3 Bits of Great News for Mortgage REITs: ARMOUR Residential REIT, Inc. (ARR), American Capital Agency Corp. (AGNC)

Page 1 of 2

After a somewhat lethargic year for mortgage REITs, 2013 seems to be starting out kinder to mREITs of all stripes. As I mentioned previouslyAnnaly Capital Management, Inc. (NYSE:NLY) seems particularly well-positioned to take off, but recent news doesn’t apply just to buyers of Fannie- and Freddie-backed mortgage backed securities like Annaly, ARMOUR Residential REIT, Inc. (NYSE:ARR), and American Capital Agency Corp. (NASDAQ:AGNC).

Without further ado, let’s dive right in and see what recent news items bode well for these companies that make investors money by borrowing short and lending long.

ARMOUR Residential REIT, Inc. (NYSE:ARR)Refinance rates fall, mortgage rates creep up
As fans of the mREIT sector well know, prepayments of loans in these companies’ MBS portfolios is bad news indeed. Seeing nice, higher-rate mortgages paid off and replaced with lower coupon models is surely painful, and compresses spreads even more. This scenario helped Annaly’s spread decline to a paltry 0.95% for the fourth quarter, even more disappointing when compared with American Capital Agency’s more robust 1.63%. Though Armour released some financial data last week, it didn’t reveal the health of its own spread.

It’s always darkest before the dawn, however, and recent mortgage news is definitely looking brighter. The Mortgage Bankers Association released numbers showing that refinance activity has slowed, great news for constant prepayment rates.

Another plus in the MBA report notes that 30-year mortgage rates are up around 3.78%, the highest since last August. Short-term rates staying low while long-term rates climb is just the type of news mREITs and their investors love to hear.

Fed debates slowing of QE3
This news is a real crowd-pleaser. The fact that more people are feeling good enough about the economy to dip their toes into the job pool pleases the Fed, making it feel that its open-ended bond purchasing program is working its magic. While many on the Federal Reserve Board also feel this way, there is a growing chorus of members who think the time has come to consider winding down the monetary easing policy. Minutes from the December meeting show that some advocated termination of QE3 by the middle of this year.

So far, there are no firm answers, and it is expected that the Fed will have quite a debate over this issue next month. However, just the whispers, becoming louder and louder, regarding the end of QE3 is music to the ears of mREIT aficionados.

New MBS offerings
The new reality thrust upon the industry as a result of QE3 has caused new interest in non-agency offerings, as evidenced by a recent announcement that JPMorgan Chase & Co. (NYSE:JPM) is interested in selling private-label securities made up of jumbo mortgages.

These MBSes, made up of mortgages of more than $417,000 and not backed by the government, are considered high quality, and other securities of this type have sold like hotcakes. Jumbos often sport higher interest rates as well — another plus.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!