REITs certainly don’t have the presence in the residential mortgage market they did before the downturn but according to a Keefe, Bruyette & Woods report last week, there are still a good 15 publicly traded ones out there, some of which investors may want to keep an eye on in terms of their potential ability become bigger contenders in the space.
Certainly, Redwood Trust as the only post-downturn issuer of nonagency MBS has stood out, but far and away the real leader in the sector as far as market capitalization and market share has been Annaly Capital Management Inc. Its market cap was about $14.7 billion and its share was 40.8% as of May 31, according to KBW. Redwood, by comparison, ranked 9th with about a $1.2 billion market cap and a 3.4% share.
Annaly’s closest residential mortgage REIT competitor by market cap is also its subsidiary. That company is Chimera Investment Corp. Its market cap is about $4 billion with just over an 11.2% share of the residential mortgage REIT market. Annaly is an agency MBS REIT while Chimera is a nonagency REIT. Annaly also backs CreXus Investment Corp., a commercial mortgage REIT.
Annaly and some other REIT players, such as Two Harbors Investment Corp. (No. 10 among mortgage REITs, with a $991 million market cap and 2.7% market share), are among those in the market who also have shown some interest in selectively buying closed loans—and in some cases providing other services such as warehouse financing-to originators/lenders.
Another potential player in this space that was among the residential mortgage REITs to present at the National Association of REITs investor conference in New York last week is Invesco Mortgage Capital Inc. (No. 6 with a market cap of about $1.6 billion and a 4.6% market share.) Invesco plans on buying loans and securitizing them some time down the road, according to president and chief executive officer Richard King.
Invesco, which finances and manages both agency/nonagency residential and commercial mortgage-backed securities, commented on developments in these markets at the NAREIT meeting.
He noted that during the second quarter the market for subprime assets has been affected by the Maiden Lane portfolio and seen some softness. (According to KBW, Invesco is not exposed to the subprime market per se, although it does have some notable exposure to the alternative-A credit market as well as lesser exposure to jumbo and agency risk.) In addition, Jason Marshall, a portfolio manager at Invesco, noted that the company still views underwriting in the new-issue CMBS market as very clean. But he said it is difficult to acquire size in this market.
As I’ve noted before, one of the big questions that has come up in regard to REITs’ prospects is whether the advantages they enjoy could be subject to ongoing reform efforts sweeping the financial industry. When asked last week at the NAREIT conference whether current reform efforts could affect REITs, Annaly chairman, president and CEO Michael A.J. Farrell told attendees that he believes “nobody wants to touch anything” that hurts credit to housing.