TIG Securitized Asset Fund leans into nonagency, distressed RMBS

Firm sees upside to bonds tied to pre-2007 mortgages

Redwood Trust (RWT) and a few other players may have already emerged in the private-label residential mortgage-backed securities market, but for now TIG Advisors – the overseer of the TIG Securitized Asset Fund – is comfortable investing in nonagency RMBS, with a focus on bonds linked to mortgages originated before 2007.

The TIG Securitized Asset Fund just crossed its first-year anniversary, with its parent firm, TIG Advisors, now handling $1.4 billion in assets. The fund specializes in securitized assets and is described as "an actively traded long/short credit fund." 

Right now, 60% to 70% of the TIG Securitized Asset Fund is focused on nonagency RMBS, while 15% to 25% is linked to CMBS. The rest of the fund is comprised of asset-backed securities, one of the firm’s founders David Liu told HousingWire. 

Liu and TIG show no signs of slowing down, especially with private-label RMBS issuance still not robust enough to feed it. In his interview with HousingWire, Liu conveyed the impression that TIG is very comfortable in finding an upside to legacy, distressed mortgage securities.

The fund’s focus:  legacy bonds issued before 2007 – that are tied to subprime, alt-A and prime mortgages. He notes the focus on downgraded bonds that have a rich history dating back as far as 2000 brings a definite upside, considering the bonds are trading at a significant discount.

While investing in distressed bonds that have experienced some performance glitches over the years seems counterintuitive, the fund has actually found its sweet spot given the age of many of the loans.

"The market has created trillions of dollars of nonagency securities from 2000 to 2007,” he noted. "Because of the housing crisis and the subprime crisis, a lot of those bonds took significant losses and have been downgraded," Liu explained.

Their value is clear – they come at a discount, and are very seasoned given their age, which means there is some price appreciation even if values did drop somewhat during the crash.

"If you got a house in 2003 and 2004, you still have a few years of appreciation prior to the crash," Liu told HousingWire. "So that gives you cushion in terms of the valuation. We prefer these types of securities… they have a long history. You have ten years of performance history. If someone is making payments for 10 years, you know he is going to (most likely) be making payments in the coming months."

Liu admits the fund is always looking for opportunities, and its leaders are watching the Fannie Mae, Freddie Mac-risk sharing deals closely since they were so well received, the founder said.

Being heavily invested in bonds tied to distressed residential home loans has another upside with the housing recovery now pushing the value of underlying collateral higher.

Liu says this "means homeowners are more likely to pay back the mortgage or make payments" as values increase.

TIG remains focused on this segment finding it beneficial for offering structural leverage. TIG simply hedges away any downside risk, Liu explained.

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