The Securities Law Firm of Menzer & Hill, P.A., is currently investigating those Broker Dealers that recommended their clients invest in mortgage REITs, specifically, American Capital Agency and American Capital Mortgage. Both companies announced significant losses for the first quarter. American Capital Mortgage lost $0.56 per share and American Capital Agency lost $1.57 per share.
The losses are attributable to increased interest rates and a drop in mortgage-backed securities values. REITs such as American Capital Agency and American Capital Mortgage contain substantial risks in which most investors are unaware of. Under FINRA rules and regulations, Broker Dealers may be held liable for losses incurred by their clients if they failed to accurately represent the true risks. Many Broker Dealers continue to solicit these REIT products to their clients because they are some of the highest commissioned products the Broker Dealer offers.
Many REITs like American Capital Agency and American Capital Mortgage are significantly leveraged which in itself makes them extremely risky investments. Furthermore, the dividends many of the REITs pay, are actually the return of investor capital, as the properties don’t always generate enough return to cover the dividend payments.