Barclays on Financial Services: U.S. Consumer Finance: Compelling Opportunity To Buy MREITs for Cheap
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Price: $18.79 +1.13%
Rating Summary:
11 Buy, 12 Hold, 3 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 11 | Down: 12 | New: 9
Rating Summary:
11 Buy, 12 Hold, 3 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 11 | Down: 12 | New: 9
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Barclays on Financial Services: U.S. Consumer Finance: Compelling Opportunity To Buy MREITs for Cheap
Analyst, Mark C. DeVries, said, "We find that the recent market sell-off in the mortgage REIT space is overdone and continue to view valuations as attractive. While we recognize that stress in the funding markets has justifiably raised investor concerns, the agency and non-agency MBS repo markets remain healthy. Consequently, the stocks seem to have overly discounted the potential impact from the variety of headwinds the industry could face, which we outline in our report. We reiterate our 1-Overweight rating on Annaly Capital (NYSE: NLY), Chimera Investment (NYSE: CIM), Invesco Mortgage (NYSE: IVR), CYS Investments (NYSE: CYS), and Two Harbors (NYSE: TWO), which are all trading their below book value."
"Liquidity Risk in the Repo Market: European banking troubles have lead to concerns about a closed or dramatically changed repo market. While we acknowledge the sector is reliant on short-term funding and dislocation is a valid concern, we offer the following responses: 1) Agency and non-agency repo markets are largely unchanged over the past month, with agency rates tracking LIBOR and haircuts still at or below 5%. 2) The repo markets are very liquid and remained stable even during the credit crisis. 3) Banks are seeking assets, and repo provides the most liquid and highest credit collateral to lend against. 4) Even if European banks shut down repo lending, REITs have over 20 counterparties to choose from and we wouldn't expect funding stress if a few stepped away."
"The Refinancing Wave: We continue to hear about impending refinancing waves but have yet to see a material change in CPRs despite record-low mortgage rates as structural issues persist (reps and warrant, stringent underwriting criteria, etc.). Additionally, as home prices continue to drop, equity ownership has fallen as well making LTVs even more unattractive to lenders."
Analyst, Mark C. DeVries, said, "We find that the recent market sell-off in the mortgage REIT space is overdone and continue to view valuations as attractive. While we recognize that stress in the funding markets has justifiably raised investor concerns, the agency and non-agency MBS repo markets remain healthy. Consequently, the stocks seem to have overly discounted the potential impact from the variety of headwinds the industry could face, which we outline in our report. We reiterate our 1-Overweight rating on Annaly Capital (NYSE: NLY), Chimera Investment (NYSE: CIM), Invesco Mortgage (NYSE: IVR), CYS Investments (NYSE: CYS), and Two Harbors (NYSE: TWO), which are all trading their below book value."
"Liquidity Risk in the Repo Market: European banking troubles have lead to concerns about a closed or dramatically changed repo market. While we acknowledge the sector is reliant on short-term funding and dislocation is a valid concern, we offer the following responses: 1) Agency and non-agency repo markets are largely unchanged over the past month, with agency rates tracking LIBOR and haircuts still at or below 5%. 2) The repo markets are very liquid and remained stable even during the credit crisis. 3) Banks are seeking assets, and repo provides the most liquid and highest credit collateral to lend against. 4) Even if European banks shut down repo lending, REITs have over 20 counterparties to choose from and we wouldn't expect funding stress if a few stepped away."
"The Refinancing Wave: We continue to hear about impending refinancing waves but have yet to see a material change in CPRs despite record-low mortgage rates as structural issues persist (reps and warrant, stringent underwriting criteria, etc.). Additionally, as home prices continue to drop, equity ownership has fallen as well making LTVs even more unattractive to lenders."
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