What is a Mortgage Real Estate Investment Trust
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Mortgage Real Estate Investment Trusts (mREITs) are companies that invest in real estate-related mortgages and financing. Mostly they focus on borrowing money for the short-run and loaning it for the long term, and making money from the difference in the spread of interest rates.
A mortgage REIT may buy up mortgage backed securities. They may provide sale-leaseback financing to single tenant occupied real estate. Some provide more creative bridge and mezzanine financing to commercial real estate companies. They may originate the loan or buy it as an investment, but all their financing is backed up with real estate property as collateral. They invest in debt instruments. They have invested in CMOs -- Collateralized Mortgage Obligations.
A mREIT that put money into residential mortgages in any way, can be hurting because of the subprime mortgage crisis. These securities have proven to be not nearly as risk-free as many financial institutions thought.
Those mortgage REITs that concentrate on helping commercial real estate properties obtain financing may be suffering from the currently small spread between short and long term interest rates. Also, they may be finding that their once-credit worthy customers can no longer make payments due, because their businesses are suffering in this current economy. This is especially true for retail outlets.
However, it's important to remember that even in the course of ordinary economies, mortgage reits suffer from the ordinary rise and fall of interest rates, especially because they tend to be highly leveraged.
Next: Anworth Mortgage Asset Corporation -- investing in government agency backed mortgage backed securities that are therefore guaranteed
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