Merrill Lynch/Banc of America sent out a list of recent REIT filings, which continue at a record pace. Last week I was on a panel at a conference in California focused on the future of jumbo lending, and residential mortgage REIT’s may figure prominently in that. REIT’s clearly have become, with their leverage of 5×1, the dominant pool of new capital that the government was looking for as they figure out how Fannie & Freddie will become a smaller portion of the mortgage market. Recent REIT filings include Angelo Gordon ($300 million), Provident ($300), TCW ($300), Apollo ($300), Wamco ($300), American Capital ($500), and PIMCO ($600 million).
If you’re a mortgage company seriously looking into a REIT structure, you don’t start off by saying things like, “I was having brunch with Frank yesterday and we decided to start a REIT this week.” Anytime you bring in a combination of an investment bank, a team of attorneys, serious quarterly reporting, and the SEC, check your bank account first.
But there are some very smart players out there who believe that the current level of government involvement in the U.S. residential mortgage market (90% or so) is not sustainable and that eventually government support will be significantly reduced and replaced by private capital. And some of that private capital entering the $12 trillion residential market will be in the form of REIT’s, especially if there is a big spread difference between existing Fannie, Freddie & Ginnie mortgage bonds and other mortgage products in the future.
Here is a series of introductory primers on the formation, qualifications, and benefits of REIT’s.
SEC REIT Info: click on the “EDGAR DATABASE” link, and for kicks type in “Redwood Trust” under “company or fund name.”