3 mREIT Stocks Worth Investing Despite Rising Mortgage Rates

Core Insights - Mortgage rates have increased to 6.91% as of January 2, 2025, the highest since July 2024, following the Federal Reserve's slower rate-cutting timeline [1][3] - Despite rising mortgage rates, mREIT stocks such as NexPoint Real Estate Finance, Two Harbors Investment Corp, and MFA Mortgage Investments are recommended for solid returns in 2025 [2][7] - The U.S. economy is expected to grow in 2025, albeit at a slower pace, with anticipated interest rate cuts leading to lower mortgage rates and moderate house price appreciation [4][5] mREITs Overview - The rise in mortgage rates has led to a decline in purchase applications and refinancing activities, with the refinance share dropping to 39.4% from 44.3% [3] - mREIT companies are expected to see improvements in book value in 2025 as mortgage rates gradually decrease, enhancing purchase originations and refinancing activities [5][6] NexPoint Real Estate Finance (NREF) - NREF focuses on first mortgage loans, mezzanine loans, and multi-family commercial mortgage-backed securities, with a current dividend yield of 12.96% [10][13] - The company’s net interest income (NII) fell by 50.3% to $6.4 million in the first nine months of 2024, but is expected to improve with Fed rate cuts [13][14] - The Zacks Consensus Estimate for NREF's 2025 earnings is$2.44 per share, reflecting a 41.6% year-over-year increase [14] Two Harbors Investment Corp (TWO) - TWO's portfolio is primarily composed of RMBS with mortgage servicing rights, which helps mitigate exposure to mortgage spread changes [15][16] - The company has faced net interest losses due to high borrowing costs but anticipates relief as interest rates fall, potentially increasing dividend payouts [17][18] - The Zacks Consensus Estimate for TWO's 2025 earnings is 85 cents per share, indicating an 81.9% year-over-year increase [19] MFA Mortgage Investments, Inc. (MFA) - MFA invests in residential mortgage loans and MBS, with significant progress in its portfolio and loan originations, including $293.9 million of Agency MBS added in Q3 2024 [20][21] - The current dividend yield for MFA is 13.93$1.62 per share, reflecting a 3.6% year-over-year increase [24]