REITs Raise Red Flags for FSOC

The Financial Stability Oversight Council has a new systemic risk concern on its radar: the potential for a sudden, disorderly sell-off of mortgage-backed securities by leveraged mortgage real estate investment trusts.

American Banker

June 1, 2013

By Robert Stowe England

In its annual report, the FSOC highlighted its worries in a discussion of how rising interest rates might create a negative feedback loop centered around mortgage REITs that are funded by short-term repurchase agreements, or repos.

The worry stems, in part, from the rapid growth in the amount of agency MBS held by mortgage REITs, which have risen from $89.5 billion in 2008 to $352 billion at the end of 2012, according to Federal Reserve data.

Asset increases at some REITs have been dramatic. American Capital Agency in Bethesda, Md., grew its holdings from less than $5 billion in 2009 to $100.5 billion at the end of 2012 in an expansion led by President and Chief Investment Officer Gary Kain, who formerly managed Freddie Mac's $700 billion portfolio.

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Robert Stowe England is an author and financial journalist who has specialized in writing about financial institutions, financial markets, retirement income issues, and the financial impact of population aging.

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