Guess who holds your mortgage now? It's your friendly neighborhood hedge fund. Dozens of hedge funds, private equity groups and other investors have plunged into the beaten-down mortgage market in recent months, buying tens of thousands of distressed loans and foreclosed properties around the country. They hope to profit from the woes of banks and other investors holding mortgages that have plummeted in value as home values sink and defaults soar.


They are buying them from Wall Street investment banks eager to rid themselves of bad assets. Merrill Lynch & Co., for example, said this week it would sell mortgage-linked investments once valued at $30.6 billion for just $6.7 billion to Lone Star Funds, a distressed-debt investor in Dallas. Many of the hedge funds, run by former Wall Street and lending industry executives, claim they can do a better job than banks or other investors of modifying mortgages at terms that consumers can afford.


"We're much easier to deal with than a bank," said Jacob Benaroya, managing partner of New Jersey-based Biltmore Capital Group, a hedge fund that's buying up to $100 million in mortgage debt per year. "We've bought (the loan) at enough of a discount that we can make special arrangements with the borrower. "However, the hedge funds acknowledge that the loans they purchase are often in such trouble that as many as two-thirds to one-half can't be salvaged.


In that case, the fund obtains the property through foreclosure and tries to sell it off, or allows the borrower turn over the house keys in return for forgiving the outstanding mortgage balance.





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http://www.businessweek.com/ap/financialnews/D928D3480.htm

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