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Government Closes Loan Loophole Used By REITs


The Federal Housing Finance Agency, a top federal housing regulator, shut down a legal loophole this week that let REITs get low-cost, government-backed financing.

Mortgage REITs are normally ineligible for home loan bank membership, but in recent years, these REITs have created "captive insurers" to gain indirect access to cheap federal funding, the Wall Street Journal reports.

The move came from worries that firms beyond REITs, like hedge funds and investment banks, would start using the loophole.

The 11 regional FHLBanks put out low-cost loans to credit unions and commercial banks in order to push down mortgage rates, a move that will make it harder for risky borrowers to get funding.

Some REIT shares dipped on the news, with Annaly Capital Management, Two Harbors Investment and Redwood Trust falling between .9% and 5%. [WSJ]

Related Topics: REITs, US REITs, FHL Banks