In My Inbox

Mixed news this morning out of Credit Suisse on the mortgage REIT front.

Their model of the amREITs shows Annaly and Anworth both gaining book value over the month of May.  They are now estimating $18.18 for NLY and $7.38 for ANH. Since the first quarter ended, that’s an increase of over a dollar for Annaly (from $16.80) and almost 20 cents for Anworth (from $7.19).

The  only other pure amREIT they cover, MFA, was estimated to have dropped some book value, mostly because mortgage spreads widened by 11 basis points in May.  They show MFA to be at $7.39, a smidge below the $7.43 it reported at the end of Q1.

Not so pretty for the REITs that hold non-Agency paper.  Risk avoidance has pushed spreads out on non-Agencies more than enough to offset the rally in US dollar rates.

Starting with the hybrid, Two Harbors (TWO), CSFB estimates a decline to $8.87 from last quarter’s $9.38.  That can’t be explained exclusively by their holdings of non-Agency paper, however, because the pure non-Agency mREITs Chimera (CIM) and Invesco (IVR) did not decline as much as TWO.

Chimera shows up with an estimate of $3.36 in book value, barely less than the $3.42 at the end of Q1.  That has to be because they bought so much deep discount paper last year and levered it up with re-REMICs.  The increase in book value comes from accretion of the discount they paid over the entire book, levered onto the retained portion of the re-REMIC deals.

IVR, the Wilbur Ross vulture entity, gets some additional leverage by holding one of the few Public/Private Partnership vehicles launched in the only existing example of the original stated intention of the reviled TARP legislation (that is, where taxpayers actually buy distressed mortgage bonds to hold for a profit).

Sadly, in hindsight, it probably would have worked pretty well, and saved us money.  Of course all the “heroes” of the Lewis book would have been stopped out with a loss in 2009 on their CDS, but it is interesting to consider what would have happened if Paulson and Bernanke had actually done what they said they would do with that first $700 billion.

You see, that was enough money to literally buy every mortgage out of all those deals.  Suddenly the CDO’s, CDS, and bank holdings would have been worth par, because the loans would be replaced with cash.

The government would have become de facto landlord for a few million defaulting borrowers or their empty speculation “investments,” but the really big damage would have been stopped in its tracks.  There’s actually a good case to be made that Fannie and Freddie would have stayed solvent.

After all, they wouldn’t have taken the tens of billions in losses they are going to take on the subprime AAA bonds they held, but more importantly, their bread and butter 20% down prime mortgage business would not have turned south once the overhang of foreclosures was removed from the housing market.

Sometimes it pays to think about what might have happened if they did what they said they were going to do, don’t you think?



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