While times have been tough for all mortgage REITs, those that dabble exclusively in government sponsored entity-backed paper have suffered the most from QE3, as shrinking dividends become the norm. Even hybrid mREITs like Two Harbors Investment Corp (NYSE:TWO), which invests in both GSE mortgage-backed securities as well as non-agency backed MBSes, experienced a temporary drop in their payout last fall, though they made up for it by year’s end.
Hybrid mREITs are more flexible in their investments than their pure-agency brethren, and Two Harbors Investment Corp (NYSE:TWO) has proved itself more adaptable than most. Late last week, the company announced that one of its subsidiaries is now licensed to service mortgage loans, which allows Two Harbors to invest in mortgage servicing rights for loans backed by Freddie Mac. This puts the mREIT in league with MSR heavies Nationstar Mortgage Holdings Inc (NYSE:NSM) and Ocwen Financial Corp (NYSE:OCN).
Not afraid to take a new direction
The business of servicing mortgages has taken off over the past year or so, as banks sell their MSRs to comply with new capital rules. Both Nationstar Mortgage Holdings Inc (NYSE:NSM) and Ocwen Financial Corp (NYSE:OCN) have seen explosive growth in the last year, with both companies seeing a share value increase of about 150% during that time. Mortgage servicing is lucrative — a fact that did not go unnoticed by Two Harbors Investment Corp (NYSE:TWO).
This is not the first time the trust has jumped on a profitable new bandwagon. Noting the big profits being realized by private equity firms like The Blackstone Group L.P. (NYSE:BX), Two Harbors Investment Corp (NYSE:TWO) created a portfolio of foreclosed single-family homes to renovate and rent, then spun off said portfolio into a stand-alone mREIT called Silver Bay Realty Trust Corp (NYSE:SBY). Though the stock has cooled a bit from its meteoric rise a few weeks ago, insiders apparently have faith in the company, purchasing 37,750 shares so far this month.
Stalwarts are changing strategies, too
Even a couple of pure-agency players have exhibited a new flexibility lately. As fans of the sector know, Annaly Capital Management, Inc. (NYSE:NLY) has recently announced its intention to branch out into commercial MBSes through its planned purchase of Crexus Investment Corp (NYSE:CXS) , a trust it already manages. Also, Western Asset Mortgage Capital Corp (NYSE:WMC) noted in its December dividend announcement that it had, for the very first time, added some non-agency MBSes to its formerly agency-only mix.
Times are changing, and many mortgage REITs are finding that a willingness to adjust can be good for business — which generally means good tidings for investors, as well.
The article This Mortgage REIT is Trying Something Completely Different originally appeared on Fool.com.
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