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Stock Strategist

Should You Move in on New Mortgage REITs?

What sets some mortgage REIT IPOs apart from the others.

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We've gotten a lot of questions about mortgage REIT activity lately, as filings and offerings in this space continue to increase. But while there appears to be a clear uptick in overall deal activity, the recent success of these offerings has been all over the map. We have a few burning questions of our own, so we recently sat down with Morningstar equity analyst Alan Rambaldini to get some answers.

There's been an obvious increase in mortgage REIT activity in 2009. What are some of the factors driving this trend?
While there are a number of factors behind the recent spate of mortgage REIT IPOs, it basically boils down to managers taking advantage of the current favorable environment for the REIT business model. Like any financial company, mortgage REITs make money from the spread between the cost of their financing and the yield on their investments. The greater the spread, the more money they make, and the current spread is as wide as it has been in years.

Bill Buhr does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.