Real estate investment trust (REIT) Invesco Mortgage Capital (IVR: 15.81 -0.25%) priced its public offering of 9m shares at $20.75 per share, for gross proceeds of $186.75m.

The REIT plans to use the net proceeds to buy residential and commercial mortgage-backed securities (RMBS and CMBS) and leveraged mortgage loans, as well as for other corporate purposes.

Credit Suisse Securities and Morgan Stanley (MS: 18.56 +2.26%) serve as joint book-running managers on the offering, Invesco said. Keefe Bruyette & Woods, Stifel, Nicolaus & Co. and JMP Securities serve as co-managers.

Underwriters have a 30-day option to purchase up to 1.35m additional shares to cover any over-allotments. The offering — announced Friday — is expected to close on or about May 3, 2010, according to a press release.

If Invesco sees a repeat of investor interest like that it received earlier this year, the over-allotment is very likely to succeed.

The REIT, which went public in June 2009, priced its second offering of 7m shares in January at $21.25 per share, raising an initial $149m with an option for underwriters to purchase up to an additional 1.05m shares to cover any over-allotments. The over-allotment raised more than $22m, bringing gross proceeds to $171m, a strong indication of abundant investor demand.

Today's announcement of the pricing of the REIT's public offering of shares marks only the latest round of significant investor interest in funding MBS acquisitions.

Earlier this week, the investment management arm of the Invesco firm closed its $1.46bn Mortgage Recovery Fund, primarily with commitments from institutional clients. The fund was designed to invest in Public-Private Investment Program (PPIP)-eligible MBS and mortgage-related loans.

Write to Diana Golobay.

Disclosure: the author holds no relevant investment positions.

In a meeting yesterday at the American Enterprise Institute (AEI), a public policy thinktank, the Shadow Financial Regulatory Committee (SFRC) urged quick action to unwind the massive amount of mortgage-backed securities (MBS) held by the Federal Reserve.

The Fed program ended last month with $1.2trn in MBS acquired from Fannie Mae (FNM: 0.00 N/A), Freddie Mac (FRE: 0.00 N/A) and Ginnie Mae.

The SFRC is arguing that these purchases, coupled with US Treasury Department obligations, is contributing to large amounts of excess reserves being held by banks at the Fed.

"[These] associated reserves will ultimately have to be extinguished before they result in a potentially huge increase in bank credit and money supply, which could lead to a serious inflation problem," said the SFRC in a statement.

The SFRC is made up primarily of academics and financial advisers. They conclude that the best option for combating this potential inflationary threat is to capitalize on the conservatorship status of government-sponsored entities Fannie and Freddie, since GSE debt is guaranteed by the United States.

"The Treasury could simply issue Treasury debt to Freddie and Fannie with the offsetting accounting transaction being an IOU to the U.S. Treasury," the SFRC recommends. "Freddie and Fannie could then swap the acquired Treasury debt for MBS held by the Federal Reserve."

The result would put these assets back on the GSE's books, thus freeing the Fed from the Treasury and related fiscal policies, in order to focus on its monetary responsibilities. The end result, in this scenario, would be a de-politicized Federal Reserve.

Other options, such as repurchase agreements, only temporarily reduce the debt burden on the Fed, they say. Also, the private market, for selling these securities off, is relatively thin given the size of the MBS purchases.

Under this last option, "sales would have to be gradual to avoid raising mortgage rates that might adversely affect the housing market," the SFRC said.

Write to Jacob Gaffney.

The author holds no relevant investments

As Senate Republicans are urging bipartisan financial reform legislation and Senate Democrats are fighting to formally debate the current version of the bill, the Senate remains divided and financial reform remains in limbo, for now.

The Senate reconsidered S. 3217, the Restoring American Financial Stability Act of 2010, again today after Senate Republicans voted against debating the legislation on Monday. Once more, Republicans voted against debating the legislation today.

The bill would create a consumer financial protection agency, impose a risk retention requirement on banks that sell and securitize mortgage loans, and bring greater transparency to the derivatives market.

Republicans said in a statement today they are seeking bipartisan financial reform legislation that will eliminate the notion of “too big to fail” as well as taxpayer-funded bailouts.

The move to block a debate of the legislation is being criticized by Senate Democrats like Nevada's Harry Reid.

"The American people … have two simple requests: One, that their leaders look out for their economic security; and two, that their legislators legislate.  In other words, they want us to look out for their jobs and they want us to do our own," he said in a statement. "Right now, Senate Republicans are refusing to do either."

A spokesperson for Reid's office said another vote to proceed debating the financial reform bill is scheduled for tomorrow.

Multiple statements from Senate Republicans indicate the party is looking to debate financial reform legislation with stronger language to prevent future bailouts.

“My vote is not a vote against financial reform; instead it’s a vote to insist that the parties continue bi-partisan negotiations to come up with a commonsense bill we can all be proud of," said Sen. Scott Brown (R-MA), in a statement. “As currently written, the legislation contains loopholes that could leave the taxpayers on the hook for future bailouts of Wall Street."

Sen. Mike Johanns (R-NE) echoed the sentiment that the bill fails to prevent government bailouts. He also claimed in a statement that the bill threatens rural farmers and other employers in Nebraska — "who had nothing to do with the financial crisis," he said.

"As we learned during the health care debate, it can be very difficult to make substantive changes to a bill through the amendment process, so we should not move to this bill until we get it right," he said in a statement. "Bipartisan negotiations have been productive and are headed in the right direction. We shouldn't undercut those talks by bringing a flawed, partisan version to the Senate floor."

On the Senate floor Tuesday, Sen. Mitch McConnell (R-KY) said the bill "hurts Main Street" and US businesses like Harley Davidson, Ebay and the maker of M&M's and Snickers.

“Clearly, this bill isn’t finished. It falls short of our constituents’ demands to prevent future bailouts, and it’s expected to hurt America’s job creators at a time when we need jobs most," he said in a statement.

He urged fixing the bill through "a simple tweak in the language" or a closed loophole before taking up debate on the legislation.

"Unfortunately, the Democrat Majority seems less interested in fixing this bill than in some political win they think they’re scoring by not fixing the bill. It’s a total waste of the people’s time," McConnell said.

Write to Diana Golobay.