Worst case senario is liquidation. With the FED still buying, it would be fairly easy to sell all assets. I do not see that happening though. A more likely bad scenario is spread keeps shrinking and div keeps slowly decreasing until the spread is more favorable.
Of course anything can happen, but I don't think they are even close to liquidating. They've weathered through other markets that have negatively affected them. Please read the articles for NLY. It may help calm any fears - somewhat anyway.
Foreclosures seem to be going down but with the tight spreads, unless NLY can curb expenses more than they did last year, there's always the possibility of another dividend reduction. I think a couple more of those and the stock price would have a very hard time recovering to current levels.
I am having a hard time deciding whether to dump this or not because, even with the dividends, break even for me is a long way away since I bought mid-$17s a while back. :/ For REITs with growth and decent dividends, I would suggest OHI and MPW (like I have) or other health care REITs. I've made a killing on those two already in only 6 months and wish I bought more.