Mortgage rates remained stable the first week of April, with demand rising to its highest level since 2016. Mortgage rates remained steady at 4.08% for a 30-year fixed rate mortgage as the market experienced a rise in refinancing activity.
As a result, real estate investment trusts remain an important part of a diversified portfolio, with two stocks in the mortgage sector standing out:
New York Mortgage Trust
New York Mortgage Trust Inc. (NYMT, Financial) is up over 2% year to date, with the stock rising 3.9% between March 7 and April 5. The company’s business plan provides strength when interest rates drop, offering a high dividend yield for investors.
The stock offers an 8%-plus dividend and is classified as a mortgage REIT, with 52% of investments in multifamily housing.
The REIT increased its investments in distressed residential mortgage loans from 201 to 3,352 between 2017 and 2018. Short-term borrowing is the company’s primary protection against interest rate fluctuations, and 90% of debt matures within a 90-day period.
Distressed residential mortgage loans totaled $560.7 million in 2018, with other residential loans totaling $128 million. Multifamily commercial mortgage-backed securities totaled $249.4 million and non-agency, residential mortgage-backed securities totaled $196.2 million. Multifamily property loans totaled $113 million.
A diverse portfolio allowed New York Mortgage Trust to earn $78.7 million in net interest income in 2018.
Starwood Property Trust
Shares of Starwood Property Trust Inc. (STWD, Financial) are up over 14% year to date, offering an 8.4% dividend. The company is one of the largest commercial REITs in the United States. It has investments in physical commercial real estate and maintains a large mortgage portfolio.
The company owns and originates floating-rate loans for commercial properties. Loan losses are rare for Starwood, and full-year 2018 earnings came in at $2.19 per share. Total investment capacity in February was $3.9 billion with an 8.7% annualized dividend yield.
The company’s segment highlights for the most recent quarter show a diversified portfolio of products, allowing it to be more than just a mortgage broker. Commercial and residential lending resulted in originations and acquisitions of $1.6 billion. Non-agency residential loans worth $319 million were purchased. Infrastructure lending resulted in $229 million in loans and $160 million in repayments. Core earnings of $33 million in the property segment were noted, with $62 million in core revenue originating from investing and servicing units.
Disclosure: The author has no stakes in the listed equities.
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