Why Investors Own Private Mortgage-Backed Securities
Private-label, or non-agency backed mortgage securities, got a black eye a few years ago when they were blamed for bringing on the financial crisis. But they still exist and can be found in many fixed-income mutual funds and real estate investment trusts.
So who should own them – and who should stay away?
Many experts say they’re safer now and are worthy of a small part of the ordinary investor’s portfolio. Some funds holding non-agency securities yield upward of 10 percent.
“The current landscape is favorable for non-agency securities,” says Jason Callan, head of structured products at Columbia Threadneedle Investments in Minneapolis, pointing to factors that have reduced risks.
“The amount of delinquent borrowers is now at a post-crisis low, U.S. consumers continue to perform quite well from a credit perspective, and risk premiums are very attractive relative to the fundamental outlook for housing and the economy,” he says. “Home prices have appreciated nationwide by 5 to 6 percent over the last three years.”
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