions on the award of phantom shares.  Phantom shares (also referred to as restricted share units) will vest over such periods as the Compensation Committee shall determine at the time of grant and provide in the applicable award agreement.  Subject to the provisions of the applicable award agreement, upon a termination of employment or other service by the Participating Company for cause during the applicable vesting period, all outstanding phantom shares granted to the applicable participant shall be forfeited and cease to be outstanding.  Subject to the provisions of the applicable award agreement, upon a termination of employment or other service by reason of death, retirement, disability or by the Participating Company for any reason other than cause during the applicable vesting period, all outstanding phantom shares granted to the applicable participant will immediately become vested.  Subject to the provisions of the applicable award agreement, upon a termination of employment or other service for all other reasons during the applicable vesting period, all outstanding phantom shares granted to the applicable participant, to the extent that they are not vested, shall be forfeited and cease to be outstanding.  The Compensation Committee may, in its discretion, permit a participant to elect to receive as settlement of the phantom shares installments over a period not to exceed 10 years.  In addition, the Compensation Committee may establish a program under which distributions with respect to phantom
 
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shares may be deferred for additional periods as set forth in the preceding sentence.  Unless otherwise provided by the Compensation Committee, a phantom share will generally be settled on vesting by the transfer by the Company of a share of Common Stock to the participant.
 
Dividend Equivalent Rights.  A DER is a right to receive, as specified by the Compensation Committee at the time of grant, an amount equal to the dividend distributions paid on a share of Common Stock.  DERs will be exercisable separately or together with awards under the 2010 Equity Compensation Plan, and paid in cash or other consideration at such times, and in accordance with such rules, as the Compensation Committee shall determine in its discretion.
 
Other Stock-Based Awards.  The 2010 Equity Compensation Plan authorizes the Board to grant other awards based upon the Common Stock (including the grant of securities convertible into Common Stock and the grant of shares based upon certain conditions), subject to terms and conditions established by the Board at the time of grant.
 
Performance-Based Awards.  The Compensation Committee may provide that the grant or vesting of awards under the 2010 Equity Compensation Plan be made subject to the achievement of performance goals set by the Compensation Committee in accordance with the 2010 Equity Compensation Plan in a timely fashion.  In establishing the applicable goals, the Compensation Committee is authorized to choose from the following business criteria: (i) pre-tax income, (ii) after-tax income, (iii) net income, (iv) operating income, (v) cash flow, (vi) earnings per share, (vii) return on equity, (viii) return on invested capital or assets, (ix) cash and/or funds available for distribution, (x) appreciation in the fair market value of the Common Stock, (xi) return on investment, (xii) total return to the Company's stockholders, (xiii) net earnings growth, (xiv) stock appreciation, (xv) related return ratios, (xvi) increase in revenues, (xvii) the Company's published ranking against its peer group of real estate investment trusts based on total stockholder return, (xviii) net earnings, (xix) changes (or the absence of changes) in the per share or aggregate market price of the Common Stock, (xx) number of securities sold, (xxi) earnings before any one or more of the following items: interest, taxes, depreciation or amortization for the applicable period, as reflected in the Company's financial reports for the applicable period, and (xxii) total revenue growth.  To the extent permitted by Section 162(m) of the Code, unless the Compensation Committee provides otherwise at the time of establishing the performance goals, for each fiscal year of the Company, the Compensation Committee may provide for objectively determinable adjustments, as determined in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), to any of the business criteria described above for one or more of the items of gain, loss, profit or expense: (i) determined to be extraordinary or unusual in nature or infrequent in occurrence, (ii) related to the disposal of a segment of a business, (iii) related to a change in accounting principles under GAAP, (iv) related to discontinued operations that do not qualify as a segment of a business under GAAP, and (v) attributable to the business operations of any entity acquired by the Company during the fiscal year.
 
Recapitalization and Changes of Control.  If the Company shall be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of substantially all of the assets or stock of the Company or a similar transaction, or upon certain changes in capital structure and other similar events, the Compensation Committee shall make related adjustments in its discretion to (i) outstanding awards to maintain the participants' rights under the 2010 Equity Compensation Plan and (ii) various plan provisions (including, without limitation, to the number and kind of shares available under the plan). Upon the occurrence of a change in control of the Company, the Compensation Committee may make such adjustments as it, in its discretion, determines are necessary or appropriate, provided that such adjustments do not have a substantial adverse economic impact on the participant.
 
Amendment and Termination.  The Board may, from time to time, with respect to any shares at the time not issued, suspend, revise, amend or discontinue the 2010 Equity Compensation Plan.  The Board may amend the 2010 Equity Compensation Plan as it shall deem advisable, except that no amendment may adversely affect a participant with respect to outstanding grants without the participant's consent unless such amendments are in connection with compliance with applicable laws.  The Board may not make any amendment in the 2010 Equity Compensation Plan that would, if such amendment were not approved by the Company's stockholders, cause the 2010 Equity Compensation Plan to fail to comply with any requirement of applicable law or regulation, or of any applicable exchange or similar rule, unless and until the requisite stockholders' approval is obtained.
 
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Material U.S. Federal Income Tax Consequences of the 2010 Equity Compensation Plan
 
The following tax discussion is a general description of certain expected federal income tax results under current law.  No attempt has been made to address state, local or other federal tax consequences, and such consequences could differ from those discussed below.  All affected individuals should consult their own tax advisors if they wish any further details or have other questions.
 
Non-Qualified Stock Options.  No income will be recognized by an Option holder at the time of grant or vesting of an NQSO.  Ordinary income will generally be recognized by an Option holder at the time an NQSO is exercised in an amount equal to the excess of the fair market value of the underlying Common Stock on the exercise date over the exercise price.  The Company will generally be entitled to a deduction for federal income tax purposes in the same amount as the amount included in ordinary income by the Option holder with respect to the NQSO.  Gain or loss on a subsequent sale or other disposition of the shares acquired upon the exercise of an NQSO will be measured by the difference between the amount realized on the disposition and the tax basis of such shares, and will generally be long-term or short-term capital gain depending on the holding period involved.  The tax basis of the shares acquired upon the exercise of any NQSO will be equal to the sum of the exercise price of the NQSO and the amount included in income with respect to the NQSO.  Special tax rules may apply if exercise of the Option is permitted other than by cash payment of the exercise price.
 
Incentive Stock Options.  In general, neither the grant, the vesting nor the exercise of an ISO will result in taxable income to an Option holder or a deduction for the Company.  To receive special tax treatment as an ISO under Section 422 of the Code for the shares acquired upon exercise of an ISO, an Option holder must neither dispose of the shares within two years after the ISO is granted nor within one year after the transfer of the shares to the Option holder pursuant to exercise of the Option.  In addition, the Option holder must be an employee of the Company or a qualified subsidiary at all times between the date of grant and the date three months (one year in the case of disability) before exercise of the Option.  Special rules apply in the case of the death of the Option holder.  ISO treatment under the Code generally allows the sale of Common Stock received upon the exercise of an ISO to result in any gain being treated as a capital gain to the Option holder, but the Company will not be entitled to a tax deduction.  The exercise of an ISO (if the holding period rules described in this paragraph are satisfied), however, will give rise to income includable by the Option holder in his or her alternative minimum taxable income for purposes of the alternative minimum tax in an amount equal to the excess of the fair market value of the Common Stock acquired on the date of the exercise of the Option over the exercise price.
 
If the holding period rules noted above are not satisfied, gain recognized on the disposition of the shares acquired upon the exercise of an ISO will be characterized as ordinary income and included in the Option holder's taxable income.  This gain will be equal to the difference between the exercise price and the fair market value of the shares at the time of exercise.  (Special rules may apply to disqualifying dispositions where the amount realized is less than the value at exercise.)  The Company will generally be entitled to a deduction equal to the amount of such gain included by an Option holder as ordinary income.  Any excess of the amount realized upon such disposition over the fair market value at exercise will generally be long-term or short-term capital gain due to the fact that the holding period rules noted above were not satisfied.  Special tax rules may apply if exercise of the Option is permitted other than by cash payment of the exercise price.
 
Restricted Stock.  Unless a holder of restricted stock makes an "83(b) election" (as discussed below), there generally will be no tax consequences as a result of the grant of restricted stock.  Restricted stock is subject to tax at ordinary income tax rates when it is no longer subject to a substantial risk of forfeiture or is transferable (free of the risk).  Generally, when the restrictions are lifted, the holder will recognize ordinary income, and the Company will be entitled to a deduction, equal to the difference between the fair market value of the Common Stock at that time and the amount, if any, paid by the holder for the restricted stock.  Subsequently realized changes in the value of the Common Stock generally will be treated as long-term or short-term capital gain or loss, depending on the length of time the shares are held prior to disposition of the shares.  In general, if a holder makes an 83(b) election (under Section 83(b) of the Code) within 30 days of the award of restricted stock, the holder will recognize ordinary income on the date of the award of restricted stock, and the Company will be entitled to a deduction, equal to (i) the fair market value of the restricted stock as though the Common Stock were (A) not subject to a substantial risk of forfeiture, or (B) transferable, minus (ii) the
 
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amount, if any, paid for the restricted stock.  If an 83(b) election is made, (i) there will generally be no tax consequences to the holder upon the lifting of restrictions, and all subsequent appreciation in the restricted stock generally would be eligible for capital gains treatment and (ii) in the event of a forfeiture, the holder will generally not be entitled to a deduction or other tax loss in respect of amounts previously included in taxable income by virtue of the election.
 
Phantom Shares.  The phantom shares have been designed with the intention that there will be no ordinary income tax consequences as a result of the granting of a phantom share until the actual transfer is made with respect to the phantom share.  When the actual stock is transferred, the participant generally will recognize ordinary income, and the Company will generally be entitled to a deduction, equal to the fair market value of the Common Stock and cash, as applicable, received upon settlement.
 
Dividend Equivalent Rights.  There generally will be no tax consequences as a result of the award of a DER.  When payment is made, the holder of the DER generally will recognize dividend income taxed at ordinary income rates, and the Company will be entitled to a deduction, equal to the amount received in respect of the DER.
 
Securities Exchange Act of 1934.  Additional special tax rules may apply to participants in the 2010 Equity Compensation Plan who are subject to the rules set forth in Section 16 of the Exchange Act.
 
The Board recommends a vote FOR the approval of the 2010 Equity Compensation Plan.  Proxies solicited by the Board will be voted FOR this approval, unless otherwise instructed.
 
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
 
The Audit Committee of the Board has appointed Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010.  Ernst & Young LLP has audited our financial statements since the 2003 fiscal year.  The Board is requesting that our stockholders ratify the appointment of Ernst & Young LLP.
 
Neither our Bylaws nor other governing documents or law require stockholder ratification of the Audit Committee's appointment of Ernst & Young LLP as our independent registered public accounting firm.  However, the Board is submitting the appointment of Ernst & Young LLP to the stockholders for ratification as a matter of good corporate practice.  In the event that ratification of this appointment of our independent registered public accounting firm is not approved at the Annual Meeting, the Audit Committee will review its future selection of our independent registered public accounting firm.  Even if the selection is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such a change would be in our best interests.
 
Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting and will be provided with an opportunity to make a statement if so desired and to respond to appropriate inquiries from stockholders.
 
Independent Registered Public Accounting Firm Fees
 
The following table summarizes the aggregate fees (including related expenses) billed to us for professional services provided by Ernst & Young LLP for the fiscal years ended December 31, 2009 and 2008.
 
   
Fiscal Year Ended December 31,
 
   
2009
   
2008
 
Audit Fees (1)
  $ 719,026     $ 817,986  
Audit-Related Fees (2)
           
Tax Fees (3)
    12,700       23,400  
All Other Fees (4)
    10,000       85,000  
Total
  $ 741,726     $ 926,386  
 

(1)
2009 and 2008 Audit Fees include:  (i) the audit of the consolidated financial statements included in our annual report on Form 10-K and services attendant to, or required by, statute or regulation; (ii) reviews of the interim consolidated financial statements included in our quarterly reports on Form 10-Q; and (iii) comfort letters, consents and other services related to Securities and Exchange Commission ("SEC") and other regulatory filings and communications.  Audit Fees for 2009 and 2008 also include the audit of the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002.
 
(2)
There were no Audit-Related Fees incurred in 2009 or 2008.
 
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(3)
2009 and 2008 Tax Fees include tax compliance, tax planning, tax advisory and related tax services.
 
(4)
2009 and 2008 All Other Fees include Ernst & Young LLP's audit and consents and other services related to SEC and other regulatory filings for MFResidential Investments, Inc., a wholly-owned subsidiary of MFA.  Except as described in the previous sentence, there were no other professional services rendered by Ernst & Young LLP in 2009 or 2008.
 
All audit, tax and other services provided to us were reviewed and pre-approved by the Audit Committee, which concluded that the provision of such services by Ernst & Young LLP was compatible with the maintenance of that firm's independence in the conduct of its auditing functions.
 
The Board recommends a vote FOR the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2010.  Proxies solicited by the Board will be voted FOR this ratification, unless otherwise instructed.
 
BOARD AND COMMITTEE MATTERS
 
Board of Directors
 
The Board is responsible for overseeing our affairs.  The Board conducts its business through meetings and actions taken by written consent in lieu of meetings.  During the year ended December 31, 2009, the Board held five meetings and acted 10 times by written consent in lieu of a meeting.  Each of our directors attended at least 75% of the meetings of the Board and of the Board's committees on which they served during 2009.  All directors then serving on the Board attended our 2009 Annual Meeting of Stockholders.  During 2010, the Board expanded its size from seven to eight directors in January and then from eight to nine directors in March and, in connection with these expansions, appointed Robin Josephs as a Class II director, effective January 4, 2010, and William S. Gorin as a Class I director, effective March 4, 2010, to fill the resulting vacancies.  The Board's policy, as set forth in our Corporate Governance Guidelines (the "Guidelines"), is to encourage and promote the attendance by each director at all scheduled meetings of the Board and all meetings of our stockholders.
 
Committees of the Board
 
The Board has four standing committees:  the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Capital Advisory Committee.
 
Audit Committee.  Stephen R. Blank (Chairman), Edison C. Buchanan, Michael L. Dahir and Robin Josephs are currently the members of the Audit Committee.  The Board has determined that all of the members of the Audit Committee are independent as required by the NYSE listing standards, SEC rules governing the qualifications of audit committee members, the Guidelines, the Independence Standards (as defined below) and the written charter of the Audit Committee.  The Board has also determined, based upon its qualitative assessment of their relevant levels of knowledge and business experience (see "Election of Directors" in this Proxy Statement for a description of their respective backgrounds and experience), that Messrs. Blank and Dahir and Ms. Josephs qualify as "audit committee financial experts" for purposes of, and as defined by, SEC rules and have the requisite accounting or related financial management expertise required by the NYSE listing standards.  In addition, the Board has determined that all of the members of the Audit Committee are financially literate as required by the NYSE listing standards.  The Audit Committee, which met eight times during 2009, is responsible for, among other things, engaging our independent registered public accounting firm, reviewing with the independent registered public accounting firm the plans and results of their audit engagement, approving professional services to be provided by the independent registered public accounting firm, reviewing the independence of the auditors, considering the range of audit and non-audit fees, reviewing the adequacy of our internal controls, accounting and reporting practices and assessing the quality and integrity of our consolidated financial statements.  In accordance with its written charter, the Audit Committee has a policy requiring that the terms of all auditing and non-auditing services to be provided by our independent registered public accounting firm be pre-approved by the Audit Committee.  The Audit Committee also reviews and evaluates the scope of all non-auditing services to be provided by our independent registered public accounting firm in order to confirm that such services are permitted by the rules and/or regulations of the NYSE, the SEC, the Financial Accounting Standards Board or other similar governing bodies.  The specific responsibilities of the Audit Committee are set forth in its written charter, which is available for viewing on our website at www.mfa-reit.com.
 
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Compensation Committee.  James A. Brodsky (Chairman), Stephen R. Blank and George H. Krauss are currently the members of the Compensation Committee.  The Board has determined that all of the members of the Compensation Committee are independent as required by the NYSE listing standards, the Guidelines, the Independence Standards and the written charter of the Compensation Committee.  The Compensation Committee, which met four times and acted twice by written consent during 2009, is responsible for, among other things, overseeing the approval, administration and evaluation of MFA's compensation plans, policies and programs and reviewing and establishing the compensation of our directors and executive officers.  The specific responsibilities of the Compensation Committee are set forth in its written charter, which is available for viewing on our website at www.mfa-reit.com.
 
Nominating and Corporate Governance Committee.  Michael L. Dahir (Chairman), James A. Brodsky and George H. Krauss are currently the members of the Nominating and Corporate Governance Committee.  The Board has determined that all of the members of the Nominating and Corporate Governance Committee are independent as required by the NYSE listing standards, the Guidelines, the Independence Standards and the written charter of the Nominating and Corporate Governance Committee.  The Nominating and Corporate Governance Committee, which met four times during 2009, is responsible for, among other things, assisting the Board in identifying individuals qualified to become Board members, recommending to the Board the director nominees to stand for election by our stockholders, recommending to the Board the directors to serve on each of the Board's committees, developing and recommending to the Board the corporate governance principles and guidelines applicable to us and directing the Board in an annual review of its performance.  The specific responsibilities of the Nominating and Corporate Governance Committee are set forth in its written charter, which is available for viewing on our website at www.mfa-reit.com.
 
Capital Advisory Committee.  Stewart Zimmerman (Chairman), Edison C. Buchanan, Alan L. Gosule and George H. Krauss are currently the members of the Capital Advisory Committee.  The Capital Advisory Committee, which met once during 2009, is responsible for, among other things, overseeing our compliance with our investment strategy and other capital and financial operating policies.
 
We will provide the written charters of the Audit Committee, Compensation Committee and/or Nominating and Corporate Governance Committee, free of charge, to stockholders who request them.  Requests should be directed to Timothy W. Korth, our General Counsel, Senior Vice President and Corporate Secretary, at MFA Financial, Inc., 350 Park Avenue, 21st floor, New York, New York 10022.
 
Report of the Audit Committee
 
The Audit Committee of the Board is responsible for monitoring, on behalf of the Board, the integrity of our consolidated financial statements, our system of internal controls, the performance, qualifications and independence of our independent registered public accounting firm and our compliance with related legal and regulatory requirements.  The Audit Committee has the sole authority and responsibility to select, determine the compensation of, evaluate the performance of and, when appropriate, replace our independent registered public accounting firm.  The Audit Committee operates under a written charter adopted by the Board.
 
Management has the primary responsibility for our financial reporting process, including the system of internal controls, for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States and for the report on our internal control over financial reporting.  Ernst & Young LLP, our independent registered public accounting firm, is responsible for performing an independent audit of (i) our annual consolidated financial statements and expressing an opinion as to their conformity with accounting principles generally accepted in the United States and (ii) the effectiveness of our internal control over financial reporting and expressing an opinion with respect thereto.  The Audit Committee's responsibility is to oversee and review the financial reporting process and to review and discuss management's report on our internal control over financial reporting.  The Audit Committee is not, however, professionally engaged in the practice of accounting or auditing and does not provide any expert or other special assurance as to such financial statements concerning compliance with laws, regulations or accounting principles generally accepted in the United States or as to auditor independence.  The Audit Committee relies, without independent verification, on the information provided to it and on the representations made by our management and our independent registered public accounting firm.
 
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The Audit Committee held eight meetings during 2009.  The meetings were designed, among other things, to facilitate and encourage communication among the Audit Committee, management, Ernst & Young LLP, our independent registered public accounting firm, and Grant Thornton LLP, our internal auditing firm.
 
The Audit Committee reviewed and discussed the audited consolidated financial statements for the fiscal year ended December 31, 2009, and the related report prepared by Ernst & Young LLP, with management and Ernst & Young LLP.  The Audit Committee discussed with Ernst & Young LLP and Grant Thornton LLP the overall scope and plans for their respective audits, including internal control testing under Section 404 of the Sarbanes-Oxley Act of 2002.  The Audit Committee also reviewed and discussed with management, Ernst & Young LLP and Grant Thornton LLP management's annual report on our internal control over financial reporting and the reports and memoranda prepared by Ernst & Young LLP and Grant Thornton LLP with respect to their respective audits of our internal control over financial reporting.  The Audit Committee met with Ernst & Young LLP and Grant Thornton LLP, with and without management present, to discuss the results of their examinations, their evaluations of our internal controls and the overall quality of our financial reporting.
 
The Audit Committee reviewed and discussed with Ernst & Young LLP their 2009 audit plan for MFA and their proposed implementation of this plan.  The Audit Committee also discussed with Ernst & Young LLP matters that independent accounting firms must discuss with audit committees under generally accepted auditing standards and standards of the Public Company Accounting Oversight Board's ("PCAOB"), including, among other things, matters related to the conduct of the audit of our consolidated financial statements and the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU Section 380), as adopted by the PCAOB in Rule 3200T, which included a discussion of Ernst & Young LLP's judgments about the quality (not just the acceptability) of our accounting principles as applied to financial reporting.
 
The Audit Committee also discussed with Ernst & Young LLP their independence from us.  Ernst & Young LLP provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent accountant's communications with the Audit Committee concerning independence and represented that it is independent from us.  When considering the independence of Ernst & Young LLP, the Audit Committee considered if services they provided to us, beyond those rendered in connection with their audit of our consolidated financial statements, their reviews of our interim condensed consolidated financial statements included in our quarterly reports on Form 10-Q and their audit of the effectiveness of our internal control over financial reporting, were compatible with maintaining their independence.  The Audit Committee reviewed and approved the audit, tax and other professional services performed by, and the amount of fees paid for such services to, Ernst & Young LLP.  The Audit Committee has adopted policies and procedures for the pre-approval of audit and non-audit services for the purpose of maintaining the independence of our independent registered public accounting firm.  The Audit Committee received regular updates on the amount of fees and scope of audit, tax and other professional services provided.
 
Based on the Audit Committee's review and the outcome of these meetings, discussions and reports, and subject to the limitations on the Audit Committee's role and responsibilities referred to above and in its written charter, the Audit Committee recommended to the Board that our audited consolidated financial statements for the fiscal year ended December 31, 2009 be included in our annual report on Form 10-K filed with the SEC.  The Audit Committee has also selected and appointed Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010 and is presenting this selection to our stockholders for ratification.
 
Stephen R. Blank, Chairman
Edison C. Buchanan
Michael L. Dahir
Robin Josephs*
 

*
Ms. Josephs joined the Board as of January 4, 2010 and did not participate in any of the foregoing reviews and discussions that occurred during 2009.

The foregoing Report of the Audit Committee shall not be deemed under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, to be (i) "soliciting material" or "filed" or (ii) incorporated by reference by any general statement into any filing made by us with the SEC, except to the extent that we specifically incorporate such report by reference.
 
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COMPENSATION OF NON-EMPLOYEE DIRECTORS
 
During 2009, we paid, on a semi-annual basis in 50% increments on the last business day of May and November, (i) an annual board fee to our non-employee directors of $60,000 per year; (ii) an annual chair fee to the non-employee director acting as the Chairman of the Audit Committee of $12,500 per year; and (iii) an annual chair fee to the non-employee directors acting as the Chairmen of each of the Compensation Committee and the Nominating and Corporate Governance Committee of $7,500 per year.  In addition, under the 2004 Equity Compensation Plan, we made an annual award of equity compensation to each of our non-employee directors consisting of 2,500 restricted shares of Common Stock ("Restricted Shares"), which shares by their terms must be retained by the non-employee directors and, subject to certain exceptions, may not be sold or otherwise transferred until six months after termination of service with us.  In accordance with the stated terms of the Board's compensation package, these Restricted Shares are granted to our non-employee directors on a semi-annual basis in 50% increments on the last business day of May and November in each year.  Our non-employee directors may also participate in our Second Amended and Restated 2003 Non-Employee Directors' Deferred Compensation Plan (the "Non-Employee Directors Plan"), which allows participants to elect to defer receipt of 50% or 100% of their annual board fee and, if applicable, annual chair fees.
 
The following table summarizes the annual compensation received by our non-employee directors for the year ended December 31, 2009.
 
Name
 
Fees Earned or
Paid in Cash
($)(1)
   
Stock Awards
($)(2)
   
Non-Equity
Incentive Plan
Compensation
($)(3)
   
Total
($)
 
Stephen R. Blank
  $ 72,500     $ 17,288     $ 1,163     $        90,951  
James A. Brodsky
    67,500       17,288       1,163       85,951  
Edison C. Buchanan
    60,000       17,288       1,163       78,451  
Michael L. Dahir
    67,500       17,288       1,163       85,951  
Alan L. Gosule
    60,000       17,288       1,163       78,451  
Robin Josephs(4)
                       
George H. Krauss
    60,000       17,288       1,163       78,451  
 

(1)
Amounts in this column represent annual board fees and annual chair fees earned or paid to each non-employee directors for service in 2009.
 
(2)
Amounts in this column represent the aggregate grant date fair value of such awards computed in accordance with FASB ASC Topic 718.  During 2009, each non-employee director was granted (a) 1,250 Restricted Shares, on May 29, 2009, which had a fair value of $6.26 (based upon the fair market value of the Common Stock), and (b) 1,250 Restricted Shares, on November 30, 2009, which had a fair value of $7.57 (based upon the fair market value of the Common Stock).
 
(3)
Amounts in this column represent aggregate distributions paid on DERs, which represent the right to receive a distribution on each DER equal to the cash dividend paid on a share of Common Stock, attached to outstanding NQSOs held by our non-employee directors during 2009.
 
(4)
Ms. Josephs joined the Board as of January 4, 2010.
 
Non-employee directors are also eligible to receive grants of NQSOs, restricted stock, phantom shares and DERs under the 2004 Equity Compensation Plan, and, if approved by our stockholders at the Annual Meeting, under the 2010 Equity Compensation Plan.  We reimburse all non-employee directors for travel and other expenses incurred in connection with attending Board, committee and stockholder meetings and other Company-sponsored events and/or related to their activities on our behalf.  In addition, we provide all non-employee directors with up to $500,000 of accidental death and dismemberment insurance while traveling to or attending Board, committee and stockholder meetings and other Company-sponsored events.  Directors who are also our employees are not entitled to receive additional compensation for serving on the Board.
 
Effective January 1, 2010, the Board modified the compensation package to be paid to our non-employee directors.  Pursuant to this modified compensation package, the annual board fee paid to our non-employee directors and annual chair fees paid to our non-employee directors acting as Chairmen to the Board's Audit Committee, Compensation Committee and the Nominating and Corporate Governance Committee will remain the same and shall continue to be paid on a semi-annual basis in 50% increments on the last business day of May and November; however, beginning
 
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in 2010, the annual award of equity compensation to each non-employee director will be increased to 7,500 Restricted Shares.  In addition, beginning in 2010, we will pay, on a semi-annual basis in 50% increments, an annual fee of $7,500 per year to our Lead Director as well as provide our Lead Director with an annual award of equity compensation consisting of 5,000 Restricted Shares.  As with all Restricted Shares awarded to non-employee directors pursuant to this modified compensation package, these Restricted Shares will be granted to our Lead Director on a semi-annual basis in 50% increments on the last business day of May and November in each year and, by their terms, must be retained and, subject to certain exceptions, may not be sold or otherwise transferred until six months after termination of service with us.  In addition, pursuant to this modified compensation package, the non-employee directors shall be subject to a share retention/alignment requirement whereby each non-employee director shall be required to hold and maintain equity in MFA, which shall include Common Stock, convertible (but not perpetual) preferred stock, Restricted Shares and deferred stock units under the Non-Employee Directors Plan (collectively, the "Equivalent Shares"), in an amount equal to no less than 37,500 Equivalent Shares.  This retention requirement shall be applicable (i) to non-employee directors joining the Board on or after January 1, 2010, five years after becoming a director and (ii) to incumbent non-employee directors serving on the Board on December 31, 2009, within five years of the implementation of this modified compensation package.
 
CORPORATE GOVERNANCE
 
Role of the Board
 
Pursuant to our Charter and Bylaws and the Maryland General Corporation Law, our business and affairs are managed under the direction of the Board.  The Board has the responsibility for establishing broad corporate policies and for our overall performance and direction, but is not involved in our day-to-day operations.  Members of the Board keep informed of our business by participating in meetings of the Board and its committees, by reviewing analyses, reports and other materials provided to them and through discussions with our Chief Executive Officer and other executive officers.
 
Board Leadership Structure
 
The positions of our Chairman of the Board and our Chief Executive Officer are currently held by Stewart Zimmerman.  In 2010, the Board established the function of Lead Director and the Board's independent directors appointed James A. Brodsky to this position to serve until the 2011 annual meeting of the Board.  We believe that this Board leadership structure is appropriate for MFA, in that the combined role of the Chairman of the Board and the Chief Executive Officer promotes unified leadership and direction for MFA, allowing for a single, clear focus for management to execute MFA's strategy and business plan, while also providing for effective oversight by an independent Board assisted by the Lead Director.  We believe the Chief Executive Officer is in the best position to focus the independent directors' attention on the issues of greatest importance to MFA and its stockholders.  We believe that our overall corporate governance policies and practices combined with the strength of our independent directors minimizes any potential conflicts that may result from combining the roles of our Chairman of the Board and our Chief Executive Officer.  As part of its annual self-assessment, the Board will consider whether the current leadership structure continues to be optimal for MFA and its stockholders.
 
Lead Director Position
 
The Board established the Lead Director role to be fully independent of MFA's management.  James A. Brodsky, an independent director, currently serves as the Lead Director.  Among other things, the Lead Director: (1) presides at all meetings of the Board at which the Chairman of the Board is not present; (2) has the authority to call, and will lead, meetings and executive sessions of our independent and non-management directors; (3) consults with the Chairman of the Board in establishing the agenda for Board meetings; (4) helps facilitate communication between Chairman of the Board/Chief Executive Officer and the Board; (5) acts as a liaison between the Board and management; (6) confirms the Board has a process of regularly assessing the effectiveness of the Board, its committees and individual directors and management; and (7) performs such other functions as may be designated from time to time.  The Lead Director shall be elected annually by a majority of the non-management and independent directors then serving on the Board at each annual meeting of the Board beginning in 2011.
 
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Board's Role in Risk Oversight
 
The Board is responsible for the oversight of MFA's risk management.  The Board oversees and monitors MFA's risk management framework and actively reviews risks that may be material to us.  As part of this oversight process, the Board regularly receives reports from management on areas of material risk to MFA, including operational, financial, interest rate, liquidity, credit, market, legal and regulatory, accounting and strategic risks.  The Board receives these reports from the appropriate sources within MFA to enable it to understand our risk identification, risk management and risk mitigation strategies.  To the extent applicable, the Board and its committees coordinate their risk oversight roles.  As part of its written charter, the Audit Committee discusses guidelines and policies to govern the process by which risk assessment and risk management, including major financial risk exposures, is undertaken by MFA and its management.  The goal of these processes is to achieve serious and thoughtful board-level attention to our risk management process and framework, the nature of the material risks we face and the adequacy of our risk management process and framework designed to respond to and mitigate these risks.
 
Director Independence
 
The Guidelines provide that a majority of the directors serving on the Board must be independent as determined by the Board in accordance with the rules and standards established by the NYSE.  In addition, as permitted under the Guidelines, the Board has also adopted certain additional categorical standards (the "Independence Standards") to assist it in making determinations with respect to the independence of directors.  Based upon its review of all relevant facts and circumstances, the Board has affirmatively determined that six of our nine current directors, Stephen R. Blank, James A. Brodsky, Edison C. Buchanan, Michael L. Dahir, Robin Josephs and George H. Krauss, qualify as independent directors under the NYSE listing standards and the Independence Standards.  In determining that Mr. Krauss qualifies as an independent director under the NYSE listing standards and the Independence Standards, the Board took into consideration in making its determination that, during 2007, we paid property management fees of $38,485 to a property manager that was a wholly-owned subsidiary of America First Apartment Investors, Inc. ("AFAI"), a company for which Mr. Krauss then served on the board of directors and was a stockholder.  In connection with making this determination, the Board specifically noted that (a)  the amount of property management fees paid to the property manager in 2007 was not considered to be material to us on a consolidated basis and (b) our property management arrangement with AFAI was terminated in 2007.  The Independence Standards are available for viewing on our website at www.mfa-reit.com.
 
Code of Business Conduct and Ethics
 
The Board has adopted a Code of Business Conduct and Ethics (the "Code of Conduct") that applies to our directors, officers and employees.  The Code of Conduct was designed to assist directors, officers and employees in complying with the law, in resolving moral and ethical issues that may arise and in complying with our policies and procedures.  Among the areas addressed by the Code of Conduct are compliance with applicable laws, conflicts of interest, use and protection of our assets, confidentiality, communications with the public, internal accounting controls, improper influence of audits, records retention, fair dealing, discrimination and harassment, and health and safety.  The Board's Nominating and Corporate Governance Committee is responsible for assessing and periodically reviewing the adequacy of the Code of Conduct and will recommend, as appropriate, proposed changes to the Board.  The Code of Conduct is available for viewing on our website at www.mfa-reit.com.  We will also provide the Code of Conduct, free of charge, to stockholders who request it.  Requests should be directed to Timothy W. Korth, our General Counsel, Senior Vice President and Corporate Secretary, at MFA Financial, Inc., 350 Park Avenue, 21st floor, New York, New York 10022.
 
Corporate Governance Guidelines
 
The Board has adopted Corporate Governance Guidelines that address significant issues of corporate governance and set forth procedures by which the Board carries out its responsibilities.  Among the areas addressed by the Guidelines are Board composition, Board functions and responsibilities, Board committees, director qualification standards, access to management and independent advisors, director compensation, management succession, director orientation and continuing education and Board and committee performance evaluations.  The Board's Nominating and Corporate Governance Committee is responsible for assessing and periodically reviewing the adequacy of the Guidelines and will recommend, as appropriate, proposed changes to the Board.  The Guidelines are available for viewing on our
 
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website at www.mfa-reit.com.  We will also provide the Guidelines, free of charge, to stockholders who request them.  Requests should be directed to Timothy W. Korth, our General Counsel, Senior Vice President and Corporate Secretary, at MFA Financial, Inc., 350 Park Avenue, 21st floor, New York, New York 10022.
 
Review and Approval of Transactions with Related Persons
 
The Board has adopted written policies and procedures for review, approval and monitoring of transactions involving us and "related persons" (directors and executive officers, stockholders beneficially owning greater than 5% of our outstanding capital stock or immediate family members of any of the foregoing).  The policy covers any related person transaction that meets the minimum threshold for disclosure in the Proxy Statement under the relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest).  A summary of these policies and procedures is set forth below:
 
Policies
 
·
Any covered related party transaction must be approved by the Board or by a committee of the Board consisting solely of disinterested directors.  In considering the transaction, the Board or committee will consider all relevant factors, including, as applicable, (i) our business rationale for entering into the transaction; (ii) the available alternatives; (iii) whether the transaction is on terms comparable to those available to or from third parties; (iv) the potential for the transaction to lead to an actual or apparent conflict of interest; and (v) the overall fairness of the transaction to us.
 
·
On at least an annual basis, the Board or committee will monitor the transaction to assess whether it is advisable for us to amend or terminate the transaction.
 
Procedures
 
·
Management or the affected director or executive officer will bring the matter to the attention of the Chairman of the Audit Committee or, if the Chairman of the Audit Committee is the affected director, to the attention of the Chairman of the Nominating and Corporate Governance Committee.
 
·
The appropriate Chairman shall determine whether the matter should be considered by the Board or by a committee of the Board consisting solely of disinterested directors.
 
·
If a director is involved in the transaction, he or she will be recused from all discussions and decisions about the transaction.
 
·
The transaction must be approved in advance whenever practicable and, if not practicable, must be ratified as promptly as practicable.
 
Identification of Director Candidates
 
In accordance with the Guidelines and its written charter, the Nominating and Corporate Governance Committee is responsible for identifying and evaluating director candidates for the Board and for recommending director candidates to the Board for consideration as nominees to stand for election at our annual meetings of stockholders.  Director candidates are nominated to stand for election to the Board in accordance with the procedures set forth in the written charter of the Nominating and Corporate Governance Committee.
 
We seek highly-qualified director candidates from diverse business, professional and educational backgrounds who combine a broad spectrum of experience and expertise with a reputation for the highest personal and professional ethics, integrity and values.  The Nominating and Corporate Governance Committee periodically reviews the appropriate skills and characteristics required of our directors in the context of the current composition of the Board, our operating requirements and the interests of the Company.  In accordance with the Guidelines, director candidates should have experience in positions with a high degree of responsibility and decision making, be able to exercise good business judgment, be able to provide practical wisdom and mature judgment and be leaders in the companies or institutions
 
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with which they are affiliated.  The Nominating and Corporate Governance Committee reviews director candidates with the objective of assembling a slate of directors that can best fulfill and promote our goals, and recommends director candidates based upon contributions they can make to the Board and management and their ability to represent our long-term interests and those of our stockholders.
 
Although we do not have a formal written diversity policy, the Nominating and Corporate Governance Committee considers diversity of race, ethnicity, gender, age, cultural background, professional experiences and expertise and education in evaluating director candidates for Board membership.  We believe that considerations of diversity are, and will continue to be, an important component relating to the Board's composition as multiple and varied points of view contribute to a more effective decision-making process.
 
The Nominating and Corporate Governance Committee accepts stockholder recommendations of director candidates and applies the same standards in considering director candidates submitted by stockholders as it does in evaluating director candidates recommended by members of the Board or management.  Upon determining the need for additional or replacement Board members, the Nominating and Corporate Governance Committee identifies director candidates and assesses such director candidates based upon information it receives in connection with the recommendation or otherwise possesses, which may be supplemented by certain inquiries.  In conducting this assessment, the Nominating and Corporate Governance Committee considers knowledge, experience, skills, diversity and such other factors as it deems appropriate in light of our current needs and those of the Board.  If the Nominating and Corporate Governance Committee determines, in consultation with other directors, including the Chairman of the Board, that a more comprehensive evaluation is warranted, the Nominating and Corporate Governance Committee may then obtain additional information about a director candidate's background and experience, including by means of personal interviews.  The Nominating and Corporate Governance Committee will then re-evaluate the director candidate using its evaluation criteria.  The Nominating and Corporate Governance Committee receives input on such director candidates from other directors, including the Chairman of the Board, and recommends director candidates to the Board for nomination.  The Nominating and Corporate Governance Committee may, in its sole discretion, engage one or more search firms and/or other consultants, experts or professionals to assist in, among other things, identifying director candidates or gathering information regarding the background and experience of director candidates.  If the Nominating and Corporate Governance Committee engages any such third party, the Nominating and Corporate Governance Committee will have sole authority to approve any fees or terms of retention relating to these services.
 
Our stockholders of record who comply with the notice procedures outlined under the "Submission of Stockholder Proposals" section of this Proxy Statement may recommend director candidates for evaluation and consideration by the Nominating and Corporate Governance Committee.  Stockholders may make recommendations at any time, but recommendations of director candidates for consideration as director nominees at our annual meeting of stockholders must be received not less than 120 days before the first anniversary of the date on which the proxy statement was released to stockholders in connection with the previous year's annual meeting of stockholders.  Accordingly, to submit a director candidate for consideration for nomination at our 2011 Annual Meeting of Stockholders, stockholders must submit the recommendation, in writing, by no later than December 7, 2010.  The written notice must demonstrate that it is being submitted by a stockholder of record of MFA and include information about each proposed director candidate, including name, age, business address, principal occupation, principal qualifications and other relevant biographical information.  In addition, the stockholder must provide confirmation of each director candidate's consent to serve as a director and contact information for each director candidate so that his or her interest can be verified and, if necessary, to gather further information.
 
Communications with the Board
 
The Board has established a process by which stockholders and/or other interested parties may communicate in writing with our directors, a committee of the Board, the Board's non-employee directors as a group or the Board generally.  Any such communications may be sent to the Board by U.S. mail or overnight delivery and should be directed to Timothy W. Korth, our General Counsel, Senior Vice President and Corporate Secretary, at MFA Financial, Inc., 350 Park Avenue, 21st Floor, New York, New York 10022, who will forward them to the intended recipient(s).  Any such communications may be made anonymously.  Unsolicited advertisements, invitations to conferences or promotional materials, in the discretion of the Corporate Secretary, are not required, however, to be forwarded to the directors.  The Board has approved this communication process.
 
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Executive Sessions of Independent Directors
 
In accordance with the Guidelines, the independent directors serving on the Board meet in executive session at least four times per year at regularly scheduled meetings of the Board.  These executive sessions of the independent directors are presided over by James A. Brodsky, in his capacity as the Lead Director.
 
EXECUTIVE COMPENSATION
 
Compensation Discussion and Analysis
 
The following Compensation Discussion and Analysis describes the material elements of the compensation programs offered to our senior executive officers.  The Compensation Committee of the Board is responsible for the administration of our compensation plans, policies and programs and for all decisions relating to the compensation of our principal executive officer, principal financial officer and three other executive officers (the "Named Executive Officers").  The Compensation Committee endeavors to ensure that the compensation paid to the Named Executive Officers is consistent with our overall philosophy on compensation and market practices.
 
Compensation Philosophy and Objectives.  We, through our executive compensation programs, seek to attract, motivate and retain top quality senior executives who are committed to our core values of excellence and integrity.  The Compensation Committee's fundamental philosophy is to closely align these compensation programs with the achievement of annual and long-term performance goals tied to our financial success and the creation of stockholder value.
 
The Compensation Committee's objectives in developing and administering the executive compensation programs are to:
 
 
·
Attract, retain and motivate a highly-skilled senior executive team that will contribute to the successful performance of MFA;
 
 
·
Align the interests of the senior executive team with the interests of our stockholders by motivating executives to increase long-term stockholder value;
 
 
·
Provide compensation opportunities that are competitive within industry standards thereby reflecting the value of the position in the marketplace;
 
 
·
Support a culture committed to paying for performance where compensation is commensurate with the level of performance achieved; and
 
 
·
Maintain flexibility and discretion to allow us to recognize the unique characteristics of our operations and strategy, and our prevailing business environment, as well as changing labor market dynamics.
 
The Compensation Committee believes that it is important to create compensation programs that appropriately balance short-term, cash-based compensation with long-term, equity-based compensation.  Our executive officer compensation program includes the following primary components:
 
 
·
Base salaries paid in cash which recognize the unique role and responsibilities of a position, as well as an individual's performance in that role;
 
 
·
Annual cash awards which are meant to motivate and reward our short-term financial and operational performance, as well as individual performance; and
 
 
·
Long-term equity-based awards, including our restricted stock unit program, which are designed to support our objectives of aligning the interests of executive officers with those of our stockholders, promoting our long-term performance and value creation and retaining executive officers.
 
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In addition to the primary components of the executive officer compensation program, we maintain our Senior Officers Deferred Bonus Plan (the "Senior Officers Plan"), a non-qualified deferred compensation program designed to provide additional opportunities to align the interests of executive officers with stockholders and provide limited perquisites and other benefits beyond that are provided to all of our employees.
 
The Compensation Committee is committed to the ongoing review and evaluation of the executive officer compensation levels and program.  It is the Compensation Committee's view that compensation decisions are complex and best made after a deliberate review of Company and individual performance, as well as industry compensation levels.  Consistent with this view, the Compensation Committee annually assesses our performance within the context of the industry's overall performance and internal performance standards and evaluates individual executive officer performance relative to the performance expectations for their respective position and role within MFA.  In addition, the Compensation Committee benchmarks from time to time the total compensation provided to our executive officers to industry-based compensation practices.  While it is the Compensation Committee's goal to provide compensation opportunities that reflect Company and individual performance and that are competitive within industry standards, a specific target market position for executive officer pay levels has not been established.
 
Setting Executive Compensation.  During 2005 and 2006, the Compensation Committee conducted a comprehensive review of our senior executive compensation practices in order to help assure that our senior executive compensation program and policies remained aligned with the goal of enhancing stockholder value through compensation practices that attract, motivate and retain key senior executives.  As a part of the process, the Compensation Committee engaged FPL Associates Compensation, a nationally-recognized compensation consulting firm specializing in the real estate industry ("FPL"), to provide independent guidance and insight to the Compensation Committee on executive compensation matters, both generally in the marketplace and within our industry, and to provide recommendations regarding potential modifications to our senior executive compensation programs and policies.
 
The focus of the Compensation Committee's review was to (i) more directly align our senior executive compensation programs and policies with our financial performance and, accordingly, the creation of stockholder value and (ii) competitively update the existing executive compensation programs and policies, including existing employment agreements, to reflect current practices in the marketplace.  In conducting this review, the Compensation Committee examined all components of our compensation programs offered to the Named Executive Officers in office at that time, including, among other things, base salary, annual incentive bonus, equity and long-term compensation, accumulated (realized and unrealized) gains on Options and payments on DERs, the dollar value to the senior executives (and the cost to us) of all perquisites and other personal benefits, the earnings and accumulated payout obligations under the Senior Officers Plan, and the actual projected payout obligations under several potential severance and change-in-control scenarios.  A compensation tally sheet setting forth these components of our senior executive compensation program provided to each Named Executive Officer was prepared and reviewed by the Compensation Committee.  As part of their review, the Compensation Committee also evaluated a comprehensive benchmarking analysis prepared by FPL, which compared our senior executive compensation practices to the compensation practices employed by multiple distinct industry peer groups representing various asset classes.
 
Based on the analysis and findings of this comprehensive review and FPL's recommendations, the Compensation Committee determined that it would be beneficial to modify the compensation arrangements then offered to the Named Executive Officers in order to more closely align these compensation programs with the achievement of annual and long-term performance goals tied to our financial success and the creation of stockholder value.  As a result, in 2006, the Compensation Committee directed the implementation and documentation of these modifications in connection with the amendment and restatement of the then-existing employment agreements of the Named Executive Officers then in office.  These initial modifications to our compensation arrangements established the foundation for the Compensation Committee's overall philosophy on our compensation practices.  The Compensation Committee believes that the basis for, and underlying objectives relating to, these initial modifications to our compensation practices, which were first initiated in 2006, continue to reflect the Compensation Committee's overall compensation philosophy and are a fundamental component of our existing and future senior executive compensation programs and policies.
 
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During 2006, in connection with the initial modification of our compensation arrangements, (i) Mr. Zimmerman entered into a five-year amended and restated employment agreement, which became effective on April 16, 2006 and, in accordance with the automatic renewal provisions set forth therein, is currently scheduled to expire on December 31, 2011, (ii) Messrs. Gorin and Freydberg each entered into a three-year amended and restated employment agreement, which became effective on April 16, 2006 and were scheduled to expire on December 31, 2008, and (iii) Mr. Korth entered into a two-year amended and restated employment agreement which became effective on January 1, 2006 and expired on December 31, 2007.  In connection with the amendment and restatement of their employment agreements, Messrs. Zimmerman, Gorin and Freydberg (the "Senior Executives") each waived their rights under their then-existing employment agreements in order to enter into the amended and restated employment agreements specifying the modified compensation arrangements.  The Compensation Committee continues to believe that the terms and provisions of these amended and restated employment agreements provided for compensation arrangements that reflect the Compensation Committee's philosophy and objectives and help assure our future stability and succession of leadership.
 
During 2007, in contemplation of the expiration of the employment agreement of Mr. Korth on December 31, 2007, the Compensation Committee, together with the FPL, reviewed the components of the compensation arrangements then offered to Mr. Korth.  As part of this process, the Compensation Committee considered the terms and provisions set forth in Mr. Korth's employment agreement and determined to modify the annual base salary paid to him.  Specifically, Mr. Korth's salary was increased approximately 18% based on the results of this review and the Compensation Committee's view that the salary was below competitive market practices and did not appropriately reflect the broad set of responsibilities that Mr. Korth carries out as a member of our senior executive team.  As a result, Mr. Korth entered into a new two-year amended and restated employment agreement, which became effective on January 1, 2008 and was scheduled to expire on December 31, 2009.  In contemplation of the expiration of this employment agreement, on December 31, 2009, the Company entered into an amended and restated employment agreement with Mr. Korth.  The employment agreement was amended (i) to extend the term of employment for an additional two-year period ending on December 31, 2011, (ii) to increase the amount of the annual base salary payable to Mr. Korth equal to $334,000 per annum and (iii) to make certain amendments to the restrictive covenants set forth therein.  Except as provided above, all other material terms and provisions of the amended and restated employment agreement, entered into by Mr. Korth as of December 10, 2008 and expiring on December 31, 2009 remain the same.
 
During 2008, in connection with the promotion of Mr. Gorin to the office of our President and Chief Financial Officer and Mr. Freydberg to the office of our Chief Investment Officer and Executive Vice President, the Compensation Committee, together with Christenson Advisors, LLC, a nationally-recognized compensation consulting firm ("Christenson Advisors"), reviewed the components of the compensation arrangements then offered to these Named Executive Officers.  As part of this process, the Compensation Committee considered, among other things, the increased duties and responsibilities associated with their new positions and determined to increase the annual base salaries paid to, and to modify the annual performance-based bonus pool (the "Bonus Pool") shared by, these executive officers.  Specifically, effective July 1, 2008, Mr. Gorin's annual base salary was increased from $675,000 to $800,000 and Mr. Freydberg's annual base salary was increased from $675,000 to $750,000.  These increases in annual base salary were based on the results of this review and the Compensation Committee's view that these promotions (i.e., the additional responsibilities expected to be carried out by Messrs. Gorin and Freydberg) warranted an increase in annual base salary.  Further, these increases provided additional and, in the view of the Compensation Committee, appropriate incentives to these executives to renew their employment with us for an additional term of three and one-half years and, thereby, help assure the continuity and development of our senior executive team.  In addition, Messrs. Gorin and Freydberg also received a one-time award of 100,000 Restricted Shares and 75,000 Restricted Shares, respectively, which vest ratably on a quarterly basis over a four-year period.  As a result, each of Messrs. Gorin and Freydberg entered into new amended and restated employment agreements, which became effective as of July 1, 2008 and are scheduled to expire on December 31, 2011.
 
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In December 2008, the Compensation Committee, based upon the advice and counsel of Christenson Advisors, agreed to amend and restate Mr. Zimmerman's employment agreement in order to allow him, as a Senior Executive, to participate in the revised Bonus Pool with Messrs. Gorin and Freydberg.  As a result of the 2008 modifications to the Bonus Pool, the aggregate amount of the Bonus Pool available for distribution to all three of the Senior Executives, combined, can range annually from $750,000 to $6.3 million or more (subject to adjustment upwards or downwards by as much as 30% at the discretion of the Compensation Committee) based upon our attainment of specified return on average equity ("ROAE") targets in any given year.  In addition, in December 2008, the employment agreements of all of the Named Executive Officers then in office were amended to bring them into compliance with Section 409A of the Code.
 
In July 2009, the Board appointed Craig L. Knutson to serve as Executive Vice President.  In connection with Mr. Knutson's appointment, the Compensation Committee considered, among other things, the duties and responsibilities associated with this position in order to determine the appropriate compensation offered to Mr. Knutson.  As a result, Mr. Knutson entered into an employment agreement, which became effective as of July 1, 2009 and is scheduled to expire on December 31, 2011.  Under the terms of the employment agreement, Mr. Knutson will receive an annual base salary equal to $425,000 per annum and an opportunity to earn a discretionary annual performance bonus.  Mr. Knutson received a one-time award of 75,000 Restricted Shares concurrent with entering into his employment agreement dated as of July 1, 2009.
 
The Compensation Committee will, on an ongoing basis, continue to examine and assess our executive compensation practices relative to our compensation philosophy and objectives, as well as competitive market practices and total stockholder returns, and will make modifications to the compensation programs, as deemed appropriate.
 
Additional information with respect to the current employment agreements of the Named Executive Officers can be found under "Employment Contracts and Termination of Employment and Change-in-Control Arrangements" of this Executive Compensation section of the Proxy Statement.
 
Role of Executive Officers in Compensation Decisions.  The Compensation Committee makes all compensation decisions related to the Named Executive Officers and, in consultation with Mr. Zimmerman, our Chief Executive Officer, and Mr. Gorin, our President and Chief Financial Officer, our other employees.  When making compensation decisions for the Named Executive Officers (other than Mr. Zimmerman), the Compensation Committee seeks and considers the advice and counsel of Messrs. Zimmerman and Gorin given their direct day-to-day working relationship with these senior executives.  Taking this feedback into consideration, the Compensation Committee engages in discussions and makes final determinations related to compensation paid to the Named Executive Officers.  All decisions regarding Mr. Zimmerman's compensation are made independently by the Compensation Committee.
 
Elements of Executive Compensation.  The key elements of our executive compensation program include:
 
 
·
Base salary;
 
 
·
Incentive compensation;
 
 
·
Equity grants;
 
 
·
Deferred compensation; and
 
 
·
Perquisites and other benefits.
 
Base Salary
 
Pursuant to their employment agreements, we provide the Named Executive Officers with annual base salaries to compensate them for services provided during the term of their employment.  The amount of the annual base salary paid to the Named Executive Officers each year is established by, and set forth in, their employment agreements.  The Compensation Committee believes that the annual base salary paid in 2009 to each of the Named Executive Officers reflected the scope of the role and responsibilities of the applicable position, individual performance and experience and competitive market practices.
 
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The annual base salaries for each of the Named Executive Officers at December 31, 2009 were as follows:
 
   
2009 Base Salary
 
   
Cash
   
Stock Grant
 
Stewart Zimmerman
  $ 900,000     $ 100,000  
William S. Gorin
    800,000       ¾  
Ronald A. Freydberg
    750,000       ¾  
Craig L. Knutson
    425,000       ¾  
Timothy W. Korth
    325,000       ¾  
 
Pursuant to their employment agreements, the amount of annual compensation paid to each of the Named Executive Officers may be increased during the term of employment at the discretion of the Compensation Committee.  During 2009, no discretionary adjustments were made by the Compensation Committee to the stated annual base salaries set forth in the Named Executive Officers' employment agreements.  The Compensation Committee intends to continue to implement the terms of the employment agreements, including the annual base salary provisions, while remaining open to future annual base salary adjustments in the event the Compensation Committee concludes that the circumstances warrant them.  However, consistent with the Compensation Committee's overall philosophy, the compensation programs for the Named Executive Officers (and, in particular, the Senior Executives) will continue to emphasize incentive compensation.
 
Incentive Compensation
 
Under the terms of their employment agreements, an incentive structure was established for the Senior Executives.  As a result, the Senior Executives are eligible to participate annually in the performance-based Bonus Pool that is funded based on MFA's ROAE.  The Bonus Pool structure provides the Compensation Committee with considerable discretion to establish incentive compensation levels in a manner consistent with its overall compensation philosophy and objectives.  For purposes of the Bonus Pool, ROAE is calculated for the 12-month period beginning on December 1st of the prior year through November 30th of the calculated year.  ROAE is calculated for this period as the 12-month GAAP net income excluding depreciation, merger expenses, gains/losses on asset sales and impairment charges, divided by the average stockholder equity before (i) goodwill and (ii) preferred stockholder equity.  The Compensation Committee evaluated various measures and factors of performance in developing this structure and, in its view, ROAE was determined to be a strong indicator of our overall performance and value creation for stockholders.  Further, ROAE is a metric of our performance that has been calculated and reported on a consistent basis since our inception in 1998.
 
As designed by the Compensation Committee and revised in 2008, the aggregate amount of the Bonus Pool available for distribution to the Senior Executives can range annually from $750,000 to $6.3 million or more based upon our attainment of specified ROAE targets in any given year.  The Compensation Committee has the discretionary right to adjust upward or downward the amount available for distribution from the Bonus Pool by as much as 30% in any given year (the "Discretionary Adjustment") based upon its assessment of certain factors, including, among other considerations, our leverage, our share price performance relative to the S&P Financial Index or other relevant indices, our share price performance relative to our peer group, our total stockholder return (share price change plus dividends), and our other asset management activities, as well as the individual performance of the Senior Executives.  Of the aggregate amount available for distribution from the Bonus Pool, the Compensation Committee bases annual bonus allocations to each of the Senior Executives on its assessment of each Senior Executive's performance and contribution during the applicable period.
 
24

 
In accordance with the terms of their employment agreements, the aggregate Bonus Pool available for distribution to the Senior Executives (subject to the Discretionary Adjustment of the Compensation Committee) is as follows:
 
ROAE Targets
 
Bonus Pool Range
 
Less than 4.5%
  $ 750,000        
4.5% – 5%
    750,000     $ 950,000  
5% – 6%
    950,000       1,150,000  
6% – 7%
    1,150,000       1,350,000  
7% – 8%
    1,350,000       1,800,000  
8% – 9%
    1,800,000       2,250,000  
9% – 10%
    2,250,000       2,700,000  
10% – 11%
    2,700,000       3,150,000  
11% – 12%
    3,150,000       3,600,000  
12% – 13%
    3,600,000       4,050,000  
13% – 14%
    4,050,000       4,500,000  
14% – 15%
    4,500,000       4,950,000  
15% – 16%
    4,950,000       5,400,000  
16% – 17%
    5,400,000       5,850,000  
17% – 18%
    5,850,000       6,300,000  
18% or more
 
Minimum of $6,300,000 (subject to the Discretionary Adjustment of the Compensation Committee)
 
 
In order to further align the performance of the Senior Executives with our long-term financial success and the creation of stockholder value, the Compensation Committee also determined that amounts allocated to Senior Executives annually from the Bonus Pool will be paid in a combination of cash and Restricted Shares based on the total size of the Bonus Pool.  Specifically, (i) with respect to any Bonus Pool equal to or less than $2,700,000, 75% of the amount allocated to a Senior Executive will be paid in cash and 25% will be paid in Restricted Shares, (ii) with respect to the incremental total of any Bonus Pool ranging from $2,700,000 to $4,050,000, 65% will be paid in cash and 35% will be paid in Restricted Shares and (iii) with respect to the incremental total of any Bonus Pool in excess of $4,050,000, 50% will be paid in cash and 50% will be paid in Restricted Shares.  In addition, no Senior Executive will be permitted to sell or otherwise transfer any of these Restricted Shares during the executive's employment or for a period of six months following the termination of the executive's employment, unless the value of the executive's stock holdings in us exceeds a specified multiple of the executive's annual base compensation (five times in the case of Mr. Zimmerman, four times in the case of Mr. Gorin and three times in the case of Mr. Freydberg).
 
For 2009, MFA's ROAE for purposes of determining the aggregate Bonus Pool available for distribution to the Senior Executives was 15.76% and, in accordance with the terms of their employment agreements, the 2009 Bonus Pool ranged from $4,950,000 to $5,400,000 (subject to the Discretionary Adjustment of the Compensation Committee).  Based upon their assessment and evaluation, the Compensation Committee determined to apply the Discretionary Adjustment to the 2009 Bonus Pool and, as a result, adjusted the Bonus Pool upwards by 15% (out of a possible maximum upward Discretionary Adjustment of 30% from the aggregate Bonus Pool amount within the applicable ROAE target range) to $6,084,040.  As a result, in the exercise of its discretion, the Compensation Committee increased the available aggregate 2009 Bonus Pool available for distribution to the Senior Executives by $793,570.
 
In making its determination to apply the Discretionary Adjustment, the Compensation Committee took into consideration the relevant factors impacting MFA's 2009 financial performance, including MFA's leverage strategy, the execution of MFA's asset allocation strategy, MFA's relative and absolute stockholder return, the comparative financial performance of industry peers, the relative performance of the Senior Executives (individually and collectively), and weighed such factors accordingly in applying the upward adjustment to the 2009 Bonus Pool.  Ultimately, the Compensation Committee determined that the upward adjustment to the aggregate available 2009 Bonus Pool amount, from the targeted amount that otherwise could have been distributed to the Senior Executives based upon MFA's 2009 ROAE, was appropriate given the 2009 stockholder return generated from share price appreciation and dividends and MFA's successful execution of its asset allocation strategy.
 
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Specifically, in the judgment of the Compensation Committee, under the leadership of the Senior Executives (individually and collectively), MFA performed well during 2009 relative to the financial performance, including stockholder returns, of a distinct comparative industry peer group established by the Compensation Committee, despite volatility in the financial markets during that period.  In comparing the 2009 financial performance of MFA and its peers, the Compensation Committee used an industry peer group consisting of Annaly Capital Management, Inc., Anworth Mortgage Asset Corporation, Capstead Mortgage Corporation and Redwood Trust, Inc.  In addition, during 2009, MFA generated its ROAE utilizing relatively low leverage and was able to generate substantial stockholder returns over the year.  The Compensation Committee believes that such stockholder returns substantially exceeded that reported for the companies covered by the Bloomberg REIT Index and the S&P 500 Index.  As a result of MFA's ROAE, the returns generated for stockholders through a combination of share price appreciation and dividend, and MFA's successful execution of its asset allocation strategy, as well as the market knowledge, experience, advice and recommendations of Christenson Advisors, the Compensation Committee determined that it was appropriate, in the exercise of the discretion it had under MFA's compensation policies and the employment agreements with the Senior Executives, to increase the amount that otherwise could be available for distribution to the Senior Executives under the Bonus Pool arrangement.
 
The Compensation Committee, based upon its assessment of the individual performance of each of the Senior Executives, allocated the Bonus Pool as follows:
 
         
Restricted Shares
       
   
Cash
   
Shares
   
Value
   
Total
 
Stewart Zimmerman
  $ 1,607,003       117,856     $ 887,453     $ 2,494,456  
William S. Gorin
    1,215,051       89,111       671,001       1,886,052  
Ronald A. Freydberg
    1,097,466       80,487       606,066       1,703,532  

Based upon the subjective evaluation of the relative leadership and performance of the Senior Executives (individually and collectively) and MFA's 2009 financial performance, the Compensation Committee determined to allocate the Bonus Pool as set forth in the table above.  This allocation reflected the view of the Compensation Committee that the Senior Executives functioned effectively as a senior management team, under the overall leadership of Mr. Zimmerman, in his capacity as Chief Executive Officer and Chairman of the Board, with effective contributions by Mr. Gorin, in his capacity as President and Chief Financial Officer, and Mr. Freydberg, in his capacity as Executive Vice President and Chief Investment and Administrative Officer.
 
Annual incentive compensation for Messrs. Knutson and Korth is determined at the discretion of the Compensation Committee based upon its subjective assessment and evaluation of MFA's annual performance and the annual performance of each individual senior executive.  Based upon consultations with Mr. Zimmerman and advice and counsel of Christenson Advisors, the Compensation Committee determined to award Messrs. Knutson and Korth annual incentive compensation of $575,000 and $307,500, respectively, for 2009.  Of these total incentive amounts, Mr. Knutson received payment of $175,000 in the form of 23,241 Restricted Shares and Mr. Korth received payment of $37,500 in the form of 4,981 Restricted Shares.
 
The cash component of the incentive compensation for 2009, which was approved by the Compensation Committee on December 16, 2009, was paid to the Named Executive Officers on January 15, 2010.  The restricted stock awards granted to the Named Executive Officers were made on December 17, 2009 under the 2004 Equity Compensation Plan.  With respect to Messrs. Zimmerman, Gorin and Freydberg, the restriction period on these Restricted Shares shall lapse ratably, with respect to approximately 6.25% of such shares, on the last business day of each calendar quarter over a four-year period (beginning with the quarter ended March 31, 2010 and ending with the quarter ending December 31, 2013) and dividends on these Restricted Shares are accrued during the restriction period and are paid in full on the vesting date of the applicable shares.  With respect to Messrs. Knutson and Korth, 25% of these Restricted Shares became fully vested upon grant, with the remaining 75% vesting equally on each of the next three anniversaries of the date of grant, and dividends are paid currently on all vested and unvested Restricted Shares.
 
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Equity Grants
 
The Compensation Committee believes that equity-based incentives are an effective means of motivating and rewarding long-term Company performance and value creation.  In addition, equity-based incentives appropriately align the interests of management with those of stockholders.  During the second quarter of 2004, we adopted the 2004 Equity Compensation Plan, as approved by our stockholders, which amended and restated our Second Amended and Restated 1997 Stock Option Plan.  In accordance with the terms of the 2004 Equity Compensation Plan, directors, officers and employees of MFA and any of our subsidiaries and other persons expected to provide significant services (of a type expressly approved by the Compensation Committee of the Board as covered services for these purposes) to us are eligible to be granted Options, restricted stock, restricted stock units (or "RSUs"), DERs and other stock-based awards under the 2004 Equity Compensation Plan.
 
As of December 31, 2009, the Named Executive Officers held an aggregate of 289,353 RSUs and related DERs.  With the adoption and implementation of a RSU program in 2007, the Compensation Committee believes that a meaningful long-term retention and equity-building component for our senior executives and other key employees has been added to our comprehensive compensation program.  The Compensation Committee concluded that the grant of RSUs served our retention goals, helped further to align the interests of the Named Executive Officers with those of our stockholders and provided appropriate additional compensation to the Named Executive Officers in the form of quarterly DER distributions during the period in which these RSUs continue to be outstanding for their continuing service.  These RSUs are scheduled to vest in full on December 31, 2010 (or earlier in the event of death or disability or termination of service with us for any reason other than cause) and, once vested, shall be settled on a one-for-one basis in shares of Common Stock on the earlier of a termination of service with us (for any reason), a change in control or on January 1, 2013.  During the period from award until settlement, the Named Executive Officers are entitled to receive DER distributions on all unvested RSUs.
 
In addition, as of December 31, 2009, the Named Executive Officers held an aggregate of 435,000 Options and related DERs.  With respect to these DERs, the Named Executive Officers are only entitled to receive DER distributions to the extent that related Options are vested.
 
The following table sets forth certain information regarding the number of vested and unvested DERs held by the Named Executive Officers on December 31, 2009, as well as distributions with respect to these DERs paid to the Named Executive Officers during fiscal year 2009.  This information regarding distributions paid on DERs during 2009 can also be found in the Summary Compensation Table under the column entitled "Non-Equity Incentive Plan Compensation."
 
   
Vested DERs at
12/31/2009
   
Unvested DERs at
12/31/2009
   
2009 DER
Distributions
 
Stewart Zimmerman
    300,741       ¾     $      279,689  
William S. Gorin
    178,125       ¾       165,656  
Ronald A. Freydberg
    178,125       ¾       165,656  
Craig L. Knutson
    ¾       ¾       ¾  
Timothy W. Korth
    67,362             62,647  

Under the terms of his employment agreement, Mr. Zimmerman is entitled to receive an annual grant of Common Stock with an aggregate fair market value on the date of grant of $100,000 on the first business day of each year during the remaining term of his employment.  These stock grants represent a payment of a portion of Mr. Zimmerman's annual base salary compensation and are fully vested and non-forfeitable upon the date of grant.  Mr. Zimmerman may not sell or otherwise transfer these shares during the term of his employment unless his stock holdings in us exceed a multiple of five times his annual base compensation and, once this threshold is met, only to the extent that the value of his stock holdings exceeds that multiple.  The Compensation Committee believes that paying a portion of Mr. Zimmerman's base salary in the form of Common Stock aligns his interests and compensation with long-term stockholder value creation.  During 2009, pursuant to his employment agreement, Mr. Zimmerman received a grant of 16,978 shares of Common Stock on January 2, 2009, which had a value of $100,000 based on the closing stock price on the NYSE of $5.89 on December 31, 2008 (the last trading day of the year).
 
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On August 26, 2009, in connection with the execution of his employment agreement, Mr. Knutson received a one-time award of 75,000 Restricted Shares.  Dividends on these Restricted Shares are accrued during the restriction period and are paid in full on the vesting date of the applicable shares.  Under the terms of his employment agreement, Mr. Knutson is not permitted to sell or otherwise transfer any of these Restricted Shares during the term of his employment or for a period of six months following the termination of his employment, unless the value of his stock holdings in us exceeds a multiple of three times his annual base compensation.  The Compensation Committee believes that the grant of these Restricted Shares to Mr. Knutson (i) further aligned his interests and compensation with long-term stockholder value creation and (ii) helped address the retention goals of the Compensation Committee.
 
No other equity grants were made to the Named Executive Officers during 2009 other than those grants detailed above and those awarded in conjunction with the incentive compensation.  The Compensation Committee will continue to evaluate the Named Executive Officer compensation programs and Company performance and retains the right to make future equity-based grants.
 
Deferred Compensation
 
On December 19, 2002, the Board adopted the Senior Officers Plan which gives executive officers the ability to elect to defer up to 100% of their annual cash incentive compensation.  Amounts deferred under this plan are subject to a five-year deferral period and can be paid in a lump sum or in installment payments at the termination of the deferral period.  The Senior Officers Plan is intended to provide executive officers with an opportunity to defer certain compensation while at the same time aligning their interests with the interests of stockholders.  Amounts deferred under the plan are considered to be converted into "stock units" of MFA, which do not represent our capital stock, but rather the right to receive a cash payment equal to the fair market value of an equivalent number of shares of Common Stock.  Deferred amounts, together with any cash dividend equivalents credited to outstanding stock units, increase or decrease in value as would an equivalent number of shares of Common Stock and are settled in cash at the termination of the deferral period, based on the value of the stock units at that time.  Prior to the time that the deferred accounts are settled, participants are unsecured creditors.
 
The Named Executive Officers are also eligible to participate in our tax-qualified retirement savings plan (the "401(k) Plan") under which all full-time employees are able to contribute compensation up to the limit prescribed by the Internal Revenue Service on a before-tax basis.  We match 100% of the first 3% of eligible compensation deferred by our employees and 50% of the next 2%, subject to a maximum as provided by Section 401(k) of the Code.  Subject to certain restrictions, all of our employees are eligible to participate in this plan.  We have elected to operate this plan under applicable safe harbor provisions of the Code, whereby, among other things, we must make contributions for all participating employees, and all matches contributed by us vest immediately.
 
Perquisites and Other Benefits
 
In general, it is the Compensation Committee's practice to provide limited perquisites and other benefits to the Named Executive Officers.  We do not reimburse the Named Executive Officers for automobiles, clubs, financial planning or items of a similar nature.  The Compensation Committee periodically reviews the levels of perquisites and other benefits provided to Named Executive Officers in light of market practices and within the context of the total compensation program.
 
The Named Executive Officers are eligible to participate in our employee health and welfare benefit programs.  The attributed costs of these benefits for the Named Executive Officers for the fiscal year ended December 31, 2009, are included in the Summary Compensation Table under the column entitled "All Other Compensation" and the related footnote.  In addition, we provide all of our employees, including the Named Executive Officers, with up to $500,000 of accidental death and dismemberment insurance while traveling on business, pleasure, or traveling to or attending Board, committee and stockholder meetings and other Company-sponsored events.  In accordance with our travel accident policy, the spouse and the dependents of the primary insured are provided with coverage up to $25,000 and $10,000, respectively.  Further, in accordance with the Code of Conduct, we do not make any loans to, or guarantee any personal loans of, any of our employees, including the Named Executive Officers.
 
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As discussed above in this Compensation Discussion and Analysis, we have entered into employment agreements with each of the Named Executive Officers.  These employment agreements are designed to promote our stability and continuity of senior leadership.  Information with respect to applicable severance payments under these agreements for the Named Executive Officers is provided under the section "Employment Contracts and Termination of Employment and Change-in-Control Arrangements" of this Executive Compensation section of the Proxy Statement.
 
Deductibility of Executive Compensation.  Section 162(m) of the Code and the regulations thereunder provide that compensation paid to a public company's chief executive officer and to its other three most highly compensated officers, excluding the financial officer, will be deductible for tax purposes up to $1 million, unless the compensation is paid solely for attaining one or more qualified performance goals and has satisfied the applicable stockholder approval requirements.  Specified compensation is excluded for this purpose, including performance-based compensation, provided that certain conditions are satisfied.  In this regard, grants under our 2004 Equity Compensation Plan, or the 2010 Equity Compensation Plan (if approved by stockholders) will generally be intended to be qualified performance-based compensation and the Compensation Committee has the authority to structure other awards thereunder as qualified performance-based compensation for these purposes.  The Compensation Committee may, however, authorize payments to executives that may not be fully deductible if it believes such payments are in our interests.
 
Other Tax and Accounting Implications.  The American Jobs Creation Act of 2004 changed the tax rules applicable to nonqualified deferred compensation arrangements.  MFA believes that it is operating in good faith compliance with these statutory provisions and all subsequent regulatory authority.  In December 2008, the employment agreements of all of the Named Executive Officers, the 2004 Equity Compensation Plan and the Senior Officers Plan were amended to bring them into compliance with Section 409A of the Code.
 
Compensation Risk Considerations
 
The Compensation Committee monitors the risks and rewards associated with our compensation programs and considers, in establishing our compensation programs, whether these programs encourage unnecessary or excessive risk taking.  The Compensation Committee designs our compensation programs with features that are intended to mitigate risk without diminishing the incentive nature of the compensation.  We believe our compensation programs encourage and reward prudent business judgment and appropriate risk-taking over the long term.  With respect to the primary elements of our compensation programs, we use a number of practices to help mitigate unnecessary risk taking, including: (1) annual base salaries for all employees, including the Named Executive Officers, are fixed in amount and determined or approved in advance by the Compensation Committee; (2) annual incentive compensation, which is discretionary and subjectively determined for all employees (other than the Bonus Pool for the Senior Executives), is determined or approved in advance by the Compensation Committee and is typically a balance of cash and, depending on employment position, time-vesting equity compensation, such as Restricted Shares, subject to forfeiture, in certain instances, upon termination of service; and (3) long-term incentive compensation is determined or approved in advance by the Compensation Committee and is typically time-vesting equity compensation subject to forfeiture, in certain instances, upon termination of service and, in certain cases, subject to retention requirements.  With respect to the performance-based Bonus Pool established for the Senior Executives, mitigating factors included in this compensation structure include (a) the Compensation Committee's right to apply, in any given year, the Discretionary Adjustment to adjust the Bonus Pool downward by 30% based upon its assessment of certain company-related, market-related and individual performance factors; (b) the Bonus Pool is paid in a combination of cash and Restricted Shares with the specific allocation between cash and Restricted Shares based on the total size of the Bonus Pool (with more Restricted Shares being allocated as the size of the Bonus Pool increases); (c) these Restricted Shares are time vested and subject to forfeiture, in certain instances, upon termination of service and specific retention requirements; and (d) the allocation of the Bonus Pool amongst the Senior Executives is based on the subjective evaluation of their leadership and performance by the Compensation Committee.  As a matter of good governance and oversight, the Compensation Committee requested that Christenson Advisors, its compensation consultant, review our compensation programs in light of recent regulatory guidance on risk and executive compensation.  Christenson Advisors delivered its report, dated March 2, 2010, to the Compensation Committee.  After reviewing and discussing our compensation programs and practices with the Compensation Committee and Christenson Advisors, we believe that our compensation programs are balanced, do not motivate or encourage unnecessary or excessive risk taking and do not create risks that are reasonably likely to have a material adverse effect on us.
 
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Compensation Committee Report
 
The Compensation Committee of the Board evaluates and establishes compensation for all of our employees and administers our 2004 Equity Compensation Plan, Senior Officers Plan, Non-Employee Directors Plan and other management incentive, benefit and perquisite programs.  While management has the primary responsibility for our financial reporting process, including the disclosure of executive compensation, the Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis set forth in this Proxy Statement.  The Compensation Committee is satisfied that the Compensation Discussion and Analysis fairly represents the philosophy, intent and actions of the Compensation Committee with regard to executive compensation.  The Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the SEC.
 
James A. Brodsky, Chairman
Stephen R. Blank
George H. Krauss
 
The foregoing Compensation Committee Report shall not be deemed under the Securities Act or the Exchange Act to be (i) "soliciting material" or "filed" or (ii) incorporated by reference by any general statement into any filing made by us with the SEC, except to the extent that we specifically incorporate such report by reference.
 
Compensation of Executive Officers
 
The following table summarizes the annual compensation received by the Named Executive Officers for the years ended December 31, 2009, 2008 and 2007.
 
Summary Compensation Table
 
Name and Principal Position
 
Year
 
Salary
($)(1)
   
Bonus
($)(2)
   
Stock
Awards
($)(1)(3)(4)
   
Non-Equity
Incentive Plan
Compensation
($)(5)
   
All Other
Compensation
($)(6)(7)(8)
   
Total
($)
 
Stewart Zimmerman,
 
2009
  $ 900,000     $ 1,607,003     $ 984,888     $ 279,689     $ 36,214     $ 3,807,794  
Chairman of the Board and
 
2008
    900,000       1,029,375       458,315       238,552       35,377       2,661,619  
Chief Executive Officer
 
2007
    900,000       370,000       1,174,303       94,050       29,947       2,568,300  
                                                     
William S. Gorin,
 
2009
    800,000       1,215,051       672,788       165,656       38,134       2,891,629  
President and
 
2008
    737,500       772,031       878,843       144,303       37,989       2,570,666  
Chief Financial Officer
 
2007
    675,000       290,000       718,316       59,400       33,331       1,776,047  
                                                     
Ronald A. Freydberg,
 
2009
    750,000       1,097,466       607,676       165,656       37,162       2,657,960  
Executive Vice President and
 
2008
    712,500       772,031       726,843       142,852       37,017       2,391,243  
Chief Investment and Administrative Officer
 
2007
    675,000       290,000       718,316       56,100       33,331       1,772,747  
                                                     
Craig L. Knutson,
 
2009
    406,250       400,000       762,719             37,729       1,606,698  
Executive Vice President
 
2008(9)
    237,500       165,000       102,350             24,413       529,263  
   
2007
                                   
                                                     
Timothy W. Korth,
 
2009
    325,000       270,000       37,606       62,647       36,902       732,154  
Senior Vice President,
 
2008
    325,000       200,000       18,612       50,185       37,929       631,726  
General Counsel and Corporate Secretary
 
2007
    275,000       180,000       165,775       15,750       32,650       669,175  
 

(1)
Material terms of the employment agreements of the Named Executive Officers are provided under "Employment Contracts and Termination of Employment and Change-in-Control Arrangements" of this Executive Compensation section of the Proxy Statement.
 
(2)
Amounts in this column represent (a) for 2009, the cash component of the 2009 bonus awards that were paid to the Named Executive Officers on January 15, 2010, (b) for 2008, the cash component of the 2008 bonus awards that were paid to the Named Executive Officers on January 15, 2009 and (c) for 2007, the cash component of the 2007 bonus awards that were paid to the Named Executive Officers on January 15, 2008.
 
(3)
Amounts in this column represent the aggregate grant date fair value of such awards computed in accordance with FASB ASC Topic 718.  For a discussion of the assumptions underlying the calculation of award values, see notes 2(h) and 12 in the consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2009.  The 2007 and 2008 amounts were recalculated from amounts shown in our prior proxy statements to reflect their aggregate grant date fair values as required by SEC rules effective for 2010.
 
30

 
(4)
Amounts in this column include the RSUs granted by us under the 2004 Equity Compensation Plan on October 26, 2007, which are scheduled to vest in full on December 31, 2010 (or earlier in the event of death or disability or termination of service with us for any reason other than cause).  Once vested, these RSUs shall be settled on a one-for-one basis in shares of Common Stock on the earlier of a termination of service with us (for any reason), a change in control or on January 1, 2013.  At December 31, 2009, the total number of unvested RSUs held by the Named Executive Officers was 289,353.  See "Compensation Discussion and Analysis—Elements of Executive Compensation—Equity Grants" of this Executive Compensation section of the Proxy Statement.
 
(5)
Amounts in this column represent aggregate distributions paid on DERs, which represent the right to receive a distribution on each DER equal to the cash dividend paid on a share of Common Stock, attached to outstanding RSUs and vested Options.
 
(6)
Amounts in this column represent all other compensation received by the Named Executive Officers during 2009.
 
   
Health Insurance
   
401(k) Plan
Company Match
   
Disability and 
Life Insurance
   
Dental 
Insurance
   
Total
 
2009
 
($)
   
($)
   
($)
   
($)
   
($)
 
Stewart Zimmerman
  $ 17,361     $ 9,800     $ 7,696     $ 1,357     $        36,214  
William S. Gorin
    23,721       9,800       2,682       1,931       38,134  
Ronald A. Freydberg
    23,721       9,800       1,710       1,931       37,162  
Craig L. Knutson
    23,721       9,800       2,277       1,931       37,729  
Timothy W. Korth
    24,141       9,800       1,030       1,931       36,902  
 
(7)
Amounts in this column represent all other compensation received by the Named Executive Officers during 2008.
 
   
Health Insurance
   
401(k) Plan
Company Match
   
Disability and 
Life Insurance
   
Dental 
Insurance
   
Total
 
2008
 
($)
   
($)
   
($)
   
($)
   
($)
 
Stewart Zimmerman
  $ 19,097     $ 9,200     $ 5,788     $ 1,292     $        35,377  
William S. Gorin
    24,269       9,200       2,682       1,838       37,989  
Ronald A. Freydberg
    24,269       9,200       1,710       1,838       37,017  
Craig L. Knutson
    12,848       9,200       1,140       1,225       24,413  
Timothy W. Korth
    25,861       9,200       1,030       1,838       37,929  
 
(8)
Amounts in this column represent all other compensation received by the Named Executive Officers during 2007.
 
   
Health Insurance
   
401(k) Plan
Company Match
   
Disability and 
Life Insurance
   
Dental 
Insurance
   
Total
 
2007
 
($)
   
($)
   
($)
   
($)
   
($)
 
Stewart Zimmerman
  $ 13,892     $ 9,000     $ 5,825     $ 1,230     $        29,947  
William S. Gorin
    20,870       9,000       1,710       1,751       33,331  
Ronald A. Freydberg
    20,870       9,000       1,710       1,751       33,331  
Craig L. Knutson
                             
Timothy W. Korth
    20,870       9,000       1,029       1,751       32,650  
 
(9)
Mr. Knutson joined the Company on March 17, 2008.  During 2009, Mr. Knutson entered into an employment agreement that provided for, amongst other things, an annual base salary increase to $425,000 per annum effective July 1, 2009.
 
31

 
Grants of Plan-Based Awards
 
The following table summarizes certain information regarding all plan-based awards granted to the Named Executive Officers during the year ended December 31, 2009.
 
Grants of Plan Based Awards for 2009
   
Grant Date
 
Date of Compensation
Committee Action
 
All Other Stock
Awards: Number of
Shares of Stock or
Units
(#)
   
Grant Date Fair Value
of Stock and Option
Awards(1)
($)
 
Stewart Zimmerman
 
01/02/2009
 
04/24/2006(2)
    16,978 (3)   $ 95,077  
   
12/17/2009
 
12/16/2009
    117,856 (4)     889,812  
William S. Gorin
 
12/17/2009
 
12/16/2009
    89,111 (4)     672,788  
Ronald A. Freydberg
 
12/17/2009
 
12/16/2009
    80,487 (4)     607,677  
Craig L. Knutson
 
08/26/2009
 
08/26/2009
    75,000 (5)     587,250  
   
12/17/2009
 
12/16/2009
    23,241 (6)     175,470  
Timothy W. Korth
 
12/17/2009
 
12/16/2009
    4,981 (6)     37,606  
 

(1)
Amounts in this column represent the aggregate grant date fair value of such awards computed in accordance with FASB ASC Topic 718.
 
(2)
In accordance with the terms of Mr. Zimmerman's employment agreement, originally approved by the Compensation Committee on April 24, 2006 and subsequently amended and restated on December 10, 2008, the date of his annual stock grant in 2009 was contractually set as the first business day of the year (January 2, 2009).
 
(3)
In accordance with the terms of Mr. Zimmerman's employment agreement, such shares of Common Stock became fully vested upon the date of grant; however, unless there is a termination of service, Mr. Zimmerman is not permitted to voluntarily or involuntarily sell, transfer, pledge, anticipate, alienate, encumber or assign such shares (or have such shares attached or garnished) until such time as the value of his stock holdings in us exceeds a multiple of five times his annual base compensation and, once this threshold is met, only in amounts having a value that exceeds that multiple.
 
(4)
In accordance with the terms of the applicable employment agreements and related award agreements, the restriction period on such Restricted Shares shall lapse ratably, with respect to approximately 6.25% of such shares, on the last business day of each calendar quarter over a four-year period (beginning with the quarter ended March 31, 2010 and ending with the quarter ending December 31, 2013).
 
(5)
In accordance with the terms of his employment agreement, Mr. Knutson received a one-time award of 75,000 Restricted Shares.  In accordance with the terms of his employment agreement and the related award agreement, the restriction period on such Restricted Shares shall lapse ratably, with respect to approximately 6.25% of such shares, on the last business day of each calendar quarter over a four-year period (beginning with the quarter ended September 30, 2009 and ending with the quarter ending June 30, 2013). With respect to those Restricted Shares that are no longer subject to restriction, Mr. Knutson shall not be permitted to sell or otherwise transfer any of these shares during the term of his employment or for a period of six months following the termination of his employment, unless the value of his stock holdings in us exceeds a multiple of three times his annual base compensation.
 
(6)
In accordance with the terms of the applicable award agreements, 25% of such shares of Common Stock became fully vested upon the date of grant and, thereafter, with respect to the remaining 75%, restrictions will lapse on one-quarter of such shares on each of the next three anniversaries of the date of grant.
 
32

Outstanding Equity Awards
 
The following table summarizes all outstanding equity awards held by the Named Executive Officers on December 31, 2009.
 
Outstanding Equity Awards at Fiscal 2009 Year End
 
   
Option Awards
   
Stock Awards
 
Name
 
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
   
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
   
Option
Exercise Price
($)
   
Option
Expiration
Date
   
Number of
Shares or
Units of Stock
That Have Not
Vested
(#)
   
Market Value
of Shares or
Units of Stock
That Have Not
Vested
($)(1)
 
Stewart Zimmerman
    185,000           $ 10.25    
10/01/2013
             
                     
      1,996 (2)   $ 14,671  
                     
      50,626 (3)     372,101  
                     
      117,856 (4)     866,242  
                     
      115,741 (5)     850,696  
                                               
William S. Gorin
    100,000             10.25    
10/01/2013
                 
                     
      1,141 (2)     8,386  
                     
      62,500 (6)     459,375  
                     
      37,969 (3)     279,072  
                     
      89,111 (4)     654,966  
                     
      78,125 (5)     574,219  
                                               
Ronald A. Freydberg
    100,000             10.25    
10/01/2013
                 
                     
      1,141 (2)     8,386  
                     
      46,875 (6)     344,531  
                     
      37,969 (3)     279,072  
                     
      80,487 (4)     591,579  
                     
      78,125 (5)     574,219  
                                               
Craig L. Knutson
                   
      9,566 (7)     70,310  
                     
      65,626 (8)     482,351  
                     
      17,431 (9)     128,118  
                                               
Timothy W. Korth
    50,000             10.23    
02/02/2014
                 
                     
      428 (2)     3,146  
                     
      1,740 (7)     12,789  
                     
      3,736 (9)     27,460  
                     
      17,362 (5)     127,611  
 

(1)
For purposes of this table, the market value of the Common Stock, including Common Stock reserved for issuance upon settlement of RSUs granted under the 2004 Equity Compensation Plan, is deemed to be $7.35 per share, the closing price of the Common Stock reported on the NYSE on December 31, 2009 (the last trading day of the year).
 
(2)
These stock awards were granted on December 17, 2007.  Assuming continued employment with us, the remaining unvested shares will vest on December 17, 2010.
 
(3)
These stock awards were granted on December 11, 2008.  Assuming continued employment with us, the restriction period on these shares shall lapse ratably, with respect to approximately 6.25% of such shares, on the last business day of each calendar quarter over a four-year period (beginning with the quarter ended March 31, 2009 and ending with the quarter ending December 31, 2012).
 
(4)
These stock awards were granted on December 17, 2009.  Assuming continued employment with us, the restriction period on these shares shall lapse ratably, with respect to approximately 6.25% of such shares, on the last business day of each calendar quarter over a four-year period (beginning with the quarter ended March 31, 2010 and ending with the quarter ending December 31, 2013).
 
(5)
RSUs awarded under the 2004 Equity Compensation Plan on October 26, 2007.  Assuming continued employment with us, these RSUs will vest in full on December 31, 2010. See "Compensation Discussion and Analysis—Elements of Executive Compensation—Equity Grants" of this Executive Compensation section of the Proxy Statement.
 
33

 
(6)
These stock awards were granted on August 13, 2008.  Assuming continued employment with us, the restriction period on these shares shall lapse ratably, with respect to approximately 6.25% of such shares, on the last business day of each calendar quarter over a four-year period (beginning with the quarter ended September 30, 2008 and ending with the quarter ending June 30, 2012).
 
(7)
These stock awards were granted on December 11, 2008.  Assuming continued employment with us, one-half of these shares will vest on December 11 of each of 2010 and 2011.
 
(8)
These stock awards were granted on August 26, 2009.  Assuming continued employment with us, the restriction period on these shares shall lapse ratably, with respect to approximately 6.25% of such shares, on the last business day of each calendar quarter over a four-year period (beginning with the quarter ended September 30, 2009 and ending with the quarter ending June 30, 2013).
 
(9)
These stock awards were granted on December 17, 2009.  Assuming continued employment with us, one-third of these shares will vest on December 17 of each of 2010, 2011 and 2012.
 
Equity Compensation Plan Information
 
The following table summarizes certain information regarding the Common Stock available for issuance under the 2004 Equity Compensation Plan as of December 31, 2009.  The following table does not take into account the additional shares of Common Stock available for issuance under the 2010 Equity Compensation Plan, for which authorization is sought at the Annual Meeting.
 
Plan Category
 
Number of Shares to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights(1)
   
Weighted Average 
Exercise Price of 
Outstanding Options, 
Warrants and Rights
   
Number of Shares 
Available for Future 
Issuance(1)
 
Equity Compensation Plans Approved by Stockholders
    532,000     $ 10.14       1,123,974  
Equity Compensation Plans Not Approved by Stockholders(2)
                 
Total
    532,000     $ 10.14       1,123,974  
 

(1)
Amounts in this column do not represent the RSUs granted by us under the 2004 Equity Compensation Plan on October 26, 2007, which are scheduled to vest in full on December 31, 2010 (or earlier in the event of death or disability or termination of service with us for any reason other than cause).  Once vested, these RSUs shall be settled on a one-for-one basis in shares of Common Stock on the earlier of a termination of service with us (for any reason), a change in control or on January 1, 2013.  At December 31, 2009, the total number of outstanding RSUs still subject to forfeiture was 326,392.  See "Compensation Discussion and Analysis—Elements of Executive Compensation—Equity Grants" of this Executive Compensation section of the Proxy Statement.
 
(2)
We have not adopted any "equity compensation plans" as defined in the applicable SEC rules which have not been approved by our stockholders.
 
Long-Term Incentive Plans and Other Matters
 
2004 Equity Compensation Plan.  The following discussion does not take into account changes that would be made pursuant to the 2010 Equity Compensation Plan, for which authorization is sought at the Annual Meeting.  For a description of the 2010 Equity Compensation Plan, see "Approval of the 2010 Equity Compensation Plan—Summary of the 2010 Equity Compensation Plan" in this Proxy Statement.
 
In general, subject to certain exceptions, stock-based awards relating to a maximum of 3.5 million shares of Common Stock may be granted under the 2004 Equity Compensation Plan (forfeitures and/or awards that expire unexercised do not count towards such limit).  Subject to certain exceptions, a participant may not receive stock-based awards in excess of 500,000 shares of Common Stock in any one year and no award may be granted to any person who, assuming exercise of all Options and payment of all awards held by such person, would own or be deemed to own more than 9.8% of the outstanding shares of our capital stock.  Unless previously terminated by the Board, awards may be granted under the 2004 Equity Compensation Plan until the tenth anniversary of the date that our stockholders approved such plan.
 
Pursuant to Section 422(b) of the Code, in order for Options granted under the 2004 Equity Compensation Plan and vesting in any one calendar year to qualify as ISOs for tax purposes, the market value of the Common Stock, as determined on the date of grant, to be received upon exercise of such Options shall not exceed $100,000 during any such calendar year.  The exercise price of an ISO may not be lower than 100% (110% in the case of an ISO granted to a 10% stockholder) of the fair market value of the Common Stock on the date of grant.  In addition, the exercise price for any other type of Option issued under the 2004 Equity Compensation Plan may not be less than the fair market value
 
34

 
on the date of grant.  Each Option is exercisable after the period or periods specified in the award agreement, which will generally not exceed 10 years from the date of grant.  Options will be exercisable at such times and subject to such terms as determined by the Compensation Committee and set forth in the applicable award agreement.
 
A RSU is a right to receive, subject to the satisfaction of conditions set by the Compensation Committee at the time of grant, a payment of a specified value, which may be a share of Common Stock, the fair market value of a share of Common Stock or such fair market value to the extent in excess of an established base value, on the applicable settlement date.  A DER is a right to receive, as specified by the Compensation Committee at the time of grant, a distribution equal to the dividend distributions that would be paid on a share of Common Stock.  DERs may be granted separately or together with other awards and are paid in cash or other consideration at such times and in accordance with such rules as the Compensation Committee shall determine in its discretion.
 
As of the Record Date, under our 2004 Equity Compensation Plan, there were outstanding (i) Options to acquire (a) a total of 452,000 shares of Common Stock at a purchase price of $10.25 per share, (b) a total of 50,000 shares of Common Stock at a purchase price of $10.23 per share, and (c) a total of 30,000 shares of Common Stock at a purchase price of $8.40 per share, (ii) a total of 326,392 RSUs subject to forfeiture, (iii) a total of 736,442 Restricted Shares subject to forfeiture and (iv) a total of 835,892 vested DERs.  During 2009, no Options were granted, 100,000 Options were exercised and no outstanding Options for any of the Named Executive Officers were repriced.  As of the Record Date, 1,037,727 shares of Common Stock remained available for grant to eligible participants under our 2004 Equity Compensation Plan.
 
The following table summarizes certain information regarding Options exercised and stock awards vested with respect to the Named Executive Officers during the year ended December 31, 2009.
 
   
Option Exercises and Stock Vested in 2009
 
   
Option Awards
   
Stock Awards
 
Name
 
Number of Shares
Acquired on Exercise
(#)
   
Value Realized 
Upon Exercise
($)
   
Number of Shares
Acquired on Vesting
(#)
   
Value Realized 
on Vesting
($)
 
Stewart Zimmerman
    100,000     $ 241,055       35,847     $ 228,721  
William S. Gorin
                39,998       282,610  
Ronald A. Freydberg
                33,747       238,681  
Craig L. Knutson
                19,967       152,166  
Timothy W. Korth
                2,784       21,158  

Deferred Plans.  On December 19, 2002, the Board adopted the Senior Officers Plan and the Non-Employee Directors Plan (collectively, as amended, the "Deferred Plans").  The Deferred Plans are intended to provide our non-employee directors and executive officers with an opportunity to defer up to 100% of certain compensation, as defined in the Deferred Plans, while at the same time aligning their interests with the interests of stockholders.  Under the Deferred Plans, amounts deferred are considered to be converted into "stock units," which do not represent our capital stock, but rather the right to receive a cash payment equal to the fair market value of an equivalent number of shares of Common Stock.  Deferred amounts, together with any cash dividend equivalents credited to outstanding stock units, increase or decrease in value as would an equivalent number of shares of Common Stock and are settled in cash at the termination of the deferral period, based on the value of the stock units at that time.  The Deferred Plans are non-qualified plans under the Employee Retirement Income Security Act of 1974, as amended, and are not funded.  Prior to the time that the deferred accounts are settled, participants are unsecured creditors.
 
35

 
The following table summarizes certain information regarding amounts deferred by the Named Executive Officers under the Senior Officers Plan as of December 31, 2009.
 
   
Nonqualified Deferred Compensation
 
Name
 
Executive
Contributions in
Last Fiscal Year
($)
   
Registrant
Contributions in
Last Fiscal Year
($)
   
Aggregate
Earnings in Last
Fiscal Year
($)
   
Aggregate
Withdrawals/
Distributions
($)
   
Aggregate
Balance at Last
Fiscal Year End
($)
 
Stewart Zimmerman
                    $ 12,438     $ 45,011  
William S. Gorin
                      69,964        
Ronald A. Freydberg
                      34,982        
Craig L. Knutson
                             
Timothy W. Korth
                             

The following table summarizes certain additional information regarding amounts deferred by our non-employee directors and Named Executive Officers participating in the Deferred Plans as of December 31, 2009.
 
Name
 
Total Amount
Deferred (1)
   
Distribution
in 2009
   
Remaining
Deferred
Amount (2)
   
Fair Market
Value of
Remaining
Amount (3)
 
Non-Employee Directors
                       
Stephen R. Blank
  $ 74,957     $ 3,663     $ 71,294     $ 88,143  
James A. Brodsky
    42,012       18,306       23,707       29,309  
Edison C. Buchanan
    148,390       41,553       106,836       132,085  
Alan L. Gosule
    116,374       42,903       73,471       90,834  
George H. Krauss
    239,306       50,290       189,016       233,687  
Named Executive Officers
                               
Stewart Zimmerman
    49,834       12,438       37,396       45,011  
William S. Gorin
    69,964       69,964              
Ronald A. Freydberg
    34,982       34,982              
Total
  $ 775,819     $ 274,099     $ 501,720     $ 619,069  


(1)
Amounts in this column represent total compensation deferred and cash dividend equivalents credited to outstanding stock units from the inception of the Deferred Plans, less any cash distributions made at the termination of any elected deferral and payment period.
 
(2)
Amounts in this column represent total compensation deferred and cash dividend equivalents credited to outstanding stock units under the Deferred Plans after 2009 distributions.
 
(3)
Amounts in this column represent fair market value of total compensation deferred and cash dividend equivalents credited to outstanding stock units (based upon the closing price of the Common Stock of $7.35 per share reported on the NYSE on December 31, 2009 (the last trading day of the year)) under the Deferred Plans at December 31, 2009.
 
Pension Benefits
 
The Named Executive Officers received no benefits in 2009 from us under defined pension or defined contribution plans other than our tax-qualified 401(k) Plan.
 
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
 
We have employment agreements with each of the Named Executive Officers.  As described below, these employment agreements provide the Named Executive Officers with, among other things, base salary, bonus and certain payments at, following and/or in connection with certain terminations of employment or a change-in-control involving MFA.  As used below, the terms "Cause," "Change In Control," "Disability," "Good Reason," "Pre-Change-In-Control Event" and "Retirement" shall have the respective meanings set forth in the applicable employment or award agreements.
 
36

 
Stewart Zimmerman.  The employment agreement for Mr. Zimmerman provides for an annual base salary of not less than $900,000.  Pursuant to this agreement, Mr. Zimmerman is also entitled to receive an annual grant of Common Stock, having an aggregate fair market value of $100,000 on the date of grant, on the first business day of each year during the five-year term of his employment.  In addition, Mr. Zimmerman is eligible to participate with Messrs. Gorin and Freydberg in the Bonus Pool, ranging annually from $750,000 to $6.3 million or more (subject to adjustment upwards or downwards by as much as 30% at the discretion of the Compensation Committee), based upon our attainment of specified ROAE targets.  Specific information regarding the Bonus Pool, including the applicable ROAE targets, is provided under "Compensation Discussion and Analysis—Elements of Executive Compensation" of this Executive Compensation section of the Proxy Statement.  Amounts allocated to Mr. Zimmerman annually from the Bonus Pool will be paid in a combination of cash and Restricted Shares based on the total size of the Bonus Pool.  Specifically, (i) with respect to any Bonus Pool equal to or less than $2,700,000, 75% of the amount allocated to Mr. Zimmerman will be paid in cash and 25% will be paid in Restricted Shares, (ii) with respect to the incremental total of any Bonus Pool ranging from $2,700,000 to $4,050,000, 65% will be paid in cash and 35% will be paid in Restricted Shares and (iii) with respect to the incremental total of any Bonus Pool in excess of $4,050,000, 50% will be paid in cash and 50% will be paid in Restricted Shares.  In addition, in accordance with this agreement, Mr. Zimmerman shall not be permitted to sell or otherwise transfer any of these Restricted Shares during the term of his employment or for a period of six months following the termination of his employment, unless the value of his stock holdings in us exceeds a multiple of five times his annual base compensation.  Mr. Zimmerman's employment agreement, which became effective on April 16, 2006, had an initial stated term of approximately five years, subject to earlier termination in certain circumstances, and, in accordance with the automatic renewal provisions set forth therein, is currently scheduled to expire on December 31, 2011.
 
Pursuant to the terms of his employment agreement, under certain specified scenarios during the term of his employment, Mr. Zimmerman is entitled to receive, in addition to earned and unpaid amounts then owed to him, certain payments upon the termination of his employment or a Change In Control involving MFA.
 
 
·
Without Cause or For Good Reason.  If Mr. Zimmerman's employment is terminated by us without Cause (which would exclude our determination not to renew his employment at the end of any applicable term) or by him for Good Reason, he will be entitled to (i) a payment equal to three times the greater of his combined annual base compensation and performance bonus for the preceding fiscal year or the average of his combined annual base compensation and performance bonus for the three preceding fiscal years, (ii) the immediate full vesting of all of his outstanding Options, with such Options and related DERs remaining outstanding until the earlier of 90 days after such termination or the contractual expiration of such instruments had such termination not occurred, (iii) the immediate full vesting of all of his outstanding Restricted Shares and the payment of all dividends on such Restricted Shares, and (iv) the immediate full vesting and settlement of all of his outstanding RSUs and the payment of all dividends on such RSUs.  In the event that Mr. Zimmerman's employment with us was terminated on December 31, 2009 under one of these two scenarios, he would have been entitled to receive from us a payment estimated to be $8,319,064.
 
 
·
Change In Control.  If Mr. Zimmerman's employment is terminated (i) by us without Cause within two months before a Change In Control and following the occurrence of a Pre-Change-In-Control Event, (ii) by his resignation for any reason within six months following a Change In Control, or (iii) by us other than for Cause or by his resignation for Good Reason within 24 months following a Change In Control, he will be entitled to (a) a payment equal to 300% of the sum of his current annual base compensation and his performance bonus for the immediately preceding year, (b) the immediate full vesting of all of his outstanding Options, with such Options and related DERs remaining outstanding until the earlier of 90 days after such termination or the contractual expiration of such instruments had such termination not occurred, (c) the immediate full vesting of all of his outstanding Restricted Shares and the payment of all dividends on such Restricted Shares, (d) the immediate full vesting and settlement of all of his outstanding RSUs and the payment of all dividends on such RSUs and (e) the continued participation, at our expense, in all of our health insurance, life insurance, retirement and other benefit programs for the balance of the term of his employment agreement.  In the event that Mr. Zimmerman's employment with us was terminated on December 31, 2009 under one of these three scenarios, he would have been entitled to receive from us a payment estimated to be $8,411,845.
 
37

 
 
·
Non-Renewal of Employment.  If Mr. Zimmerman's employment is terminated following notice by us of our determination not to renew the term of his employment at the end of any applicable term of his employment agreement, he will be entitled to (i) a payment equal to his current annual base compensation, (ii) the immediate full vesting of all of his outstanding Options, with such Options and related DERs remaining outstanding until the earlier of 90 days after such termination or the contractual expiration of such instruments had such termination not occurred, (iii) the immediate full vesting of all of his outstanding Restricted Shares and the payment of all dividends on such Restricted Shares and (iv) the immediate full vesting and settlement of all of his outstanding RSUs and the payment of all dividends on such RSUs.  In the event that Mr. Zimmerman's employment with us was terminated on December 31, 2009 under this scenario, he would have been entitled to receive from us a payment estimated to be $3,230,939.
 
 
·
Death or Disability.  If Mr. Zimmerman's employment is terminated by reason of his death or Disability, he (or his legal representative or estate) will be entitled to (i) a payment equal to two times his current annual base compensation, (ii) the immediate full vesting of all of his outstanding Options, with such Options and related DERs remaining outstanding until the earlier of 90 days after such termination or the contractual expiration of such instruments had such termination not occurred, (iii) the immediate full vesting of all of his outstanding Restricted Shares and the payment of all dividends on such Restricted Shares, (iv) the immediate full vesting and settlement of all of his outstanding RSUs and the payment of all dividends on such RSUs and (v) in the event of his Disability only, the continued participation, at our expense, in our health insurance for the balance of the duration of the Disability (subject to certain limitations).  In the event that Mr. Zimmerman's employment with us was terminated on December 31, 2009 (a) by reason of his death, his estate would have been entitled to receive from us payments estimated to be $4,230,939 or (b) by reason of his Disability, he or his legal guardian would have been entitled to receive from us payments estimated to be $4,702,146 (assuming payment of health insurance until age 70).
 
 
·
Cause, Voluntarily Without Good Reason or Retirement.  If Mr. Zimmerman's employment is terminated (i) by us for Cause or (ii) at his own volition other than for Good Reason or as a result of his Retirement, he will not be entitled to any additional payments from us.  If Mr. Zimmerman's employment is terminated as a result of his Retirement, all of his vested Options and related DERs will remain outstanding for a 24-month period following his Retirement.  In the event that Mr. Zimmerman's employment with us was terminated on December 31, 2009 as a result of his Retirement, he would have been entitled to receive from us a payment estimated to be $399,600.
 
In addition to the foregoing amounts, in the event that Mr. Zimmerman's employment with us was terminated on December 31, 2009 under any of the scenarios identified above, he would have also been entitled to receive from us a payment of all amounts deferred by him under the Senior Officers Plan equal to $45,011.
 
William S. Gorin.  The employment agreement for Mr. Gorin provides for an annual base salary of not less than $800,000.  Upon execution of this agreement, Mr. Gorin received a one-time award of 100,000 Restricted Shares.  In addition, Mr. Gorin is eligible to participate with Messrs. Zimmerman and Freydberg in the Bonus Pool, ranging annually from $750,000 to $6.3 million or more (subject to adjustment upwards or downwards by as much as 30% at the discretion of the Compensation Committee), based upon our attainment of specified ROAE targets.  Specific information regarding the Bonus Pool, including the applicable ROAE targets, is provided under "Compensation Discussion and Analysis—Elements of Executive Compensation" of this Executive Compensation section of the Proxy Statement.  Amounts allocated to Mr. Gorin annually from the Bonus Pool will be paid in a combination of cash and Restricted Shares based on the total size of the Bonus Pool.  Specifically, (i) with respect to any Bonus Pool equal to or less than $2,700,000, 75% of the amount allocated to Mr. Gorin will be paid in cash and 25% will be paid in Restricted Shares, (ii) with respect to the incremental total of any Bonus Pool ranging from $2,700,000 to $4,050,000, 65% will be paid in cash and 35% will be paid in Restricted Shares and (iii) with respect to the incremental total of any Bonus Pool in excess of $4,050,000, 50% will be paid in cash and 50% will be paid in Restricted Shares.  In addition, in accordance with this agreement, Mr. Gorin shall not be permitted to sell or otherwise transfer any of these Restricted Shares during the term of his employment or for a period of six months following the termination of his employment, unless the value of his stock holdings in us exceeds a multiple of four times his annual base compensation.  Mr. Gorin's employment agreement has a stated term of approximately three and one-half years, subject to earlier termination in certain circumstances, and is scheduled to expire on December 31, 2011.
 
38

 
Pursuant to the terms of his employment agreement, under certain specified scenarios during the term of his employment, Mr. Gorin is entitled to receive, in addition to earned and unpaid amounts then owed to him, certain payments upon the termination of his employment or a Change In Control involving MFA.
 
 
·
Without Cause or For Good Reason.  If Mr. Gorin's employment is terminated by us without Cause (which would include our determination not to renew his employment at the end of any applicable term) or by him for Good Reason, he will be entitled to (i) a payment equal to his current annual base compensation that would be payable from the date of such termination through the later of the contractual expiration of the stated term set forth in his employment agreement or the first anniversary of such termination, (ii) the immediate full vesting of all of his outstanding Options, with such Options and related DERs remaining outstanding until the earlier of 90 days after such termination or the contractual expiration of such instruments had such termination not occurred, (iii) the immediate full vesting of all of his outstanding Restricted Shares and the payment of all dividends, including accrued dividends, on such Restricted Shares, (iv) the immediate full vesting and settlement of all of his outstanding RSUs and the payment of all dividends on such RSUs and (v) the continued participation, at our expense, in our health insurance until the later of the contractual expiration of the stated term set forth in his employment agreement or the first anniversary of such termination.  In the event that Mr. Gorin's employment with us was terminated on December 31, 2009 under one of these two scenarios, he would have been entitled to receive from us a payment estimated to be $4,583,681.
 
 
·
Change In Control.  If Mr. Gorin's employment is terminated (i) by us without Cause within two months before a Change In Control and following the occurrence of a Pre-Change-In-Control Event, (ii) by his resignation for any reason within two and one-half months following a Change In Control, or (iii) by us other than for Cause or by his resignation for Good Reason within 12 months following a Change In Control, he will be entitled to (a) a payment equal to 300% of the sum of his current annual base compensation and his highest performance bonus received during one of the two immediately preceding years, (b) the immediate full vesting of all of his outstanding Options, with such Options and related DERs remaining outstanding until the earlier of 90 days after such termination or the contractual expiration of such instruments had such termination not occurred, (c) the immediate full vesting of all of his outstanding Restricted Shares and the payment of all dividends, including accrued dividends, on such Restricted Shares, (d) the immediate full vesting and settlement of all of his outstanding RSUs and the payment of all dividends on such RSUs and (e) the continued participation, at our expense, in all of our health insurance, life insurance, retirement and other benefit programs for the balance of the term of his employment agreement.  In the event that Mr. Gorin's employment with us was terminated on December 31, 2009 under one of these three scenarios, he would have been entitled to receive from us a payment estimated to be $6,943,418.
 
 
·
Death or Disability.  If Mr. Gorin's employment is terminated by reason of his death or Disability, he (or his legal representative or estate) will be entitled to (i) a payment equal to his current annual base compensation, (ii) the immediate full vesting of all of his outstanding Options, with such Options and related DERs remaining outstanding until the earlier of 90 days after such termination or the contractual expiration of such instruments had such termination not occurred, (iii) the immediate full vesting of all of his outstanding Restricted Shares and the payment of all dividends, including accrued dividends, on such Restricted Shares, (iv) the immediate full vesting and settlement of all of his outstanding RSUs and the payment of all dividends on such RSUs and (v) in the event of his Disability only, the continued participation, at our expense, in our health insurance for the balance of the duration of the Disability (subject to certain limitations).  In the event that Mr. Gorin's employment with us was terminated on December 31, 2009 (i) by reason of his death, his estate would have been entitled to receive from us payments estimated to be $2,875,607 or (ii) by reason of his Disability, he or his legal guardian would have been entitled to receive from us payments estimated to be $3,379,954 (assuming payment of health insurance until age 65).
 
 
·
Cause or Voluntarily Without Good Reason.  If Mr. Gorin's employment is terminated (i) by us for Cause or (ii) at his own volition other than for Good Reason, he will not be entitled to any additional payments from us.
 
39

 
Ronald A. Freydberg.  The employment agreement for Mr. Freydberg provides for an annual base salary of not less than $750,000.  Upon execution of this agreement, Mr. Freydberg received a one-time award of 75,000 Restricted Shares.  In addition, Mr. Freydberg is eligible to participate with Messrs. Zimmerman and Gorin in the Bonus Pool, ranging annually from $750,000 to $6.3 million or more (subject to adjustment upwards or downwards by as much as 30% at the discretion of the Compensation Committee), based upon our attainment of specified ROAE targets.  Specific information regarding the Bonus Pool, including the applicable ROAE targets, is provided under "Compensation Discussion and Analysis—Elements of Executive Compensation" of this Executive Compensation section of the Proxy Statement.  Amounts allocated to Mr. Freydberg annually from the Bonus Pool will be paid in a combination of cash and Restricted Shares based on the total size of the Bonus Pool.  Specifically, (i) with respect to any Bonus Pool equal to or less than $2,700,000, 75% of the amount allocated to Mr. Freydberg will be paid in cash and 25% will be paid in Restricted Shares, (ii) with respect to the incremental total of any Bonus Pool ranging from $2,700,000 to $4,050,000, 65% will be paid in cash and 35% will be paid in Restricted Shares and (iii) with respect to the incremental total of any Bonus Pool in excess of $4,050,000, 50% will be paid in cash and 50% will be paid in Restricted Shares.  In addition, in accordance with this agreement, Mr. Freydberg shall not be permitted to sell or otherwise transfer any of these Restricted Shares during the term of his employment or for a period of six months following the termination of his employment, unless the value of his stock holdings in us exceeds a multiple of three times his annual base compensation.  Mr. Freydberg's employment agreement has a stated term of approximately three and one-half years, subject to earlier termination in certain circumstances, and is scheduled to expire on December 31, 2011.
 
Pursuant to the terms of his employment agreement, under certain specified scenarios during the term of his employment, Mr. Freydberg is entitled to receive, in addition to earned and unpaid amounts then owed to him, certain payments upon the termination of his employment or a Change In Control involving MFA.
 
 
·
Without Cause or For Good Reason.  If Mr. Freydberg's employment is terminated by us without Cause (which would include our determination not to renew his employment at the end of any applicable term) or by him for Good Reason, he will be entitled to (i) a payment equal to his current annual base compensation that would be payable from the date of such termination through the later of the contractual expiration of the stated term set forth in his employment agreement or the first anniversary of such termination, (ii) the immediate full vesting of all of his outstanding Options, with such Options and related DERs remaining outstanding until the earlier of 90 days after such termination or the contractual expiration of such instruments had such termination not occurred, (iii) the immediate full vesting of all of his outstanding Restricted Shares and the payment of all dividends, including accrued dividends, on such Restricted Shares, (iv) the immediate full vesting and settlement of all of his outstanding RSUs and the payment of all dividends on such RSUs and (v) the continued participation, at our expense, in our health insurance until the later of the contractual expiration of the stated term set forth in his employment agreement or the first anniversary of such termination.  In the event that Mr. Freydberg's employment with us was terminated on December 31, 2009 under one of these two scenarios, he would have been entitled to receive from us a payment estimated to be $4,248,904.
 
 
·
Change In Control.  If Mr. Freydberg's employment is terminated (i) by us without Cause within two months before a Change In Control and following the occurrence of a Pre-Change-In-Control Event, (ii) by his resignation for any reason within two and one-half months following a Change In Control, or (iii) by us other than for Cause or by his resignation for Good Reason within 12 months following a Change In Control, he will be entitled to (a) a payment equal to 300% of the sum of his current annual base compensation and his highest performance bonus received during one of the two immediately preceding years, (b) the immediate full vesting of all of his outstanding Options, with such Options and related DERs remaining outstanding until the earlier of 90 days after such termination or the contractual expiration of such instruments had such termination not occurred, (c) the immediate full vesting of all of his outstanding Restricted Shares and the payment of all dividends, including accrued dividends, on such Restricted Shares, (d) the immediate full vesting and settlement of all of his outstanding RSUs and the payment of all dividends on such RSUs and (e) the continued participation, at our expense, in all of our health insurance, life insurance, retirement and other benefit programs for the balance of the term of his employment agreement.  In the event that Mr. Freydberg's employment with us was terminated on December 31, 2009 under one of these three scenarios, he would have been entitled to receive from us a payment estimated to be $6,605,725.
 
40

 
 
·
Death or Disability.  If Mr. Freydberg's employment is terminated by reason of his death or Disability, he (or his legal representative or estate) will be entitled to (i) a payment equal to his current annual base compensation, (ii) the immediate full vesting of all of his outstanding Options, with such Options and related DERs remaining outstanding until the earlier of 90 days after such termination or the contractual expiration of such instruments had such termination not occurred, (iii) the immediate full vesting of all of his outstanding Restricted Shares and the payment of all dividends, including accrued dividends, on such Restricted Shares, (iv) the immediate full vesting and settlement of all of his outstanding RSUs and the payment of all dividends on such RSUs and (v) in the event of his Disability only, the continued participation, at our expense, in our health insurance for the balance of the duration of the Disability (subject to certain limitations).  In the event that Mr. Freydberg's employment with us was terminated on December 31, 2009 (i) by reason of his death, his estate would have been entitled to receive from us payments estimated to be $2,640,829 or (ii) by reason of his Disability, he or his legal guardian would have been entitled to receive from us payments estimated to be $3,217,227 (assuming payment of health insurance until age 65).
 
 
·
Cause or Voluntarily Without Good Reason.  If Mr. Freydberg's employment is terminated (i) by us for Cause or (ii) at his own volition other than for Good Reason, he will not be entitled to any additional payments from us.
 
Craig L. Knutson.  The employment agreement for Mr. Knutson provides for an annual base salary equal to $425,000.  Pursuant to this agreement, Mr. Knutson is eligible to receive an annual performance bonus as recommended by our Chief Executive Officer and approved by the Compensation Committee or the Board, as the case may be.  Mr. Knutson's employment agreement has a term of 30 months, subject to earlier termination in certain circumstances, and is scheduled to expire on December 31, 2011.
 
Pursuant to the terms of his employment agreement, under certain specified scenarios during the term of his employment, Mr. Knutson is entitled to receive, in addition to earned and unpaid amounts then owed to him, certain payments upon the termination of his employment or a Change In Control involving MFA.
 
 
·
Without Cause or For Good Reason.  If Mr. Knutson 's employment is terminated by us without Cause (which would exclude our determination not to renew his employment at the end of any applicable term), he will be entitled to (i) a payment equal to the sum of (A) his current annual base compensation and (B) the average performance bonus payable to him with respect to the three immediately preceding years; provided that, if Mr. Knutson was not an employee of the Company during one or more of such three preceding years, such year(s) shall not be taken into account, (ii) the immediate full vesting of all of his outstanding Restricted Shares and Options, with such Options and related DERs remaining outstanding until the earlier of 90 days after such termination or the contractual expiration of such instruments had such termination not occurred, and (iii) the immediate full vesting and settlement of all of his outstanding RSUs.  In the event that Mr. Knutson's employment with us was terminated on December 31, 2009 under one of these two scenarios, he would have been entitled to receive from us a payment estimated to be $1,130,787.
 
 
·
Change In Control.  If Mr. Knutson 's employment is terminated (i) by us without Cause (which would include our determination not to renew his employment at the end of any applicable term) within two months before a Change In Control and following the occurrence of a Pre-Change-In-Control Event, (ii) by his resignation for any reason within two and one-half months following a Change In Control, or (iii) by us other than for Cause (which would include our determination not to renew his employment at the end of any applicable term) or by his resignation for Good Reason within 12 months following a Change In Control, he will be entitled to (a) a payment equal to the sum of his current annual base compensation and the average performance bonus payable to him with respect to the three immediately preceding years; provided that, if Mr. Knutson was not an employee of the Company during one or more of such three preceding years, such year(s) shall not be taken into account, (b) the immediate full vesting of all of his outstanding Restricted Shares and Options, with such Options and related DERs remaining outstanding until the earlier of 90 days after such termination or the contractual expiration of such instruments had
 
41

 
 
 
such termination not occurred, and (c) the immediate full vesting and settlement of all of his outstanding RSUs.  In the event that Mr. Knutson's employment with us was terminated on December 31, 2009 under one of these three scenarios, he would have been entitled to receive from us a payment estimated to be $1,405,787.
 
 
·
Death or Disability.  If Mr. Knutson's employment is terminated by reason of his death or Disability, he (or his legal representative or estate) will be entitled to (i) a payment equal to the sum of (A) his current annual base compensation and (B) the average performance bonus payable to him with respect to the three immediately preceding years; provided that, if Mr. Knutson was not an employee of the Company during one or more of such three preceding years, such year(s) shall not be taken into account, (ii) the immediate full vesting of all of his outstanding Restricted Shares and Options, with such Options and related DERs remaining outstanding until the earlier of 90 days after such termination or the contractual expiration of such instruments had such termination not occurred, and (iii) the immediate full vesting and settlement of all of his outstanding RSUs.  In the event that Mr. Knutson's employment with us was terminated on December 31, 2009 (i) by reason of his death, his estate would have been entitled to receive from us payments estimated to be $1,405,787 or (ii) by reason of his Disability, he or his legal guardian would have been entitled to receive from us payments estimated to be $1,405,787.
 
 
·
Cause or Voluntarily Without Good Reason.  If Mr. Knutson's employment is terminated (i) by us for Cause or (ii) at his own volition other than for Good Reason, he will not be entitled to any additional payments from us.
 
Timothy W. Korth.  The employment agreement for Mr. Korth provides for an annual base salary equal to $334,000.  Pursuant to this agreement, Mr. Korth is eligible to receive an annual performance bonus as recommended by our Chief Executive Officer and approved by the Compensation Committee or the Board, as the case may be.  Mr. Korth's employment agreement has a term of two years, subject to earlier termination in certain circumstances, and is scheduled to expire on December 31, 2011.
 
Pursuant to the terms of his employment agreement, under certain specified scenarios during the term of his employment, Mr. Korth is entitled to receive, in addition to earned and unpaid amounts then owed to him, certain payments upon the termination of his employment or a Change In Control involving MFA.
 
 
·
Without Cause or For Good Reason.  If Mr. Korth's employment is terminated by us without Cause (which would exclude our determination not to renew his employment at the end of any applicable term) or by him for Good Reason, he will be entitled to (i) a payment equal to the sum of (A) his current annual base compensation that would be payable from the date of such termination through the later of the contractual expiration of the stated term set forth in his employment agreement or the first anniversary of such termination and (B) the average performance bonus payable to him with respect to the three immediately preceding years, (ii) the immediate full vesting of all of his outstanding Restricted Shares and Options, with such Options and related DERs remaining outstanding until the earlier of 90 days after such termination or the contractual expiration of such instruments had such termination not occurred, (iii) the immediate full vesting and settlement of all of his outstanding RSUs and (iv) the continued participation, at our expense, in our health insurance until the later of the contractual expiration of the stated term set forth in his employment agreement or the first anniversary of such termination.  In the event that Mr. Korth's employment with us was terminated on December 31, 2009 under one of these two scenarios, he would have been entitled to receive from us a payment estimated to be $624,895.
 
 
·
Change In Control.  If Mr. Korth's employment is terminated (i) by us without Cause (which would include our determination not to renew his employment at the end of any applicable term) within two months before a Change In Control and following the occurrence of a Pre-Change-In-Control Event, (ii) by his resignation for any reason within two and one-half months following a Change In Control, or (iii) by us other than for Cause (which would include our determination not to renew his employment at the end of any applicable term) or by his resignation for Good Reason within 12 months following a Change In Control, he will be entitled to (a) a payment equal to 250% of the sum of his current annual base compensation
 
42

 
 
 
and the average performance bonus payable to him with respect to the three immediately preceding years, (b) the immediate full vesting of all of his outstanding Restricted Shares and Options, with such Options and related DERs remaining outstanding until the earlier of 90 days after such termination or the contractual expiration of such instruments had such termination not occurred, (c) the immediate full vesting and settlement of all of his outstanding RSUs and (d) the continued participation, at our expense, in all of our health insurance, life insurance, retirement and other benefit programs for the balance of the term of his employment agreement.  In the event that Mr. Korth's employment with us was terminated on December 31, 2009 under one of these three scenarios, he would have been entitled to receive from us a payment estimated to be $1,612,189.
 
 
·
Death or Disability.  If Mr. Korth's employment is terminated by reason of his death or Disability, he (or his legal representative or estate) will be entitled to (i) a payment equal to the sum of (A) his current annual base compensation and (B) the average performance bonus payable to him with respect to the three immediately preceding years, (ii) the immediate full vesting of all of his outstanding Restricted Shares and Options, with such Options and related DERs remaining outstanding until the earlier of 90 days after such termination or the contractual expiration of such instruments had such termination not occurred, (iii) the immediate full vesting and settlement of all of his outstanding RSUs and (iv) in the event of his Disability only, the continued participation, at our expense, in our health insurance for the balance of the duration of the Disability (subject to certain limitations).  In the event that Mr. Korth's employment with us was terminated on December 31, 2009 (i) by reason of his death, his estate would have been entitled to receive from us payments estimated to be $699,954 or (ii) by reason of his Disability, he or his legal guardian would have been entitled to receive from us payments estimated to be $1,463,708 (assuming payment of health insurance until age 65).
 
 
·
Cause or Voluntarily Without Good Reason.  If Mr. Korth's employment is terminated (i) by us for Cause or (ii) at his own volition other than for Good Reason, he will not be entitled to any additional payments from us.
 
Each of the employment agreements of Messrs. Zimmerman, Gorin and Freydberg includes a prohibition on (a) providing services to, or acquiring certain interests in, any other mortgage REIT and (b) soliciting our employees, in either case without our consent, for a period of one year following a termination of employment; provided that the non-compete obligation described in clause (a) of this sentence will not be effective, in the event any such individual elects not to renew the term of his employment upon expiration of the initial or any renewal period.  In addition, Mr. Knutson's employment agreement generally includes a prohibition on (i) providing services to, or acquiring certain interests in, without our consent, (A) any entity or person engaged in acquiring mortgage-backed securities, for a period of five months following a termination of employment, or (B) any other mortgage REIT for a period of one year following a termination of employment, and (ii) soliciting our employees, without our consent, for a period of one year following a termination of employment; provided that the non-compete obligations described in clause (i) of this sentence will not be effective in the event either he or we elect not to renew the term of his employment upon the expiration of the initial or any renewal period, and the non-compete obligations described in clause (A) of this sentence will not be effective if certain minimum bonus payments are not paid to Mr. Knutson.  Further, Mr. Korth's employment agreement includes a prohibition on soliciting our employees without our consent, for a period of one year following a termination of employment.
 
Compensation Committee Interlocks and Insider Participation
 
There are no compensation committee interlocks and no insider participation in compensation decisions that are required to be reported under the rules and regulations of the Exchange Act.
 
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
Section 16(a) of the Exchange Act requires our directors, executive officers and holders of more than 10% of the outstanding shares of Common Stock ("10% Holders") to file with the SEC and the NYSE initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of MFA.  Directors, executive officers and 10% Holders are required by the SEC's regulations to furnish us with copies of all Section 16(a) forms and amendments thereto filed during any given year.
 
43

 
Based on the review of copies of the Section 16(a) reports and amendments thereto furnished to us and written representations from our directors, executive officers and 10% Holders that no other reports were required to be filed, we believe that for the year ended December 31, 2009 our directors, executive officers and 10% Holders complied with all Section 16(a) filing requirements applicable to them.
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
Since the beginning of our last fiscal year, we have not been a party to any transaction or proposed transaction with any related person who is (i) one of our directors or executive officers, (ii) a director nominee, (iii) a beneficial owner of more than 5% of the Common Stock or (iv) any member of the immediate family of any of the foregoing persons that involves an amount exceeding $120,000 and in which any such related person had or will have a direct or indirect material interest.
 
Since 2001, we have retained the services of Clifford Chance as our outside legal counsel for general, corporate, securities and other matters.  Alan L. Gosule, one of our directors, is a partner of Clifford Chance.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
 
The following table sets forth information as of the Record Date regarding the beneficial ownership of our Common Stock by (i) each person known to us to be the beneficial owner of 5% or more of the Common Stock, (ii) the Named Executive Officers, (iii) our directors and (iv) all of our directors and executive officers as a group.
 
   
Common Stock Beneficially Owned
       
Name and Business Address(1)
 
Shares(2)(3)
   
Shares Subject
to Options(4)
   
Total
   
Percent of 
Class
 
Directors and Officers
                       
Stewart Zimmerman
    481,927       185,000       666,927      
*
 
William S. Gorin
    417,482       100,000       517,482       *  
Ronald A. Freydberg
    333,935       100,000       433,935       *  
Craig L. Knutson
    124,372             124,372       *  
Timothy W. Korth
    21,133       50,000       71,133       *  
Stephen R. Blank
    12,468       5,000       17,468       *  
James A. Brodsky
    17,750       5,000       22,750       *  
Edison C. Buchanan
    8,750       5,000       13,750       *  
Michael L. Dahir
    162,686       5,000       167,686       *  
Alan L. Gosule
    11,336       5,000       16,336       *  
Robin Josephs
    14,200             14,200       *  
George H. Krauss
    30,973       5,000       35,973       *  
All directors and executive officers as a group (14 persons)
    1,665,410       515,000       2,180,410       *  
Blackrock, Inc.(5)
                               
40 East 52nd Street
San Francisco, California 94105
    27,089,889             27,089,889       9.66 %
Wellington Management Company, LLP(6)
75 State Street
Boston, Massachusetts 02109
    24,202,071             24,202,071       8.63 %
 

(*)
Represents less than 1% of issued and outstanding shares of Common Stock.
 
(1)
The business address of each director and Named Executive Officer is c/o MFA Financial, Inc., 350 Park Avenue, 21st Floor, New York, New York 10022.
 
(2)
Each director and Named Executive Officer has sole voting and investment power with respect to these shares, except that (i) Mr. Freydberg jointly holds 76,000 shares with his spouse and (ii) Mr. Krauss's spouse has sole voting and investment power with respect to 22,223 shares.
 
44

 
(3)
Includes unvested Restricted Shares granted to the Named Executive Officers pursuant to our 2004 Equity Compensation Plan as follows:  Mr. Zimmerman – 170,478 Restricted Shares; Mr. Gorin – 190,721 Restricted Shares; Mr. Freydberg – 166,472 Restricted Shares; Mr. Knutson – 92,623 Restricted Shares; and Mr. Korth – 5,904 Restricted Shares.
 
(4)
For purposes of this table, a person is deemed to be the beneficial owner of shares of Common Stock if that person has the right to acquire such shares within 60 days of the Record Date by the exercise of any Options.  Options held by a person are deemed to have been exercised for the purpose of computing the percentage of outstanding shares of Common Stock beneficially owned by such person, but shall not be deemed to have been exchanged or exercised for the purpose of computing the percentage of outstanding shares of Common Stock beneficially owned by any other person.
 
(5)
On its Schedule 13G filed with the SEC on January 29, 2010, Blackrock, Inc. reported sole voting power with respect to 27,089,889 shares of Common Stock beneficially owned by them and sole dispositive power with respect to 27,089,889 shares of Common Stock beneficially owned by them.  The Schedule 13G reports a beneficial ownership percentage of shares of Common Stock of 9.66%, which does not include any shares issued or repurchased since such percentage was calculated for purposes of the Schedule 13G.
 
(6)
On its Schedule 13G (Amendment No. 3) filed with the SEC on February 12, 2010, Wellington Management Company, LLP reported shared voting power with respect to 19,381,895 shares of Common Stock beneficially owned by them and shared dispositive power with respect to 24,202,071 shares of Common Stock beneficially owned by them.  The Schedule 13G (Amendment No. 3) reports a beneficial ownership percentage of shares of Common Stock of 8.63%, which does not include any shares issued or repurchased since such percentage was calculated for purposes of the Schedule 13G (Amendment No. 3).
 
OTHER MATTERS
 
The Board knows of no other business to be presented at the Annual Meeting.  The proxies for the Annual Meeting confer discretionary authority on the persons named therein as proxy holders to vote on any matter proposed by stockholders for consideration at the Annual Meeting.  As to any other business which may properly come before the Annual Meeting, the persons named as proxy holders on your proxy card will vote the shares of Common Stock represented by properly submitted proxies in their discretion.
 
SUBMISSION OF STOCKHOLDER PROPOSALS
 
Any stockholder intending to present a proposal at our 2011 Annual Meeting of Stockholders and have the proposal included in the proxy statement for such meeting must, in addition to complying with the applicable laws and regulations governing submissions of such proposals, submit the proposal in writing to us no later than December 7, 2010.
 
Pursuant to our Bylaws, any stockholder intending to nominate a director or present a proposal at an annual meeting of our stockholders, that is not intended to be included in the proxy statement for such annual meeting, must notify us in writing not less than 120 days nor more than 150 days prior to the first anniversary of the date of the proxy statement for the preceding year's annual meeting.  Accordingly, any stockholder who intends to submit such a nomination or such a proposal at our 2011 Annual Meeting of Stockholders must notify us in writing of such proposal by December 7, 2010, but in no event earlier than November 7, 2010.
 
Any such nomination or proposal should be sent to Timothy W. Korth, our General Counsel, Senior Vice President and Corporate Secretary, at MFA Financial, Inc., 350 Park Avenue, 21st Floor, New York, New York 10022 and, to the extent applicable, must include the information required by our Bylaws.