In good financial crisis fashion, things are blowing up despite the Fed’s efforts to stem the chaos. Now hoping for taxpayer bailouts.

By Wolf Richter for WOLF STREET:

Mortgage REIT #4 so far: This afternoon, March 24, Financière MFA announcement that it had received “an unusually high number of margin calls from financial counterparties”, and that as of the close of business on Monday, it could not meet those margin calls.

Its shares (MFA) had started the day in the positive at just under $3, then plunged 87% during the day to $0.36. On Feb. 20, before the market chaos began, stocks were still above $8 a share. MFA Financial blamed the repo market where it “had experienced higher funding costs” and the mortgage market turmoil triggered by COVID-19.

The business model of a mortgage REIT is to buy long-term residential and/or commercial mortgage-backed securities and operate them by borrowing short-term, including in the repo market if possible, while depositing the RMBS or CMBS as collateral. A mortgage REIT makes money from the spread between borrowing rates and mortgage bond yields, and it multiplies its profits through leverage.

During the good times, it was like free money, and mortgage REITs were paying big yields. But suddenly the good times were up.

The turmoil hit the markets for $16 trillion in mortgage debt, including residential and commercial mortgage-backed securities that everyone was apparently trying to offload, and their prices fell, and so collateral values ​​fell. , and funding counterparties sent margin calls to get more money or collateral. to compensate for the decline in warranty values. And then it all broke down.

And MFA Financial said:

On March 23, 2020, the Company advised its financing counterparties that it does not expect to be able to fund the expected volume of future margin calls under its financing agreements in the short term due to the market disruptions created by COVID-19. 19 pandemic.

If the AMF fails to meet the margin calls, the financing counterparties may become owners of the securities that have guaranteed the margin loan. The company is now trying to get its financing counterparties to enter into forbearance agreements, where the counterparties would refrain from exercising their rights and remedies in the event of default, but it could not “predict” whether those talks would succeed.

Mortgage REIT #3: This morning, mortgage REIT Investco Mortgage Capital issued a announcement that he did not respond to margin calls on Monday, blaming “turmoil in financial markets resulting from the global COVID-19 virus pandemic.”

The announcement caused the already dejected shares of Investco Mortgage Capital [IVR] to crush another 53% to $2.52. On February 20, they were still over $18. Investco Mortgage Capital added:

Until Friday, March 20, 2020, the Company had responded in a timely manner to all margin calls received. However, on Monday afternoon, March 23, 2020, the Company notified its funding counterparties that it was unable to fund the margin calls it received on March 23, 2020 and that the Company did not expect be able to fund the expected volume of future margin calls under its short-term funding arrangements due to the market disruptions created by the COVID-19 pandemic.

He said he was trying to get counterparties to enter into a forbearance agreement and not take possession of the securities that secure the margin loans. And “to preserve liquidity,” it said it would also “delay” the payment of dividends already announced on its common stock and on its three series of preferred stock.

Mortgage REIT #2: Monday, AG Mortgage Investment Trust, announcement that it had been unable to meet margin calls “due to market disruptions created by the COVID-19 pandemic”. Shares [MITT] plunged another 24% today, to $2.14, after crashing more than $16 on Feb. 20.

“In recent weeks, due to financial market turmoil resulting from the global COVID-19 virus pandemic, the Company and its subsidiaries have received an unusually high number of margin calls from financial counterparties,” he said. declared.

It was able to respond to margin calls until Friday March 20, when it “missed the transfer deadline” and informed funding counterparties that it would respond to margin calls on Monday March 23 but would not be unable to meet expected future margin calls.

AG Mortgage said it was trying to get financial counterparties to enter into a forbearance agreement and not take possession of its securities that secure margin loans.

#1 Mortgage REIT to Appear: On Monday, TPG RE Finance Trust – sponsored by private equity giant TPG which spun it off in a 2017 IPO – announcement that it had always been able to meet margin calls by posting cash collateral, but “if additional cash posting requirements continue to be significant”, there is “no certainty” that would be able to meet future margin calls. To preserve liquidity, it would “delay” the payment of its previously announced dividend.

TPG RE shares [TRTX] plunged 30% on Monday and 13% on Tuesday to $4.30 and is down almost 80% from the last day of glory on February 20.

“The company is in active discussions with its lenders and other potential sources of funding, but cannot predict whether it will be able to agree terms quickly with these parties,” he said.

And this is a government bailout, he said: “The company is also monitoring the potential availability of government programs.” Taxpayer in the foreground.

Indirectly through its Special Purpose Vehicles and Primary Dealers, the Fed can buy even old bicycles, as long as taxpayers bear the losses. Read... What are all the Fed’s corporate and investor rescue programs and SPVs? Here’s all the shit from them

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