Why Isn’t RITM Crashing With the Rest of the REIT Market?

Michael Nierenberg hedges mortgage origination into a successful rising rate REIT with this one trick.

As we know, the real estate market has been correcting for some time with the rate hikes. Office REITs have never looked worse despite the contraction in work from home technology like Zoom. Big tech lost over 60,000 jobs from Alphabet, Amazon, and META alone this week.

One stalwart remains steadfast in the REIT correction; $RITM.

Disclosure: I hold currently and have bought and sold RITM in the past.

The key is how is this even possible with REIT regulations to be doing relatively “okay” in a rising rate environment?

How does a REIT “hedge” mortgage origination being a keystone of their business? Well the answer is something which happened during the days of $NRZ and their 1.68 billion dollar acquisition of Caliber Home Loans a major mortgage servicer.

With this acquisition, we have significantly strengthened our capabilities to perform across interest rate environments

-Michael Nierenberg 2021

If rates rise, their mortgage servicing will do better with less prepayment risk and more overall value overtime.

Honorable mention to $UWMC for also turning around the ship in the decline:

I recommend reading this quarterly report starting at page 105 item 1A for a more succinct list of risks and challenges in this space in the coming headwinds. To those who have been laid off stay strong and to those doing well keep it up. Until next time have a good Monday everyone.

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