In the world of mortgage securities, traders are as specialized as physicians. There are as many types of mortgage salespeople as there are kinds of securities that can be created from home loans.

The specialization is necessary because once relatively straightforward mortgage loans arrive on Wall Street, they are packaged into an array of securities, some easy to understand and some esoteric.

"The mortgage market is extremely complicated, and that requires specialization by traders" that buy and sell these products on behalf of investors, said Kamal Gupta, a senior trader in the mortgage securities group of Chase Manhattan Corp.

It bodes well for lenders that mortgage securities can be sold in so many shapes and sizes, Mr. Gupta said. This way, the products reach a wide variety of investors with different needs and risk tolerances.

Mr. Gupta joined Chase Securities this month from PaineWebber Inc. to focus on trading securities whose returns are based solely on interest payments or principal payments.

The products-called IOs and POs-are a leap from plain-vanilla mortgage securities.

Over the past decade, Wall Street has packaged and sold billions of dollars of IOs and POs as part of the $1.6 trillion mortgage securities market.

IOs and POs are created by breaking apart mortgage loans and separating their underlying principal payments and interest payments. IOs offer higher yields because they are vulnerable to interest rate shifts and prepayments. Indeed, when borrowers pay their mortgages earlier than expected, "your IO investment can be wiped out" because no more interest payments will be forthcoming, Mr. Gupta said.

In return for extra risk, IO securities might pay 9.5%, while the PO part would yield about 6.5%.

Because both products are so sensitive to interest rate swings, they are used as early indicators of repayments by borrowers.

IOs and POs "are the best barometer for prepayments in the mortgage market," Mr. Gupta said.

Who invests in IOs? Hedge funds, arbitrage accounts and money managers that seek quick returns, and believe they can be nimble enough to avoid the downside, Mr. Gupta said.

Expect action this spring on the mortgage industry's request for more loans to be qualified as easier-to-trade Ginnie Mae I securities.

Ginnie Mae president Kevin Chavers is reviewing requests from the Mortgage Bankers Association, which made the proposal, and Wall Street, which has raised reservations. Wall Street believes that the change would confuse investors and make the Ginnie Mae I market unstable.

Ginnie Mae "must, as a practical matter, weigh both sides" before making a determination, a Ginnie Mae spokesman said.

Mr. Chavers is expected to weigh in before summer. A formal action, through a rule change, would then be necessary if he came out in favor of the MBA proposal.

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