In addition, he notes that 30-year mortgage rates are still below 6%. He suggests, "Despite higher inflationary pressures, mortgages are affordable -- especially now that residential houses and condos are more reasonably priced in California, Nevada, and Florida. Therefore, I reiterate my buy signal for iStar Financial."

Neil George, in his Inner Circle newsletter, has also moved into mortgage lenders. He explains, "Our plays on the overreaction to the subprime loan fiasco -- American Home Mortgage (NYSE: AHM) and a NewCastle Investment (NYSE: NCT) -- are right on track and doing well for us."

American Home Mortgage, he notes, has a chunk of its portfolio in what are called ALT-A mortgages. George explains, "ALT-A loans are for borrowers with solid credit scores but include some non-traditional income and non-traditional properties in their mortgage applications."

There's some risk here, he notes, but emphasizes that the nationwide rate of delinquencies in ALT-A is running at 0.5% on a 90-day basis.

He says, "Most big commercial banks would be thrilled with corporate borrowers posting such a record. And the ALT-A delinquency rate is less than 20% of that for subprime. This isn't the same problem."

American Home Mortgage, he concludes, is a "well-managed company" holding a good portfolio. NewCastle, he notes, has even less exposure on the issue of lower-grade debt. But like others in the market, he says, it's been "slashed by the same claws and blood is spurting."

The advisor suggests buying both American Home Mortgage and NewCastle for the "return of reality" in their share prices along with "monster dividends along the way."

Bryan Perry notes, "In the aftermath of the subprime mortgage market meltdown almost every asset class that had the word 'mortgage' attached to it got sold off aggressively with no regard for portfolio composition."

The editor of The 25% Cash Machine has used this as a "discounted opportunity" to buy Crystal River Capital (NYSE: CRZ), a diversified mortgage REIT with operations.

He notes that Crystal River is unique because it is managed by Hyperion Brookfield Crystal River Capital Advisors LLC -- a subsidiary of powerhouse global asset management company Brookfield Asset Management Inc.

Perry notes, "Brookfield has over 40 years' experience as a global asset manager in a wide range of industries, and has $70 billion in assets under management. As a result of this relationship, Crystal River gets the benefits of Brookfield's operating experience and financial resources."

He explains that Crystal River is a specialty finance REIT with $3.7 billion in assets. Its holdings are diversified. For example, he notes, "CRZ recently invested in the financing of British Airports Authority, which owns and operates seven major airports."

In addition, he notes, Crystal River invests in high-yield corporate bonds, investment grade corporate bonds, government bonds and other fixed income-related instruments.

Perry explains, "These are the kinds of high-quality assets that are good, long-term, stable and well-capitalized. Its subprime exposure represents only 3% of total assets, with the majority of those being investment grade."

Overall, he suggests, "My one-year target price for shares of CRZ is $32, or roughly 20% higher than where it currently trades. When you add 10% from the dividends, we stand a great chance of hitting this one out of the park."

Daniel Frishberg, editor of The Moneyman.com newsletter has also added a specialty finance stock to his income portfolio -- Alesco Financial (NYSE: AFN).

He explains, "As opposed to investing in buildings, etc., Alesco invests in securities in the mortgage area. The stock had a big drop earlier this year due to the sub-prime debacle. However, Alesco doesn't have exposure to the sub-prime market."

Investors, he notes, have begun to realize this and the stock has rebounded since the April lows. He concludes, "At this point, with a yield of 12% (paid quarterly), we believe the stock could reach its old highs of $11.50 over the next few months."

For more stock picks from the leading financial newsletter advisors, visit Steven Halpern's free daily website, TheStockAdvisors.com.