Here's Why Investors Should Be Careful With Annaly Capital
This year has been extraordinarily difficult for mortgage companies. Mortgage banking companies have experienced huge declines in revenue and profits, and many major players have shut down. Mortgage real estate investment trusts (REITs) have dealt with an unprecedented increase in interest rates during a short period of time. How is Annaly Capital (NYSE: NLY) faring?
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Annaly Capital is a mortgage REIT that owns a portfolio of agency mortgage-backed securities that are guaranteed by the U.S. government, as well as loans that are not guaranteed. This means that Annaly's portfolio contains both credit risk and interest rate risk. Agency mortgage-backed securities generally pay low rates because of government guarantees, but they contain no default risk. Mortgage REITs need to use a lot of leverage (in other words, borrowed money) to turn a portfolio of loans paying 4% into a double-digit dividend yield.
Source Fool.com
