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Investments

Here's where housing finance investment is heading

And beware a spike in rising interest rates

October 8, 2013
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The Information Management Network had a grand idea for an ABS East 2013 panel by putting a bunch of investors up on stage and asking them where they would like to invest in the near future.

Officially, the panel is titled: "Seeking Opportunity in ABS: Investors Hot List of Sectors to Watch".

Their reactions were interesting, to say the least, and luckily the issue of mortgages featured prominently on that list. Or as investors seem to separate their decisions: housing or non-housing.

Within the housing sector, Ron Mass, managing principal of Almitas Capital, said the single family REO-to-rental asset class is a space to watch, especially if it can be successfully securitized on a wider scale.

If so, the new issue spread will be wider than CMBS, thereby increasing its attractiveness. Furthermore, he likened the non-agency RMBS space, quoting a 7% annual return.

Other panelists disagreed with Mass, though they didn't seem as jazzed about the prospects. Such is the different approach of investors.

Manish Kapoor, principal of West Wheelock Capital, stood out as the biggest dissenter to investments in mortgage-backed securities. Based on his comments, it can be interpreted that he is bearish on Fannie Mae and Freddie Mac bonds.

Kapoor's rationale is due to the fact that the Federal Reserve is so heavily involved in the market. He doesn't like all this talk of a taper and the volatility it creates.

"You shouldn't have to rely on the kindness of strangers for you portfolio," said Kapoor.

James Baskin, the head of U.S. structured research at insurer and asset manager Aegon, said investors need to be aware of complacency especially in a rising rate environment.

"It's easy to sit back and buy, side back and buy," he said, adding that a spike in interest rates can lead to a "violent" reaction in the markets one is investing in.

Baskin said he found it difficult to quantify exactly where the risks are, but wished to provide the declaration as a warning for continued investor diligence.

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