For the first 10 months of 2012, three of the top performing hedge funds invested in mortgages according to Bloomberg.

  • #1 Metacapital Mortgage Opportunities +37.8%
  • #2 Pine River Fixed Income +32.9%
  • #4 Pine River Liquid Mortgage +28%

Toward the end of 2011, government- backed mortgage securities dropped in value as Obama expanded programs to help owners refinance and bonds without insurance fell amid the euro crisis.

[Metacapital] concluded that the Federal Reserve was going to help homeowners and bought bonds ahead of its September announcement that it would buy $40 billion a month of agency — that is, Fannie-, Freddie- and Ginnie Mae-backed — mortgage bonds.

[Metacapital] uses mathematical models to calculate how long homeowners will make payments at their current interest rates before either refinancing or defaulting. The models predict behavior based on a homeowner’s credit score, address, loan size, loan age and other factors.

According to Bloomberg, on average, betting on mortgages as a strategy during this period yielded an average return of +20.2%.