1. Hedge funds like Ellington Management Group LLC are “disintermediating”, that is cutting mortgage firms like Bear Stearns Cos. out of the middle and buying mortgages on their own, eating into fees that mortgage firms earn from securitizing mortgages.
2. Instead of buying such bonds at markups of 1 percent or more, Ellington expects to make better returns by taking over bad debts and pressing borrowers to pay up.
3. It is targeting delinquent or poorly written loans. Bad bets on mortgages have discouraged bankers from bidding, leaving firms like Ellington Management Group to snap up home loans for as little as 30 cents on the dollar.
4. Ellington has bought mortgages this year with an unpaid balance of more than $3 billion, including $170 million purchased for about $58 million from New Century Financial Corp.
5. It signed a letter of intent to buy Fremont General Corp.'s residential-mortgage business, including employees responsible for collecting on the loans.
(But wringing returns from bad loans may get tougher as two dozen state lawmakers consider more than 70 bills to protect homeowners)
Removing middlemen = more revenue
[Click here for full story at: BLOOMBERG.COM]
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