REITs’ investments in the American mortgage market are skyrocketing

Portfolios of mortgage bonds increased to $308B over past year through March

REITs upped their portfolios of mortgage bonds to $308 billion
REITs upped their portfolios of mortgage bonds to $308 billion (Credit: iStock)

Real estate investment trusts are betting big on the country’s mortgage market.

REITs that buy residential home loans upped their portfolios of mortgage bonds to $308 billion over the past 12 months through March, an almost 28 percent increase. This was the biggest stockpile in six years, according to the Wall Street Journal, citing data from Inside Mortgage Finance.

Most of the growth was driven by Annaly Capital Management and AGNC Investment Corp.

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REITs have become an important financing source in the housing market, especially as the Federal Reserve reduces its mortgage bonds portfolio. However, some analysts are concerned that this shift is giving more mortgages to leveraged companies without much oversight. During the last downturn, some of the riskier mortgage REITs went bust.

That said, banks are not as involved in the mortgage market now as they were prior to the financial crisis. But they do provide REITs making those same investments with short-term financing.

Annaly and some of the other REITs are buying several mortgages that Fannie Mae and Freddie Mac have traditionally focused on, and this segment of the market could continue to grow if the government tries to shrink Fannie and Freddie. Both companies recently tweaked their securities to make it easier for REITs to buy them.

“If the goal is to disburse more and more risk, you have to get more investors involved,” chief economist at the Mortgage Bankers Association Michael Fratantoni told the Journal. [WSJ] – Eddie Small