PHILADELPHIA — Hedge funds and private-equity investors are gaining a foothold in the business of mortgage loan servicing as some of the country’s biggest mortgage lenders crash into bankruptcy. Their arrival on the scene has alarmed consumers and investors alike.
Over the last few months several failed mortgage lenders – including ResMae Mortgage Co., Aegis Mortgage Corp., and New Century Financial Corp. – have sold their loan-servicing businesses to hedge funds or private-equity firms.
The largest loan-servicing business to go on the market to date – American Home Mortgage Investment Corp.’s $46 billion portfolio of 197,000 mortgages – is slated to be sold to a private-equity firm affiliated with billionaire investor Wilbur Ross.
That deal is scheduled for court review Monday.
Such initiatives have heralded a large-scale transfer of mortgages to a type of financial player that previously had little direct contact with U.S. homeowners.
Hedge funds and private-equity firms have become famous for making some of their executives fantastically rich, but they’re not exactly considered consumer-friendly.
Their acquisition of loan-servicing rights, as a result, has inflamed the anxieties of many homeowners who have reported loan-servicing disruptions recently.
“From a consumer perspective, it’s an improvement to have these loans in a mainstream bank,” said John Taylor, chief executive of the National Community Reinvestment Coalition.
“It’s not an improvement for them to end up in the hands of Wall Street. There isn’t the conversation or the accountability.”
When it comes to consumer-protection regulations, Taylor said, “Wall Street has a moat around it.”
