Hoping to cash in on favorable financial conditions and an expected growth in federally backed mortgage securities, Anworth Mortgage Asset Corp. announced a common stock offering of 11 million shares.

The Santa Monica-based real estate investment trust expects to raise about $90 million and invest the net proceeds from the offering in securities guaranteed by such entities as Freddie Mac and Fannie Mae.

Anworth invests equity capital and borrowed funds primarily in highly rated single-family adjustable rate and fixed rate mortgage-backed securities acquired in the secondary market.

Unlike exotic derivatives based on subprime and adjustable-rate mortgages which have collapsed amid high default rates causing billions in investor losses, mortgages backed by government sponsored enterprises are considered safe.

"While Fannie Mae and Freddie Mac are not explicitly guaranteed by the government, everybody believes that they are too big to fail, so they trade with almost no credit risk premium," said Michael Widner, an analyst with Stifel, Nicolaus & Company in St. Louis.

The director of investor relations for Anworth declined to comment, citing a legal "quiet period" before the stock offering.

Other REITS with similar business models have recently closed or announced public stock offerings in the anticipation of healthy returns from guaranteed mortgage-backed assets.

Dallas-based Capstead Mortgage Corp. in November closed a public offering of 8 million common shares netting $81 million.

Two New York City REITS are also planning them. Annaly Capital Management will sell 51 million shares of common stock expected to raise $982 million by the end of January, while MFA Mortgage Investments announced an offering of 25 million common shares estimated to gross $231 million.

Moreover, there is an expectation that the Freddie Mac and Fannie Mae may be able to increase their portfolios, which have been limited since 2006 to a combined $1.4 trillion due to accounting scandals.

The Bush administration has criticized the large role both companies were playing in the mortgage market, but since the subprime meltdown has slowed lending the administration has softened its stance. The White House is now said to be considering legislation that would lift some of the portfolio limits under new oversight regulations.

The recent interest rate cuts by the Fed including last week's sudden reduction of 75 basis points also have made the safer mortgage backed securities a hot investment.

"Falling short term rates are good for their business model because they borrow at short term rates and they invest in medium term assets," Widner said. "The liabilities basically roll over every 30 days, so every Fed rate cut flows into their borrowing costs fairly quickly."

And while mortgage rates are also falling, they tend to be "sticky" with an average duration of three-years, he noted.

Anworth's share price plunged in August to $3.05 per share amidst turmoil in the housing market. The company subsequently trimmed its portfolio to $4.1 billion in the third quarter, down from $6.6 billion at the end of 2006. The share price has since recovered to around $9, not far from last year's high-water mark of about $10.

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