Blackstone Jumps into Battered Mortgage Market

Add The Blackstone Group (BX) to the growing list of huge hedge funds and vulture investors eying the battered residential mortgage finance business as a high-yield opportunity. The private equity giant has set aside some $1.25 billion in cash to buy troubled loans in partnership with a subsidiary of Coral Gables-based Bayview Financial, both firms said on Monday morning. Bayview currently manages a $2 billion fund that focuses on the acquisition of whole mortgage loans and mortgage backed securities; it’s the fourth largest fund of its kind, according to company executives. But what drove the Blackstone investment, however, wasn’t the size of the fund or Bayview’s experience in the space per se; instead it was that Bayview maintains its own special servicing operation, called Bayview Loan Servicing — Blackstone was looking to invest in a partner that could manage the loans it acquires in-house, according to a story last week in the New York Post. While performing loans owned by Bayview are serviced by M&T Bank Corp. (MTB), Bayview Loan Servicing has long handled the company’s special servicing needs for sub- and non-performing collateral. And, of course, Bayview is far from the only operation running an investment arm tied to a servicing operation. San Diego-based National Asset Direct owns its own similar “high-touch” servicing shop called iServe Servicing, which serves as the back end of its whole loan purchasing operation. The company recently moved into the California market with a license to grant and service loans in the state. BlackRock Inc. (BLK), the biggest publicly traded U.S. asset manager, said in March it was backing a new company called Private National Mortgage Acceptance Co. LLC, also known as PennyMac, that will buy mortgages at a discount and look to service them in-house. PennyMac has a $2 billion war chest of its own; BlackRock also recently negotiated a deal to snap up $15 billion in mortgages from Swiss bank UBS AG (UBS). (Word on the Street is that roughly half of those mortgages landed at PennyMac, although company representatives haven’t confirmed the rumors.) Marathon Asset Management, LLC, a global investment manager with $10.6 billion under management and over $20 billion in assets, is also buying up distressed mortgages and is also pumping the mortgages it buys to its own captive servicing operation, Phoenix-based Marix Servicing, LLC. While the Blackstone transaction isn’t expected to close until the fourth quarter, the New York Post reported Friday that roughly 40 percent ofthe investment has already been deployed into various investments by Bayview’s fund. Representatives from Bayview and Blackstone did not immediately return calls seeking comment. Disclosure: The author held no positions in the firms mentioned in this story; indirect holdings may exist, however, via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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