Bloomberg – Dalton Investments LLC, the Los Angeles-based hedge fund with 70 percent of its assets in Japan, is starting a 50 billion yen ($550 million) fund that will invest in U.S. distressed assets, taking advantage of low prices.

The fund has raised about 10 billion yen from U.S. investors and will begin marketing in Japan by the end of March, said Junichiro Sano, chief executive officer of Dalton’s local unit. It will invest in bonds sold by U.S. companies that once had AAA ratings and have since been downgraded below investment grade, aiming to profit from the high yields on the debt.

Dalton, co-founded by James Rosenwald and Steven D. Persky in 1998, aims to raise its assets under management after they fell 23 percent to about 100 billion yen this year amid the biggest financial market losses since the Great Depression. Global financial institutions have posted about $989 billion in writedowns and credit losses linked to the U.S. mortgage market collapse, pushing corporate bond yields higher.

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New York (HedgeCo.Net) – The recent controversial moves of Henry Paulson and the U.S. Treasury have Washington divided not only on the future of Fannie Mae and Freddie Mac, but on government’s new role in the U.S. mortgage market.   

On Monday, Paulson and Federal Housing Finance Agency Director James Lockhart placed the two mortgage giants in a conservatorship, allowing the government to replace chief executives and eliminate their dividends, while giving them themselves the power to purchase up to $200 billion of stock in the companies.   A new program has also been launched to purchase mortgage-backed securities from the two firms, starting with $5 billion worth this month.  In accordance with the government assistance, Fannie and Freddie will have to eventually reduce their holdings of mortgages and mortgage backed securities.  

This decision was months in the making, after downplaying problems and staving off rumors of a government bailout.  Finally, Bush came out and called the situation an “unacceptable” risk for an economy that has been battered by the subprime fallout and the worst housing slump since the great depression.  

"Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing," Bush said in his statement.  "Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth."  

The two companies guarantee about half of the nation’s $12 billion in outstanding mortgages.  For months, amidst rumors of capital shortages, Fannie and Freddie denied any problems.  It was only after Paulson hired Morgan Stanley to probe into the company’s finances did it come to light that the two firms were overstating their capital and did not have sufficient reserves.  Concerns over their finances sent stock prices plummeting and mortgage rates soaring. 

Overall, Fannie and Freddie suffered about $14 billion in losses, leaving the government with a tough decision to make.

Democratic Senator Charles Schumer agrees with the course chosen.  “Paulson has threaded the needle just right by taking necessary action to stabilize U.S. financial markets while minimizing the liability for taxpayers,” he said. “This plan will be met with broad acceptance in Congress because it doesn’t prejudge the ultimate fate of Fannie Mae and Freddie Mac."

But while some current political figures may be on board, it is really going to fall on the next administration to determine the role of the government in matters such as this, and ultimately, the fate of the both Fannie and Freddie.  

"The new Congress and the next administration must decide what role government in general, and these entities in particular, should play in the housing market,” Paulson said in Washington.  “There is a consensus now that they cannot continue in their current form.”  

However, the fear of alienating voters has forced both candidates to spew nothing more than political rhetoric while never fully disclosing their position on this issue.  While Obama pushes for “some” invention and McCain expresses that there must be a surge of “confidence,” it is unclear what either of their stances are on the role of the government in matters such as this.  

Lately there has been an increase in the government’s role in the financial markets.  Six months ago, the Fed infamously funded the $30 billion in financing needed to rescue Bear Stearns and facilitate the purchase by JPMorgan.  There are several permanent courses of action that may be taken with Fannie and Freddie, including a full blown nationalization that would cement the government’s role in the markets permanently.  Whatever the course chosen, it will most likely fall on the watch of the next presidential candidate.  It’s about time to put politcal jargon aside and pick a side.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
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Tags: american-international-group, arthur-sulzberger, asia-stock-markets, conventional-wisdom, due-diligence-service, feeder, financial-institutions, guarantors, henry-paulson, institutional-marketing, james-simon, subprime-mortgage-market, u-s-treasury

New York (HedgeCo.Net) – Foreclosed properties present an opportunity, to some, of finding an otherwise unattainable home at a deeply discounted rate.  For hedge funds, foreclosures could mean massive returns in the near future.  That’s why dozens of hedge funds are quietly building their stake in the decimated U.S. mortgage market. 

According to a report published by Philippines News, tens of thousands of distressed loans and foreclosed properties have been sold to hedge funds and other private equity groups. 

Lone Star Funds, a Dallas based company that invests in distressed debt, snatched up a string of mortgage-linked investments from Merrill Lynch once valued at $30.6 billion, for $6.7 billion.  It’s no surprise Merrill was quick to sell, seeing as how they were one of the biggest financial institutions to get hit by the subprime fallout last summer, writing down an estimated $25 billion.

"We’re much easier to deal with than a bank," said Jacob Benaroya, Managing Partner of Biltmore Capital Group, a hedge fund in New Jersey that has allotted $100 million a year to acquire mortgage debt.  "We’ve bought [the loan] at enough of a discount that we can make special arrangements with the borrower."

Hedge funds stress they are more lenient than the banks and in turn, better to deal with.  They may make special arrangements with the borrower, or have them turn in their house keys in exchange for forgiving the outstanding balance on the mortgage.  The hedge funds then may then turn around and try to sell the property as soon as possible, or hold on to it for a while until market conditions are ideal. 

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com

Tags: chief-executive, conventional-wisdom, dillard, distractions, distressed-debt-investor, due-diligence-service, freddie-mac, fund-managers, hedge-fund-research, income-tax-credits, pergam-finance, savings-and-loan-crisis, soros-fund

Star News Online- 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.

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