Why the Mortgage Market Needs Its Fixes Fixed
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When the U.S. residential-mortgage market was hit by pandemic-driven turmoil, the Federal Reserve and Congress took quick action to protect lenders and homeowners -- and keep that turmoil from upending other markets. But the side effects of those actions are now causing headaches within the mortgage universe and potentially for home buyers and sellers.
As the bad news about lockdowns and their economic disruption sank in, one of the hardest hit groups were Real Estate Investment Trusts, or REITs, that were focused on buying commercial mortgages. REITs are highly leveraged, meaning they invest mostly with borrowed money. As the market prices of their real estate assets dropped, they were inundated by margin calls from their lenders.