Pacific Investment Management Co. says investors should buy Fannie Mae and Freddie Mac mortgage-backed securities that slumped in response to planned changes to the government-supported companies' refinancing rules.
Pacific Investment Management Co. says investors should buy Fannie Mae and Freddie Mac mortgage-backed securities that slumped in response to planned changes to the government-supported companies' refinancing rules.
“If you didn't sell them two months ago and you're selling them today, you deserve to be fired,” Scott Simon, the mortgage head at Newport Beach, Calif.-based Pimco, which runs the world's largest bond fund, said today in a telephone interview.
The bond fund manager joined analysts at Amherst Securities Group LP and BNP Paribas SA in saying the consequences of an expansion to the Home Affordable Refinance Plan announced yesterday may be less damaging than some investors anticipate. The market slumped yesterday as investors braced for a wave of refinancing amid President Barack Obama's bid to stoke the economy by helping more homeowners cut loan payments.
Fannie Mae's 6% 30-year fixed-rate securities declined by almost 0.7 cent on the dollar yesterday to about 109 cents, underperforming Treasuries by the most in 20 months, after the Federal Housing Finance Agency outlined the changes to the HARP program for loans guaranteed by the company or Freddie Mac to borrowers with little or no home equity.
The debt, which reached almost 111 cents on Sept. 1, climbed to 109.2 cents as of 11:28 a.m. in New York today, outperforming U.S. government notes, according to data compiled by Bloomberg. Interest rates on the underlying mortgages average about 6.5%, compared with the average rate on new home loans of about 4.2%, according to Bankrate.com data.
Pimco boosted mortgage securities to 38% of assets in its $242 billion Total Return Fund in September, the most since January, from 32% the prior month, according to data on the firm's website. Simon declined to say how much of the increase was tied to government-backed agency mortgage securities or other securitized debt.
--Bloomberg News--