Direct Answer
Agency mortgage REITs own mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae and fund them with short-term borrowing. They earn the spread between asset yield and funding cost, usually with leverage, so interest-rate moves and prepayments drive book value.
Industry Overview
Agency Mortgage REITs sits within the financials sector. The first numbers to compare across companies here are book value per share, net interest spread and leverage ratio. The outside forces that move them are listed under Primary Macro Drivers.
Key Industry Metrics
- Book value per share: Net asset value of the portfolio divided by shares outstanding. It moves with mortgage spreads and rates, so a drop often reflects market marks on assets rather than lost income.
- Net interest spread: Gap between the yield on the mortgage securities held and the cost of the short-term borrowing and hedges funding them. A narrowing gap squeezes earnings power even when the portfolio is unchanged.
- Leverage ratio: Borrowed money relative to equity capital. Higher leverage magnifies both income and book value swings, so compare it with the manager's own range and with how much hedging offsets rate risk.
- Prepayment speed: The pace at which homeowners repay or refinance the underlying loans. Faster prepayments return principal early and force reinvestment at lower yields, while slower ones extend the assets' life.
- Dividend against core earnings: Compares the declared payout with earnings from the portfolio before one-time marks. A dividend well above core earnings is usually funded from capital and tends to be trimmed.
Primary Macro Drivers
- Fed policy and the yield curve: A steeper curve widens the gap between asset yields and short-term funding costs, lifting net interest spread, while rate moves also reprice holdings and shift book value per share.
- Mortgage spreads to Treasuries: Wider spreads cut the market value of holdings and book value per share, though new purchases then earn more; tighter spreads do the reverse. Compare spread changes with quarterly book value.
- Repo funding cost and availability: Repo rates set the funding side of the net interest spread, and haircuts and lender appetite set how much leverage the firm can run. Watch funding cost together with the leverage ratio.
- Prepayment behavior: Faster prepayments return principal early and cut the yield on bonds bought at a premium, lowering net interest spread; slower ones extend asset life. Shows up in prepayment speed.
Major Risks
- Book value swings from rate and spread moves: Rate and spread moves mark the portfolio up or down, so book value per share can fall quickly. Analysts compare quarterly book value changes with market moves and hedge results.
- Funding and margin-call risk: Lenders can demand more collateral when prices fall, forcing asset sales at poor prices. Watch the leverage ratio, liquidity disclosures and how many repo counterparties the firm uses.
- Dividend cuts: If core earnings run below the payout, the dividend is being funded from book value and a cut tends to follow. Compare dividend against core earnings across several quarters.
- Hedging cost and mismatch: Hedges cost money and may not move in step with the assets, so a spread widening can hit book value even when rates are hedged. Watch hedge costs and net interest spread.
Industry Characteristics
| Characteristic | Profile |
|---|---|
| Cyclicality | Mixed |
| Capital Intensity | High |
| Regulatory Intensity | Medium |
| Industry Maturity | Mature |
| Geographic Importance | U.S. |
Finding Companies in Agency Mortgage REITs
The SEC's Standard Industrial Classification has no code that describes agency mortgage reits as a group, so this profile does not list companies for it. Filers are classified by their main business, and a company in this industry may sit under a broader code.
To find individual companies, use the company directory and the financials hub. Nothing here is a list of recommendations.
Where to Go Next
The Agency Mortgage REITs guide describes how the industry earns money, what to measure and what can go wrong. To see how it compares, read the neighbouring industries in the same sector, then apply the same checks to a specific company.
More in Financials
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- Alternative Asset Managers
- Trust Banks
- Annuities
- Travel Insurance
- Asset & Wealth Management
- Transfer Agents
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Frequently Asked Questions
What are the main KPIs for the Agency Mortgage REITs industry?
Key performance indicators for the Agency Mortgage REITs industry include: Book value per share, Net interest spread, Leverage ratio, Prepayment speed, Dividend against core earnings. Which matter most depends on the company's model, so compare them across several companies rather than relying on one.
How cyclical is the Agency Mortgage REITs industry?
The Agency Mortgage REITs industry exhibits mixed cyclicality characteristics. Some segments move with the broader economy while others maintain more stable demand, making stock selection within the group particularly important.
What are the biggest risks in the Agency Mortgage REITs industry?
The primary risks for Agency Mortgage REITs companies include: Book value swings from rate and spread moves, Funding and margin-call risk, Dividend cuts, Hedging cost and mismatch. Investors should assess each company's exposure to these factors and its track record of navigating them.