Well, after searching for couple of weeks for some way to invest in distressed assets, first of all CDOs (mentioned in my blog here), I was reminded by Jim Cramer today that there are REITs which are invested in CDOs. In the end of 2007 Jim recommended Annaly Mortgage Management Inc. (NLY) and Chimera Investment (CIM) as REITs buying distressed mortgage-backed securities. CIM was actually created by Annaly management team and is managed by Annaly's subsidiary. The only problem with both is that they got into distressed market too soon and as a result their investments are down now.
Annaly has a good yield, more than 14%. Chimera's yield is about 7.5%, way too low in current market conditions. Both are leveraged.
I can't say I like either company. Will be looking for more options on this market. Now, when distressed securities are for all purposes guaranteed by government, they should go up in price.
Full disclosure: at the time of publication author had no positions in NLY or CIM. Positions can change any time.