September 6, 2011
I am against changing the status of mortgage REITs.
First of all, I don't think the SEC should be concerned about leverage in the mortgage REIT business when the SEC does not directly regulate the leverage of other assets such as commodities. (As I understand it, the SEC relies on the exchanges to regulate margin requirements.) The commodities markets have a huge impact on ordinary people and yet the SEC does not intervene. I also think that the reserve requirements in banks is equally low (15%) and comparable to the 6x leverage found in a mortgage REIT like Annaly Capital.
The mortgage REITs are providing liquidity in the mortgage market. It seems to me that the SEC would want to facilitate the sale of mortgages in order to help unwind some of the nation's obligations.
It looks to me that REITs are really in the cross-hairs of a our government because it is short of cash. In other words, I think this matter is being considered by the SEC because the government needs money, not because the regulation will protect anybody. I actually would be glad to see income taxes raised if cash is a problem, but I do not think the rules of business should be changed because the government would like the money. This defeats the idea of rule of law. I think that if we change the rules in a helter-skelter way for some industries and not others, we are damaging our business climate.
I am in support if the SEC wants to regulate all margin requirements and leverage situations, not just those of mortgage REITS. If this is just about mortgage REITs, then I do not support change.