SEC’s REIT Review Could Chill Housing Market, Analysts Warn

The once red-hot mortgage REIT sector is in for a cold dose of reality — which could spill over to the already-cool housing market.

Like what you see? Click here to sign up for a National Mortgage News free trial and daily newsletter to get the latest feature stories, news headlines, data, and in-depth analysis on the issues impacting the mortgage industry.

Mortgage real-estate investment trusts have been exempt from the Investment Act of 1940, which regulates the fees that can be charged to investors and limits the amount of leverage a fund can use. But the Securities and Exchange Commission – as reported by National Mortgage News – said recently that it had initiated a review of that exemption, as mortgage REITs are beginning to look more like mutual funds.

The SEC’s review has rattled the mortgage REIT industry, which analysts call a narrow-but-important source of liquidity for the housing market. Property prices are depressed, demand for new home loans is low, and banks and government-sponsored agencies Fannie Mae and Freddie Mac are still trying to sell their backlogs of foreclosed homes.

“If the SEC were to regulate [mortgage REITs], to make their strategies unprofitable or unable to generate the necessary returns, they would be stanching a good bit of the flow of private capital to the housing and housing finance markets,” said analyst Rich Eckert of B. Riley Co., LLC.

He said mortgage REITs can play “an even larger role in the post-Fannie and Freddie world when you are eventually able to privatize the mortgage market. Why would you want to shut these players out?”

Eckert, who covers real-estate companies including American Capital Agency Corp., Anworth Mortgage Asset Corporation and Hatteras Financial Corp., said he does not think the SEC will ultimately remove the exemption for all mortgage REITs.

Other analysts also downplayed the likelihood of widespread regulatory changes to the industry, but warned about the possible consequences if the SEC does in fact remove the exemption.

“This exemption has serious implications for mortgage REITs in terms of leverage, legal liability, capital raising and hedging,” analyst Jason Stewart of Compass Point Research Trading LLC wrote in a note to clients this month.

“While we believe the odds of wholesale changes to the exemption are low, the implications of any changes could be significant.”

Even just the prospect of increased regulation has derailed some deal activity in the mortgage REIT sector.

Daily Briefing | Thursday, September 15, 2011

  • Reddam’s CashCall Mortgage Puts Out ‘Help Wanted’ Sign

    Wanted: 520 mortgage professionals – and the man doing the hiring is former DiTech chief Paul Reddam.

  • Foreclosure Activity Sparked by Surge in Default Notices

    Foreclosure activity increased 7% in August over the prior month – but was down 33% compared to the same month a year ago, according to new figures compiled by RealtyTrac.

  • Another New Low for Mortgage Rates

    Fixed mortgage rates fell to the lowest level in six decades for the second straight week, according to new figures compiled by Freddie Mac.

  • MBA Pushing FHA to Open Up Program to Investors

    The Mortgage Bankers Association is urging the Federal Housing Administration to reopen its 203(k) program to local investors wanting to buy and renovate foreclosed properties.

  • U.S. Orders Former CFC Worker Rehired

    The Department of Labor Wednesday ordered Bank of America to rehire and pay $930,000 to a former mortgage employee improperly fired in a whistleblower case tied to Countrywide Financial Corp., the troubled lender bought by the bank in 2008.

  • HUD Audit Finds Underwriting Deficiencies at New York Lender

    The Department of Housing and Urban Development wants All American Home Mortgage Corp. to indemnify the FHA against future losses on five loans that violated agency guidelines.

  • House Passes Measure that Includes Flood Coverage

    House appropriators this week introduced a temporary measure that will continue to fund government operations, including the flood insurance program, through Nov. 18.

Article source: http://www.nationalmortgagenews.com/dailybriefing/2010_432/sec-reit-review-chill-housing-market-1026565-1.html?CMP=OTC-RSS

Leave a Reply

WP2FB Auto Publish Powered By : XYZScripts.com
Bunk Beds