Mike Pratt, the president of New York-based Scherman Foundation, said his organization invested in DoubleLine Mortgage Opportunities because it was exploiting a market that other investors may have missed. The venture also has an element of helping potential homebuyers get access to financing, said Pratt, whose foundation supports causes related to climate control, social justice and reproductive rights.

Worthy Cause

“This has the advantage of supporting mortgages that should be supported but sometimes get lost in the generalization of being questionable,” Pratt said.

The new venture positions DoubleLine to take advantage of mortgage market opportunities by acquiring loans to home buyers who don’t qualify for conventional mortgages, even if they have perfect credit scores. Interest rates on these mortgages have been slowly rising this year even as the cost of financing the loans through securitizations becomes more favorable, allowing sponsors like DoubleLine Mortgage Opportunities Capital to potentially earn a wider spread on the deals.

“Rates have been ticking higher on the mortgage origination, while the spreads at which bonds can be securitized are creeping tighter,” said Neil Aggarwal, head of RMBS and portfolio manager at Semper Capital Management in New York.

Private-Equity Fund

Mortgage Opportunities Capital and its affiliates plan to either purchase or originate mortgages on commercial buildings while buying home loans from banks, institutional investors or mortgage originators, according to company filings. It also intends to use its relationships with Wall Street brokers and institutional investors “to source assets,” the documents say.

The firm also started DoubleLine Mortgage Opportunities Master Fund LP, a private-equity pool, which raised almost $296 million earlier this year to originate and invest in mortgages, according to U.S. Securities and Exchange Commission filings. The private equity fund owns Mortgage Opportunities Capital and may also provide it with loans to securitize, the filings show.

Mortgage Opportunities Capital or its affiliates would also have to retain at least 5 percent of each residential securitization whose underlying bonds don’t meet qualifications laid out in the Dodd-Frank law. These risk retention pieces must be held for at least five years, making them suitable for a private-equity fund that locks up investor capital for multi-year periods.

The amount of private-label RMBS outstanding has shrunk to $486 billion at the midpoint of this year from some $2.2 trillion at the end of 2006, according to Guy Cecala, publisher of Inside Mortgage Finance. Older bonds have either been paid down or wiped out through defaults and foreclosures. Banks have stopped issuing private-label debt for a host of reasons, ranging from regulatory burdens to investor reluctance to hold mortgage securities that aren’t backed by the federal government.