The mortgage REIT industry came to its own defense this week as the deadline arrived for public comments to the U.S. Securities & Exchange Commission as it considers changes to how such REITs are regulated.
The SEC is contemplating whether mortgage REITs should be allowed to continue to claim exemptions enacted as part of the Investment Company Act of 1940 — long before such REITs were even created.
In addition, it is weighing whether they should be subjected to tighter new regulations as part of greater oversight of the mortgage industry proposed in light of the extensive abuses uncovered in wake of the Great Recession and their role in the mortgage market collapse.
In its concept release last August considering the changes, the SEC expressed concerns that companies not regulated by the act may deliberately ‘mis-value’ their assets, use excessive amounts of leverage, and operate in a manner that favors company insiders and not shareholders.
The reactions in the stock markets were immediate. Mortgage REIT share prices plunged on the announcement. Mortgage REITs still haven’t recovered to the stock price values they posted in July. That prompted a multitude of retired investors to write in defending mortgage REITs and their value as a dividend income generation tool.
The industry heavyweights waited until the Nov. 7 deadline to file their comments.
“Mortgage REITs have flourished as operating companies and are an established, accepted and desirable investment asset class for a wide range of individual and institutional investors,” said Michael A.J. Farrell, chairman, CEO and president of Annaly Capital Management Inc. “Mortgage REITs have also become a critically important source of capital formation in the residential and commercial real estate markets.”
Michael Hough, chairman and CEO of Hatteras Financial Corp. commented, “We are proud of the important role we play as a specialist in acquiring and holding mortgage securities, and we believe that our participation, and the participation of our public residential mortgage REIT peers, helps reduce the cost of home ownership to the substantial majority of Americans that borrow to acquire their family homes. We are confident Congress intended that companies like Hatteras would be exempt from the Investment Company Act and hope the SEC’s review can be resolved quickly to reduce any uncertainty in the market.”
Commenting on its public comment submission, Andrew F. Jacobs, president and CEO of Capstead Mortgage Corp., said, “We strongly endorse the findings and comments made in the National Association of Real Estate Investment Trusts’ residential mortgage real estate investment trust (mortgage REIT) comment letter and the Securities Industry and Financial Markets Association’s comment letter regarding the well regulated environment in which mortgage REITs currently operate that fosters a culture within which investors are well-protected, and the significant current and future role of mortgage REITs in supporting our nation’s housing markets through capital formation.”
The Mortgage Bankers Association also filed a comment letter. In its letter, the MBA argues that changes to the current regulatory structure could have a negative impact on real estate finance activity and the provision of liquidity to the mortgage market. (credit , m, heschmeyer, co-star)