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Mortgage REITs plug along as first Q1 reports roll in

  • A check of the mortgage REITs (REM +0.1%) finds not a lot going on stock price-wise following the first Q1 earnings reports from the sector this week (CYS Investments and Hatteras). As expected, book values grew and prepayments remained at a low level.
  • Perhaps unexpected was a good deal of caution from CYS management about mortgage prices - right now, it's finding better value in Treasurys, and awaits a pullback in MBS prices before boosting those holdings. "The mortgage market is a little kid playing with matches," said CEO Kevin Grant on the earnings call (transcript). "We just don't know when everybody's fingers are going to get burnt. The traders that play in this market, they know this and they know they are playing with matches."
  • Amid the low supply of MBS out there, Hatteras (HTS +0.1%) management on its call (transcript) says it now has 10 originators delivering wholesale product to the company covering more than half of monthly cash flow needs. Up next is expansion into jumbo ARMs.
  • Other sector ETFs: MORT, MORL
  • Individual names: Annaly (NLY +0.6%), American Capital (AGNC +0.7%), (MTGE +0.2%), Armour (ARR +0.1%), Two Harbors (TWO -0.6%), Invesco (IVR -0.1%), Capstead (CMO +0.3%), MFA Financial (MFA +0.1%), Western Asset (WMC +0.5%).
Comments (6)
  • Jhalgren
    , contributor
    Comments (133) | Send Message
     
    These well intended companies are getting hammered by the continuing housing crisis. Any resolution that would help them besides shutting their doors till the crisis subsides?
    24 Apr 2014, 10:56 AM Reply Like
  • notta lackey
    , contributor
    Comments (131) | Send Message
     
    They could let their mortgages bleed out, but most are paid in part off of the amount of assets on the books, so they have a conflict of interest. One (I think its AGNC) has a unique strategy of buying up shares of mortgage reits with greater discounts than its own. That really makes sense when these things are trading at 20-30% off book.
    24 Apr 2014, 11:04 AM Reply Like
  • tstreet
    , contributor
    Comments (911) | Send Message
     
    If a mortgage is paid off for whatever reason, would the cash from that sale be on their books?
    24 Apr 2014, 03:55 PM Reply Like
  • notta lackey
    , contributor
    Comments (131) | Send Message
     
    Yes.
    28 Apr 2014, 02:40 PM Reply Like
  • Jonathan Christopher
    , contributor
    Comments (292) | Send Message
     
    OFF THE WALL COMMENT:

     

    Mortgages are at a 14 year low. wonder why? Here's one reason (personal experience):
    Purchased three condos in 2005 as investment properties (UNC Student rentals, 100% occupied since purchase). got financing from SUNTRUST (Nice people), even though the complex was about 90% investor owned. Purchased with about 40% equity (now have about 45% equity). All my FICA scores are over 700.

     

    Went to Suntrust to see about refinancing (my interest rate is currently 6.25%). They can't do it. They no longer have any "progams" I fit into. Have a similar situation in Hawaii A Maui home with 70% equity of about $600,000, used as a rental. Asked my bank (USAA) (A REALLY,REALLY good organization) for a $35,000 equity loan. They declined.

     

    Mortgage REITS depend on an available supply of mortgages. Unless someone fixes this problem, the supply will dry up, and it will become impossible for them to hold a portfolio of varying maturities.
    25 Apr 2014, 08:54 AM Reply Like
  • notta lackey
    , contributor
    Comments (131) | Send Message
     
    Let's hope they don't fix the problem. The current situation of irrationally low rates is a form of credit rationing. The only way to remedy this is to raise the rates, which will clobber the principal value of the mortgages now held. Better to let them bleed out for a few years. Also, since the system almost forces the MREIT's to pay above par for new mortgages, the refinancing risk goes away.
    28 Apr 2014, 02:43 PM Reply Like
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