From a Scott Kennedy article on NLY, NRZ discussed | NRZ Message Board Posts


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Msg  4841 of 4930  at  11/24/2021 2:02:05 PM  by

crashcardigan


From a Scott Kennedy article on NLY, NRZ discussed

Third, there are mREIT companies that invest in (but are not limited to) a combination of agency MBS, non-agency MBS, credit risk transfers (“CRT”), other mortgage-related investments (including direct originations of mortgages and/or correspondent production), non-securitized debt investments (including residential, multifamily, and commercial loans), and mortgage servicing rights (“MSR”). I believe New Residential Investment Corp. (NYSE:NRZ), PennyMac Mortgage Investment Trust (NYSE:PMT), and Ready Capital Corp. (NYSE:RC) should currently be classified as an “originator and servicer” mREIT. Since NRZ and PMT currently have at least a modest portion of the company’s investment portfolio in MSR and MSR-related investments which act as an “indirect” hedge (the same can be said regarding interest only [IO] securities), these companies do not need to utilize a high hedging coverage ratio (some could even argue to not have derivative instruments in place; if anything, “contra” hedges to counter a drop in rates/yields). Indirect hedges are not calculated within each company’s hedging coverage ratio (not the main purpose of these investments). As I have pointed out in the past, these investments actually benefit, from a valuation standpoint, in a rising interest rate environment as prepayment risk (and in a majority of scenarios credit risk) decreases while there is an increase in projected future discounted cash flows (and vice versa).



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