Luminent Racks Up Losses

Luminent Mortgage Capital (LUM) filed its long-delayed 10-Q this afternoon, disclosing a massive $521 million ($12.17/share) loss, primarily driven by impairment charges and losses on sales of loans and MBS to meet margin calls and extinguish warehouse / repo lines. The poor results were fully expected by the market; the Company's continued viability was the primary question.

Luminent believes it will be able to continue as a going concern, but it will not be as a mortgage REIT. The company has earned $0.92/share in taxable income during 2007, but does not have the liquidity to pay it out any time soon. Luminent implicitly states that it will be unable to satisfy the REIT distribution requirements by assigning a dividend yield of 0% and a weighted average life of 2.9 years to the Arco warrants. Thus, LUM has no expectation of paying out its 2007 taxable income and will have to de-REIT in September.

The Company is still highly reliant on repurchase financing to fund its portfolio, and as recently as this month, it is still fighting collateral seizures by its repo lenders. However, to fully stabilize the portfolio, LUM will have to issue more equity and quickly find long-term financing alternatives, or it will face more forced asset sales. With the likelihood of delisting growing, and no let up in the credit crunch on the horizon, it may soon be lights out at Luminent.

Hanover Hanging On

Been a slow week in mREIT land, as most year-end dividends have been finalized and earnings season is long since over. There was, however, a late day 8-K filing from Hanover Capital (HCM) that it is electing to defer the quarterly interest payments on its TruPS. Under the terms of its trust preferred securities, Hanover may defer the interest payments for four consecutive quarters as long as it is otherwise not in default and it has timely filed all '34 Act reports.

Generally, deferring interest on any kind of preferred security is a last ditch method to preserve cash. We'll see how much longer Hanover can hold out before the well runs dry.

Farallon Collects More CapitalSource

Hedge fund Farallon Capital has recently been an active buyer of CapitalSource (CSE) since the beginning of December, purchasing an additional 2.8 million shares to bring its total stake in CSE to 15.2%. Based on the most recent 13F-HR filing as of 9/30/07, CapitalSource is Farallon's largest single company holding.

Farallon, you'll remember, was the hedge fund that bailed out Accredited Home Lenders (LEND) until LEND was taken private by Lone Star Partners.

Although Farallon discloses its holdings in CSE on Form 13-D, it hasn't announced any intention to purchase CapitalSource or otherwise rabblerouse - yet. However, with the price of CapitalSource shares down about a third this year, expect to see Farallon get more active with its investment.

FBR Tries to Shake Things Up

Update: FBR's Investor Relations was kind enough to reply to my inquiry regarding REIT qualification maintenance. FBR believes it will be able to continue operating as a REIT for the foreseeable future, even after the asset sales.

Friedman Billings Ramsey (FBR) is trying a new approach to boost its sagging share price. The Company announced today that it is doubling its share repurchase authorization while suspending its common dividend. It's a logical move, given that shares are trading at less than 60% of book value. Furthermore, although FBR doesn't disclose estimated taxable income, the realized losses from the sale of certain of its subprime loans will likely drive a taxable loss for the fourth quarter, eliminating any dividend obligation.

FBR is also selling its $3.1 billion on-balance sheet residual interests, which represents about 60% of the balance sheet. The sale will insulate FBR from recognizing mark-to-market losses on the residual interests (since the liabilities cannot currently be marked down simultaneously until FAS 159 is adopted), but it does raise the question of how FBR will satisfy the REIT qualification tests going forward. Selling the on-balance sheet residuals and other nonconforming loans will reduce qualified REIT assets precariously close to the 75% threshold.

I suspect that FBR may be considering a conversion transaction to a partnership (similar to what KKR Financial did earlier this year) to allow it to diversify its business activities outside of the sagging real estate market. Given that the capital markets segment (a TRS) is the only profitable segment for FBR right now, the REIT structure doesn't appear to be providing the maximum benefit to the Company.

Fully Impacted

As I scan through Impac Mortgage's (IMH) recently filed third-quarter 10-Q, it is apparent that management is absolutely shell-shocked. Although there was no mention of bankruptcy, the company is hanging on by a thread. The third-quarter GAAP loss was a stunning $1.2 billon, or $15.66/share. I felt the following risk factor summed things up quite succinctly:

As of September 30, 2007, we had a shareholders’ deficit of $(493.3) million, which means our total liabilities exceed our total assets. The existence of a shareholders’ deficit may effect our ability to continue to pay scheduled distributions on our preferred stock, limit our ability to obtain future debt or equity financing, and cause regulatory issues as it could effect our state mortgage licenses. If we are unable to obtain financing in the future, it could have a negative effect on our operations and our liquidity.

Our ability to generate cash flows from operations and to make scheduled distributions on our outstanding preferred stock will depend on our future financial performance and particularly our ability to realize the value of our investment portfolio. Our future performance will be affected by a range of economic, competitive, legislative, operating and other business factors, many of which we cannot control, such as general economic and financial conditions in our industry or the economy at large. A significant reduction in operating cash flows resulting from further deterioration in the mortgage industry, changes in economic conditions, or other events could increase the need for additional or alternative sources of liquidity and could have a material adverse effect on our business, financial condition, results of operations and prospects and our ability to satisfy our obligations. If we are unable to satisfy our obligations, we will be forced to adopt an alternative strategy that may include actions such as, selling assets, restructuring or refinancing indebtedness or seeking equity capital. We cannot assure you that any of these alternative strategies could be effected on satisfactory terms, if at all, or that they would yield sufficient funds for continuing operations.

Impac now finds itself in much the same situation as NovaStar, hoping its remaining repurchase lenders will not issue a notice of default while the Company waits to see if its securitizations perform well enough to continue distributing cash receipts. Impac's future lies mainly in the hands of rating agencies, for future downgrades will cause the securitizations to fail overcollateralization tests and prevent Impac from receiving cash distributions. Additionally, Impac is running out of unencumbered collateral with which to satisfy margin calls. The next few weeks will be critical to see if what's left of Impac survives.

NovaStar Management Packs It Up

NovaStar Financial Inc (NFI) announced that Scott Hartman, its chief executive and co-founder, was leaving the company (or was terminated, depending on whether you read the official press release or the subsequent 8-K, as explained here) and retiring from its board of directors. Greg Metz, chief financial officer, and Jeff Ayers, general counsel will also leave the company effective January 3.

The timing is strange, although the action has been long since coming. What is most interesting is that the management changes are effective the day before the existing covenant waiver with Wachovia expires. Did Wachovia insist on a management shake-up as a precursor to extending the covenant waiver? Or are Hartman and Metz bailing before the inevitable bankruptcy? Another day, another drama at NovaStar.

Chimera Climbs on Cramer Pump

As if Cramer didn't do enough shilling for Annaly (NLY)...now he's recommending Annaly's new investment venture, Chimera Investment (CIM). The stock is up sharply on his recommendation. Here's the Mad Money recap regarding Chimera:

Right now, banks are busy unloading mortgage-backed paper off their balance sheets, Cramer said. While some of this paper is toxic, not all of it is bad, he noted. Because not all the banks have the time to go through all the paper, some are throwing out the babies with the bath water.

One stock that has the luxury to pick among the rubble and buy good paper and whose sole existence is to capitalize off this situation is Chimera Investment, Cramer said.

CIM, which went public on Nov. 16, was designed to feast off good paper because the banks have no choice but to unload it all, he said. It is one of the select few companies that have the money and knowledge to take advantage of the current situation, he added.

Since CIM became public, neither the company nor the stock has done anything, Cramer said. What they're waiting for is a bottom, and he said he wants investors in it before they start taking action.

Cramer said he expects CIM to buy only the good stuff that the banks cannot hold on to and profit from.

CIM, he said, is externally managed by a subsidiary of Annaly Capital Management and thus, Cramer believes Annaly CEO Michael Farrell, the so-called "king of mortgages," has what it takes to lead the stock higher.

Is this a rodeo? There's certainly a lot of bull being thrown about here. Chimera's own IPO prospectus says:

Our investment focus is different from those of other entities that are or have been managed by our Manager. In particular, entities managed by our Manager have not purchased whole mortgage loans or structured whole loan securitizations. In addition, our Manager has limited experience in managing CDOs and investing in CDOs, non-Agency RMBS, CMBS and other asset backed securities which we may pursue as part of our investment strategy.

So much for Mike Farrell's magical wisdom.

As for buying only so-called "good" paper, Chimera plans to invest in "real estate-related assets by investing directly in residential mortgage loans and indirectly by purchasing [non-agency] RMBS, CMBS and CDOs backed by real estate-related assets."

Not exactly the GSE-sponsored paper with which Annaly is used to dealing. Even "good" paper has suffered serious mark-to-market losses and has been difficult to finance -- just ask Thornburg (TMA).

In short, until Chimera becomes a little more seasoned, it's nothing but a blind pool. Do yourself a favor and wait for the Cramer hype to die down -- and consider investing in a mREIT with experience in non-agency securities.

Betting Big on FBR

A review of Form 4 filings for Friedman Billings Ramsey (FBR) reveals that John Howard Burbank III's Passport Capital vehicle has upped its stake in FBR by almost 5 million shares in the last month, with 500,000 of those purchased shares coming in just the last week. Burbank now owns approximately 11.8% of FBR's outstanding Class A common shares. The most recent 5 million share purchase was completed at an average price below $3.00/share, as compared to FBR's $5.03/share book value.

FBR is a complicated animal is that it is essentially a mortgage investor, mortgage banker, and brokerage house structured as a REIT for tax purposes. It's difficult to gain much visibility on FBR's future prospects, given the conflicting forces in the credit environment. Many REITs are doing preferred offerings to raise cash, but few REITs are doing common offerings right now. Therefore, it's difficult to determine the future prospects for the capital markets end of the business, FBR's most profitable segment.

Nonetheless, FBR is trading at a significant discount to book value, and even if the company takes additional writedowns on its mortgage investments, the capital markets business should remain profitable enough to support a reasonable amount of the existing book value.

No Drama in Deerfield's Disclosure

Update: I received an email from Deerfield's CFO -- the inquiry was in fact disclosed in the second quarter 10-Q and relates to a general inquiry of asset managers regarding practices related to CMO and REMIC transactions. Nothing sinister here.

Deerfield Triarc Capital (DFR) soared almost 15% today (though it gave up some of that gain after hours) on news that it is acquiring its manager, Deerfield & Co. from Triarc Companies (TRY). The newly announced deal is DFR's second attempt to acquire Deerfield - and represents a much more economic deal than the original deal terms announced in April.

However, hidden in the "boilerplate" safe harbor disclosure was this merger risk related to DFR: "the costs, uncertainties and other effects of legal and administrative proceedings, including a current inquiry by the Securities and Exchange Commission". A review of prior DFR filings makes no mention of any SEC inquiry, although there was a string of comment letters and responses related to the 2006 10-K and Q1 2007 10-Q. Nonetheless, the risk factors makes it sound as though something more than a comment letter is going on.

Thornburg Reinstates Dividend

Thornburg Mortgage (TMA) announced today that it was reinstating its dividend with a $0.25/share fourth-quarter payout, creating roughly a 10% annualized yield. I found the comments in the press release to be somewhat interesting:

The Board noted that while it expects the company’s profitability and market conditions to improve in 2008, the current mortgage finance market still remains uncertain. However, the Board felt that reinstating the common dividend for the fourth quarter would allow Thornburg Mortgage to meet the investment interests of its shareholders and is consistent with the company’s constructive outlook for 2008.

That statement almost implies that Thornburg reinstated the dividend before it has actually earned enough taxable income to support it. Per the third quarter 10-Q, Thornburg had about $0.01/share of remaining undistributed taxable income per common share at September 30, 2007. Given the comment above, however, it will be interesting to see the tax characteristics of Thornburg's dividends at year-end. I suspect a portion of this dividend will be a return of capital. However, the meaningful upside boost to the stock price and the declaration of confidence in TMA's business model will be well worth a little fudging on the dividend.

What's Buried in BRT's 10-K?

I found a few interesting snippets from BRT's recently filed 10-K that make me wonder just how safe a business BRT is in:

When we invest in junior mortgage loans, junior participations in existing loans or mezzanine loans, the collateral securing our loan is subordinate to the liens of senior mortgages or senior participations. At September 30, 2007, approximately 6% of our real estate mortgages, or $14 million in principal amount, were represented by junior mortgages, junior participations or mezzanine loans. In certain cases, we may find it advisable to make additional payments in order to maintain the current status of prior liens or to discharge them entirely or to make working capital advances to support current operations. It is possible that the amount which may be recovered by us in cases in which we hold a junior position may be less, or significantly less, than our total investment, less allowances for possible loan losses.

We make loans to multiple borrowing entities that are controlled by the same individual. At September 30, 2007, we had six loans outstanding with an aggregate principal amount of $64.0 million to six borrowing entities controlled by one individual. In fiscal 2007 loans to borrowing entities controlled by this individual accounted for approximately 51% of the loans originated by us and 34.1% of loans originated by us and the CIT joint venture. The individual controlling these borrowing entities became incapacitated in May 2007, is not able to manage his business or to make business decisions and is not expected to be actively engaged in business in the future and, therefore, neither he nor any entity controlled by him is expected to obtain any additional loans from us. A guardian appointed by the Court to oversee the affairs of this individual and the management group of our borrowers are seeking to complete an orderly sale of the assets securing our loans.

For tax purposes, we report on a calendar year basis. For financial reporting purposes our fiscal year is September 30th. We distributed substantially all of our taxable income for calendar 2006 by October 2007. We estimate taxable income for calendar 2007 will be approximately $39.7 million, of which approximately $20.6 million is expected to represent capital gain income.

Let's do some quick math. Only $19.1 million of expected taxable income is sustainable ordinary income from business activities. That level of taxable income only supports a quarterly dividend of $0.39/share. Therefore BRT will have to continue selling assets to maintain its dividend, which represents an unsustainable long-term strategy.

With lowered originations, shaky second liens, and a concentration of credit risk in loans whose collateral is being liquidated regardless of market conditions, BRT's future doesn't seem very bright.

mREITs Deliver Juicy Dividends

The commercial mREITs have been delivering some early Christmas gifts in the form of special dividends.

Gramercy Capital (GKK) declared a special of $2.00/share
iStar Financial (SFI) declared a special of $0.25/share
JRT Investors Trust (JRT) declared a special of $0.65/share
Capital Trust (CT) declared a special of $1.90/share

A common thread running through these stocks - they all have significant holdings in mezzanine CMBS and B-notes, and they are all originators, not just investors, of commercial loans.

Meanwhile, falling rates and slower prepayments combined to juice the dividends of the agency RMBS investors.

Anworth Mortgage (ANH) upped its dividend from $0.05/share to $0.12/share.
MFA Mortgage (MFA) raised its dividend from $0.10/share to $0.145/share.
Capstead Mortgage (CMO) boosted its dividend from $0.04/share to $0.24/share.
Annaly Capital (NLY) also raised its dividend from $0.26/share to $0.34/share.

Why mREITs are Getting Crunched

To qualify as a real estate investment trust for federal income tax purposes, a company must (among other things) pay out 90% of its ordinary taxable income ("TI"). Some companies also choose to supplement their payouts by also distributing their capital gains income, but this is not required. The distribution of the 90% of TI must be made in the taxable year to which they relate or, if declared before the timely filing of the tax return for such year and paid not later than the first regular dividend payment after such declaration, in the following taxable year. Basically, companies may choose to have their taxable income "spillover" into the next calendar year to support future distributions. On the other hand, some companies prefer to pay out 100% of their taxable income in order to maximize their dividends paid deduction. Suffice to say, taxable income is the metric that drives the dividend for mortgage REITs.

It is important to note that the IRS definition of taxable income and the FASB definition of GAAP income are two completely different animals. There are a number of differences between book and tax income, but the two largest adjustments affecting mortgage REITs are the provision for loan losses and mark-to-market valuation adjustments. For tax purposes, these types of losses may only be deducted when realized. Therefore, the provision for loan losses and mark-to-market writedowns are added back to book income to derive taxable income. Given the current market environment, you can see how there could be very large book/tax differences due to the writedowns and that taxable income may greatly exceed book income.

JER Investors Trust (JRT) summarizes the risk created by the book/tax differential very well in its latest 10-Q:

Certain of our investments...may generate substantial mismatches between taxable income and available cash. In order to meet the requirement to distribute a substantial portion of our net taxable income, we may need to borrow, sell assets or raise additional equity capital...there can be no assurance that we will be able to do so on terms acceptable or available to us, if at all.

The front-end loading of taxable income generated by mREIT business functions accelerates dividend obligations ahead of the more straight-lined receipt of cash flow from their investments. Therefore, most mREITs must borrow, securitize, or consistently tap the equity markets to maintain sufficient liquidity. If access to the capital markets is suddenly closed, many mREITs don't have vital access to cash and must resort to asset sales at fire-sale prices. This phenomenon has affected many companies, including NovaStar Financial (NFI), Thornburg Mortgage (TMA), and Luminent Mortgage (LUM).

Anthracite Deserves More Than Cramer's Cliffs Notes

Maybe it was the pressure of the lightning round, maybe it was just too easy to plug Annaly Capital (NLY) (again), but Cramer slipped up a couple weeks ago when he told a caller that Anthracite Capital (AHR) was "a residential REIT. ... just buy NLY... I'm sorry I can't be more positive."

Anthracite Capital is actually a CMBS and commercial whole loan investor. The company focuses on acquiring pools of performing loans in the form of commercial mortgage-backed securities, issuing secured debt backed by CMBS, and providing strategic capital for the commercial real estate industry in the form of mezzanine loan financing. The company has a minimal amount of RMBS on the balance sheet, but certainly not enough to label it a residential REIT.

Anthracite is externally managed by an affiliate of BlackRock, Inc. (BLK) and yields about 15%. The company has maintained a pretty stable dividend throughout its ten-year history. Anthracite pursues a fairly aggressive strategy, acquiring mostly B-notes and subordinate CMBS. As a result, its balance sheet is exposed to impairments and other valuation adjustments. However, from a liquidity standpoint, Anthracite is fairly solid, having only about 15% of its assets non-match funded.

At a 15% yield and at 0.85x book value, Anthracite is reasonably valued, given its less-efficent external management structure and riskier assets. Nonetheless, its business model -- to deliver high risk-adjusted returns through the acceptance of credit risk and selective commercial investment -- deserves much more than Cramer's cursory dismissal.

AMAC Faces More Forced Sales

American Mortgage Acceptance Company (AMC) delivered a serious blow to shareholders late Friday when the Company announced that $99.3 million in debt securities and CMBS were liquidated to meet margin calls and repay existing repurchase arrangements. The sale only brought in proceeds of $86.8 million, leaving AMAC with a whopping $12.5 million loss. Further, of the $86.8 million, AMAC had to use $81.5 million to pay off the associated repurchase agreements, so the asset sales did little to bolster liquidity.

AMAC admitted that it has further exposure to more margin calls and that it may be forced to liquidate more assets. The company suspended its dividend and vowed to explore "all strategic options to protect and maintain the value" of the Company. Obviously, the forward-looking guidance was withdrawn. The announcement sent shares lower by more than 40% in after-hours trading.

While the announcement may have seemed shocking, a quick read of the 10-Q filed last month hinted at the problems ahead. The company's CMBS portfolio is comprised of BBB rated securities and fully funded with repurchase agreements. In fact, repurchase agreements comprised about half of AMAC's liabilities at September 30. Not exactly a stable balance sheet in this environment.

Things will only get worse for AMAC unless market conditions dramatically improve in the next few weeks, which seems unlikely. AMAC has entered into an agreement to terminate its Citigroup repurchase facility by 2/28/08. This facility had an outstanding balance of $290 million at 9/30/07. Refinancing these assets will be an expensive and potentially insurmountable obstacle for the Company if the results are anything like AMAC's last refinancing. In November, AMAC refinanced about $62 million in CMBS holdings with Bear Stearns - and had to pay Bear $27 million for the pleasure of parking those assets, since the haircut on the repo was much greater than for the previous facilities.

With AMAC tanking, the heat is on for the Company's manager and advisor, Centerline Holding (CHC). Centerline owns about 13% of AMAC, and in the last few months, purchased an additional $1 million stake in the open market. Centerline does provide a limited amount of financing for AMAC, and may have to consider a complete buyout of AMAC or face significant equity method losses and impairment charges.

RAIT Rallies On Dividend Stabilization

RAIT Financial Trust (RAS) rallied today after announcing that its fourth quarter dividend will be $0.46/share, for an annualized dividend yield of 17.5% at current prices.

RAIT estimated its REIT taxable income at $2.16/share as of 9/30/07, so approximately $0.06/share of 2007 taxable income spilled over into the fourth quarter. Therefore, RAIT estimates it will earn at least $0.40/share in taxable income for the fourth quarter. I believe the company actually earned much more, and it plans to allow the undistributed taxable income spill over into 2008 to support the dividend going forward.

RAIT continues to be a risky play in the mREIT sector, as it still has some remaining exposure to CDOs collateralized by REIT and REOC TruPS. Nonetheless, the company continues to expand its presence in Europe and diversify away from the crumbling U.S. real estate market. Hopefully for RAIT, the stabilized dividend translates into stabilized operating performance. If RAIT can get back on its feet, the dividend yield should come down to about 13%, equating to a share price just over $14.

Disclosure: I own shares of RAS.

Redwood Raises Capital

Redwood Trust (RWT) recently announced a direct placement of about 4 million shares through its DRIP and Direct Stock Purchase Plan, raising approximately $122.5 million in fresh capital. The shares had a weighted average price of $29.89/share, a slight discount to yesterday's closing price.

Redwood takes an interesting approach to capital raises, preferring to deal directly with its existing shareholders versus a underwritten secondary offering. Of course, Redwood's decision to retain 10% of its ordinary taxable income also avoids the need for frequent equity offerings.

One group betting on Redwood is Davis Selected Advisers, L.P. A 13G filing this afternoon noted that Davis had taken a 9.8% stake in Redwood (9.8% is normally the maximum allowed by REITs for tax compliance purposes). Davis Selected Advisers (sometimes known as Davis Advisors) manages a family of some half a dozen mutual funds and holds significant equity stakes in several public firms, and is known for its buy-and-hold strategy.

In any case, Redwood shares were justly rewarded today, recently up 12% on the day.

Delta is Done

Back on November 16, we noted Delta's dire situation with respect to its liquidity. However, even we were shocked by this morning's bankruptcy announcement.

Delta was unable to complete a required securitization transaction upon satisfactory terms, and on December 5 received default notices from its warehouse lenders. Under these circumstances, the Company's financial obligations under these agreements may be accelerated, and it may be subject to substantial payment obligations, as well as incurring cross-default claims from its other creditors.

Delta, one of the last remaining independent subprime lenders, had reported a profit as recently as the second quarter of 2007. Unfortunately, the credit crunch closed Delta's access to the securitization market and left the company without a source of capital. Although the Company completed a $900 million securitization in September, the execution was extremely poor, with the B-notes and single A tranches pricing at 55% - 75% of par. The prospectus on the unsold 2007-4 indicates that Delta had been unable to originate much in the way of sound loans, as 90% of the pool was cash-out refinances or debt consolidation loans. No wonder buyers took a pass.

It is an unfortunate end for Delta, which had been in the business for 25 years and weathered some serious storms in the past.

NYSE Warns Impac on Share Price Deficiency

As we warned you over a month ago, Impac Mortgage (IMH) was finally notified of its share price deficiency for listing on the NYSE. Impac conveniently waited until the last day possible to disclose this information, doing so after the bell on Tuesday.

The situation is not as dire as NovaStar's (NFI), for example, as Impac still meets other quantitative guidelines for listing and will receive a six-month window to cure the share price deficiency, which it could do with a simple reverse split.

Nonetheless, the NYSE cautioned Impac that "[it] has informed that Company that it will continue to monitor share price levels and that it reserves the right to take more immediate listing action in the event that the stock trades at levels that are viewed as 'abnormally low' on a sustained basis or based on other qualitative factors."

Hanover Hangs Up For Sale Sign

Hanover Capital Mortgage (HCM) is hanging out the for sale sign. Although the Company made no official comment, it filed a particularly interesting 8-K spelling out revised severance agreements and retention bonuses to be paid out "at the earlier of August 29, 2008 or a change in control". August 2008 just so happens to be the end of its one-year financing arrangement with Ramius, so Hanover's management is now highly motivated to sell the Company before the Ramius financing deal ends and collect those golden parachutes.

Wachovia Global Real Estate Securities Conference

A number of mortgage REITs are participating in this week's 11th Annual Wachovia Global Real Estate Securities Conference. Those participating are listed below, along with links to their presentations (as they become available):

Arbor Realty Trust (ABR)

Quadra Realty Trust (QRR)

CapitalSource (CSE)

Crystal River Capital (CRZ)

NorthStar Realty Finance (NRF)

Gramercy Capital (GKK)

New York Mortgage Trust Reinvents Itself...Again

New York Mortgage Trust (NMTR.OB), which has been floundering for the better part of its public life, is changing strategies yet again. This time, the change comes at the direction of JMP Group (JMP), which is providing NYMT with a $20 million capital infusion. JMP's Jim Fowler, a noted mREIT analyst, will become the non-executive chairman of NYMT and oversee the implementation of "alternative investment strategies" designed to utilize the Company's existing deferred tax asset.

In its conference call presentation, New York Mortgage Trust outlined some of these alternative strategies, including investments in seasoned non-agency RMBS, investment in distressed ABS, and investing in reperforming defaulted mortgages. While these opportunities do provide for higher returns than NYMT's current passive RMBS strategy, it marks a completely new venture for NYMT and places some heavy reliance on Jim Fowler to deliver results.

After NYMT's disastrous foray into mortgage origination, yet another business model shift when the Company has yet to provide a stable track as a passive mREIT appears misguided. However, Jim Fowler does have significant experience in the mREIT world, and since NYMT management has yet to figure out how the game is played, the Company has nothing much left to lose by this venture.

Lights Still on at NovaStar

Update: No news from the NYSE, but NovaStar did disclose its waiver from Wachovia, which is good through December 7. In the past, that has indicated that the two companies are working on a comprehensive deal.

A crucial November 30 deadline has come and gone for NovaStar Financial (NFI). November 30 was the originally scheduled date for the Company's waiver from lender Wachovia was set to expire, which would have thrown NovaStar into bankruptcy. Shares rallied sharply yesterday, surging some 69% and prompting a request from the NYSE to to explain the unusual activity. NovaStar declined to comment on the market activity, citing company policy.

NFI may have plenty to say later in the week, as it will be appealing its impending delisting from the NYSE on Wednesday. Shares are likely to be delisted, keeping NovaStar's ultimate fate on a day-to-day basis.