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Housing finance agency bonds give best risk-adjusted return among municipal bonds

Posted by: Leslie Black-Plumeau on February 29, 2012 - 12:50pm

Since 2009, bonds backed by payments on publicly financed single-family-home loans earned more than all other types of municipal bonds, according to data compiled by Bloomberg.  They also had higher overall returns than the full market and  U.S. Treasuries, reported by the San Francisco Chronicle’s Bloomberg Business Report

Mortgages made through housing finance agencies are typically less risky than other types of home loans because they are usually 30-year, fixed rate loans to buyers who plan to live in their homes.  Risky loans with adjustable terms or loans to buyers who don’t plan to live in the homes, but use them for other purposes such as flipping, are automatically weeded out of the housing finance agency scope.   Furthermore, mortgages made through housing finance agencies were subject to more documentation and income-verification than were many mortgages issued by other lenders during the home-price bubble, according to the article.

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