UPDATE 2-TCW distressed mortgage fund ramps up purchases

(Adds bylines and details on TCW Total Return Bond Fund)

By Jennifer Ablan and Al Yoon

NEW YORK, April 17 (Reuters) - Trust Company of the West has invested most of its $1.6 billion fund for distressed mortgage assets since January on the bet that the market has possibly found a bottom, Chief Investment Officer Jeffrey Gundlach said on Thursday.

The TCW Special Mortgage Credits Fund launched in July 2007 is now 80 percent invested, compared with just 8 percent in January, Gundlach told clients at a forum in New York.

"For the first time since this mortgage crisis began, there is the possibility that the market has found a bottom," he said. There is "something like a 20 percent chance that that bottom holds."

Gundlach, regarded as one of the best mortgage specialists in the United States, said that although fundamentals in the housing market "are terrible and remain terrible," mortgage securities have dropped to levels not seen in years.

Mortgage-related securities, including asset-backed securities, commercial and residential mortgages, and other distressed loans, had been under severe selling pressure, owing to the wave of defaults and foreclosures in the housing markets.

Gundlach said financial markets are in a "bottoming process," but that the process could take several months.

The TCW Total Return Bond Fund TGLMX.O has been active as well.

"We have invested 40 percent in non-agency mortgages assets," Gundlach said. "They are all 'AAA'" and yield 9 percent or 10 percent, he said.

That's "incredibly attractive," and this sets the fund up to be "perhaps the best-returning bond fund on a forward- looking basis in the sector," Gundlach added.

In 2007, Morningstar named Gundlach fixed-income fund manager of the year for generating returns far above the typical intermediate-term bond fund without taking on more risk than his typical category peers.

Gundlach isn't alone in sniffing out opportunities in the mortgage market.

Bruce Richards, chief executive officer of Marathon Asset Management, an $11.5 billion hedge fund manager specializing in distressed assets, told Reuters last week that his firm has purchased more than $1 billion par value in residential real estate loans in recent months.

Richards also said that he expects Marathon to purchase another $1 billion or more this year.

"We think it's the single greatest opportunity for distressed investing in 17 years," Richards added. (Reporting by Jennifer Ablan, Al Yoon and Dane Hamilton; Editing by Jan Paschal)