As mortgage delinquencies climb near historic highs, Wall Street is finding new ways to make hay with assets.
So-called "vulture" firms have been snapping up troubled home loans at a faster pace, and are expected to ramp up securitisations of the assets in coming months. That should give a modicum of life to the private mortgage bond market that has been dormant since it imploded during the subprime home loan crisis in 2008. Loans supporting these new securities aren't the kind that provide credit to home buyers, but the wreckage of defaults left over from an era of loose lending.
The securitisation, or bundling assets into bonds, of these delinquent loans is the latest phase for investors who have found ways to profit in repairing the troubled loans that many had a hand in creating.
The firms, including PennyMac Mortgage Investment Trust, the company run by former Countrywide president Stanford Kurland, have increased purchases of discounted troubled mortgages as they help borrowers with refinancings or modifications, or through seizure of property.
Countrywide was the biggest US mortgage originator in 2006 and a pioneer of subprime loans before its exposure to this debt brought it close to collapse.
The mortgage bonds planned by PennyMac and others will fill a void for yield-hungry investors in a market struggling to recover as banks find it more profitable to funnel loans through government programmes, or keep mortgages on their books.