CHARLOTTESVILLE, VA-A shudder ran through the mortgage REIT community when the Securities and Exchange Commission voted to move forward with a concept release on the interpretative issues related to status under the Investment Company Act of 1940. To be sure, the SEC is in the beginning stages of its review and there are any number of paths it could take, from an interpretative release or new rulemaking, to a confirmation of the status quo. If it opts for the former, however, it could have a significant impact on the way mortgage REITs operate.

That is because the key tenets of the act prevent companies from excessively borrowing and issuing senior securities. A report from SNL finds that mortgage REITs tend to have higher debt-to-equity ratios than their investment company counterparts. The median ratio for all mortgage REITs is about 3.32x, compared with 0.37x for investment companies.

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