InvestmentsMortgage

REITs eye opportunities in the mortgage market as government pulls back

Real estate investment trusts are beefing up their mortgage-bond portfolios, WSJ says

Real estate investment trusts have not typically been huge participants in the housing finance market, but it seems the tide is quickly turning.

According to a recent article in The Wall Street Journal, mortgage REITs have beefed up their mortgage-bond portfolios by nearly 28% year over year as of March, boosting their total collective investment to $308 billion.

Quoting data from Inside Mortgage Finance that analyzed 15 REITs, the WSJ calls this investment the largest stockpile in six years and says most of this rapid growth can be attributed to Annaly Capital Management and AGNC Investment.

While the REITs involved in home loans are small-time considering the overall market, the article says they have become an important source of capital as the Federal Reserve cuts down its bond portfolio.

And, if GSE reform is indeed underway as numerous developments indicate, REITs have a lot to gain from a new system that welcomes more private capital.

But there are those who call growing REIT involvement worrisome.

“Some analysts worry these vehicles are putting more of the mortgage market into the hands of leveraged firms with minimal oversight,” the article states. “Some of the more risky mortgage REITs went bust during the last financial crisis. The last boom time for this sector, in 2013, prompted calls for increased regulatory supervision, but they didn’t result in any new regulations.”

The WSJ says that REITs are making a comeback, and that those focused on the mortgage sector added $6.2 billion in equity to their investment portfolios last year, a number that is likely to be even bigger this year.

While REITs have produced mixed results for investors in recent years, according to the Journal, proponents say their structure makes them ideal to become the mortgage industry’s backbone as they can raise and deploy funds quickly and can manage risks carefully.

Some firms have been buying mortgages that have traditionally been in Freddie Mae and Freddie Mac’s territory, and the article says this development could pick up speed if the government shrinks the role of these GSEs.

“REITs are big buyers of securities sold by Fannie and Freddie that transfer default risk associated with the mortgages they back,” the article states. “In a sign that traditional players are making room for REITs, Fannie and Freddie recently tweaked these investment vehicles to make them easier for REITs to buy.”

About the Author

Most Popular Articles

Housing market flashing recession signal

The housing market is signaling there will be an economic recession by the 2020 election, according to Benn Steil, director of international economics at the Council on Foreign Relations. “When income fails to keep pace with home prices, the latter must fall back,” the post said. “Falling home prices, in turn, drive down household spending.”

Oct 11, 2019 By

Latest Articles

Pennsylvania sues rent-to-own operator Vision Property Management for preying on low-income renters

Vision Property Management has already run into trouble in Wisconsin and New York, with each state claiming that the company’s rent-to-own business model is actually a scam designed to prey on low-income individuals who want to buy a home. And now, the company has another state to deal with: Pennsylvania.

Oct 11, 2019 By