NEW YORK, NY--(Marketwire - Jan 18, 2013) - High yielding mortgage REITs after an impressive start to 2012, began to show volatility in the fourth quarter. Increases in prepayments and stimulus measures by the Federal Reserve have pressured spreads and as a result a number of mortgage-based REITs have lowered their dividends. Research Driven Investing examines investing opportunities on Real Estate Investment Trusts and provides equity research on American Capital Agency Corp. (
REITs trade like stocks, but by law, they must pay out 90 percent of their taxable income to shareholders as dividends. Dividend returns for Mortgage REITs are partially dependent on interest rate spreads.
Freddie Mac on Thursday reported that the average U.S. rate on the 30-year fixed mortgage fell to 3.38 percent, hovering near the 40 year low of 3.31 percent seen in November. According to Freddie Mac 30-year mortgage rates average 3.66 percent in 2012, which was the lowest average seen in 65 years. Low mortgage rates allow homeowners who are underwater with their mortgages to refinance, and in turn increase prepayments on mortgages. Mortgage prepayment rates at the beginning of the fourth quarter 2012 soared to 7 year highs.
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American Capital Agency is a real estate investment trust that invests in agency pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. Government agency or a U.S. Government-sponsored entity. The Company's average net interest rate spread for the third quarter was 1.42%, a decrease of 23 bps from the second quarter of 1.65%.
Hatteras Financial is a real estate investment trust formed in 2007 to invest in single-family residential mortgage pass-through securities guaranteed or issued by U.S. Government agencies or U.S. Government-sponsored entities, such as Fannie Mae, Freddie Mac or Ginnie Mae. The Company's net interest margin decreased to 1.22% for the third quarter of 2012 from 1.49% in the second quarter of 2012.
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