Mortgage-backed securities were some of the most-sought-after paper on Wall Street not so long ago, when the residential real estate market was still cruising along smoothly. The yields were solid and risk was seemingly minimal. Everybody and his nephew wanted at least some of them in their portfolios.
Then the mortgage securities business rolled right over the cliff, shoved there by the rapidly-deteriorating housing market. And the deep hurt was on, felt all across the industry. Now even well-qualified borrowers find it challenging to obtain a home loan, for refinance or purchase, as requirements have tightened considerably. The government had to step in and has been buying mortgage-backed securities to maintain some liquidity on the secondary market. The private money that used to participate there in a meaningful way just about disappeared altogether after absorbing huge losses on their prior investments.
The tide may be turning, though.
China Investment Corp., or CIC, is rather serious about investing in noxious, some prefer to call them toxic, mortgage-backed securities. It would happen under the Public-Private Investment Plan, or more affectionately PPIP, where the U.S. government creates public-private funds using taxpayer and investor money to purchase chunks of this nearly worthless paper from banks. CIC is for now planning to put in play about $2 billion, which really is only a couple of drops in the bucket.
The interest in mortgage securities is cautiously returning, obviously, is the important news here. Whether it comes from a Chinese entity or Las Vegas 
pension fund or someone else is immaterial. Somebody has to show the way and that in turn will attract others to at least come and sniff around.
The real estate market is showing some signs of turning around, although in some areas more so than in others. That's what CIC is evidently betting on. It must've done its homework and feels that plunking down $2 billion at this stage is well worth the risk. If it's right, it'll be well rewarded. Undoubtedly the rest of the investment fraternity is watching, and deliberating, this with great interest.
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Provided by:
Esko Kiuru
Mortgage, real estate and apartment industry analyst
www.BluefoxToday.com - syndicated mortgage, housing and property management blog
eskokiuru@gmail.com
My cell: 702-499-1006
It would be great if they do buy up some of the bad loans. I hope they do.
I certainly hope they offer it to American investors too first. It would be nice if an entity is snatching this stuff up pennies on the dollar to keep the investment dollars here.
This would be a nice reward for the taxpayers with all the money we are paying for all the stimulus programs.
Wouldn't it be nice if the financial market would come back a little with some money for buyers?
Hi Esko, this turn upward in mortgage securities shows faith by investors that real estate probably has bottomed out. Great observation, and congratulations on your feature.
that is good news. And it's very important, especially since the government program to purchase mortgage backs ends in a few months. but like you said, this is a drop in the bucket. but at least we have a faint pulse
Morning Esko,
It is refreshing to read good news, even if it is in drips and drabs, about the Real Estate Market. Hopefully we have hit bottom or very close to it and things will urn upward very soon.
Any investment including mortgage backed securities is okay with me as long as the investors know the risk before they go all in. This maybe a time where these toxic assets if bottomed out could prove to be a risk worth taking.
Esko: Considering that the only buyers of MBS for the last year or so has been the government this is good news. We need to return to the free market. Thanks for the update!
Esko: From a national security standpoint how concerned should I be about the possibility of the Chinese investing too heavily in the USA?
Thanks for sharing esko. nice blog
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Esko, this is welcomed news. It would be nice to have someone other than the Government putting money into the market.
This is good news. I look forward to getting back to a "normal" market, what ever that is; or at least away from the extreme REO/Short Sale market.
Renee, I'm sure this opportunity exists for anyone around the globe, including those in the US. It's just a matter of who actually steps up and puts their money down. -Mako
Sounds like good news to the industry. Hopefully the news media will report this and quit the negative press.
I always think the news media always goes to one extreme or the other.
esko - thanks for the info. In the wholesale channel I am slowly seeing a return of lenders to the jumbo market, most notably Citimortgage and Suntrust. Let's hope this trend continues.
@Rich Cederberg,
It's far too late to be concerned about heavy foreign influence in terms of America's finances. China is one of our biggest owners of sovereign debt. Perhaps we'd be in more trouble in China stopped investing in the U.S.
Esko,
"Only a drop in the bucket" indeed.
Thanks,
Tim
Russ,
The sooner we get the toxic mortgage paper off the banks' books the better.
Renee,
Right now the Chinese might be the only ones with some money to invest.
Kim,
Let's see how successful this program turns out to be.
Lisa,
That's what we all in the real estate business look forward to, sooner rather than later.
Gary,
When the mortgage paper investor returns, there is optimism in the air.
John,
At least it's a start, that's what the market needs.
Hal,
It's still a long way to normal, but this seems to signal some kind of a start.
Joe,
Today's investor is likely to be very prudent when eyeing mortgage-backed paper.
Paul,
It's good to see other investors, too, returning to the marketplace.
Rich,
Not much at all.
Ginger,
Thanks for stopping by.
George,
That's exactly what we need and hopefully this will encourage others to join in.
Gene,
This could start a new trend and help the market head towards "normal".
Makoto,
PPIP is open to anyone, pretty much like anyone could buy mortgage-backed paper on Wall Street before the meltdown.
Damon,
This is the type of news we need to hear more of.
Mike,
The media sometimes gets too excited about issues and blows them out of proportion.
Phil,
Good to see the jumbo mortgage making a comeback.
Tim,
Yes, we need investors who can do it.