Point of investing in Mortgage Funds?

[James W.]

I've invested in a few mortgage lending funds.

The idea is invested capital is spread over 100 loans. This is great from diversification and capital protection perspectives.

All 100 loans have to default to lose 100% - which is a rare scenario.

The annual yield is about 8%.

That means even if 8 loans default, entire year's interest is wiped out. 

So how is this ever going to be beneficial? 

If you say stick to it long enough, thats not correct. Because 8 out of 100 loans can default every year. Its a very real scenario. Its happening right now to my portfolio, and i am flat after a year's investing.

So every year investor comes out flat - and we are talking a normal market - not recession. That, would not stop at 0% gain.

So, whats the point of investing when every year a few defaults can wipe out entire year's interest? And that happens year after year.

Am I missing anything?

PS - I am starting to think that while Debt investing is considered safer, equity projects sponsored by big firms may actually be more beneficial. Because they are putting value into properties like Value Add. And Ground Up projects which are considered risky, may only be just as risky as Debt. Chances of a Ground Up construction not selling in a Metro area may be lesser than 8 loans defaulting out of 100.