NEW YORK (Reuters) - Banks and a top investor this week said it is time to buy the very mortgage bonds that triggered the global credit crunch now that policy-makers are showing fresh resolve to stabilize housing.

Construction workers are seen at a townhouse complex for sale in a Denver, Colorado suburb May 16, 2008. REUTERS/Rick Wilking

Bullish outlooks on mortgage bonds, including much-derided subprime issues, from JPMorgan Chase & Co. and Barclays Capital are notable since anyone suggesting the bonds were a good buy over the past year has been humbled as the crisis worsened.

Jeffrey Gundlach, chief investment officer at Los Angeles-based asset manager TCW, also on Wednesday reiterated a penchant for distressed mortgage bonds for his TCW Total Return Bond Fund.

Analysts said the timing is right to buy securities that wreaked havoc on investors and caused hundreds of billions of dollars of write-downs at banks after the Federal Reserve set policy aimed at lowering consumer mortgage rates, boosting incentives for refinancing and buying homes.

High-quality mortgages will draw the most tangible benefit, but a percentage of riskier borrowers will also be helped, they said.

“We see substantial evidence that the policy environment has shifted in a meaningful way” to stabilize home prices, JPMorgan analysts, led by New York-based Chris Flanagan, said in a report published on Wednesday. The policy moves should stabilize “AAA”-rated subprime mortgage bonds, and set them up for a potential rally.

Many bonds backed by subprime and other risky mortgages are trading below 50 cents on the dollar as soaring delinquencies ramped up expectations of losses. Frozen credit markets and forced sales of mortgage asset-backed securities (ABS) by investors reducing borrowings have further slammed the bonds, which many analysts argue promise double-digit returns even if the housing slump persists.

Ajay Rajadhyaksha, head of U.S. fixed income and securitized products research at Barclays Capital in New York, said low valuations may help spark a rally for “AAA”-rated ABS and commercial mortgage bonds next quarter. Bond rallies may be led by investment-grade corporate bonds whose risk premiums to Treasuries are close to highs last seen during the Great Depression, Barclays analysts said in their 2009 outlook.

The Fed last month announced plans to purchase up to $600 billion in “agency” securities issued by Fannie Mae, Freddie Mac, Ginnie Mae and the Federal Home Loan Bank system, all of which direct proceeds to the mortgage market. By increasing demand for mortgage-backed securities and unsecured debt, the Fed is rapidly lowering rates lenders can offer consumers.

With agency MBS yields down nearly 1.5 percentage points since late November, the average 30-year fixed mortgage rate this week fell to at least a 37-year low of 5.19 percent, according to JPMorgan and Freddie Mac data.

On Tuesday, the Fed said it stood ready to expand the agency purchase program if needed, as it dropped its target interest rate near zero. Treasury bill rates are already near zero, manifesting the Fed policy aimed at forcing investors into riskier assets that are conduits for consumer lending, Rod Olea, director of fixed-income at City National Bank in Beverly Hills, California, said during a recent panel discussion.

It appears the Fed will “do whatever it takes,” to bring rates down,” Gundlach said on a Wednesday conference call.

There are still pitfalls to investing in a market where unexpected events have become the norm, he said. Asset-backed securities rallied in the days after the Treasury announced its Troubled Asset Relief Plan (TARP) to soak up $700 billion in illiquid assets, such as ABS, and then crumbled as the program was redirected to make direct capital injections to banks.

The most severe global recession since at least the early 1980s also means 2009 will be a “minefield for investors,” said Larry Kantor, Barclays’ head of research.

“I dare not declare a bottom in this market but it looks like maybe we are getting a bottoming process,” TCW’s Gundlach said. This should improve pricing in the “non-agency” mortgage bond market, which is made up of pools of loans that do not meet standard credit or documentation requirements.

Residential and commercial mortgage bond indexes have already gained since the Fed announced its plan in late November. The top-rated ABX 07-1 subprime index has gained about 20 percent from its November low.

Lower mortgage rates will provide a “huge” boost to affordability measures, and slow annualized monthly home price depreciation to the single digits by spring, from 12 percent in October and 22 percent in March, according to JPMorgan.

JPMorgan’s call is also based on hopes for greater modifications of risky loans, and the possibility of government buying of those loans that locked up in securities. Subprime bonds valued at distressed levels could benefit as loans are bought out of pools, and as better borrowers refinance and prepay loans at face value, the firm said.

Rallies for such high-yielding bonds are likely “in a world where yields are collapsing across many sectors,” it said.