“Gary Kain spent 20 years at Freddie Mac managing as much as $800 billion of bonds before the U.S. took over the company. Since 2009, he’s used his knowledge of the home-loan market to help turn American Capital Agency Corp. (AGNC) into the fastest growing mortgage debt investor.
American Capital’s assets grew to $100.5 billion at the end of last year from less than $5 billion three years earlier, making the Bethesda, Maryland-based real estate investment trust the largest after Annaly Capital Management Inc. (NLY), in an industry that’s drawing attention from investors and the Federal Reserve for its double-digit yields and rapid expansion.
REITs bought more than $100 billion of government-backed mortgage securities in 2012, the most since at least the credit crisis, and will purchase another $60 billion in 2013, JPMorgan Chase & Co. estimated this month. Fed Governor Jeremy Steinpointed to the expansion of mortgage REITs, which have amassed almost $400 billion of the debt, during a speech last month on risky behavior in credit markets influenced by the central bank holding borrowing costs near zero for a fifth year and investors searching for high-yielding assets.
“Agency mortgage REITs deserve attention in particular because they have exploded in size,” said John Gilbert, chief investment officer at General Re-New England Asset Management, a unit of Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) that oversees $64 billion. “We’ve been dealing with the unintended consequences of monetary policy for a long time. We have to be on the lookout for the downside.”
