Benefit from Bernanke's Mortgage-Backed Securities Plan

Tickers in this article: AGNC NLY
NEW YORK ( TheStreet) -- "Don't fight the Fed" goes the old bromide, and I couldn't agree more. Testifying before Congress on Wednesday, Federal Reserve Chief Ben Bernanke said that the Fed could decide to sell its mortgage-backed securities (MBS) more slowly than originally anticipated.

This is really important insight because, as he intimated on Capitol Hill, the Fed may even decide not to sell its MBS supply and let them mature. You might recall that back in June 2011, the Fed announced that its exit strategy on MBS was to sell them during "the next 3 to 5 years." This would be after the Fed started raising short-term interest rates.

Since then the economic conditions have become nastier, so Bernanke is wisely changing his tune. "We haven't done a new review of the exit strategy yet. I think that's what counts the most here we will have to do that sometime soon," the Fed Chairman said.

This intimated that a slower exit strategy (selling of its huge MBS supply) could be stretched out for another year and thus makes it less of an economic event when the Fed reduces the size of its holdings. What wonderful news this is for the mortgage REITs that have been sold off before his MBS clarifications.

Take Annaly Capital Management (NLY) , the largest of its type with a market cap of around $14.65 billion. NLY is a specialty real estate investment trust (REIT) that benefits from low interest rates on the MBS supply.

That's because it engages in the ownership, management, and financing of a portfolio of these types of investment securities. The company invests primarily in mortgage pass-through certificates, collateralized mortgage obligations, agency callable debentures, and other mortgage-backed securities representing interests in or obligations backed by pools of mortgage loans.

Annaly Capital also invests in Federal Home Loan Bank , Federal Home Loan Mortgage Corporation , and Federal National Mortgage Association debentures. It's almost as if they're partnering with the federal government and the Federal Reserve in helping make a market in all these types of MBS. If you own shares of NLY, currently trading around $15.49, your dividend yield-to-price is an astounding 11.65%!

When it appeared that the Fed might dump (sell) its hoard of MBS, investors in the Mortgage REITS like NLY worried that would have driven the value of its MBS portfolio as interest rates would rise.

That fear has subsided now that Dr. Bernanke is saying things like, "We're quite comfortable that we can exit by selling its MBS or letting them mature in a way that is both smooth and in which we provide lots of information to markets in advance, so they will know what's coming and be able to anticipate."