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The Universe of Mortgage REITs

The Universe of Mortgage REITs. Marc Bell General Partner, Barbican Capital Co-Founder and Board Member, Armour Residential REIT Inc. Co-Founder and Board Member , Javelin Mortgage Investment Corp. March 2013. Overview of REITs.

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The Universe of Mortgage REITs

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  1. The Universe of Mortgage REITs Marc Bell General Partner, Barbican Capital Co-Founder and Board Member, Armour Residential REIT Inc. Co-Founder and Board Member, Javelin Mortgage Investment Corp. March 2013

  2. Overview of REITs REITs (“Real Estate Investment Trusts”) are companies that either own or finance real estate • Tax status allows smaller investors to participate in real estate • Requirements • 75% of total assets in real estate • 75% of gross income from real property or interest from mortgages • 90% of ordinary taxable income distributed annually as dividends • No corporate tax

  3. Asset Focus Hybrid REITEngage in both kinds of activities • Mortgage REITFinance real estate- issuing mortgages • buying mortgages • buying MBS • Collect interest payments Equity REITOwn and operate real estate properties Collect rent

  4. Growth of Mortgage REITs

  5. Mortgage REITs’ Structure Repo AgreementsMBS Loans MBS Publicly Traded Shares

  6. Mortgage REITs: Types and Risks Non-Agency Agency • Residential • Invest primarily in MBS guaranteed by GSEs • Risks • Interest Rate • Prepayment • NO Credit Risk • Annaly Capital Management (NLY)ARMOUR Residential REIT, Inc. (ARR) • Residential • Invest in loans and privately issued MBS • Risks • Interest Rate • Prepayment • Credit/Default • Redwood Trust (RWT)PennyMac(PMT) Commercial Hybrid • Commercial • Invest in privately issued CMBS • Risks • Interest Rate • Credit/Default • Starwood Property Trust Inc. (STWD) Crexus Investment Corp. (CXS)iStar Financial Inc. (SFI) • Residential • Features of agency and non-agency MREITs • Risks • Interest Rate • Prepayment • Credit/Default • Chimera Investment Corp. (CIM)MFA Financial, Inc. (MFA)

  7. Comparison of Recent Performance

  8. Potential for MBS Private Market Growth Goal: “pave the way for a robust private mortgage market” shortfall

  9. Potential for Growth : Yield Curve • Mortgage REITs profit from differences between long- and short-term rates • High dividend yield is attractive in a low yield environment

  10. The Universe of Mortgage REITs Marc Bell General Partner, Barbican Capital Co-Founder and Board Member, Armour Residential REIT Inc. Co-Founder and Board Member, Javelin Mortgage Investment Corp. March 2013

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