George,
thanks for your note regarding the conf. call. i did listen to it. the impression that i go was that as long as long term rates did not decline, the company would be OK. further, a decrease in ST rates would be good.
i think that the yield in their portfolio, and the new concentrations in sub-prime mortgages, and A- (as they termed it) will turn out OK. i think that these loans are considerably less likely to accel in prepayments (and the A-'s may find it hard to refinance). Further, as stated, the A-s were purchased at a discount so prepayments will actually enhance the yields.
One think did disturb me thought. Throughout the calls, the chairman (i forgot his name) was very soothing and knowledgeable. Then he said something about the inverted yield curve where the CFO had to correct him as to current rates. i thought he would be much more informed and really on top of things.
The CFO actually made a lot of sense to me w/r/t to the economics and accounting of the investments (although her knowledge of taxation was merely OK -- to be expected), But she did get it right -- although dividends may not be affected much in 1998 -- they certainly will in future years. The tax treatment is merely timing on these sub-I/Os as GAAP income will equal tax over time.
Overall, I think careful monitoring of the investments of this reit are in order. further, i do take comfort in ocwen being the special servicer -- they are quite capable. Lastly the REITs yield on the current portfolio seem fine. And there future purchases of I/Os and other derivatives of NEWLY originated loans seems fine to me since I dont forsee much of a further drop in LT interest rates. And, of course, the subprime loans and A-s should do fine as well and not be susceptible to much acceleration of prepayment speeds (we'll see).
I think that the yields on this REIT rate it a hold for the short term. I will be buying further on any dips. I think that the stock should pop back over time and the long-term effect should possibly not be too great. It is interesting thought that this REIT did get creamed on Friday -- down $3 for a per share hit of about 50 cents.
i'd be interested in your further thoughts. |
