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Increase In Refinancing Dooms mREITs!

Run for your lives!

Sell all of your mREITs!

The Fed has conquered long-term interest rates. Refinancing increases, and this portends a dramatic increase in prepayments! Those double-digit dividend yields offered by mREITs are doomed!

DOOMED, I tell you.

In the late 1930's Orson Welles directed and starred in Mercury Theater's production of The War of the Worlds, an adaptation of H.G Wells' novel of the same title. The performance began in the style of a news report, and so frightened residents of the northeastern states that a general panic arose, with people fleeing the cities to find safety.

I think it is safe to say that it was a hoax, of sorts (although it was not the intent of Welles or anyone else to make people believe the Earth was under attack), and that the Earth was not invaded (although the number of Wall Street executives has increased dramatically since 1938. . . hmmmmm).

News released on October 3 (2012 - we're returning to the present) indicated that there was a dramatic increase in refinance applications as a result of drastic reductions in long-term interest rates. Market news indicated that prepayments were up, and that mREITs such as AGNC, NLY and the like were in the red, and would go under.

Well, the last bit is more a matter of my take on what the news was trying to get across.

Agency-supported MBS may well become albatrosses around the necks of some mREITs, but I am not convinced (yet) that it is doomsday for this class of investments. It may be the end of 15% yields, but I'll wait before cutting loose my ARR, CXS, MFA and TWO.

Disclosure: I am long ARR, CXS, MFA, TWO.