An interesting press release today from Oxford Funding Corp., who specializes in the bulk purchase of sub- or non-performing mortgage portfolios:
Due to the recent meltdown in the overall mortgage industry and many subprime lenders going out of business, an exceptional opportunity exists to acquire loan portfolios at very substantial discounts from lenders looking to quickly cleanse their books of troubled loans. Mortgage market meltdown comments from the likes of CitiGroup, Bear Stearns and Bank of America suggest that opportunities available to Oxford will increase exponentially over the coming months.
Companies like Oxford acquire troubled loan portfolios at a discount, and then rehab the portfolios for subsequent resale -- it's essentially the mortgage equivalent of flipping an actual piece of real estate. The company said in the release that it believes it can turn a 30 percent profit buying bulk whole loan portfolios at 65 cents of face value, which the company said equate to 60 percent LTV by their appraisals -- even more interesting, company president Robert Dunn said in the statement that "financing for us seems readily available." There is an entire cottage industry of bargain basement investors beyond just Oxford that are at the ready when it comes to snapping up troubled whole loans for pennies on the dollar; the question is whether anyone will want to sell at such a steep discount. I'd also have to question the interpretation of "value" here, given the trouble that C-BASS has recently run into with this same business model -- and C-BASS was by far the largest such operation in this scratch-and-dent space. Update: I should note that whole loan acquisition is often very different from buying/selling ABS tied to mortgage pools, something that Goldman Sachs alluded to doing in a story I posted earlier today.