I was wondering what people thought of the leveraged mortgage reits and whether or not they can survive the interest rate hike eventually?
Depends on the specific REIT since they have different strategies. General strategy is to borrow short term and invest in long term, so they make money on the spread between short term rates and longer term rates.
When rates rise, they get squeezed because their borrowing costs increase, but their earnings increase less quickly (less prepayments).
When rates fall, they tend to make money because borrowing costs fall, but this is offset because some mortgages will be paid off (and refinanced at lower rates).
Then there's the form of leverage they use to enhance returns... Which also varies a lot depending on which way they are positioned to benefit.
As long as the REIT doesn't explode, it will continuously make money and reward shareholders. However, earnings will be very volatile. If you can stand the volatility in both payouts and share price, it's generally a good long term holding.
Personally, I hold NLY, TWO, O, and ARCP. I understand the mREIT risks, and can take the volatility.