Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Annaly Capital Management, Inc. (NLY), American Capital Agency Corp. (AGNC), ARMOUR Residential REIT, Inc. (ARR): Mortgage REITs Have Fallen, and They Can’t Get Up

The carnage in the mortgage REIT sector that began in May has extended into June, as investors flee and the trusts watch their stock prices and book values plummet. Nerves are still jangling from Fed Chair Ben Bernanke’s comments regarding the end of quantitative easing, and it doesn’t look like things are going to quiet down any time soon.

All mREITs are taking it on the chin
The agency crew, led by heavy hitters Annaly Capital Management, Inc. (NYSE:NLY), American Capital Agency Corp. (NASDAQ:AGNC), and ARMOUR Residential REIT, Inc. (NYSE:ARR), have all been close to hitting 52-week lows, but the blood-letting hasn’t stopped there. Even hybrid mortgage REITs, which also buy some non-agency paper, have plunged, as well. Two Harbors Investment Corp (NYSE:TWO), which enjoyed such a nice lift post-earnings about a month ago, recently sunk to new lows, and Invesco Mortgage Capital Inc (NYSE:IVR) has also slipped, even after its CIO’s recent show of faith, making a sizable insider purchase of stock less than two weeks ago.

Annaly Capital Management, Inc. (NYSE:NLY)In a way, the sector shot itself in the foot by staging a massive sell-off of mortgage-backed securities, which have fallen in value as long-term interest rates have risen, and markets price in a Fed retreat from QE3. Of course, the selling caused prices to drop further, creating a kind of sinkhole that sucked in the mREITs, pulling them under.

This action is exactly what the Financial Stability Oversight Council has been fretting about, though its main concern is destabilization of markets, rather than crashing mREITs. Despite the girth of Annaly Capital Management, Inc. (NYSE:NLY) and American Capital Agency Corp. (NASDAQ:AGNC), mREITs as a group hold only about 5% of all MBSes. Even so, the FSOC is concerned about their ballooning pile of assets, and is considering tightening regulations on the entire sector.

How long can this continue?
Since much of the market volatility has centered on Fed policy as it reacts to the health of the economy, it seems that Friday’s upcoming jobs report for the month of May will very likely keep things wobbly for the rest of the week — and, depending upon the unemployment picture, far beyond that.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.