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Pension funds, which took big hits on their mortgage investments during the crisis, have not only stayed the course in the mortgage-backed securities market, but have increased their holdings sizably in the last four years — even as they seek restitution for faulty MBS they bought in the bad old days.

Pension funds are nearing the half trillion dollar level in their MBS and mortgage investments, according to the Federal Reserve, up more than 25% since 2010. Why are they buying mortgage debt? Yield may be one answer.

"The pensions are buying everything they can get their hands on that's got a yield," according to R. Christopher Whalen, managing director at Kroll Bond Ratings.

"I'm not surprised they are buying CMBS and home loans," particularly higher-yielding jumbo mortgages, he said.

The 25% jump in pension MBS investments is "meaningful, but not extraordinary," according to another investment source, who asked to remain anonymous. He said it wasn't government-sponsored enterprise MBS that caused sector losses. "The issues were in the subprime and alt-A sectors."

According to the Fed's Financial Accounts Guide, pension funds held $463.9 billion in agency and government-sponsored entity securities at the end of the third quarter of 2014, an increase of more than $100 billion from holdings of $359.4 billion at the end of 2010. Agency and GSE securities are mostly (but not entirely) mortgage-related.

Pensions also held $35.3 billion in mortgages in their portfolios at the end of the third quarter of last year, down about $3 billion since 2010, the Fed data show.

While half a trillion dollars is a lot of money, it's only a small part of pension portfolios. According to the Fed, pensions have $17 trillion in assets, meaning mortgages and MBS make up about 3% of their holdings.

Broken down into pension sectors, private funds held $228.3 billion in agency/GSE securities; state and local government pensions held $231.5 billion; and federal retirement funds had $5.8 billion as of the third quarter of 2014. Federal holdings in 2014 were flat compared to 2010, but both private and state/local funds added significantly to their portfolios.

At the same time, pension funds have moved aggressively to wrestle settlements from lenders so they can recoup some of their losses during the crisis.

The most recent example is a reported $500 million settlement JPMorgan Chase agreed to pay to a group of pension funds led by the Public Employees' Retirement System of Mississippi and the New Jersey Carpenters Health Fund relating to faulty MBS issued by Bear Stearns, which the bank acquired during the crisis.

In July, Citigroup reached a deal that would pay public investors like state pension funds $500 million as part of an overall $7 billion settlement.

The California Public Employees Retirement System, or CalPERS, received a $250 million settlement from Bank of America for MBS losses in November.

The fund, with $290 billion in assets, is the largest public pension fund in the country and said it has now recovered more than $500 million in MBS losses for its members, employees of the state of California.

CalPERS was notable for being one of the few pensions to actually make mortgages, not just invest in them. However, it closed its home loan program to members in December 2010 after nearly 30 years of operation, citing increased credit risk and a lack of member interest.

A look at CalPERs' 2013 investment report shows a wide variety of mortgage and real estate holdings. There are more than 20 pages enumerating MBS holdings totaling $11.3 billion in book value. The large majority of them are mortgage pools issued by Freddie Mac, Fannie Mae and Ginnie Mae, though the total also includes some commercial mortgage-backed securities.

The fund also has a large bucket of asset-backed securities totaling $6.2 billion, with many familiar names from the pre-crash era such as pools from Countrywide Home Loans and Washington Mutual Bank. It also has a small portfolio of $200 million in mortgages, mostly jumbos (not unusual for California with its pricey housing markets, and also a good portfolio product due to high yields).

On the real estate side, it had a domestic real estate portfolio of $20 billion and had domestic real estate investment trust holdings of about $2 billion. CalPERS also has holdings in international real estate and REITs.

It would be ironic if pension funds did not know they are a significant player in the mortgage business, since their mortgage/MBS assets account for a very small part of their overall portfolios. But last time I checked, a half trillion dollars was still a pretty significant chunk of change.

Mark Fogarty, Editor at Large of National Mortgage News, brings more than 30 years of experience to his analyses of the mortgage market.