Four Mortgage REITs Collapse After Chaos Hit Markets for Residential & Commercial Mortgage-Backed Securities | Wolf Street
Mortgage REIT # 4 so far: This afternoon, March 24, MFA Financial announced that it had received “an unusually high number of margin calls from financing counterparties,” and that by the close of business on Monday, it couldn’t meet those margin calls.
Its shares (MFA) had started out the day in the positive at just under $3 and then plunged 87% during the day, to $0.36. On February 20, before the market chaos started, shares were still over $8 a share. MFA Financial blamed the repo-market where it “had experienced higher funding costs,” and the mortgage market turmoil triggered by COVID-19.
The business model of a mortgage REIT is to buy long-term residential and/or commercial mortgage-backed securities and leverage them up by borrowing short-term, including in the repo market if they can, while posting the RMBS or CMBS as collateral. A mortgage REIT makes money off the spread between the borrowing rates and the yields of the mortgage bonds, and they multiply their profits through leverage.