In a quest to fulfill the SEC’s mandate to prove its own idiocy through action and/or inaction, the SEC has put its current bullseye on mortgage REIT’s. The market has reacted negatively towards the mortgage REIT names out there due to the press release.
Let me clearly and briefly articulate why this discussion is idiotic – the financial crisis was sparked by a housing crisis, the GSE’s were the only backstop of US produced mortgages, now the SEC wants to take away the only private funding vehicle for US produced mortgages. How exactly does Mary Schapiro plan on reducing the size of the government guaranteed GSE mortgage books without any new private buyers? Will taxing these mortgage REIT’s increase revenue for the government? No, because they will not exist to be taxed.
If mortgage REITs lose the exclusion from double taxation afforded by the Investment Company Act, they would become regular corporations subject to double taxation and their dividends and stocks would become less valuable. If they become regular mutual funds, they would not be able to use leverage, which would produce mediocre dividends and they would be unable to issue stock above their NAV’s.
Excellent thinking Mary.
Read the press release here: SEC to Review Mortgage Exemption