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Proposal To Freeze Rates on Adjustable Rate Mortgages a Positive for Financial REITs
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The Bush administration proposal to freeze
ARMs on residential loans will be viewed as a positive
for stock prices, but will limit long term profitability of mortgage loans
for investors in securitizations.
Congress may also seek to impose a moratorium on foreclosures.
We see a tradeoff in the impact on investment returns, with lower
foreclosures and fewer delinquencies
to be offset by lower long term yields on securitizations of residential
loans.
Remember that net interest income (NIM) for Financial Mortgage REITs will
be determined not only by yields,
but also by the cost and availability of funds.
Reported profits will also be impacted by market volatility.
To the extent that the Bush administration proposal calms the market, liquidity
concerns may be assuaged,
making capital for new loans once again available.
Trading losses would be also mitigated by a calmer market environment.
We view these Financial REITs as survivors of the liquidity crisis, and
as beneficiaries of this
regulatory initiative:
Financial REIT Ticker
Price Dividend
Yield Rank Market Cap
Anworth Mortgage ANH
$8 $0.20
2.64% 2
$346 million
Capstead Mortgage CMO
$12 $0.16
1.32% 3
$236 million
NovaStar Financial NFI
$2 $0.00
0.00% 3
$ 23 million
Annaly Capital
NLY $17
$1.04 6.04%
2 $5.9 billion
Redwood Trust RWT
$31 $3.00
9.74% 3
$859 million
Thornburg Mortgage TMA
$10 $0.00
0.00% 3
$1.3 billion
ANH a Financial REIT with a portfolio concentrated in agency securities
CMO a Financial REIT with a portfolio concentrated in agency securities
NFI a Financial REIT with a portfolio concentrated in subprime residential
loans
NLY a Financial REIT with a portfolio concentrated in agency securities
RWT a Financial REIT with a portfolio concentrated in jumbo residential
loans
TMA a Financial REIT with a portfolio concentrated in jumbo residential
loans
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