Mortgage-backed REIT funds are likely up today less due to Bernanke’s speech and more due to oversold technical conditions that have washed out speculation in the sector, says the co-founder of the $4.6 billion independent advisory and money management firm.
“There’s growing expectation that some reform in mortgage financing is coming. But the scope is unclear — which has added more anxiety to the mortgage REIT sector and raised a red flag with investors,” Zafran said in an interview.
But since federal budgets are tight, such reforms are likely going to wind-up providing greater leverage for the private mortgage REIT marketplace, he added.
That could in-turn provide more opportunity for investors in funds like REM, notes Zafran. He believes the biggest and strongest players are likely to prosper from the proposed changes. “The bluest chips in the space have a lesser percentage of high coupon mortgages and high loan-to-value mortgages,” Zafran said. “Those are the types of bonds which are most likely to be impacted by refinancing moves.” Rating : (No ratings)