CYS Investments Inc (CYS), Capstead Mortgage Corporation (CMO): Book Value Still the Biggest Concern for mREITs

These credit sensitive investments should also help Two Harbors Investment Corp (NYSE:TWO) in the second half of the current year. Additionally, Two Harbors is expecting incremental income from its mortgage servicing rights (MSRs). Two Harbors recently got approval from Ginnie Mae, Freddie Mac, and Fannie Mae. Management believes that its MSRs are an attractive investment opportunity as they act as a natural hedge against further interest rate rises.

Since Two Harbors Investment Corp (NYSE:TWO) has a combination of Agency and credit sensitive assets, its book value is expected to post a decline of 2.5% over the prior quarter. This should be one of the lowest declines in the mortgage REIT space.

Why I prefer hybrids?

You might still be wondering why I prefer hybrids over Agency mREITs. I prefer hybrids because besides investing in the Agency securities, hybrids have investments in credit sensitive assets. Additionally, Two Harbors Investment Corp (NYSE:TWO) has investments in MSRs that act as a natural hedge against rising interest rates. We saw how CYS Investments Inc (NYSE:CYS) and Capstead Mortgage Corporation (NYSE:CMO) reported significant declines in their book values. So, Two Harbors has the ability to report one of the lowest declines in book value with an expansion in its spread.

Adnan Khan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Book Value Still the Biggest Concern for mREITs originally appeared on Fool.com.

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