September 22, 2011
In regards to developing the test for 3(c)(5), in my thinking if the REIT makes a market in buying mortgage backed securities from GSE's or elsewhere and derives the funds for these purchases from the stakeholders in the "collective REIT shares" it is indirectly in the real estate mortgage banking business. One could think of it as a securitizer or bundler of MBS's. It raises capital from REIT stakeholders to finance and support the real estate market via the mortgage industry. One REIT share equals a portion of a bundle of bundled real estate mortgages. The underlying support is a real estate asset backed security.
Whether a REIT owns the real estate itself or owns the asset backed instrument that has claim to the real estate until it is repaid in full doesn't seem that different to me. I believe mortgage REIT's should remain exempt from the "investment company" act.