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The good times should stay rolling for the mortgage REIT industry, says Barron's, as QE3 will...

The good times should stay rolling for the mortgage REIT industry, says Barron's, as QE3 will continue to make the business of borrowing short to lend long a good one. Two perhaps less-followed mREITs mentioned are AG Mortgage (MITT) and MFA Financial (MFA). ETFs: MORT, REM. AGNC +0.5%, NLY +0.4% premarket.
Comments (22)
  • Article mentions advantages of non-agency MREITs over agency MREITS, as the latter's holdings will have lower yields.
    14 Sep 2012, 08:17 AM Reply Like
  • If folks don't understand this, read this for clarity:

     

    http://seekingalpha.co...
    14 Sep 2012, 08:17 AM Reply Like
  • Fundamentally that article does not understand their business. NLY and AGNC will experience asset appreciation but the inevitable crunch on the spread will lead to dividend cuts. Their only offset will be to increase leverage.
    14 Sep 2012, 08:25 AM Reply Like
  • What crunch on the spread? FED just promised steepness thru 2015. And if you know what's going on, that will likely be extended absent an interim miracle.
    14 Sep 2012, 08:55 AM Reply Like
  • "increase leverage" Would you lend money at 1.5% to them? What is the collateral arrangement and call provisions on such a loan?
    14 Sep 2012, 04:44 PM Reply Like
  • They take loans on the short end, usually at or near that 0-.25% range which the fed is talking about.
    14 Sep 2012, 05:06 PM Reply Like
  • Would you please walk me through how NLY could increase their leverage
    14 Sep 2012, 05:31 PM Reply Like
  • I do not know specifics in terms of collateral requirements or who they take the loan from but, it's just like using a margin account when trading. Due to the nature of the securities, there are certain capital requirements and so NLY can choose to use up to a certain amount of leverage just as you or I can in our margin accounts. As a point of reference, I believe NLY's leverage ratio right now is somewhere around 6.0x. Others, such as AGNC have a higher leverage ratio around 8.4x back in May, I don't have a more current figure.

     

    Because NLY has a lower leverage ratio in terms of the agency mREIT sector, this puts them in the best position to deal with a flattening yield curve because they can simply increase leverage in order to buy more MBS to maintain profits and therefore dividend distributions.

     

    Long NLY
    15 Sep 2012, 11:58 PM Reply Like
  • Thanks for your help---also long NLY
    17 Sep 2012, 07:58 AM Reply Like
  • The Fed's action should be good news into 2015 for all MREIT investors, whether agency or non-agency.
    14 Sep 2012, 08:27 AM Reply Like
  • Lower coupon rates on the bonds that they invest in is "good news?"
    14 Sep 2012, 04:46 PM Reply Like
  • Appreciation of assets already on the books. Leads to PPS appreciation and increased book value. Generally people like it when they see a green number next to the ticker symbols in their portfolios.
    14 Sep 2012, 05:07 PM Reply Like
  • Do we think the FED is going to buy the publicly traded mREITs or will they buy directly from Fanny/Freddie?

     

    ChuckJ
    14 Sep 2012, 08:39 AM Reply Like
  • Probably directly from fannie and freddie, however this will still contract the market for companies like NLY, AGNC, etc. who buy from fannie and freddie as well. We should see a rise in book value for these mREITs, which should translate to a rise in PPS, and subsequently a nominal fall in their yield. Depending on how the mortgage rates react to this buying, their dividends could be effected as well.
    14 Sep 2012, 10:26 AM Reply Like
  • It will also give the mReits the chance to off-load their bad loans to the Fed. Who isn't as an astute buyer just a quantity buyer. I know if I was managing an mReit I'd be dumping the losers so the Fed could be forced to pick them up. Just saying!
    14 Sep 2012, 10:43 AM Reply Like
  • Look at ARR action this morning, div cuts on the way
    14 Sep 2012, 08:41 AM Reply Like
  • The divendend cut is minor. Still at good deal in this climate.
    14 Sep 2012, 09:45 AM Reply Like
  • Sorry, MITT just went up why is ARR going down?

     

    ChuckJ
    14 Sep 2012, 10:01 AM Reply Like
  • MITT went ex div today with a 77 cent dividend, the Stock price minus the div is back up 50+ cents as of 9:50am So I guess the mReits are happy with Bernanke's actions. NLY, AGNC, CYS, ARR and other mReits all Up today - some up big.

     

    Cha Ching!
    14 Sep 2012, 10:40 AM Reply Like
  • If the two year rate stays low and the 10 year rate comes down ,won't this effect their profits?
    14 Sep 2012, 05:26 PM Reply Like
  • As i said on sept 14th, here is the NLY div cut
    20 Sep 2012, 10:33 AM Reply Like
  • and the stock is UP for the day.
    I guess that cut was expected and already built into the share price?
    20 Sep 2012, 01:06 PM Reply Like
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