Transcripts

"Of Mutual Interest"-John Waggoner, Mutual Fund Columnist at "USA Today."

SUSIE GHARIB: In tonight's "Of Mutual Interest," a silver lining for investors in the mortgage market mess. Here's John Waggoner, mutual fund columnist at "U.S.A. Today."

JOHN WAGGONER, MUTUAL FUND COLUMNIST, USA TODAY: If you follow the financial news, you know that the banking industry gave out whopping big mortgages to everyone, lost a lot of money and is very, very sorry. But the banking industry's indiscretions could be your gain, particularly if you're investing for income. Why? Well, because mutual funds that invest in very good mortgages are offering decent yields these days, provided you choose a fund with low expenses. Just a few years ago, when loan officers were lending like wild animals, investors could get very high yields from packages of sub-prime mortgages, home loans made to people with poor credit ratings. Thanks to the housing collapse, however, sub-prime loans are going the way of the dinosaurs. They're just not making them anymore. The only mortgages available now are those that meet the lending criteria set by Freddie Mac and Fannie Mae or those guaranteed by their cousin, Ginnie Mae. And even though many lenders have shut down, demand for mortgage-backed securities has fallen, pushing their yields up. Funds that invest in government-guaranteed pools of Ginnie Mae mortgages, for example, yield about 5 percent today. In contrast, 10-year Treasury notes yield about 3.8 percent. Five percent may not seem like much, but it's more than double what you'd get from a money market fund. When yields are this low, you need to find funds with the lowest expenses. At these levels, one percentage point of expenses cuts your yield by 20 percent. Ginnie Mae funds aren't as stable as money funds. Their share prices do rise and fall, but if you can put up with some modest ups and downs, you'll be able to benefit just a little bit from the banking industry's woes. I'm John Waggoner.