Do investors really understand mortgage securities? If not, how stable can the market remain? Two veteran Wall Street researchers, in separate reports, are asking these questions and coming to potentially troubling conclusions.

Andrew Jones, mortgage group vice president at Duff & Phelps Inc., says a number of new mortgage investors lack a basic understanding of credit support. Peter Rubinstein, senior vice president of mortgage research at PaineWebber Inc., sees a general move toward less support and wonders if investors are being adequately compensated. Credit support is insurance that mortgage securities often carry to cover projected loan defaults. Credit rating agencies require the buttress-through extra capital, a surety wrap, or another backup measure-to rate a deal. Without a rating, or an agency guarantee, investors won't touch mortgage securities unless they carry a lot of extra yield that is costly to lenders.

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