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800 Pound Gorilla Entering Secondary Market


800 Pound Gorilla Entering Secondary MarketRecent secondary marketing activity

September 25, 2008



As the U.S. government positions itself to become the biggest secondary mortgage market player in the history of the universe, recent entrants to the market who had hoped to capitalize on bargain basement prices may find the game more expensive to play. But at least one private equity firm sees opportunity in the government’s participation.

The U.S. Treasury Department recently unveiled a massive mortgage rescue package. With its potential purchase of up to $700 billion in mortgage-related assets, Uncle Sam stands to become the proverbial 800 pound gorilla. The increased demand for distressed mortgage assets will put upward pressure on prices.

Several investments funds that are already in the market stand to profit handsomely as the value of their holdings increase. But new players may need to adjust their pricing models.

One firm that is likely to benefit is TEAM Nation Investment Group LLC, which said it started buying distressed assets in November 2007. The Irvine, Calif.-based firm reports average returns of more than 31 percent since inception.

Other firms that have recently been acquiring portfolios include Capital Source Inc., Fasthold Capital Inc. and Guggenheim Capital Markets LLC. In addition, LandCap PartnersNational Asset Direct and Oxford Funding Corp. have also been active, as have Roosevelt Management Company LLC and WMD Capital Markets.

The Carlyle Group’s co-founder and Managing Director David Ruben told CNBC this week that firms such as his hope to profit by acquiring mortgage assets from the government. He said private equity companies can help the country in the current crisis.

“Private equity will be probably among the most significant buyers of assets from the federal government,” he said.

Carlyle alumnus David K. Zwiener was named chief financial officer of Wachovia Corp. earlier this month. Carlyle’s mortgage investment subsidiary, Carlyle Capital Corporation Limited, collapse in March.

Just prior to the unveiling of the Treasury’s plan, Diversified Mortgage Workout Corp. announced it hoped to capitalize on the subprime meltdown. The White Plains, N.Y.-based firm said it was negotiating several deals to acquire deeply discounted subprime portfolios from small banks and mortgage companies. It also reported active negotiations on additional financing for larger acquisitions of distressed assets through additional debt and equity instruments.

A portfolio of around $264 million in manufactured housing loan assets has been acquired by 21st Mortgage Corp. and Vanderbilt Mortgage and Finance Inc. at a $70 million discount from Popular Financial Holdings, a statement last week indicated. Vanderbilt and 21st Mortgage are both indirect subsidiaries of billionaire Warren Buffet’s Berkshire Hathaway.

Connect Financial Services said is lining up investors to acquire non-performing second mortgages at “four to ten cents on the dollar.” Once acquired, the Manhattan Beach, Calif.-based company substantially modifies the principal balance of the mortgages and lowers the borrower’s monthly payment.

“Lenders are willing to offload portfolio loans at deep discounts in an effort to reduce the sheer volumes of ‘non-performing’ notes on their books and thus reduce their reserve requirements,” Connect says in its investor marketing material. “When acquiring notes for less than 10 percent of face value, we can lower the value of the note and the homeowner’s payment by 50 percent — even 75 percent — and still make a very significant profit.”

Informative Research announced last week that its new suite of portfolio credit review analytic tools analyzes pools at the loan level to provide a deep analysis of projected portfolio performance. Clients submit large batch credit data requests and get results in as few as three business days.


More Details Emerge on Mortgage Bailout
More details have emerged on the Bush administration’s legislative proposal to acquire mortgage assets and prevent a full-scale collapse of the U.S. financial system. The latest move is the biggest yet among a host of historical actions by the government this year.

Plan calls for U.S. purchase of up to $700 billion in mortgage assets

Paulson Announces Major Steps to Restore Mortgage Liquidity
The Bush administration announced major steps in unclogging mortgage securities in the U.S. financial system and said legislation may be passed as early as next week to relieve financial institutions of illiquid mortgage assets.

Paulson says GSEs, Treasury to step up MBS purchases


Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of


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