Saturday, September 10, 2011

Mortgage REIT Alert

The mortgage REIT sector has been hammered this week by the SEC decision to review whether such REITs should be regulated as investment companies under the Investment Act of 1940.

For FIFTY years, since 1960, when Ike was in the White House and Gunsmoke was the #1 show on your black-and-white TV, mortgage REITs have been exempt from this regulation.

And a whole new real estate investment sector developed around this exemption.

Now, of course, when the economy is mired in recession and the President is desperate to stimulate business growth, another part of his own administration decides to investigate if new rules on mortgage REITs are necessary.  In other words, should we regulate the use of leverage in this sector and drive some weak and troubled existing REITs out of business.

Investors in mortgage REITs need to be fearful.  Most issues took a hit this week and I'm not sure when the good times are coming back.  Here's another author that agrees with that assessment.

Mortgage REITs are great instruments for investors.  Yes, of course they use leverage, lots of it, to boost their yields.  So what?  Knowing how to use leverage is part of what mortgage REIT managers are paid to do on the job.

The sixty-day public comment period has begun.  Please contact the SEC and tell them HANDS OFF this sector.  Here is the SEC concept release and how to reply during the review period.