Mortgage REITs Primed to Take on GSE Assets - NAREIT's Case on Housing Reform

http://www.reit.com The fate of Fannie Mae and Freddie Mac has been a hot topic of late, and one possible benefactor of assets coming off the GSEs' books could be mortgage REITs. NAREIT Senior Vice President of Research and Industry Information Brad Case said any decisions that get made regarding the GSEs will likely be done cautiously and in a way that benefits the entire housing finance system while exposing the government to less systematic risk going forward.

"It is probably safe to say that there will be less mortgages held on the balance sheets of those two GSEs, and that is where the mortgage REITs come in," Case said. "They are one possibility for taking over much of the ownership of mortgages the GSE have been doing to date."

Partly in anticipation of these and other assets coming on the market, existing mortgage REITs have been very active in the secondary equity markets so far in 2011.

"We have seen mortgage REIT investors very interested in the opportunities that mortgage REITs have going forward. And the mortgage REITs have raised capital to take advantage of those opportunities," Case said.

While there are a number of potential mortgage REIT initial public offerings in the pipeline, they have yet to come to market, Case said. He said that is due in part to the success existing publicly traded mortgage REITs have had in raising capital and positioning themselves to take advantage of opportunities in the market.

"The other part of the story is that the origination of new mortgages is at a very low level still," Case said. "I think the opportunities to acquire mortgages will be in the future as households get more comfortable with the idea of owning houses and taking on mortgages again."

Until then, Case said we are looking at the potential and not the actuality of new originations which would give them assets to invest in.

By Matt Bechard

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