Goldsborough, though, notes that rising rates may not be all negative for mortgage REITs as costs may be diminished in a rising rate environment if long-term rates rise faster than short-term rates, or a steep yield curve, which would help maintain greater spreads.

Nevertheless, traders are still growing wary of the asset and are cutting back exposure. For instance, REM has lost $80 million to outflows since Memorial Day.

iShares Mortgage Real Estate Capped

For more information on real estate investment trusts, visit our REITs category.

Max Chen contributed to this article.