Bloomberg- James E. “Jimmy” Cayne helped make Bear Stearns Cos. the mortgage king of the securities industry by packaging home loans into bonds and selling them to clients like Michael Vranos. Now Vranos, who manages $29 billion at Ellington Management Group LLC, is cutting Cayne out of the middle and buying mortgages on his own.
On Wall Street, they call that disintermediation, and it’s eating into almost $9 billion of fees that firms including New York-based Bear Stearns earn from securitizing mortgages. Instead of buying such bonds at markups of 1 percent or more, hedge funds expect to make better returns by taking over bad debts and pressing borrowers to pay up.
The hedge funds are targeting delinquent or poorly written loans, a market JMP Securities LLC analyst Steve DeLaney says may double this year to $150 billion as a record number of borrowers fall behind on payments. Bad bets on mortgages have discouraged bankers from bidding, leaving industry veterans like Vranos to snap up home loans for as little as 30 cents on the dollar.
