Remember that MTGE did a very large offering (60% of its mkt cap) at $25.65 in mid February--at/near the lows of the MBS sell-off. This is essentially the same as averaging down when the market got cheap. Since then those securities recovered a large portion of their losses. In addition, non-agencies (30%+ of MTGE's equity at the time) rallied throughout the quarter and into 2Q. If you average all of this out current BV is likely north of $26 currently ($25+ at the end of 1Q).
AGNC did not average down very much during the quarter (10% offering) given their size plus had zero non-agency exposure. AGNC's BV went down 8.5% during the quarter (I estimate it recovered at least half of those losses so far in 2Q).
If you assume MTGE's agency MBS declined in lock step with AGNC's but MTGE's non agencies rallied 2-3%, then that would have put MTGE's BV at $24.50 or so. But then MTGE averaged down 60% of its equity at the lows and likely bought agencies which have subsequently rallied 1+ pts (which at 7-8X leverage is sweet). Doing this math gets you to a BV for MTGE well north of $25 at quarter end and north of $26 currently.
Still a bit of a black eye for Gary Kain for not protecting BV as he has been known to do.
Ironically, buying agency MBS at the low means higher spreads were locked in, which is positive for earnings and the dividend.
Sell Mortimer, sell. Great buying oppty for the rest of us.
The Fed is losing their shirt trying to keep rates way below reasonable levels. Why? I suspect that when you pull out housing purchased by "investors" the numbers aren't that great. Prices are rising based on low inventory caused by this kind of buyer. We have an artificial interest environment, artificial price increases and investors that will bail if they either see enough gain or if the market goes sideways or drops. The government needs to quit manipulating the markets - it always ends badly - and will stick recent buyers with the same kind of losses they were hit with the last time. The lessons of history, even a five year old history, don't seem to be learned. Unbelievable.
MTGE did their SPO about two to three weeks before AGNC did. On the 1st Qtr call, MTGE was talking about the dollar roll market/TBA position. Here is a comment:
Chris Kuehl - SVP, Agency Mortgage Investments
Now, going forward, you can expect to see a larger off-balance sheet TBA position. This is driven by the extremely attractive implied financing rates available through the dollar roll market. Typically, special roll financing tends to be short-lived. However, the technical situation in large part created by QE3 should led to persistent strength in the dollar roll financing markets as long as the Fed’s program is in place.
If this caused problems for AGNC, the problems may be even greater for MTGE. I'm still sorting through all of this though.
It depends on where they put the money from the offering, as well as how much was TBA and what the settlement dates were. I'm assuming that they kept their non-agency at 30% equity. As Oldschoolbuilder said, those increased in value. On the agency side, MTGE would still be looking to get pre-payment protection -- I don't see them "going all in" on TBA stuff. Further, 1/2 of the agency loss is likely recovered as of today. (IVR said all of their BV loss was fully recovered.)
Maintaining BV is one of AGNC's and MTGE's primary goals. Kain et al has been good at this.
Actually, the problem is that AGNC and MTGE have to do larger and larger offerings in order to lever into spread differentials. Anyone who has gone a full cycle knows it always ends badly..... you just don't know when it will end badly. I got out recently because I have a feeling that it will not be the fed that sends the signal but Mr. Market sends the signal meaning a sudden, shocking event changes everything. In any event you can see just how violent investor reaction is to these hiccups because you don't know if it is a small hiccup on a longer road or if we have hit a fork in the road.