Mortgage interest rates are headed into uncharted territory and could bode well for mortgage real estate investment trust (mREIT) stocks. The uncharted territory is below 3%; on May 31, a Freddie Mac survey found that the rate on 15-year fixed-rate mortgages had dropped to an eye-popping 2.97%. This is the lowest rate recorded since Uncle Sam began keeping records back in the 1950s.
This will benefit trusts that invest in short-term mortgages that are not federally-guaranteed because it is encouraging homeowners that can’t get or don’t want a traditional 30-year fixed rate mortgage to refinance. These companies include Chimera (CIM), Dynex Capital (DX), and Two Harbors Investment (TWO).
Such refinancing is becoming a bigger and bigger part of the mortgage industry. Freddie Mac estimates that 31% of refinancers in the first quarter of 2012 took out shorter-term loans. The low interest rates and the Obama Administration’s Home Affordable Refinance Program (HARP) have convinced more homeowners to try for refinancing. Even though a lot of homeowners are not eligible for HARP, it is luring more people to the mortgage broker’s office. Once there, many of them become aware of the lower interest rates and the options they have.
If this trend continues, market share and profits for REITS willing to risk this market, such as American Capital Mortgage Investment (MTGE), AG Mortgage Investment (MITT), Newcastle Investment (NCT), and PennyMac Mortgage Investment Trust (PMT), should increase. This should lead to higher stock prices and dividends if it continues.To continue reading, click here.