Subject: File No. S7-35-11
From: Richard I McDaniel, Jr.
Affiliation: Retail Investor

September 3, 2011

Clearly the tax classification requiring 90% of taxable income to be distributed to the holders of Mortgage Back Real Estate Investment Trust shares, plus the ability by the management of the MREITs to leverage their holdings, has made possible exceptional returns to the share holders. What a wonderful concept, maximizing shareholder wealth in a most efficient way, plus the added bonus of providing liquidity to the home mortgage market. This seems to be capitalism at its finest.

In all investment, the risk always falls on the potential investor and their ability to assess the company and management behind the investment. Obviously there are bad investments and bad investors, but stupidity can not be regulated away, nor can intentional deception be eliminated by enacting laws. SEC Chairman Mary Schapiro commented, We do this with a view that, in some cases, certain REITs and potentially other mortgage-related pools relying on the exclusion can to some investors particularly retail investors look very much like traditional investment companies. Just because the investment maybe complex in nature, does not mean that retail investors should be denied the investment opportunity.

The SEC request for comments has had significant negative consequences to holders of MREIT shares across the board. The SEC seems to be concerned about the possibility of fraud and corruption in this industry. Why else would they start an investigation of this sector? Instead of changing the tax classification, shouldnt requirements for more transparency and consistency of financial reporting across the industry be the issue? Every business sector has the risk of fraud and corruption for which the SEC is commissioned to protect investors. Transparency and financial reporting contributes to that protection.

There are many business sectors that provide special tax exemptions and provisions that contribute to the profitability of the business, but no sector contributes to maximizing share holder wealth like the MREIT sector. If the SEC is to investigate this sector, then it should be investigate specific companies if there is cause or it should be investigating the financial reporting requirements.

The SEC should clarify to the public the reasons behind their investigation, and if those reasons are to decimate the sector by changing the tax provisions, then it should question its motives. I do not believe this is the cause of the investigation, but the unintended consequences of how this investigation is being perceived by the public is having a devastating affect on the stock price in the MREIT sector.

Richard McDaniel
Retail Investor