--Credit Suisse takes some of $828 million Maiden Lane III debt
--Maiden Lane III sales jump to $27.5 billion after auction
--Mortgage bond prices have risen as housing stabilizes
(Updates with size of AIG bailout in 6th paragraph.)
By Al Yoon
Credit Suisse Group AG (CS) was among buyers of $828 million of
mortgage securities left over from the bailout of insurer American
International Group Inc. (AIG), according to a person familiar with
the sale.
The auctions of collateralized debt obligations and residential
mortgage-backed securities were the latest sale from a Federal Reserve
Bank of New York portfolio taken on during the 2008 AIG rescue.
They bring total sales from the vehicle known as Maiden Lane III to
about $27.5 billion in face value this year and reduce the remaining
portfolio to about $18.7 billion.
The New York Fed is taking advantage of demand that has persisted even
as concern over global economic growth has steered investors away from
many risky assets. The potential for high returns, signs of stability
in the housing market and a shrinking supply of securitized assets
have spurred interest in the so-called nonagency mortgage sectors that
produced steep losses for investors in 2011.
"The view on housing is that we have bottomed and the worst is over,
so that's fundamentally positive" for nonagency bonds, or those that
don't carry any federal backing, said John Sim, a mortgage-bond
strategist at J.P. Morgan Chase & Co. Furthermore, "there are just not
many bonds out there with yields like nonagencies," he added.
Sales from Maiden Lane III and two similar crisis-era portfolios have
already led to the full payoff of more than $70 billion in loans made
by the New York Fed. Repayments on two of them--a third contained
assets from the Fed-orchestrated sale of Bear Stearns--retired a chunk
of AIG's record $182.3 billion federal bailout, leaving only the U.S.
Treasury left to recoup $30 billion from selling its 60% stake in AIG.
A New York Fed spokeswoman didn't return a call or an email seeking comment.
J.P. Morgan expects U.S. home prices will post a 1.6% drop in 2012 and
then rise by 1.4% in 2013, 3.7% in 2014, and 4.4% in 2015, as demand
is predicted to begin to match the supply of homes for sale for the
first time since 2007. Falling home prices reduce the amount an
investor can get if a defaulted loan results in foreclosure and sale
of the property.
Prices on some nonagency mortgages that posted double-digit losses in
2011 have gained 15% or more this year. Bonds backed by so-called
option adjustable-rate mortgages--one of the riskier types of
nonagency bonds--in June traded at 49 cents on the dollar, up from
42.5 cents on the dollar in December, according to Amherst Securities
Group.
ABX indexes of subprime mortgage bonds are also at their highest
levels in more than a year, according to Markit.
-Write to Al Yoon at albert.yoon@dowjones.com
(END) Dow Jones Newswires
July 12, 2012 16:01 ET (20:01 GMT)
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