Capstead Mortgage Corp., the mortgage securities-investing REIT, saw its earnings spike by 43% in the fourth quarter, citing a major improvement in profits driven by Fannie Mae and Freddie Mac ending their programs to buy seriously delinquent loans out of their guaranteed securities.
The Dallas-based Capstead earned $33 million in 4Q compared to $23 million in the third quarter. In the fourth quarter of 2009, the publicly traded REIT earned just under $3 million. It holds $8.5 billion of MBS on its books.
The GSEs began buying large amounts of delinquent loans out of MBS pools in late 2009 and early 2010 as a way to save money. (If they own the underlying whole loans, Fannie and Freddie do not have to pass on the cash flows to the end investor and instead can work out the asset themselves.)
Capstead's core business entails purchasing MBS backed by ARMs guaranteed by Fannie, Freddie and the Government National Mortgage Association.
The company also reported lower portfolio run-off on its MBS holdings. At yearend its interest earning assets had an average yield of 2.44%, compared to 2.18% at Sept. 30.
