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.

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 (SEC) said recently that it had initiated a review of that exemption, as mortgage REITs are beginning to look more like mutual funds.

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