REITs Bet Big on the Mortgage Market - ABI

Investment trusts that buy residential home loans are piling into mortgage bonds, taking on a more prominent role in the housing market as the government retreats, the Wall Street Journal reported. Mortgage real-estate investment trusts were once small players in housing finance, but they’ve increased their mortgage-bond portfolios by almost 28 percent to $308 billion over the 12 months through March. It was the largest stockpile in a half-dozen years, according to an analysis of 15 REITs by industry research group Inside Mortgage Finance. Annaly Capital Management Inc. and AGNC Investment Corp., the two biggest companies in the sector, accounted for the majority of the growth. REITs often are publicly traded entities that invest in all types of real estate and pass most of their profits along to shareholders via dividends. They typically fund investments by raising capital in the equity and debt markets, including through short-term financing, and they use leverage to amplify their bets. The REITs focused on home loans are small relative to the $11 trillion mortgage market. But they have become a key source of capital in the housing market, particularly as the Federal Reserve trims its portfolio of mortgage bonds accumulated through stimulus measures. Additionally, government efforts to overhaul the housing-finance system could benefit REITs if policy makers clear the way for more private capital to enter.

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