The market for mortgage securities continues to roar back. Wall Street securitized and sold more home loans in the first three months of this year than in any quarter of 1996.

The first-quarter volume-$46 billion-is more than 50% higher than in last year's fourth quarter, and twice the size of the prior two quarters.

Investors are clearly interested in securities that are supported by mortgage loans, said Peter Rubinstein, senior vice president in the fixed- income division at Donaldson, Lufkin & Jenrette Securities Corp.

"We are definitely seeing demand," Mr. Rubinstein said.

Indeed, investors are more savvy about mortgage securities today than they were a couple of years ago, when ill-timed investments and bad advice produced billions of dollars of losses.

"People are coming back after being burned," said a trader at a large investment bank.

Banks have been among the biggest investors, according to executives at several investment firms. Financial institutions had pulled back from the market in the mid-1990s, but are now returning as buyers, the executives said.

Investors are also recognizing that mortgage securities, so far this year, have offered more upside than corporate bonds and other products, traders said.

Much of the securitization involved loans that lenders sold through Fannie Mae and Freddie Mac. The government-sponsored agencies act as conduits, presenting the loans to Wall Street investment banks for packaging into securities.

A favorable interest rate environment contributed to the momentum in securitizations, said Frank Demarais, Fannie Mae's vice president of product development.

Indeed, most of the deals squeaked in before March 25, when the Fed pushed up short-term interest rates by 25 basis points.

With the rise, the pace of securitization has somewhat slowed, but Fannie Mae and Freddie Mac do not expect dramatic declines, even if rates rise again.

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