Investment tip from a Meathead

[B.E.N.]

To all those educated investors on the board...

Obviously you have shift (or are should be looking to) shift your money out of stocks. But Govt. Bonds don't pay hardly anything. You are losing money each day leaving it in the bank. So why not buy Mortgage Back Securities (MBS)? And now your asking why anyone would put money into anything mortgage relatated.

Okay...15% of all mortgages are sub-prime mortgages. And 20% of all sub-prime mortgages are in default. Which means that 3% off all mortgages are failing if only sub-prime mortgages were failing. Include ALL mortgages and were are at 4%. And that is not high, in fact 4% is about average on the historical norms.

Plus when you buy MBS you typically buy high grade mortgage pools. Meaning you are buying an pool of mortgages with borrowers that have higher credit scores and are less likely to ever default.

Take a look at a potion of this article and look at the potential reutrns.
http://www.modernmedicine.com/modern...tegoryId=40145

In a normal environment, investors might own a contract to receive a 7 percent mortgage at 100 cents on the dollar. Now, however, investors are effectively purchasing the same 7 percent mortgages at 65 to 95 cents on the dollar. If we assume a 10-year-average life, the mortgages offer as much as an 8 to 15 percent annual yield to maturity. Those yields approach the double-digit returns usually reserved for stocks.

[FallenWyvern]

I would rather own corporate bonds right now. Shorter terms, fixed ending times, no repayment of principle, better yields. I would be selective though, everything is wacky right now.

[hunter7]

good point but if your young and in it for the long haul there is no better time to start buying stocks than now. If you dollar cost average into fortune 500 companies over the next couple years you will make some serious returns.

Companies like GE are going to post some bad quarters in the coming years but you cant bet against them 20 years down the road. Now is the time to start buying in my opinion! The American economy is way to resilient and the govt and Fed will protect at all costs; smart investors are buying the fear caused by the credit crisis. I know I am.

In fact, you should be increasing your contributions to your IRAs or 401K. It makes no sense to buy more at market tops than bottoms. Buying fear in the stock market makes you lots of money in the long run!! Only if you invest in solid companies tho.

[j4ever41]

im in for the long haul so im staying right where i am and keep buying.

[B.E.N.]

You're right hunter...

My advice was to the more risk averse investor. Which most people seem to be these days as the MSNBC's of the World bombard society with fear.

Not many people are aware of MBS as investment tools and right now they are almost a can't miss. Plus you will be doing a great service to the economy and mortgage rates!

[hunter7]

B.E.N...

Im definitely gonna take a look at these, so basically your buying a little basket of mortgages but what if there is a default then you would lose your returns and investment correct?

[binder]

good point but if your young and in it for the long haul there is no better time to start buying stocks than now. If you dollar cost average into fortune 500 companies over the next couple years you will make some serious returns.

yep, i agree with this. I've been buying VTI and SPY right now like crazy. If they both level back out where they are normally (120's and 150's respectively) then you look to gain a large profit. Right now VTI is in the upper 40's and SPY is around 100.

Buy while it's low because when the economy gets going again it'll go back up.

I don't know much about these mortgage investments. I'll have to ask someone that knows the market to explain them better to me. I don't like going into stuff blind.

Thanks for the heads up to look into this stuff.

[B.E.N.]

B.E.N...

Im definitely gonna take a look at these, so basically your buying a little basket of mortgages but what if there is a default then you would lose your returns and investment correct?

Definitely worth your while right now!

You are correct. The mortgages are 'pooled' and then sold very similiarly to a bond. These instruments carry more risk than a bond and thus have a greater yield. You can purchase different classes of these MBS to correspond to the risk you wish to incur. A 'C' MBS would be more subprime subprime mortgages as opposed to an 'A' classified MBS would be mortgages to individuals that have excellent credit and equity in their homes.

THe thing about these is that right now underwriting standards are so high (lenders can't afford anymore risk) that even the riskier MBS's (high yield) are not as riskier as say 12 months ago.

I would recommend talking to a financial broker that knows about MBS first hand if considering this investment. Great, great investment right now...but you don't want some kid that just took his series 7 making this investment for you.

[DNoMac]

Writing in the New York Times, Warren Buffett said he’s following the principle: "be fearful when others are greedy, and greedy when others are fearful."

I have a looooooooong time before retirement. I'm definitely looking to put some money into the market. I already put some money into an index fund. Now I just have to avoid looking at it for a few months (or perhaps a few years, lol).

[DNoMac]

http://www.thestreet.com/story/10445...reholders.html

[J431S]

i thought MBS is bad investment idea eversince the subprime mortgage meltdown. alot of houses have been foreclosed since then. what has been the turn around, can any1 care to explain?

[FallenWyvern]

i thought MBS is bad investment idea eversince the subprime mortgage meltdown. alot of houses have been foreclosed since then. what has been the turn around, can any1 care to explain?

There are all kinds, you can get GNMA ones that have no credit risk.

[B.E.N.]

i thought MBS is bad investment idea eversince the subprime mortgage meltdown. alot of houses have been foreclosed since then. what has been the turn around, can any1 care to explain?

Correct...they WERE.

The turnaround has been the credit and underwriting restrictions. You basically can't get a 'stated' income loan or a 'no doc' loan anymore. That and many of the hybrid loans have been eliminated. They are just now reaching the secondary market to you will see these become more and more attractive in 12-18 months. (That was a very simplistic explanation.) Which will also cause mortgage rates to drop. If you are looking to refinance or buy hold out until Feb. or later.

Which is why I say get in at the low.

[J431S]

I won't park my money there, still risky for a 5 year investment plan. But I would not hesitate short-selling in real estate property. i think with reasonable diversification, i can reaped some good return. I have done that before and will do it again if the opportunity avails.

[FallenWyvern]

Correct...they WERE.

The turnaround has been the credit and underwriting restrictions. You basically can't get a 'stated' income loan or a 'no doc' loan anymore. That and many of the hybrid loans have been eliminated. They are just now reaching the secondary market to you will see these become more and more attractive in 12-18 months. (That was a very simplistic explanation.) Which will also cause mortgage rates to drop. If you are looking to refinance or buy hold out until Feb. or later.

Which is why I say get in at the low.

Huh? MBS are the only asset class that I know of that didn't go down(other than cash/cd/Tbills) in the last 60 days...

???

[B.E.N.]

Huh? MBS are the only asset class that I know of that didn't go down(other than cash/cd/Tbills) in the last 60 days...

???

See 1st post...

[B.E.N.]

I won't park my money there, still risky for a 5 year investment plan. But I would not hesitate short-selling in real estate property. i think with reasonable diversification, i can reaped some good return. I have done that before and will do it again if the opportunity avails.

Short sell real estate???? That is when it goes back to the bank.