American Capital Agency Corp. (AGNC), Two Harbors Investment Corp (TWO) – Freddie Mac to MBS Buyers: We’re Done Shouldering All the Risk

In the case of Two Harbors Investment Corp (NYSE:TWO), management has a diversified background with solid experience managing risk in a variety of arenas. Chief Investment Officer William Roth has a background in investment banking at Salomon Brothers, mortgage experience at Citigroup, and hedge fund experience at Pine River Capital Management. CEO Thomas Seiring has a background in portfolio management across a variety of investment classes, including distressed debt. With this management team in place, it provides a level of confidence in Two Harbors Investment Corp (NYSE:TWO)’s ability to manage the portfolio with increasing credit risk.

The future of Fannie and Freddie is all about credit risk

Politically, there is tremendous pressure to reduce the mortgage market’s reliance on Freddie and Fannie. It’s unacceptable for taxpayers to bear the burden of the huge and unprecedented bailouts in the turmoil of the financial crisis, and it’s justified to make fundamental changes to the mortgage system to that end. Whether Fannie and Freddie eventually wind down to zero or if they evolve into something new is yet to be seen.

But while the politicians, economists, and policymakers work out the eventual solution, one thing is certain. Mortgage REITs will have a role in the future of home financing in America, and that role will, in my view, include greater credit risk than exists today.

Look to the management teams with experience outside agency mortgage bonds to be best suited to guide these companies through the transition.

The article Freddie Mac to MBS Buyers: We’re Done Shouldering All the Risk originally appeared on Fool.com and is written by Jay Jenkins.

Fool contributor Jay Jenkins has no position in any stocks mentioned. The Motley Fool owns shares of Citigroup.

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