Quantitative easing and agency MBS investment and financing choices by mortgage REITs

We study Agency Mortgage Real Estate Investment Trusts (Agency MREITs)—shadow banks that invest in guaranteed U.S. Agency mortgage-backed securities (MBS) and that are principally funded with repo debt—to test how quantitative easing (QE) affects financial risk taking. Agency MREIT asset growth is inversely related to the Federal Reserve's Agency mortgage-backed securities (MBS) purchases, reflecting investor portfolio rebalancing. Agency MREITs increased leverage during QE, consistent with “reaching for yield.” They countered the heightened solvency risk by extending repo maturity and increased hedging of funding costs to reduce liquidity and interest rate risk. Research linking QE to increased credit risk taking should account for contemporaneous changes in financing choices and risk management.

This is the peer reviewed version of the following article: [Quantitative easing and agency MBS investment and financing choices by mortgage REITs. Real Estate Economics 50, 4 p931-965 (2022)], which has been published in final form at https://doi.org/10.1111/1540-6229.12355. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions: https://authorservices.wiley.com/author-resources/Journal-Authors/licensing/self-archiving.html#3.