Bear Stearns may be long gone, but a residential mortgage-backed bond it originated before the housing crisis is still paying off, said Garrett Tripp, portfolio manager for the Braddock Multi-Strategy Income Fund. “The Bear Stearns Alt-A Trust we own is a typical non-agency RMBS bond where the investor assumes the credit risk on the remaining Alt-A loans in the trust, and therefore needs detailed loan level information to adequately value the Trust’s underlying collateral,” said Tripp. “The pool is what we call ‘burned out’ which means that the performance on the loans is fairly predictable.” According to Tripp, the bond, which has a loss adjusted yield to maturity near 6%, has limited downside risk as newly troubled borrowers are usually offered a loan modification. If the housing market continues to demonstrate strength over the next few years, this bond could yield 8% in his view. The Braddock Multi-Strategy Income Fund is up 6% thus far in 2016, according to Morningstar. The $56 million fund has returned an average of 6.1% annually over the past three years and a trailing 12 month yield of 4.1%, according to Morningstar. Staying in the mortgage-backed world, Tripp is also bullish on a Freddie Mac Structured Agency Credit Risk Debt Note. “The collateral is high quality 30 year fixed rate U.S. mortgages – 75% Loan to Value, 754 Credit score, 35% Debt to Income ratio, Loan age of 15 months with only 9 basis points in delinquency,” said Tripp, adding that his particular note yields in the low 5% to maturity, with minimal interest rate risk as the notes are floating rate indexed to 1 month Libor. If credit continues to perform, Braddock believes this single B-rated bond could return up to 7% over the holding period. Elsewhere, Tripp said he is positive on an Invitation Homes Trust mortgage-backed bond where the investor assumes a portion of credit risk on a portfolio of single family home rental properties. The collateral is 3,000 homes primarily located in Miami, Atlanta, Seattle and Chicago. “Occupancy and rental rates are the strongest indicator of Invitation Homes ability to repay the loan, which has a two year term with three optional one year extensions. If they were to default, the trust would liquidate the properties and use those proceeds to repay the notes,” said Tripp.
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