Ratings Pressure Mounting for Mortgage REITs

Limited access to capital has worsened the growth prospects for U.S. mortgage real estate investment trusts in recent weeks and boosted ratings pressure on such companies, according to Fitch Ratings.Steven Marks, a Fitch managing director, said declines in market values of unsecuritized assets have helped trigger margin calls and reduced liquidity for mortgage REITs. "Despite the use of longer-term. match-funded [collateralized debt obligation] financing by mortgage REITs and other finance companies, a majority of these companies continue to utilize short-term, floating-rate financing, creating a mismatch of longer-term, fixed-rate assets and shorter-term, floating-rate, subject to margin debt that is a concern for Fitch," Mr. Marks said. "While a mitigant to this mismatch is the use of interest rate hedging instruments, market value declines in assets due to increased perceived or actual credit risk of a REIT's collateral for this short-term borrowing can still lead to margin calls."