Subject: File No. S7-34-11
From: Barry Lenk, Esquire

October 17, 2011

The Concept Release reflected several suggested actions that would serve the purposes of promoting the public interest and investor protection, but it also included several suggested actions that would clearly harm the public interest, would cause a net harm to investors, would discourage capital formation in the markets, and would run counter to the intent of the Investment Company Act of 1940.

I strongly support measures to prevent commingling or misappropriation of funds by management. I similarly support measures to ensure an accurate calculation of the Mortgage REITs Net Asset Value. Measures to prevent secret or hidden misconduct and to provide full and accurate disclosure of material facts to the investment community promote the public interest and represent meaningful protection to investors.

Conversely, I oppose measures to unduly interfere with the management of MREITS by restricting their use of leverage, which is a critical component of these firms' business models. The amount of leverage employed by publicly traded Mortgage REITS is readily available through a cursory reading of articles, public filings, etc. Currently used leverage by the major public MREITS ranges from approximately 4:1 to 12:1. This is a far cry from the statistical outlier example found in the Concept Release of a company employing leverage of 32:1, and this disparity raises the obvious question of whether this is even an issue that should be addressed by the Commission.

The first layer of investor protection with respect to the use of leverage by MREITS is in the comprehensive disclosure of this fact that already exists. It was never the intent of the Investment Company Act of 1940 to protect lazy investors who are unwilling to do any due diligence on their investment. The amount of leverage used is readily available to anyone who is willing to read about a company before investing in it, or to anyone who asks a minimally competent broker for information about the MREIT.

The business models of these MREITS have safely functioned over a sustained period of time. One company, for example, Annaly Capital, has for almost 15 years successfully and safely employed leverage through all phases of the business cycle. In light of these successful experiences, if the Commission must cap acceptable leverage, logic dictates that this cap should not be so low as to affect the current successful business models. Instead, the cap should be between 12:1 and 32:1, perhaps 18:1, for example, with the caveat that companies will have an opportunity to obtain a no action letter from the Commission staff permitting them to exceed 18:1 leverage if an MREIT can demonstrate that it can safely exceed that cap.

However, I wish to again emphasize my position that there should be no cap on leverage so long as the amount of leverage employed by any MREIT is fully disclosed, so that any investor can rationally conduct a risk/reward analysis before investing.

Additionally, I suggest that the exception to the Act previously extended to agency guaranteed whole pool mortgage certificates be extended, at a minimum, to MREITS holding all or substantially all agency guaranteed mortgages, as the economic experience of investors in these two entities is similar in all material respects.

Mortgage REITS augment the activities of Federal Agencies to provide liquidity in the mortgage market. This function should not be impaired by a heavy handed Commission regulation that interferes with the existing business model of these MREITS, whether by overly limiting leverage or by eliminating the exception for MREITS to the Act. Elimination of this exception would lead to a change in the tax treatment of these companies, and would either force these companies out of business or would require the double taxation of dividends such that MREITS would lose their attraction to many investors. This reduced interest among investors would translate to decreased capital formation in the mortgage market, a result that does not serve the public interest.

In conclusion, I support actions to ensure full disclosure by REITS, e.g. regarding calculation of the NAV and of the amount of leverage that they employ, and I support actions designed to prevent misconduct by management. I oppose any measures that would affect the current successful business model of public MREITS, such as forcing them to reduce current levels of leverage, or removing their excepted status from the Act.