2 Risks REIT Investors Need to Watch

The following video is part of our "Motley Fool Conversations" series, in which financial analyst Ilan Moscovitz and consumer goods editor/analyst Austin Smith discuss topics across the investing world.

In today's edition, Ilan and Austin discuss two macro risks facing investors in mortgage REITs. Dividends in the industry are booming, which has made them especially popular with yield-hungry investors. But there are two risks investors need to watch out for.

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Austin Smith and Ilan Moscovitz have no positions in the stocks mentioned above. The Motley Fool owns shares of Chimera Investment and Annaly Capital Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (11)

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  • Report this Comment On February 07, 2012, at 4:11 PM, summguy100 wrote:

    Not enough information to say the risk is a shrinking spread. What happens if the spread shrinks? Can the company go out of business? Or does the net (and therefore the dividend) simply shrink to a more reasonable 5% or so? Those are 2 very different scenarios. Care to give an opinion that really helps me understand the risk?

  • Report this Comment On February 07, 2012, at 8:40 PM, jdwelch62 wrote:

    Ilan, were you not aware that the government's HARP program was recently revised (as of yesterday) so that the "cap" of being upside-down in your mortgage was raised from 125% to 150%, and that the cap is going to go above 150% next Monday? That means a lot of folks who couldn't refinance will be able to at rates that are low enough to make it attractive do so, which is what you were saying wasn't happening. So, seeing as more folks will be able to refinance than could before, that kinda blows a hole in one of your "risks" for mREITs...

  • Report this Comment On February 28, 2012, at 12:13 PM, TMFDiogenes wrote:

    summguy,

    It's possible to go out of business over interest rate increases if a REIT doesn't hedge itself properly, but I don't think they'll go out of business over the near term shrinking spreads from falling long-term rates.

    jdwelch,

    The risk was that more people would be able to refinance, so the change increases the risk here.

    Fool On!

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