Private Equity shows more than interest in subprime orphans.

Posted by charles dennis

June 1, 2007

Is there anything that private equity can not do right now?[sarcasm alert] I heard that a couple of hedge funds were looking buy Puerto Rico to put an end to the long time statehood debate. I even heard that private equity was looking to purchase the word, “the” and charge a $.05, per use, copyright fee to authors. The New York times sheds some led on how private equity is swooping in to make some big bets on fallen or broke subprime lenders. Of note, banks and lenders focusing on reverse and other niche mortgages, that maintain good cash flow, can not be far behind.

Private equity is swooping in and taking over the subprime mortgage business, seeing opportunity amid the wreckage.

The subprime mortgage business is in tatters: loan volume is plummeting, defaults are rising and some of the biggest lenders have cut back or shut down.

So what is the smart money — private equity, hedge funds and investment banks — doing? They are swooping in and taking over those battered businesses, seeing opportunity amid the wreckage.

“There is a lot of money pent up,” said Steve Probst, national sales manager with Fairway Independent Mortgage, a lender based in Sun Prairie, Wis. “And a lot of people are betting that the market will snap back quickly.”

It is a risky proposition.

In many parts of the country, there is a glut of unsold homes. Defaults and foreclosures are rising, putting further pressure on home prices and mortgage lending. Some housing industry officials worry that the new infusion of capital may refuel aggressive and risky lending to people with poor credit, known as subprime borrowers, delaying a much needed winnowing of the business. Full Story