Mortgage REIT ETFs such as the iShares FTSE NAREIT Mortgage Plus Capped Index Fund (NYSEArca: REM) and the and the rival Market Vectors Mortgage REIT Income ETF (NYSEArca: MORT) have sold off over the past month on increased talk the Federal Reserve is close to winding down its asset-buying activities.
In the past month, REM, the larger of the two ETFs, has lost almost 10% while is down more than 9%. Key holdings in those ETFs such as Annaly Capital (NYSE: NLY) and American Capital Agency (NasdaqGS: AGNC) have been battered on speculation the Fed is close to halting its purchases of mortgage-backed securities. [mREIT ETFs Hit by Fed Tapering Chatter]
Now MORT, REM and ETFs that hold mortgage-backed securities have other another concern: What exactly the U.S. government has in store for Fannie Mae (OTC: FNMA) and Freddie Mac (OTC: FMCC). Relegated to penny stock status following the financial crisis, Fannie and Freddie have seen their shares surge this thanks to the U.S. housing recovery. [New Home Sales Lift Homebuilder ETFs]
The year-to-date numbers are jaw-dropping as Fannie has surged over 700% while Freddie was up almost 680% at the start of trading Wednesday. The potentially bad news for investors is that politicians do not see value in these stocks. Shares of Fannie and Freddie have been bid higher on rumors the companies will be able to repay government assistance received during the financial crisis, but a new bipartisan bill being prepared by U.S. senators, the companies would be liquidated and the stock could be worthless, report Katherine Howley and Jody Shenn for Bloomberg.
Speculation that a happy ending does not await Fannie, Freddie and their equity holders have sent the shares plunging 27% and 20.4%, respectively, in the past week. Political wranglings over the future of Fannie and Freddie come after REM and MORT proved vulnerable on rising rate concerns.