Invesco Mortgage turning to PPIP, loans for returns

By Al Yoon

NEW YORK, Aug 11 (Reuters) - Invesco Mortgage Capital Inc (IVR.N), a new real estate investment trust, on Monday said mortgage bond yields have dropped to a point where it will focus elsewhere for better return, including the U.S. Treasury's toxic asset plan.

Price gains for non-guaranteed residential mortgage-backed securities have reduced loss-adjusted yields to the mid-teens from high-teens a few weeks ago, thinning but not eliminating opportunities, Invesco executives said on a conference call.

The securities have more credit risk than those guaranteed by federal agencies Fannie Mae, Freddie Mac and Ginnie Mae, but have rallied sharply amid speculation that government programs would provide support. Prices at distressed levels have also enticed buyers who believe they can make money even if the housing slump continues.

Instead of direct purchases, Invesco will seek to boost returns via the Treasury's Public-Private Investment Plan, or PPIP, as well as loans from failed banks auctioned by the Federal Deposit Insurance Corp., Invesco Chief Executive Officer Richard King said.

"Obviously we can't buy non-agency bonds where we bought them in early July, but we have other opportunities at hand," King said. Invesco also invests in agency mortgage bonds.

Invesco owns RMBS backed by prime jumbo and so-called Alt-A loans, which are typically those that fell short of income proof or other documentation. It holds no bonds backed by option adjustable-rate mortgages, viewed as troublesome as home prices fall since they allowed loan balances to grow.

Invesco's external manager is one of the nine hired by the Treasury to run the PPIP, which matches investor capital with government money and also allows access to low-cost Federal Reserve loans for purchases of commercial mortgage and consumer asset-backed securities, such as credit card bonds.

Anticipation of some $40 billion in purchasing power from the PPIP is giving a technical boost to mortgage bonds despite risks due to rising homeowner defaults.

These gains have dimmed speculation the Federal Reserve would extend its Term Asset-Backed Securities Loan Facility to the asset class, Invesco executives said.

"We haven't heard a word about it in recent months," King said. "We're not counting on it. Let's put it that way." (Editing by Dan Grebler)