Seeking Alpha

The explosion in assets at mREITs may pose risks, but not all of mortgage investors are created...

The explosion in assets at mREITs may pose risks, but not all of mortgage investors are created alike. Gary Kain's (AGNC) assembled an all-star team of his former Freddie Mac colleagues used to dealing with far larger amounts of assets, but "others have no business having a balance sheet that big," says Compass Point's Jason Stewart. Armour Residential (ARR) is "pushing the limit of what their infrastructure can support."
Comments (15)
  • I am sure NLY will be OK. They pretty much wrote the book on this space
    28 Mar 2013, 08:28 AM Reply Like
  • ARR is ran by the same team that rode Bimini into the ground. Sounds like they may do it a second time.
    28 Mar 2013, 08:49 AM Reply Like
  • I'm am so impressed by the track record of Freddie Mac executives.
    28 Mar 2013, 09:09 AM Reply Like
  • yea that worked out well for us the first time..
    28 Mar 2013, 10:54 AM Reply Like
  • ARR has been good to me so far.
    28 Mar 2013, 09:09 AM Reply Like
  • Second that. My ARR just broke even again, so let's collect another dividend or 2 before reaping some profit at $7.
    28 Mar 2013, 12:58 PM Reply Like
  • I think Stewart's warning will become more apparent as long rates rise and we start seeing material changes in book value at some of these agency mREITs. It will quickly become apparent who has a sound hedging program and who does not.
    28 Mar 2013, 09:11 AM Reply Like
  • Freddie all stars ? Gives such a warm feeling there!
    28 Mar 2013, 09:17 AM Reply Like
  • Constant barrage of trash-talking against REITs,. notice how they scared everyone out of CIM, and see where it is now. Notice CIM is run by NLY, the big dog, and ARR is basically run the same. Go with the flow. Does everyone forget these MBS REITs are backed by the printing presses? Quit worrying and collect the dividends. Gonna be a long time til the real nemesis rears its ugly head, [rising %'s] so quit worrying and go collect the dividends.
    Capt. Brian
    The Lost Navigator
    28 Mar 2013, 10:23 AM Reply Like
  • Aye aye, sir.
    28 Mar 2013, 10:53 AM Reply Like
  • Trite but true: sometimes the bulls win and sometimes the bears...never the hogs. There are some great returns among the Mreits that nevertheless do not entail inordinate risk. ARR represents an inordinate risk for very little more in return. Sold my stake at 7 for a modest profit before the last dilution and will not be going back.
    28 Mar 2013, 11:40 AM Reply Like
  • Based on my cost basis, this guy is still paying me over 15%, at that rate I'll have my original investment back in six years. As long as the dividend remains above ten percent I'll stay in, and I'm still even on my equity value. Good stock, I'll keep it.
    -- Robert
    28 Mar 2013, 12:47 PM Reply Like
  • I've had ups & down like all of us but this is the second stock that I'm proud to say I own some of this stock, and plan on keeping it as long as the div do not tumble lower the 10%.
    28 Mar 2013, 01:56 PM Reply Like
  • The nay sayers are always going to bash REITs. Yes, there is risk, but when I'm in the black on my equity stake and the DIV stays above 10%.... what's not to like?
    28 Mar 2013, 02:31 PM Reply Like
  • What exactly do you guys see as the risks for ARR? You talk about all the risk, but exactly what is it?
    CPR (i.e., refi rate) is one risk, but that is minimal with low face rate on mortgage pools.
    High short term borrowing rate is a risk, but the Fed has indicated that it will likely keep such rates at or near zero until unemployment is below 6.5% which will be at least couple of years, and the Fed further indicated that it will keep short term rates near zero even after the unemployment rate is down.
    Low long term rates on MBS is a risk, but that can not possibly go lower, as they are now at 3% or even lower. if they go up, the book value of the mReits will go down temporarily, until they reinvest at higher rate MBS pools, and the average duration of most mReit assets i about 18 months, so reinvestment at higher rates can be done in relatively short order, once rates do go up, which will be a while.
    So, what risks do you see? I see virtually none for at least 2 years and maybe longer, and certainly less risk that generally applicable to all investments of all types.
    29 Mar 2013, 12:59 AM Reply Like
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