New rules proposed by a federal agency yesterday hit shares of some mortgage real-estate investment trusts, which could lose access to a low-cost source of funding if the plan moves forward, the Wall Street Journal reported today. The new rules, proposed by the Federal Housing Finance Agency, would close a window that has allowed mortgage REITs to use captive insurance companies to gain access to funding from the 12 government-sponsored federal home-loan banks. The home-loan banks, overseen by the FHFA, are cooperatively owned by more than 7,500 commercial banks, credit unions and other financial institutions, and make loans to members with mortgages as collateral. Investors believe the federal government would backstop the home-loan banks. So the banks are able to give their members access to cheap funding through the bond market. Captive insurance companies — which typically are set up by corporations to handle only their own insurance needs — currently can be members. That has allowed mortgage REITs, such as Two Harbors Investment Corp. and Redwood Trust Inc., over recent years to gain access to home-loan banks' funding through captive insurers.
