Housing & Mortgage Vultures
In today’s mortgage and housing market, one investor’s toxic waste is another’s opportunity. There is a new reality in which foreclosure and defaults are widespread. There are 2 questions, is the bottom in and if so I would I invest. There is a large supply of opportunities for distressed-asset investors. From mom and pops to distressed debt funds such as Marathon Asset Management, Private National Mortgage Acceptance Corp and countless others. There is another area called mortgage-backed securities composed of loans that don’t qualify for a government agency guarantee. That’s a $1 trillion market in which nearly all securities are in distress and few investors are willing to venture. This probably is the more risky venture, however many investors were burned last year trying to purchase cheap…and Cheap got Cheaper.
What is fascinating and not a known fact is that hardly any fixed-income assets that trade for pennies on the dollar pay interest. Residential mortgage-backed securities actually do pay interest even when they are in default. Mortgage-servicing companies continue to make payments on loans even when borrowers themselves stop.
This is a complicated arena, if you over pay you will lose money. One needs to estimate the likely number of defaults, the size of the actual losses, and the risk of prepayments by borrowers whose loans are in good standing. This could be said an arena for experts.
Experts also lose money. What do you think is it too early to try to start picking up the bargains?