Which mREIT Stocks to Watch As Mortgage Markets Shift in 2025

The mortgage REIT sector faces a critical turning point as interest rate trajectories become clearer and fixed-income markets stabilize. While the broader economic outlook suggests gradual mortgage rate declines, the path forward remains uncertain for mortgage REIT investors. Three standout companies—Annaly Capital Management (NLY), AG Mortgage Investment Trust (MITT), and Dynex Capital (DX)—demonstrate distinct approaches to navigating this evolving landscape, each offering different risk-return profiles.

Understanding the mREIT Landscape

Mortgage REITs represent a specialized corner of the real estate investment trust universe, focusing specifically on mortgage lending and mortgage-backed securities. These institutions acquire and originate mortgages while investing in mortgage-backed securities (MBS), channeling credit to residential and commercial borrowers. The sector’s health hinges on the net interest margin—the spread between the interest earned on mortgage assets and the cost of funding. This margin compresses when rates flatten and expands when rate environments are favorable.

Funding mechanisms for mortgage REITs are complex, involving debt issuance, equity offerings, repurchase agreements, and structured financing. Agency-backed securities provide downside protection since they’re guaranteed by federal entities, while non-agency alternatives offer higher yields but carry greater credit risk. This balance between safety and return has shaped investment strategies across the sector.

Headwinds Facing the mREIT Sector

Volatility has become the defining characteristic of mortgage markets in recent quarters. Spreads between 30-year agency MBS and 10-year treasury yields have widened, putting pressure on valuation metrics for mortgage REITs. Book values—a critical valuation measure for the sector—have faced erosion as fixed-income market turbulence persists.

The Federal Reserve’s recent policy decisions add another layer of complexity. After reducing rates by 100 basis points in 2024, the central bank has signaled fewer cuts ahead, citing lingering inflation concerns. This outlook pressures earnings for highly leveraged mREIT firms, forcing management teams to recalibrate dividend policies. Many companies have chosen to pare distributions to sustainable levels, prioritizing capital preservation over growth. Such moves often trigger capital outflows, creating additional headwinds for book value trends.

Risk management has taken center stage across the industry. Facing tighter credit conditions and uncertain fixed-income flows, mortgage REITs have become increasingly selective in portfolio construction. Higher hedge ratios—designed to insulate against interest rate volatility—have become standard practice. While prudent on paper, these defensive postures inevitably dampen return potential in the near term.

The Industry Outlook: A Cautious Assessment

The Zacks REIT and Equity Trust industry carries a rank of #137 out of 248 tracked sectors, placing it in the bottom quartile. This ranking reflects analyst skepticism about near-term earnings prospects. Current-year earnings estimates have contracted 16% year-over-year as research teams downgrade expectations.

Performance metrics underscore this caution. Over the past 12 months, the mortgage REIT sector gained just 13.3%, trailing both the broader finance sector (29.6%) and the S&P 500 (25.2%). On valuation grounds, the sector trades at 0.96X price-to-book versus the S&P 500’s 8.88X multiple. While finance stocks typically sport lower P/B ratios, the mortgage REIT sector’s 0.96X discount to the broader finance sector’s 4.18X suggests compelling relative value for patient investors.

Three Mortgage REIT Stocks Worth Monitoring

Annaly Capital Management: Diversification and Stability Focus

Annaly commands the largest investment portfolio among the three, with approximately $98.2 billion in assets as of year-end 2024. The company’s strategy emphasizes balanced exposure across three pillars: traditional agency MBS for downside protection, non-agency credit assets for enhanced returns, and a scaled mortgage servicing rights (MSR) platform.

Recent strategic decisions have sharpened Annaly’s focus. The company divested its Middle Market Lending portfolio and exited commercial real estate entirely in 2022, allowing management to concentrate resources on residential housing finance. This repositioning has enhanced operational capabilities while reducing exposure to volatile commercial real estate markets.

The MSR platform represents a growing profit driver. By acquiring newly originated MSRs from partner networks, Annaly expands its servicer position and benefits from a declining prepayment environment. This diversified revenue stream provides stability across varying rate and macroeconomic scenarios.

Earnings momentum supports the investment case. The company’s 2025 earnings estimate stands at $2.81 per share, reflecting a 9.2% upward revision over the past month and representing 4.1% year-over-year growth. Annaly holds a Zacks Rank of #1 (Strong Buy) with a market capitalization of $11.6 billion, indicating strong analyst conviction about its positioning.

AG Mortgage Investment Trust: Capturing Home Equity Lending Growth

AG Mortgage takes a different path, emphasizing residential mortgage assets and non-agency residential mortgage-backed securities (RMBS). The company invests across the credit spectrum, holding both investment-grade and speculative-grade securities with fixed and floating rate coupons.

The firm’s recent strategic pivot centers on home equity lending. In Q3 2024, the company acquired approximately $150 million of home equity loans with a further $200 million in purchase commitments. This segment taps into homeowners’ accumulated property equity, offering capital for home improvements, debt consolidation, and other uses.

The addressable market opportunity is substantial. AG Mortgage estimates the total home equity lending market at roughly $2 trillion, supporting annual originations of $200-$300 billion. This rapidly expanding segment provides meaningful growth potential compared to traditional mortgage businesses.

Earnings revisions point to near-term challenges. The 2025 estimate of 89 cents per share reflects a 3.2% downward revision, though this still represents 106.9% year-over-year growth. The company holds a Zacks Rank of #3 (Hold) and maintains a market capitalization of $1.26 billion. For investors comfortable with elevated yields and credit risk, the growth story warrants monitoring.

Dynex Capital: Production-Based Investing and Rate Leverage

Dynex operates a distinct business model centered on loan production operations feeding directly into portfolio holdings. The company originates mortgages secured by multifamily properties and manufactured housing, recently expanding into commercial real estate lending with plans for further product diversification.

Interest rate management proves critical to Dynex’s success. The company employs derivative instruments to hedge interest rate exposure across its investment and financing portfolios. Recent quarters demonstrate the benefits of this approach. In 2024, net interest income reached $5.9 million compared to $7.9 million in net interest expenses during 2023—a significant swing benefiting from the Fed’s rate reduction cycle.

The company’s recent interest rate income growth, driven by higher-coupon portfolio purchases, continues strengthening the earnings trajectory. Q4 2024 saw additional benefits as lower borrowing costs on repurchase agreements expanded comprehensive income available to common shareholders.

Forward estimates support the bullish case. The 2025 earnings outlook of $1.87 per share reflects a 3.7% upward revision and represents extraordinary 654.3% year-over-year growth. Dynex carries a Zacks Rank of #2 (Buy) and a market capitalization of $1.06 billion, indicating balanced conviction among analysts.

Why These Three mREIT Opportunities Matter

Each company navigates the mortgage REIT challenge differently. Annaly emphasizes scale and portfolio diversification across housing finance touchpoints. AG Mortgage pursues emerging credit opportunities in underserved home equity markets. Dynex leverages production operations and rate hedging for earnings growth.

The broader mREIT sector remains constrained by book value pressures, dividend sustainability concerns, and defensive positioning. Yet selective opportunities persist for investors who understand each company’s unique risk profile and market positioning. The key lies in recognizing that mortgage REIT returns will likely remain modest rather than spectacular throughout 2025, with most value accruing to patient, strategically positioned players.