HFs, PE Home In On Mortgage Biz

Date: Thursday, October 18, 2007
Author: Hedge Fund Daily

Hedge funds and private equity funds are increasingly picking up the pieces of broken mortgage-lending businesses and the folks with home loans hanging over their heads are not happy about it. According to Associated Press, the trend picked up steam this summer after a number of mortgage lenders struggled and sold their concerns to HF and PE funds only too eager for them. The latest to do so is American Home Mortgage Investment, which reportedly will be acquired by Wilbur Ross’ private equity firm. The mortgage lender holds 197,000 loans worth $46 billion and the fear is that it will be business as un-usual in the hands of a non-bank. “From a consumer perspective, it’s an improvement to have these loans in a mainstream bank John Taylor, CEO of the National Community Reinvestment Coalition, told AP. “It’s not an improvement for them to end up in the hands of Wall Street. There isn’t the conversation or the accountability.” So incensed are borrowers over such moves, that after Carrington Capital Management acquired New Century, one of the biggest lenders, in June, protesters demonstrated outside Carrington’s Connecticut headquarters, complaining that the new owners refused to modify loan terms, thus increasing the risk of foreclosures. Another concern, especially among banks, is that mortgage lenders are falling into unqualified hands. In the case of Ross, notes AP, a Bear Stearns mortgage affiliate filed papers in bankruptcy court noting that the billionaire investor is not licensed to be a mortgage loan service, and it could take almost a year to get that certification. As a result, even with new owners, borrowers may continue to experience the same old problems.