Is Annaly Capital a Buy?
The past 15 months have been particularly tough for the mortgage real estate investment trust (REIT) industry. Mortgage-backed securities (MBS), pools of mortgages that when combined look and perform much like a bond, were put under pressure as the Fed raised rates. They were further damaged by Silicon Valley Bank's failure, caused in part by losses on MBSs. Annaly Capital (NYSE: NLY) is one of the top mortgage REITs, with a large yield. Is it a buy?
Image source: Getty Images.
Annaly Capital Management is one of the biggest mortgage REITs out there. Unlike other REITs, which own properties and collect rents, mortgage REITs use borrowed money to buy investment securities related to real estate and collect interest.
The biggest part of Annaly's investment portfolio goes to agency MBSs that are guaranteed by the U.S. government. If you recently bought a house with a mortgage guaranteed by Fannie Mae or Freddie Mac, chances are it ended up in a MBS, which could be held by a mortgage REIT like Annaly. These securities have no credit risk, which means that even if the borrower doesn't pay the mortgage, the U.S. government ensures that Annaly still gets the principal and interest it is owed. That said, as we saw with Silicon Valley Bank, these securities can still fall in value if the interest rate risk isn't hedged.
Source Fool.com
