Real estate investment trusts certainly don't have the presence in the residential mortgage market they had before the meltdown, but experts say there are a handful that are poised to become bigger contenders in the space.
Redwood Trust Inc., for example, has made a name for itself as the only post-downturn issuer of nonagency mortgage-backed securities. But far and away the real leader in the space — in terms of market capitalization and market share — has been Annaly Capital Management Inc. Its market cap was about $14.7 billion and its share was 40.8% at May 31, according to KBW Inc.'s Keefe, Bruyette & Woods Inc. Redwood, by comparison, ranked ninth with about a $1.2 billion market cap and a 3.4% share of the market.
Redwood and Annaly are among 15 publicly traded REITs identified by Keefe, Bruyette & Woods as being companies investors should keep an eye on. An Annaly subsidiary, Chimera Investment Corp., is the second-largest REIT, with a market cap of about $4 billion with just over an 11.2% share of the residential mortgage REIT market. Annaly is an agency MBS REIT while Chimera is a nonagency REIT. Annaly also backs CreXus Investment Corp., a commercial mortgage REIT.
Annaly as well as Two Harbors Investment Corp., have shown some interest in selectively buying closed loans — and in some cases providing other services such as warehouse financing to originators.
Meanwhile, Invesco Mortgage Capital Inc. plans on buying loans and securitizing them some time down the road, according to its president and chief executive, Richard King. During the National Association of Real Estate Investment Trusts investor conference in New York last week, King said that during the second quarter the market for subprime assets has seen some softness.
According to KBW, Invesco, which finances and manages agency and nonagency residential and commercial MBS, is not exposed to the subprime market per se, although it does have some notable exposure to the alternative-A market as well as some exposure to jumbo and agency risk. Jason Marshall, a portfolio manager at Invesco, said that the company still views underwriting in the new-issue CMBS market as very clean. But he said it is difficult to acquire size in the current market.
One of the big questions that has come up in regard to REITs' prospects is whether the advantages they enjoy could be subject to continuing reform efforts sweeping the financial industry.
When asked about this at the conference, Michael A.J. Farrell, Annaly's chairman, president and CEO, told attendees that he believes "nobody wants to touch anything" that hurts credit to housing.
