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Annaly Vs. Hatteras: Same Business, Much Different Companies
CNBC.com | June 25, 2010 | 07:17 PM EDT

Annaly Mortgage and Hatteras Financial both operate as mortgage real estate investment trusts. That means they borrow money on the cheap and then buy high-yielding mortgage-backed bonds called agency paper, which are insured by Fannie Mae, Freddie Mac and Ginnie Mae. But despite borrowing at the same interest rate, buying basically the same securities and facing the same problems, Annaly this month raised its dividend 3 cents a share while Hatteras cut its payout by 10 cents.

Why the stark difference?

Well, Fannie and Freddie were repurchasing their lower-quality bonds, those backed by sub-par borrowers. This isn’t good for either Annaly or Hatteras , but the former proved itself the better executioner, so to speak, and therefore was able to thrive in spite of the buyback.

See, the majority of the loans owned by Annaly are fixed-rate securities with low delinquency rates, giving the company the better chance to shrug off Fannie and Freddie’s buying. Hatteras, however, owned the opposite, hybrid loans with higher delinquency rates. And while Hatteras invested in short-term paper that may require them to refinance at less attractive levels, Annaly was smart and bought for the longer term, thereby locking in better rates.

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