China to Invest in US Mortgages

August 17, 2009 No Comments »


At least someone thinks a housing recovery in the United States is imminent.

China’s $200 billion sovereign wealth fund, the same one that got burned by bad investments on Morgan Stanley and Blackstone back in 2007, is looking to invest in US mortgages, according to a Reuters report.

The report, which cites two unnamed people with direct knowledge of the matter, says China Investment Corp. (CIC) plans an investment of up to $2 billion in US mortgages related to a housing market recovery.

CIC is apparently in talks with nine U.S. Treasury-designated Public-Private Investment Plan (PPIP) managers to determine who will oversee the investment.

The PPIP, which aims to remove toxic legacy assets from the books of struggling financial institutions nationwide so they can lend more freely, focuses on securities with “AAA” ratings.

One example of the PPIP, using a pool of residential mortgages with a $100 face value and a negotiated purchase price of $84, pegged the private investor and Treasury contribution at $6 each, with the FDIC guaranteeing the remaining $72 of financing.

The CIC supposedly feels more confident investing in such securities as it looks beyond standard U.S. government bonds in anticipation of a U.S. property market recovery at the end of 2009.

Ideally, that perceived optimism brings more investors on board…

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