Once-shy investors are again craving sophisticated mortgage securities from Wall Street. And their appetite is stimulating demand for the mortgages that serve as the backbone of these products.
"We're seeing more Remic transactions than we did a year ago," said James D. Nadler, executive vice president overseeing the mortgage group at Fitch Investors Service, New York.
Remics, or real estate mortgage investment conduits, are complex securities formed by slicing up conventional mortgage issues and refashioning them into offerings with various maturities and rates.
Remics and other derivatives fell from favor in 1994 because of huge losses suffered by local governments and other investors.
A renewed demand for Remics benefits mortgage companies by creating a more liquid market for the mortgages that underpin the securities.
Fitch, which assigns ratings to mortgage securities, rated $11 billion of Remics in the first quarter, compared with $4.5 billion in the first quarter of last year.
Mr. Nadler attributes the increased volume to the growing sophistication of investors. He said investors had been naive but were now learning appropriate uses for derivatives.
When properly deployed, Remics supply the kinds of yields that help investors manage their balance sheets by matching assets and liabilities, he said.
Mr. Nadler also said banks had been loading their portfolios with whole loans because a recent change in accounting rules, FAS 115, made it more advantageous to hold onto these products as investments. Now, bank investors are looking for more variety and Remics help fill out their investment arsenals.
The secondary marketing wizards at Freddie Mac have come up with a new kind of mortgage-backed security.
Dubbed the MACR, for modifiable and combinable Remic, the product is designed to provide more flexibility in managing portfolios.
Unlike most other securities, the MACR allows investors to restructure the way the product will pay out. With this, investors can change the cash flow to better react to market conditions, said Michael May, vice president in Freddie Mac's structured finance group.
The MACR can also adapt to shifts, such as revisions in investment horizons, that portfolios may experience.
The product "produces a lot of options for the holder," Mr. May said. "They specify what flexibility they want and we build it."
Wall Street has taken a look at the product and given it a thumbs-up. "The Freddie MACR program gives dealers a great deal of additional flexibility in structuring deals," wrote PaineWebber analyst Linda Lowell in a research report issued this month.
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LaSalle National Bank's broker-dealer division has hired Richard Moogan to head its mortgage desk.
Mr. Moogan, a 22-year veteran of the securities industry, came to the LaSalle unit from David Lerner, a brokerage house in southern Florida.
The LaSalle broker-dealer, based in Boca Raton, Fla., specializes in wholesaling mortgage securities to regional dealers across the country.