mREITs Facing Attack From Regulators

Yield-starved investors unwilling to accept a 90% reduction in income have been forced to look elsewhere for yield. One sector that still provides double-digit returns is mortgage REITs, known as mREITs. While yields on fixed income instruments have plunged, the mREIT sector has provided excellent returns to income-seeking investors for the past several years.

These attractive mREIT yields are now facing a threat. On Friday April 19th, the Wall Street Journal ran two articles that suggest the mREIT sector is about to face regulatory action. My belief is that mREITs provide useful liquidity to the housing market and do not pose a threat to the financial system as a whole. In fact, they move risk from the "system" to individual investors because nobody would say that mREITs are "too big to fail". Nonetheless, regulators and legislators who were burned by the housing crash and subsequent great recession are apparently on a path to increase regulatory requirements on the industry which could derail the mREIT gravy train.

Source: Seeking Alpha

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