Vulture Funds Buy Residential Mortgages
By Kent Anderson, Oregon Bankruptcy Attorney on Mar 3, 2008 in Mortgage Reform
For some investors the misery of foreclosure may be a new profit center. Money managers for some major investment groups are buying up entire home loan portfolios. Of particular interest seem to be loans that are in default. If the discount is steep enough, there is obviously money to be made. This type of company is often called a “Vulture Fund.”
One large investment company, BlackRock, Inc., has formed a distressed debt fund for the purpose of buying up whole mortgages. This is not small venture. In terms of equity ownership, Merrill Lynch’s stake is approximately 49%, while The PNC Financial Services Group retains an interest of about 34%; the remaining 17% is held by BlackRock employees and public shareholders. A Bloomberg Article reports that BlackRock has invested over 4 billion dollars in distressed debt over the last year.
Some investors suggest that the best way to profit from these investments is to restructure the debt for the beleaguered homeowner. In a recent Forbes Article one investment manager, Steven Persky, says his hedge fund Dalton Investments, has invested over a billion dollars in distressed residential loans and plans to cut deals, reduce payments and help keep homeowners in their homes.
If restructuring and helping the borrower is a profitable way to manage defaulted home loans, why are the Mortgage Bankers Association and lenders in general complaining loud and long about attempts to amend the bankruptcy code and allow the courts to do this on an impartial basis?
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