- The Washington Times - Saturday, March 22, 2008

COLUMBIA, S.C. (AP) — The subprime mortgage crisis has yielded at least one benefit for states: Mortgage-related investments have become so cheap that they are luring some pension funds to buy.

Retirement systems in South Carolina and Pennsylvania are nibbling at the securities, betting that they have been beaten down so much that the ones with good credit ratings could yield strong returns later.

South Carolina is looking to buy $100 million of mortgage-related investments for its $30 billion state pension fund. Pennsylvania, which made money off those securities’ troubles in its hedge funds last year, is also betting that they can offer long-term returns.

But the buying this time is very tentative, and may not presage a broader turnaround in the securities.

For South Carolina, the caution means buying into a managed fund. In Pennsylvania, the outside managers the fund hires are looking for bargains. But in both cases, the states emphasize they’re only investing small amounts of their overall portfolios.

The bargains are the product of a crisis in the mortgage industry brought on by some lenders taking greater risks by lending to people who had poor credit histories. The bet was that home values would continue to rise and that these borrowers would be able to refinance before their monthly payments moved higher.

That didn’t happen.

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