What happened

Two of the most prominent mortgage real estate investment trusts (REITs), Annaly Capital Management (NLY 0.61%) and AGNC Investment (AGNC 0.22%), were down sharply during trading on Wednesday. Annaly Capital was down as much as 9% on the day at around noon ET, while AGNC fell as far as 9.7% on the day at around the same time. They were both down about 7% at 2:40 p.m. ET.

All of the major indexes were down slightly in mid-afternoon trading. The S&P 500 was down about 0.2%, the Dow Jones Industrial Average was off 0.1%, and the Nasdaq Composite had fallen about 0.4% at 2:40 p.m. ET.

So what

As both Annaly Capital and AGNC Investment are mortgage REITs, they were each negatively affected by the latest news from the housing industry. The Mortgage Bankers Association's weekly survey of mortgage and refinancing activity reported a 14.2% decline in mortgage loan application volume last week compared to the previous week. Mortgage application activity hit its lowest level last week since 1997, according to MBA.

Refinancing activity dropped 18% from the previous week and was 86% lower than a year ago last week. In addition, purchases were down 13% from the previous week and 37% year over year.

These trends go hand-in-hand with the fact that mortgage rates spiked to 6.75% for 30-day fixed mortgages last week, up from 6.5% the week prior. This is the highest rates have been since 2006.

"The current rate has more than doubled over the past year and has increased 130 basis points in the past seven weeks alone," Joel Kan, MBA's associate vice president of economic and industry forecasting, said in a statement. "The steep increase in rates continued to halt refinance activity and is also impacting purchase applications, which have fallen 37 percent behind last year's pace. Additionally, the spreads between the conforming rate compared to jumbo loans widened again, and we saw the ARM share rise further to almost 12 percent of applications."

As both of these REITs invest in agency mortgages, and earn revenue on interest payments, a slowdown in mortgage activity is less than ideal.

Now what

It also didn't help either of these REITs that some Wall Street analysts lowered their price targets on Wednesday, in light of these trends. Today, RBC Capital lowered its target for Annaly Capital from $28 per share to $21 per share, while Piper Sandler lowered its target from $28 to $19, maintaining its neutral rating.

RBC also lowered its price target for AGNC on Wednesday from $13 per share to $10 per share, maintaining its outperform rating. RBC analyst Kenneth Lee said the move reflects a lower book value per due to widening MBS spreads, reported the Fly.

While the housing market probably won't get better anytime soon with interest rates expected to keep rising, keep an eye out for trends in refinancing and mortgage applications, as well as whether or not still-high home prices start to come down.

Nonetheless, both of these stocks remain great dividend stocks, as REITs are required by law to allocate 90% of their earnings to the dividend. AGNC pays out a monthly dividend at a yield of 15.8% while Annaly pays a quarterly dividend at a yield of 18.8%.

Also, look for their third-quarter earnings reports -- AGNC reports on Oct. 24 and Annaly reports on Oct. 26.