Fitch: Rating Pressure Continues to Mount for U.S. Mortgage REITs

Limited access to capital has hurt U.S. mortgage REITs, thus worsening funding profiles and growth prospects and leading to increased ratings pressure in the last several weeks, according to a special report released today by Fitch Ratings (no link). The rating agency said that recent declines in the market value of unsecuritized assets and the reduction of advance rates for short-term debt employed to finance these assets have also triggered margin calls, and consequently reduced liquidity. “Despite the use of longer-term, match-funded CDO financing by mortgage REITs and other finance companies, a majority of these companies continue to utilize short-term, floating-rate financing, creating a mismatch of longer-term, fixed-rate assets and shorter-term, floating-rate, subject to margin call debt that is a concern for Fitch,” said managing director Steven Marks. “While a mitigant to this mismatch is the use of interest rate hedging instruments, market value declines in assets due to increased perceived or actual credit risk of a REIT’s collateral for this short-term borrowing can still lead to margin calls,” says Marks. Since Sept. 1, 2006, Fitch has downgraded IDRs of both publicly and privately rated mortgage REITs 26 times, placed 14 mortgage REIT IDRs (including shadow ratings) on Rating Watch Negative, and revised the Rating Outlook of one publicly rated mortgage REIT to Negative from Stable. For more information, visit

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