March 24, 2020 / 9:04 PM / 9 days ago

U.S. mortgage REIT shares slammed as margin calls multiply

March 24 (Reuters) - Shares in mortgage real estate investment trusts were savaged on Tuesday as investors looking for safety rushed out of companies holding non-government-backed securities prompting a deluge of margin calls as fears of the economic fallout from the coronavirus intensified.

While some companies in the sector faced margin calls - the prospect of being unable to service their debts - some investment managers criticized the U.S. Federal Reserve for excluding parts of the sector from its stimulus package.

While the Fed said it would backstop qualified mortgages, which are protected by the government, it did not offer support for unqualified mortgages.

MFA Financial closed down 86% at 36 cents on Tuesday after it said it does not expect to be in a position to fund the anticipated volume of future margin calls under its financing arrangements in near term. The stock had traded at $8.03 on Feb. 20.

Invesco Mortgage Capital tumbled 52.7% to $2.52 after it issued a margin call warning and delayed its dividend payment. New York Mortgage dropped 46% to $1.02 on Tuesday.

Western Asset Mortgage Capital Corp tumbled 27% while Colony Capital and AG Mortgage Investment Trust both lost roughly 24% of their value.

On Sunday, Thomas Barrack, executive chairman of Colony medium.com/@tombarrackjr/preventing-covid-19-from-infecting-the-commercial-mortgage-market-e7444701745e, said the U.S. commercial real estate mortgage market stood "on the brink of collapse," and he predicted a "domino effect" if banks and policy makers did not act.

“Somebody should be paying attention to this and someone should put a little heat on the Fed - this is something like in 2008 and 2009 and it is happening in this market, “ said Stephen Massocca, managing director at Wedbush Securities in San Francisco.

“Essentially these are non-government-guaranteed, mortgage-backed securities, which should probably be okay, but all of a sudden there is all these margin calls flying,” he said.

IFR reported that spreads on securities backed by single-family homes and commercial properties have widened to levels last seen during the global financial crisis more than 11 years ago. (Reporting by Sinéad Carew and Chuck Mikolajczak Additional reporting by Lance Tupper Editing by Leslie Adler)

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