September 5, 2011
This concerns how your regulatory activities maigh affect morgage REITS.
You should be aware that in recent years GSA's have provided the great bulk of mortgage financing for residential housing. Now, with Fannie and Freddie in what is essentially receivership, these entities can no longer be expected to facilitate financing of residential properties. Banks have been reluctant to lend despite growing liquidity. Mortgage REITs have been a primary source of financing for residential properties. The publicly held entities are fully transparent as to their financing sources, leverage, type of assets held, and asset quality. While it may be possible that some regulation of "mortgage pools" and their operations would be desirable, no additional regulation of the publicly held REITs is necessary. Any attempt to regulate their leverage would be just plain silly since the market will take care of that by reducing financing available to the entity when leverage becomes excessive in the view of either the lenders or the stockholders. Any action which would levy any additional taxes on the REITs would reduce the funding available to them and thus to the mortgage markets. Reduced mortgage availability, or the fear of same, would put a further drag on our already frail economic recovery. Already, fear of governmental action has had some impact on the prices of mortgage REIT's and, to the extent that market prices are reduced below book value, will have the effect of reducing their abiliity fo fund increases in mortgage lending.
In the interest of fair disclosure--I am a CFA, I own shares of at least one mortgage REIT, and I am ax ex employee of the SEC--corporate finance divisionk, 1963-65.
Louis E. Hannen, CFA
24 Windward Circle