Mortgage bonds might make a comeback
The market for private-label mortgage bonds in the United States might be ready for revival. The housing-induced credit crisis has shut it down for almost two years. But a handful of firms, independently of each other, are working on deals that could hit the market by June. Any new issue of mortgage bonds lacking guarantees from the government-run agencies Fannie Mae and Freddie Mac will need to be squeaky clean — and the seller might lose money. The bonds in the works would probably be backed by jumbo mortgages, loans mostly bigger than about $730,000, depending on location, that Fannie and Freddie won’t accept. If successful, it would be the first such deal since May 2008. Buyers seem willing to consider moving away from standardized notes guaranteed by Freddie and Fannie, partly because those instruments now offer the lowest returns on record. Bonds backed by troubled loans from failed institutions that the Federal Deposit Insurance Corp. just sold were popular with investors. Admittedly, they came with a guarantee, but banks and other investors are starting to look for new places to invest.