Mortgage-backed securities are helping Massachusetts create more comfortable lives for its residents. The state's public employees pension fund regularly invests millions of dollars in securities assembled from loans to low-income residents.

The result: "A winning situation for our homebuyers, the state's economy, and our pension recipients," said the Massachusetts state treasurer, Joseph D. Malone.

The state regularly pays 70,000 former employees, teachers, police, and fire personnel with returns from the $20 billion-asset pension fund, the Massachusetts Pension Reserves Investment Trust.

"We help thousands of people buy homes and then get a good market return on the resulting securities," Mr. Malone said.

Since the program's inception in 1992, the state pension fund has purchased $300 million of securities backed by mortgages to 3,000 Massachusetts families. The loans carry low down payments and moderate closing costs to make financings more accessible.

The Massachusetts pension fund still holds about $150 million of mortgage securities from the low-income program after selling the balance into the secondary market at a profit, Mr. Malone said. And this month, the pension fund committed to buying another $250 million of mortgage securities over the next couple of years.

The move demonstrates that socially responsible investing "doesn't create excess problems, it creates excess benefits," Mr. Malone said. The securities are rated triple-A because of guarantees by Freddie Mac, which means the investor is assured of getting back the principal.

Still, industry analysts point out that the nature of the borrower-lower income, never owning property before-could make the loans more prone to defaults that would cut interest payments and thus yield.

Freddie Mac, which, as guarantor, also has a large stake in the loans' performance, structured the program to keep defaults to a minimum, said Matt Miller, Freddie Mac's director of affordable housing.

Borrowers are required to accept pre-loan counseling, and the 35 mortgage lenders in the program, including GMAC Mortgage Corp., must be especially proactive about servicing, Mr. Miller said.

Fixed-income investments, including mortgage issues, account for about 30% of the $20 billion fund's holdings, Mr. Malone said.

"Mortgages are part of our overall investment strategy," Mr. Malone said. "These securities provide us with a good return, with little risk, and they help to balance the portfolio to protect from volatility."

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