Regions

A report from the Financial Times said the New York Fed was looking into a mortgage real estate investment trusts or MREITs. Citing unnamed sources, the report said MREITs were exposed to sharp increases in interest rates.

In MREITs, long-term mortgages were funded with repos or short-term borrowings from dealer banks. The regulator was concerned that a spike in interest would result to sudden selloffs.

A person familiar with the matter told the Financial Times, "In the spring, they came into a lot of the banks and kind of did a deep dive in that topic." MREITs then reduced their securities purchases after the Fed conducted the investigations. The report said the reduction was prompted by talk of an increase in interest rates.

The New York Fed did not comment on the report. However, the Financial Times said regulators had been eyeing MREITs as early as February this year due to the potential overheating in credit markets.