Author's Note: PART 2 of this article is a continuation from PART 1, which was discussed in a previous posting. Please see PART 1 of this article to fully understand the topics and discussion points to be covered below.
Focus of Article - PART 2:
The focus of PART 2 of this article will be a detailed discussion on the following two companies within the mREIT sector: American Capital Agency Corp. (NASDAQ:AGNC) and American Capital Mortgage Investment Corp. (NASDAQ:MTGE) in relation to the information provided from PART 1. This will occur after a general background discussion on AGNC/MTGE. This detailed analysis of AGNC and MTGE will be broken down to three discussion points with supporting tables, exhibits, and additional evidence to prove the points the article makes.
General Overview of AGNC and MTGE:
AGNC is classified as a mREIT which earns a majority its income from investing (through leverage) in agency mortgage backed securities (MBS). These investments consist of residential mortgage pass-through securities and collateralized mortgage obligations (CMO) for which the principal and interest payments are guaranteed by government-sponsored entities (GSE). A few examples of GSE are: 1) the Federal National Mortgage Association (Fannie Mae); 2) the Federal Home Loan Mortgage Corporation (Freddie Mac); and 3) the Government National Mortgage Association (Ginnie Mae). AGNC also occasionally invests in agency debenture securities issued by Fannie Mae, Freddie Mac, or the Federal Home Loan Bank (OTCQB:FHLB). For simplicity, agency debenture securities are also generally referred to as MBS as well.
MTGE is classified as a mREIT which also currently earns a majority of its income from investing (through leverage) in agency MBS's. Approximately 90% of MTGE's current portfolio is in agency MBS. MTGE can further diversify its holdings (via management's discretion) into non-agency investments including prime and subprime mortgage loans, option adjustable rate mortgages (ARM), and Alt-A loans. Non-agency mortgage investments include residential mortgage-backed securities ('RMBS') backed by residential mortgages and are not guaranteed by a GSE or U.S. government agency. Since MTGE's current balance of non-agency holdings is under 10%, further discussion of MTGE's non-agency portfolio will be omitted from this article due to immateriality.
One of the main goals for AGNC/MTGE is to preserve its book price ('BV') while yielding attractive "risk-adjusted" returns, which ultimately are distributed to its stockholders. This occurs through quarterly dividends from the following accounts: 1) net interest income; 2) net realized gains on MBS investments; and 3) various realized gains from derivative/hedging strategies implemented. AGNC/MTGE fund their activities mainly through short-term borrowings structured as repurchase agreements (repo loans), which they enter into with a number of major global investment banks.
Brief Discussion of Topics to be Covered:
For PART 2 of this article, the information derived from PART 1 will be taken and a direct analysis on how the sooner-than-anticipated tapering of the FED's QE3 program affects AGNC's/MTGE'S current and future portfolio.
The following topics will be discussed (in relation to AGNC/MTGE):
3) Impact on Current and Future MBS Portfolio (Valuation Standpoint)
4) Impact on To-Be-Announced ('TBA') Portfolio (Valuation Standpoint)
5) Impact on Derivative Strategies
3) Impact on Current and Future MBS Portfolio of AGNC/MTGE (Valuation Standpoint)
As we have concluded in PART 1 of this article, when the FED eventually exits its QE3 program, overall mortgage interest rates (among most other rates) will rise and existing MBS prices will decrease. In this currently low interest rate environment, this will be extremely negative for AGNC/MTGE on a portfolio valuation basis. As time passes, AGNC/MTGE will be able to "roll" over its investment portfolio into higher yielding MBS. AGNC/MTGE will ultimately benefit from the increased spreads generated from higher coupon yields and a lowered increase in interest expense on "repo" loans. This is also known as the "steepening" of the yield curve. However, until these companies reload capital into these higher-yielding MBS, short term negative valuations will continue to occur if rates continue to rise.
Table 3a shows AGNC's recent history of its change in portfolio holdings on a quarter-over-quarter basis. The table shows the past three quarter's worth of net changes in regards to its 15/20/30-year fixed MBS. It also breaks down the certain coupon rates within each category.
Table 3a - AGNC's Portfolio Balance Changes (Quarter vs. Quarter)
As Table 3a indicates, over the past several quarters, AGNC has generally been selling (on a net quarter over quarter basis) its higher-yielding, more mature MBS. In regards to new investments, AGNC has purchased newly lower-coupon MBS. The determination of which MBS coupons are available usually is in conjunction with where the current fixed mortgage rates are. As evidenced in Table 3a, AGNC has purchased (on a net basis) more MBS with a lower coupon in recent quarters. This is in direct correlation to where the current mortgage interest rates were during that specified time period.
One exception to this general trend was in the first quarter of 2013. AGNC sold roughly $6 billion (net) of its 15-year, 2.5% coupon MBS. This was due to the increase of fixed mortgage interest rates during most of the first quarter of 2013. As rates increased, the lowest-coupon existing MBS in AGNC's portfolio were suffering the most in regards to a reduction in valuation (as mentioned in PART 1). Instead of incurring these continued unrealized losses in current and future quarters, AGNC quickly sold these 2.5% coupon MBS for a realized loss in the first quarter of 2013. AGNC feared the continued valuation declines on these specific coupon MBS in a rising interest rate environment scenario. However, AGNC did increase its holdings in the 30-year fixed MBS with a coupon of 2.5% and 3.0%.
In regards to MTGE, the exact same strategies were performed in regards to its portfolio holdings. Over the past several quarters, MTGE has generally been selling (on quarter-over-quarter basis), its higher-yielding, more mature agency MBS. In regards to new investments, MTGE also has purchased new lower-coupon MBS. The same exception to this trend occurred in the first quarter of 2013. MTGE sold approximately $500 million (net) of its 15-year, 2.5% coupon MBS. MTGE had the same strategy and methodology regarding these sold MBS as AGNC (see above for explanation). As was the case with AGNC, MTGE also increased its holdings in the 30-year fixed MBS but with a slightly higher coupon of 3.0% and 3.5%. This was due to specific purchase timing strategies when rates were higher within the first quarter of 2013.
Table 3b shows AGNC's recent portfolio holdings as of 3/31/2013. The table breaks out what timeframe the MBS represent (15/20/30-year) and the corresponding coupons broken down within each category. Table 3b further breaks down the approximate proportion of Fannie Mae, Ginnie Mae, and Freddie Mac MBS. This information is not directly provided by the company. However, through research and analytics, one can retrieve such information.
Table 3b - AGNC's Portfolio Balance at 3/31/2013
It is important to know what AGNC/MTGE held at the end of the first quarter of 2013 because once again, rates have begun to dramatically rise in May 2013. Therefore, the more AGNC/MTGE held in lower-coupon MBS, the greater the portfolio losses will be incurred. AGNC/MTGE may believe the rising interest rate environment will persist (as was the case in the first quarter of 2013). If this is the case, then these companies may once again quickly dispose of its lower-coupon (and recently purchased) MBS holdings. This will once again cause realized losses on these transactions from a valuation standpoint. Furthermore, additional losses will be realized due to the high unamortized premiums that would still exist on these newly purchased MBS. If either AGNC/MTGE were to keep these lower-coupon MBS within its portfolio (unsold), further unrealized losses will occur when fixed mortgage interest rates continue to rise. Either way, this is a negative outcome for either AGNC/MTGE in regards to its portfolio's valuation.
To prove the discussions above (including points referenced in PART 1 of this article), Table 3c shows the past 5 quarters of AGNC's unrealized gains/losses on its portfolio. This table distinguishes what happens when specific mortgage interest rates increase or decrease and how the corresponding existing MBS price changes affects AGNC's MBS investment valuations. The same basic principles hold true for MTGE as well (even though I am not displaying MTGE's table).
Table 3c - AGNC's Unrealized Gain (Loss) vs. Fixed Mortgage Interest Rate Changes and Existing MBS Price Changes (Quarter vs. Quarter)
As one can see, Table 3c indicates when fixed mortgage interest rates rise, overall existing MBS prices decline through most of the coupon rates. As such, when this specific scenario unfolds, AGNC has a corresponding unrealized loss that is accounted for in a given quarter. The same basic principals hold true for MTGE. This can be seen in AGNC's fourth quarter of 2012 and first quarter of 2013. In the fourth quarter of 2012, overall existing MBS prices through most of the coupons rates (especially lower-coupon MBS) generally declined in both the 15/30-year existing fixed MBS markets. As a result, AGNC reported an overall unrealized loss on its portfolio of $734 million. In the first quarter of 2013, since there was a modest increase in fixed mortgage interest rates, overall MBS prices declined further. Notice how the lower-coupon existing MBS have a more dramatic decrease to its prices than the higher-yielding coupon MBS. As stated earlier, the further the current mortgage interest rates rise above a lower-coupon MBS, the further the deterioration of its price. As a result, AGNC sustained an additional unrealized loss of $837 million for this quarter. Since the same basic principals apply to MTGE, it also sustained unrealized losses in its first quarter of 2013 of approximately $79 million on its agency portfolio.
Table 3c also indicates if there is a decrease to the fixed mortgage interest rate, there is a subsequent increase in existing MBS prices. This can be seen in the second and third quarters of 2012. As such, AGNC reported unrealized gains of $689 million and $1.2 billion, respectfully. MTGE reported unrealized gains of $95 million in the third quarter of 2012 as it began to ramp up its investment holdings.
The following is a quote from AGNC's 10-Q from the first quarter of 2013 stating the speculation of the earlier than anticipated exit of the FED's QE3 program and what it will due to the MBS market:
As the Federal Reserve continues to deliberate the timing of a potential slowing or discontinuation of QE3 and as agency MBS investors react to changing expectations of the Federal Reserve's actions, we expect the agency MBS market to continue to experience significant volatility.
Once again, during May 2013, renewed pressure has been felt by the MBS markets due to overall market fears that the FED's QE3 program will begin to taper off shortly and eventually end. As mentioned earlier, the further the current fixed mortgage interest rates climb in excess of an existing lower-coupon MBS, the worse the valuation becomes. By the end of May 2013, most 15/30-year existing MBS prices have continued to decline when compared to the end of the previous quarter's (3/31/2013) MBS valuations. As shown in Table 3c 30-year, 2.5% coupon MBS have decreased in value by 178 basis points through the week of 5/24/2013; 30-year, 3.0% coupon MBS have decreased in price 142 basis points through the week of 5/24/2013.
If current fixed mortgage interest rates remain unchanged through the remainder of the quarter (which includes no material changes in existing MBS prices), AGNC will once again report a large unrealized loss for the second quarter of 2013. These losses do not directly run through the earnings per share component of the income statement until realized. However, these unrealized losses are shown in AGNC's equity section of the balance sheet via the "Accumulated other comprehensive income (loss)" account. Therefore, another large unrealized loss amount will negatively affect AGNC's book price ('BV) once again for the second quarter of 2013.
The same basically holds true for MTGE. The one main exception for MTGE is that these unrealized gains (losses) are actually shown within the earnings per share component of the income statement. Therefore, these amounts are represented within MTGE's "retained earnings" account on the balance sheet.
4) Impact on To-Be-Announced ('TBA') Portfolio of AGNC/MTGE (Valuation Standpoint)
For readers unfamiliar with AGNC's/MTGE's TBA portfolio, I will provide a brief summary. AGNC/MTGE enters into TBA contracts as an "off-balance sheet" means of investing in and financing MBS. AGNC/MTGE enters into a future TBA contract where it agrees to purchase, for future delivery, MBS with certain principal terms and interest conditions. The date when AGNC/MTGE is supposed to take this future delivery is known as the settlement date. There are usually three options available to AGNC/MTGE in regards to TBA MBS.
On or within a close timeframe to the settlement date, AGNC/MTGE may decide to "re-roll" a specific TBA position by moving the settlement date out to a later date by entering into an "off-setting" short position. This is also known as a "pair-off." By "pairing-off" an existing TBA MBS, AGNC/MTGE net settles its current position in cash and simultaneously purchases a similar TBA contract with a later settlement date. This specific transaction is known as the "dollar-roll." These TBA MBS that are purchased with a future settlement date are usually priced at a discount to regular MBS in the current month. The difference in the price of TBA MBS and regular MBS in a specified month is referred to as the "price-drop." The "price-drop" is also referred to as AGNC's/MTGE's "dollar-roll income."
The second option in regards to AGNC's/MTGE's TBA position is to "walk-away" from the TBA contract by selling the contract to an independent third party thus forfeiting the option all together. This usually does not occur in regards to AGNC's/MTGE's current activities.
The third option is due take delivery on the TBA MBS position on the settlement date without "re-rolling" its position. If the third option is exercised, then this TBA MBS becomes a regular MBS for accounting purposes and becomes an "on-balance sheet" investment. One difference though is that AGNC/MTGE receives the original terms of the TBA MBS contract in regards to principal and interest yield. AGNC/MTGE enter into these TBA contracts because dollar roll financing can (at times) generate better risk adjusted returns than similar generic MBS investments, which are funded via "repo" loans.
As mentioned in PART 1 of this article, when the FED ultimately reduces/exits its QE3 program, overall interest rates will rise and existing MBS valuations will decrease. This will pose a particular problem for AGNC/MTGE in relation to its TBA portfolio.
Exhibit 4a - AGNC's Total Portfolio Balance (Including TBA Positions) at 3/31/2013
(Source = AGNC's Q1 2013 Presentation: Slide 9)
As Table 4a shows, by the end of the first quarter of 2013, AGNC increased its TBA portfolio to $27.3 billion (15/30-year TBA balances). As of 12/31/2012, AGNC's TBA MBS balance was only $12.9 billion. For the first quarter of 2013, AGNC was anticipating a continued suppression of interest rates and wanted these TBA MBS to generate additional interest income/yield in the lower interest rate environment. The following quote from AGNC's 10-Q from the first quarter of 2013 confirms this strategy:
Although the timing of a potential slowing or discontinuation of QE3 is uncertain, we anticipate that the Federal Reserve will continue its large scale purchases of agency MBS through the remainder of fiscal year 2013…Further, as a result of the favorable TBA dollar roll financing levels resulting from QE3, during the first quarter of 2013, we increased our TBA dollar roll positions, while further reducing our on-balance sheet agency MBS investments financed through repurchase agreements.
Accounting for TBA MBS transactions are different when compared to regular MBS. When a typical MBS is on AGNC's balance sheet, all unsold activity in regards to its valuation is shown via the "unrealized gain (loss) on available-for-sale securities, net" account. This account is separate from AGNC's earnings per share income statement and shown in "other comprehensive income". These balances are ultimately shown within AGNC's stockholder's equity section on the balance sheet. Since TBA's are a more liquid more of an asset in regards to maturity via the settlement date, when TBA MBS are settled (typically on a monthly basis), both realized and unrealized or "re-rolled" positions need to be represented within AGNC's income statement within earnings per share. All TBA gains (losses) are shown via the "gain (loss) on derivative instruments, net" account in other income on the income statement.
In a rising fixed mortgage interest rate/lower existing MBS price market, these TBA MBS are "realized" each month. Therefore, additional losses that were originally omitted from AGNC's income statement on regular MBS valuations are actually shown within the earnings per share income statement for all TBA MBS positions. Again, another quoted text from AGNC's 10-Q from the first quarter of 2013 supports this statement:
Gains and losses from purchases and sales of TBAs and forward settling positions totaled a net loss of $102 million for the three months ended March 31, 2013, consisting of $142 million of net TBA dollar roll income and a net loss of $244 million due to price declines...through the gain (loss) on derivative instruments, net account.
Even though AGNC received additional interest income from its TBA MBS positions, the "realized" losses upon monthly settlements decreased by more than the interest income they generated. This occurs because most TBA MBS provide a lower yield than most generic regular MBS of a same coupon. Therefore, TBA's sustain heavier valuation losses in a rising interest rate environment. As discussed earlier, lower-yielding MBS in general sustain more valuation reductions when compared to other higher coupon MBS because the current rate is above these lower yielding rates. Market participants do not want a yield that is currently below the current market interest rates.
Exhibit 4b - MTGE's Total Portfolio Balance (Including TBA Positions) as of 3/31/2013
(Source = MTGE's Q1 2013 Presentation: Slides 6 + 11)
As Table 4b shows, by the end of the first quarter of 2013, MTGE increased its TBA portfolio to $4.5 billion (15/30-year TBA balances). As of 12/31/2012, MTGE's TBA MBS balance was non-existent (net short TBA position of approximately $50 million). MTGE was also anticipating a continued suppression of interest rates and wanted these TBAs to generate additional interest income/yield in the lower interest rate environment. MTGE's strategy in regards to its TBA portfolio balance was generally the same as AGNC's for the first quarter of 2013. If should be noted MTGE's TBA portfolio was approximately 40% of its entire portfolio. This is an extremely large position to have. As was the case in regards to AGNC's TBA MBS positions, MTGE's even larger exposure (as a % of total portfolio holdings) TBA MBS positions in a rising interest rate environment could cause further asset reductions.
5) Impact on Derivative Strategies of AGNC/MTGE
AGNC's/MTGE's derivative strategy has taken some negative feedback after reporting its first quarter of 2013. Analysts questioned why AGNC's/MTGE's derivative strategy was not more in line with smaller basis rate moves. AGNC's/MTGE's management stated that when smaller basis rate moves occur (as was the case in the first quarter of 2013; a 25-30 basis point increase on fixed 15/30-year mortgage interest rates), the hedging strategies in place will not always account for these subtle changes. AGNC's/MTGE's derivative instruments are more accustomed to larger basis point movements. Larger basis point movements could consist of at least 100 basis point movements. When smaller basis point movements occur, AGNC's/MTGE's hedges (consisting of swaps, U.S. Treasuries, and swaptions) may not always be "in-synch" with the assets they were hedged against (MBS). AGNC's/MTGE's management has stated it is not too concerned by the smaller basis point movements, but the larger movements are the ones that could really affect AGNC's/MTGE's portfolio and those movements have to be hedged properly.
In direct support of the statements discussed above, the following is the quoted text from AGNC's recent 10-Q for the first quarter of 2013:
Our risk management strategy is designed to protect against larger moves in interest rates, and as a result provided little protection against agency MBS price declines as interest rates increased only modestly during the first quarter of 2013.
AGNC's/MTGE's management team must properly hedge its assets against a variety of scenarios. Management has stated it performs various daily "shock" scenarios to MBS investments to see what derivative instruments perform best under different situations. Therefore, if management believes a certain scenario will most likely occur, it should be able to tailor a strategy that would cause the best possible outcome in regards to mitigating interest rate fluctuations. As indicated, when fixed mortgage interest rates "spike"/rapidly increase, AGNC"s/MTGE's hedging instruments need to alleviate the widening losses that will occur on their investment portfolio. However, when rates only modestly rise (as was the case in the first quarter of 2013), hedges are exposed to basis risk and these hedges will not appropriately mitigate such exposure. Furthermore, in the current environment where the FED has failed to lay out a definitive plan in regards to future QE3 reductions/exits, trying to stay ahead of the FED's decisions could be extremely difficult (at least until further information is presented). Rates may continue to dramatically rise one month and then be offset in the next as the market continues its speculation on when the FED will begin its eventual exit from the treasury/MBS markets. These quick and volatile interest rate fluctuations may cause AGNC's/MTGE's management continued problems in regards to properly hedging its MBS holdings.
Conclusions Drawn - Entire Article (PARTS 1 + 2):
No definitive answers were provided by the FED chairman's testimony and minutes of the latest FOMC minutes. Many options for the FED's QE3 program are "on the table" depending on future economic indicators. However, since the possibility of a reduction of the FED's QE3 program in the near future (as early as this summer) exists, investors have realized the negative results that would occur if such a scenario came to realization. Specifically, the entire mREIT sector would be directly impacted as these events unfold.
When the FED chooses to reduce or eliminate the QE3 program, overall market interest rates will ultimately increase. This includes a rise in the interest rates on 15/30-year fixed mortgages impacting the entire mREIT sector. As a direct result of these rising fixed mortgage interest rates, existing MBS price declines will ensue (inverse relationship). As such, most mREIT investment portfolios will incur a valuation reduction until these companies can "roll" over its investment portfolio into higher yielding MBS. At the very least, this will take several quarters to be fully achieved.
The market has already begun to anticipate the FED's reduction/exit of the QE3 program. This was evidenced by the sharp decrease in existing MBS prices including a strong "sell-off" of the entire mREIT sector in relation to the stock market. In particular, AGNC/MTGE had an above average stock market sell-off when compared to the mREIT sector as a whole. These companies were two of the stronger players in the mREIT sector in past few years. However, after reporting a poor first quarter of 2013, investors began to worry how AGNC's/MTGE's future portfolio would be impacted if rates did in fact begin to rise.
AGNC/MTGE is particularly vulnerable when it comes to its TBA portfolio. AGNC, as of 3/31/2013, had approximately 25% of its interests within TBA investments (off balance sheet). MTGE's TBA position as of 3/31/2013 was even higher at an approximate 40%. As discussed in the article, these TBA positions will sustain "realized" monthly settlement losses even when they do not take possession of the specific TBAs. The specified accounting for these TBA transactions will cause further losses for AGNC/MTGE in a rising interest rate scenario. If the FED decides to exit the Treasury/MBS markets, the short-term impact on the mREIT sector will be negative. For AGNC/MTGE, due to the companies' exposure to the TBA market, it will sustain additional losses when compared to other mREITs.
If fixed mortgage interest rates increase fast enough, AGNC's/MTGE's derivative instruments should mitigate some of its portfolio valuation losses. However, when rates only modestly rise or fluctuate violently (as was the case in the first quarter of 2013), these derivative instruments are less effective in mitigating losses on the company's investment portfolio (known as basis risk).
It should be noted, if the FED does start to reduce its stimulus via QE3, this negative consequences are only short-term in nature. Once several quarters have passed, all companies within the mREIT sector will be able to "re-balance" or "rollover" their investment portfolios into higher-yielding assets. This will ultimately lead to a higher net spread income (yield curve), with a reduction in losses sustained from both unrealized and realized positions.
On the other hand, if the FED indicates they will continue the QE3 program at the current levels for some time, the entire mREIT sector will most likely have a "snapback" rally. In particular, AGNC/MTGE will be one the better companies for this rally because these companies were two of the hardest hit mREITs when this speculation ensued. Furthermore, AGNC/MTGE will benefit the most in regards to an increase in valuation due to the TBA positions they maintained as of 3/31/2013.
From this article, investors should understand what can happen when rates increase from the exit of the FED's QE3 program. However, they should also be aware that markets have already priced in (to an extent) the events that would occur if the reduction/exit of the FED's QE3 program were to occur. Since April 2013 was a great month for mREITs and May 2013 has been an awful month for mREITs (in regards to MBS valuations), June 2013 will become a pivotal month in regards to general interest rate movements and existing MBS prices. Due to the uncertainty within the markets, interest rates and existing MBS prices could go either direction. Investors should understand this and now better understand what will occur when rates move one way or the other in the future.
Full Disclosure on "Long" Position: I have owned AGNC since early 2011. I have gradually increased my position in AGNC when certain pullbacks have occurred. I have also sold minor positions when I felt the stock was highly overpriced. I have taken both cash + reinvested dividends depending on the stock price of AGNC when the quarterly dividends were distributed.
The main focus of this article is what will happen when interest rates rise from the reduction or elimination of the FED's QE3 program. As I have concluded in this article, a rising interest rate environment will cause short-term negative consequences to AGNC/MTGE (which is currently happening). I am "long" AGNC for the longer-term prospects of this specific company. This means I may just "hold" my position during this turbulent timeframe. It also means I may purchase additional shares when I feel the company is undervalued from a stock price vs. book value basis. I am not a high frequency trader, and usually look at the longer-term prospects of a particular company. Even though I believe there's a good chance AGNC will continue reporting several future quarters that are "disappointing" if interest rates continue to rise/existing MBS prices were to decline, I am long AGNC in regards its long term fundamentals and prospects. This would entail a 3-5 year time horizon.
Final Author's Note on AGNC's/MTGE's Dividend Sustainability: Finally, in a previous article I wrote in regards to AGNC (via my "Updated Dividend Sustainability Analysis"), I have stated that AGNC needs to report an "above-average" second quarter of 2013 to ensure the dividend rate of $1.25 per share was safe for future quarters. When that article was written, fixed mortgage interest rates were 30 basis points lower than current rates. Also, existing MBS prices were much higher than current prices indicate. Due to the fixed mortgage interest rate increases and subsequent material existing MBS price declines over the past several weeks, the prospects of an "above-average" quarter have greatly been reduced. As factors change, one's perception should change as well.
Therefore, I am less optimistic in regards to AGNC's dividend being maintained at its current level. Since I believe AGNC will perform an additional equity raise prior to 9/15/2013 (see updated dividend sustainability article for explanation on this specific factor), the likelihood of a dividend cut for the second quarter of 2013 is now raised from low-moderate to moderate-high. Again, these cuts will be short-term in nature. The following are my best and worst case dividend cut scenarios for Q2 2013:
Worst Case Scenario = Q2 2013 dividend of $0.80 per share
Best Case Scenario = Q2 2013 dividend of $1.10 per share
I have yet to write an article on MTGE, however, by looking over MTGE's data, I believe there's a high probability its dividend will be cut in the second quarter of 2013. This is based on overall market conditions, MTGE's cumulative undistributed taxable income ('UTI') amount, and MTGE's quarterly projected estimated REIT taxable income amounts.
Additional disclosure: I have no position in MTGE