SOURCE: Research Driven Investing

Research Driven Investing

January 18, 2013 08:20 ET

Mortgage Rates Hovering Near 40 Year Lows -- Increases in Prepayments Pressuring Yields

Research Driven Investing Provides Stocks Research on Annaly and Invesco

NEW YORK, NY--(Marketwire - Jan 18, 2013) - High yielding mortgage REITs after an impressive start to 2012, began to show volatility in the fourth quarter. Increases in prepayments and stimulus measures by the Federal Reserve have pressured spreads and as a result a number of mortgage-based REITs have lowered their dividends. Research Driven Investing examines investing opportunities on Real Estate Investment Trusts and provides equity research on Annaly Capital Management, Inc. (NYSE: NLY) and Invesco Mortgage Capital Inc. (NYSE: IVR).

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REITs trade like stocks, but by law, they must pay out 90 percent of their taxable income to shareholders as dividends. Dividend returns for Mortgage REITs are partially dependent on interest rate spreads.

Freddie Mac on Thursday reported that the average U.S. rate on the 30-year fixed mortgage fell to 3.38 percent, hovering near the 40 year low of 3.31 percent seen in November. According to Freddie Mac 30-year mortgage rates average 3.66 percent in 2012, which was the lowest average seen in 65 years. Low mortgage rates allow homeowners who are underwater with their mortgages to refinance, and in turn increase prepayments on mortgages. Mortgage prepayment rates at the beginning of the fourth quarter 2012 soared to 7 year highs.

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Annaly's principal business objective is to generate net income for distribution to its shareholders from its Investment Securities and from dividends it receives from its subsidiaries. The company announced a fourth quarter dividend of $0.45 per share to be paid on January 29, 2013, down from the $0.50 per share paid in the third quarter.

Invesco Mortgage Capital is a real estate investment trust that acquires, finances and manages residential and commercial mortgage-backed securities and mortgage loans. Invesco's fourth quarter dividend of $0.65 per share is scheduled to be paid on January 28, 2013. Shares of the company have gained over 50 percent in the past year.

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