Mortgage REITs that borrowed money in recent years to augment their returns have been sucker-punched by pandemic-inspired economic turmoil, with margin calls putting intense pressure on borrowers. Now, their valuations have also tumbled.

The Federal Reserve is supporting agency mortgage-backed securities, but banks have not been as accommodating for non-agency MBS, Seeking Alpha reports. Lenders are demanding more collateral, forcing REITs to sell their non-agency MBS holdings, which is driving prices down for non-agency MBS, sparking a vicious downward spiral for mortgage REITs.

New York Mortgage Trust, for example, said on March 23 that it had received margin calls because of the pandemic-inspired economic turmoil, and had met all of them as of the Friday before. The company didn't expect to be able to pay further margin calls, however, and said it has asked for forbearance from its leaders.

In its statement, the company was unwilling to predict the outcome of negotiations for forbearance, and hasn't commented on the matter since then.

In the case of that REIT, investors have voted with their feet. On the last trading day of February, New York Mortgage Trust had traded at $5.70/share. By Friday, the company was trading at $1.91/share.

On the same day, AG Mortgage Investment Trust reported a high number of margin calls from financing counterparties, and said it would be unable to meet future margin calls and was asking for forbearance. At the end of February, AG Mortgage had traded at just shy of $15/share. As of Friday, it traded at just under $4/share.

Likewise, MFA Financial, as well as Investco Mortgage Capital and TPG RE Finance Trust, all investors in non-agency MBS, have recently said that they either couldn't make future margin calls, or that they might not be able to. Share prices for all of them have dropped precipitously in the last month.

By contrast, the Fed's decision to buy unlimited agency MBS seems to have kept mortgage REITs that specialize in that kind of investment from complete collapse, Barron's reports.

One such company is Annaly Capital Management, which was trading at $8.86/share at the end of February. As of Friday, it was trading at $6.13/share, which represented an increase from its recent low of $4.75/share, which occurred before the Fed made its announcement.

Over the same period, another heavy investor in agency MBS, AGNC, dropped from about $17/share to $13/share, also up from a recent low below $10/share.