Annaly Capital Management, Inc. (NLY), American Capital Agency Corp. (AGNC): The Mortgage REIT Explosion: What’s the Real Risk?

This is because of higher credit risk, of course. Just how high is that risk? Not terribly high, according to recent data. Loan delinquencies are decreasing nicely, dropping to the lowest rate in the fourth quarter of 2012 since 2008. As for leverage, Two Harbors notes that it maintains rather moderate levels of 7.1 times for agency paper, and 3.4 times for non-agency.

Mortgage REIT investing is certainly not risk-free, but the diminutive size of the sector, as well as the superlative risk-management approach of the three largest mREITs should be of comfort to both regulators and investors. As hybrids like Two Harbors grow in size and popularity, the spreads they offer will be much more attractive, as well. Considering that Two Harbor’s overall spread is a juicy 2.9% compared with American Capital’s 1.63% and Annaly’s anemic 0.95%, it looks as if Two Harbor’s pledge to “be recognized as an industry leading mortgage REIT ” is well under way.

The article The Mortgage REIT Explosion: What’s the Real Risk? originally appeared on Fool.com and is written by Amanda Alix.

Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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