CMO Pools, Mortgages originated in the Washington D.C. area

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I am looking to invest in CMO pools in which the assets are comprised of morgages originated in the Washington D.C. area. as the income stream would be insullated given the economic engine of the area. Can anyone offer advice into how i can go about doing this? I would also like to invest in a few MBS that have a high likelyhood of defaulting to pick up a property or two or three. Thanks.

Comments (4)

Apr 12, 2016

Are you an institutional investor or have fuck load of cash?
The only thing you'll be able to trade is MBB or whatever other ETF they have to trade the MBS market.

I think you might be able to invest in CMO pools at the retail level however. Only problem is you will have no visibility on the assets and won't be able to do a proper due diligence. Stay the fuck away from this.

Apr 12, 2016

Couple of things:
To your first point/question, it's doubtful you'll be able to find a CMO pool comprised of assets only in the D.C. area. The point of pooling assets within a CMO is to diversify the risk, and what you're looking for is risk concentration (although, to your point, perhaps D.C. is less risky, but I digress). Assets are pooled from different areas/regions, property types (in the case of CMBS) and then sold off in a series separately tranched securities based on risk appetite.
To your second point, REMIC rules which govern the any kind of MBS set out the way in which defaults and foreclosures are handled, and your ability to "pick up a property or two or three" does not exist if you're purchasing bonds. The trust handles the disposition of assets when and if necessary. If you were looking at a venture which would allow you to "lend to own", you'd need to go about it via a whole loan acquisition or note purchase with the originating lender. There are banks and other lenders that will sell notes when default/foreclosure is imminent, but you would not be able to accomplish a property acquisition via default or foreclosure simply by purchasing bonds from a pooled securitization. The long and short of it is that you are not given an inside track to picking up a bargain by virtue of your investment in an MBS pool.

    • 1
Apr 12, 2016

I second what @ODoyleRules said.

Based off of your appetite to acquire risky assets, it sounds like you would be more interested in the private/hard money lending space. Some lenders will sell off individual notes to 3rd party buyers. These loans are typically 55-75% levered and the borrowers are paying rates north of 10% (they are generally interest only with a max term of 2 yrs and a balloon payment at maturity). A lot of hard money/private lenders are making loans on fix'n'flips and non-owner occupied housing. I personally have no experience with the purchase of notes from these lenders, but it could be something worth looking into.


Apr 13, 2016