BluefoxToday blog : Mortgage securities gaining acceptance again?

Mortgage securities gaining acceptance again?

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 Mortgage money to buy a housepension 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.



Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 36 commentsEsko Kiuru • August 17 2009 07:50PM


It would be great if they do buy up some of the bad loans.  I hope they do.

Posted by Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239, Michigan homes for sale ~ (Real Estate One) over 9 years ago

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.

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) over 9 years ago

This would be a nice reward for the taxpayers with all the money we are paying for all the stimulus programs.

Posted by Kim Curran (RE/MAX Unlimited of Northern Virginia) over 9 years ago

Wouldn't it be nice if the financial market would come back a little with some money for buyers?

Posted by Lise Howe, Assoc. Broker and Attorney Licensed in DC, MD, VA, (Keller Williams Capital Properties) over 9 years ago

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.

Posted by Gary Woltal, Assoc. Broker Realtor SFR Dallas Ft. Worth (Keller Williams Realty) over 9 years ago

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


Posted by John Jones (Briggs Freeman Sotheby's International Realty) over 9 years ago

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.

Posted by Harold "Hal" Place (A1 Connection Realty, Inc.) over 9 years ago

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.

Posted by Joe Pryor, REALTOR® - Oklahoma Investment Properties (The Virtual Real Estate Team) over 9 years ago

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!

Posted by Paul McFadden, Pest Control, Seattle, WA. (Paratex) over 9 years ago

Esko: From a national security standpoint how concerned should I be about the possibility of the Chinese investing too heavily in the USA?

Posted by Rich Cederberg, eXp Realty Agent Albuquerque (eXp Realty) over 9 years ago

Thanks for sharing esko. nice blog

Posted by Ginger Moore (Wilkinson & Associates Realty) over 9 years ago

Esko, this is welcomed news.  It would be nice to have someone other than the Government putting money into the market.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 9 years ago

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.

Posted by Gene Riemenschneider, Turning Houses into Homes (Home Point Real Estate) over 9 years ago

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

Posted by Makoto Sato (iNet Realty) over 9 years ago

Sounds like good news to the industry.  Hopefully the news media will report this and quit the negative press.

Posted by Damon Gettier, Broker/Owner ABRM, GRI, CDPE (Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert) over 9 years ago

I always think the news media always goes to one extreme or the other.

Posted by Mike Henderson, HUD Home Hub - 303-949-5848 (Your complete source for buying HUD homes) over 9 years ago

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.

Posted by Phil Caulfield over 9 years ago

@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.


"Only a drop in the bucket" indeed.



Posted by Tim Manni over 9 years ago


The sooner we get the toxic mortgage paper off the banks' books the better.

Posted by Esko Kiuru over 9 years ago


Right now the Chinese might be the only ones with some money to invest.

Posted by Esko Kiuru over 9 years ago


Let's see how successful this program turns out to be.

Posted by Esko Kiuru over 9 years ago


That's what we all in the real estate business look forward to, sooner rather than later.

Posted by Esko Kiuru over 9 years ago


When the mortgage paper investor returns, there is optimism in the air.

Posted by Esko Kiuru over 9 years ago


At least it's a start, that's what the market needs.

Posted by Esko Kiuru over 9 years ago


It's still a long way to normal, but this seems to signal some kind of a start.

Posted by Esko Kiuru over 9 years ago


Today's investor is likely to be very prudent when eyeing mortgage-backed paper.

Posted by Esko Kiuru over 9 years ago


It's good to see other investors, too, returning to the marketplace.

Posted by Esko Kiuru over 9 years ago


Not much at all.

Posted by Esko Kiuru over 9 years ago


Thanks for stopping by.

Posted by Esko Kiuru over 9 years ago


That's exactly what we need and hopefully this will encourage others to join in.

Posted by Esko Kiuru over 9 years ago


This could start a new trend and help the market head towards "normal".

Posted by Esko Kiuru over 9 years ago


PPIP is open to anyone, pretty much like anyone could buy mortgage-backed paper on Wall Street before the meltdown.

Posted by Esko Kiuru over 9 years ago


This is the type of news we need to hear more of.

Posted by Esko Kiuru over 9 years ago


The media sometimes gets too excited about issues and blows them out of proportion.

Posted by Esko Kiuru over 9 years ago


Good to see the jumbo mortgage making a comeback.

Posted by Esko Kiuru over 9 years ago


Yes, we need investors who can do it.

Posted by Esko Kiuru over 9 years ago