Government Orchestrated Monopoly - Moving Forward in Reverse
QE3 needs no approval and is already happening. One might ask why the size of mortgage security purchases ($40 Billion per month plus rollover money) targeted by the Fed almost exactly equals 100% of aggregate market size? The government is in effect committed to taking over the mortgage securities market with a goal of a complete monopoly and lower mortgage origination rates possibly in the 2% range on conventional paper and potentially lower. This serves two purposes a) Unsustainable but likely short term boost in Real Estate valuations, jobs, etc. and b) Puts private mortgage players out of business so the Feds can pursue a grander socialistic vision. Private investment judgment and common sense are thrown out the window. This will be devastating to both MREIT net interest margin and ultimately Book Value as premiums paid and unrelaized gains are written off due to greatly accelerated prepays at par. Forget the historical CPR's, they will soon become obsolete. The only way to avoid a free fall or collapse of enterprise value is a large or complete liquidation today at tangible book value. Even if short term these price hits reverse, the long term price direction (for the next 4 years anyway) is almost a certainty as it goes down 50% or more and the dividend conceivably hits zero with inadequate income to cover payouts. Welcome to moving "Forward" in reverse.
God I hate to see this happen but this is a whole new ballgame where the odds are stacked in the Feds favor by design. This was such a great investment (along with NLY and others) for so many years buy it is now time to get out of Dodge!