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September 13, 2019  

REIT Stock Sales Fuel Securitization Efforts

With their stock prices on the rise and interest rates low, mortgage REITs are issuing new shares to support their securitization activities.

Since the start of September, AG Mortgage, New York Mortgage Trust and Redwood Trust have sold $470 million of stock. Sources said they plan to use the fresh capital to buy non-agency home loans — including those that don’t meet the Consumer Financial Protection Bureau’s “qualified-mortgage” standards — with an eye toward securitizing the portfolios in the coming months.

AG Mortgage, managed by Angelo, Gordon & Co., sold $100 million of stock on Sept. 12, a day after New York Mortgage Trust issued $170 million of shares. A week earlier, Redwood conducted a $200 million secondary share offering.

Why the push to raise equity now? With falling interest rates boosting the values of their portfolios, the shares of many mortgage REITs currently trade above their book values. A case in point is Redwood, whose book value is $15.95 per share, according to Keefe Bruyette & Woods. Its stock was trading this week around $17.95. New York Trust’s book value is at $5.75, while its share price is around $6.15.

The equity-raising activity is expected to continue. Indeed, Redwood already is gearing up for another share sale, and Invesco Mortgage Capital and New Residential Investment are interested in tapping the market, sources said.

The way mortgage REITs are deploying the fresh capital represents a shift in strategy that has been developing over the last few months. Rather than invest in older mortgage bonds and agency risk-transfer deals from Fannie Mae and Freddie Mac, as many have done in the past, they’re more focused on buying newly issued home loans for securitization purposes.

“The focus of the equity offerings is almost entirely on originating new securitizations now,” one REIT analyst said.

So far this year, Redwood has sold $1.8 billon of jumbo-mortgage bonds via five transactions, according to Asset-Backed Alert’s ABS Database. AG Mortgage, meanwhile, has issued two deals backed by nonqualified mortgages with a combined face value of $590.1 million.

New York Mortgage Trust’s securitization plans are still coming into focus. But it has been busy buying nonqualified mortgages over the past year or so with an eye toward issuing its first mortgage-bond offering before yearend.