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Strategies & Market Trends : Dividend investing for retirement
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To: research1234 who wrote (6987)12/29/2010 11:28:15 PM
From: Elroy  Read Replies (1) of 34328
 
My understanding is that AGNC and CIM, as well as similar stocks like NLY, use leverage to boost returns. Risk is that their borrowing rates increase (or the market thinks that they will increase) at some point.

Is it a correct understanding that these REITs borrow at very short term rates, and then loan out at a few years longer term, and that's how they make their money? And they leverage that profit up 7x or 8x?

If so, is it also correct that the way things would go badly for them is if very short term rates (their borrowing cost, as you put it) rise faster (in absolute terms) than the longer (2-3 year) rates (their lending revenue)?

Also, if that understanding is correct, then they aren't really REITs in the normal sense of managing apartment or commerical buildings and distributing the profits, right? They're just a pool of capital run by some dudes who are speculating on mortgage interest rates?
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