Some mortgage investors including real estate investment trusts (REITs) that buy mortgage debt have been hit hardest by recent indicators suggesting that the economy is recovering and the Federal Reserve will soon scale back its economic stimulus actions.
REITs that invest in mortgage debt slumped following Friday’s employment report, which beat analysts’ estimates with the addition of 195,000 jobs to the U.S. economy in June, Bloomberg News reported. Bloomberg’s index of REIT shares showed a 3.9% downturn Friday, marking the largest drop since October 2011, the outlet said.
“The number that came out is consistent with a September taper” regarding the Fed’s ongoing bond-buying activity, Shyam Rajan, an interest-rate strategist at Bank of America Merrill Lynch in New York, told Bloomberg following the jobs report.
The Fed said in June it would scale back bond-buying should the economy begin to grow at a considerable rate, essentially shifting away from the downward pressure on interest rates the Fed has applied through its stimulus activity. Mortgage backed securities have suffered in the short term following that announcements, with those operating in the investor market for reverse mortgages reporting a hit to pricing and the potential for a pricing adjustment should rates continue to rise.
“Government-backed mortgage securities posted their biggest quarterly losses since 1994 in the three-month period ended in June, declining 1.92 percent,” Bloomberg reported, citing Bank of America Merrill Lynch index data.
Written by Elizabeth Ecker