Turnaround Specialist Hopeful of Mortgage-Market Revival
Sunday, October 21, 2007
Wilbur Ross, a billionaire investor who specializes in resurrecting failed companies, is betting the U.S. mortgage market will rise from the dead.
"We're looking at everything that's in trouble," Ross, founder of WL Ross of New York, said in an interview.
He won an Oct. 5 auction for the home-loan servicing unit of American Home Mortgage Investment. Ross agreed to pay $435 million to $500 million for the right to collect payments and maintain escrow on about $45.3 billion of mortgages from the biggest residential lender to go bust this year.
Ross, 69, known as the "King of Bankruptcy" by clients during his quarter century at the Rothschild investment bank, is entering the market as an increasing number of borrowers quit making payments and profits sink in the servicing business, according to the Mortgage Bankers Association.
"They will probably have their hands full the next couple of years," said Bose George, an industry analyst at Keefe Bruyette & Woods in New York.
The number of borrowers behind on their payments hit a five-year peak in the second quarter, the Mortgage Bankers Association said. The figure may climb by the end of 2007 as interest rates jump for 450,000 borrowers with subprime adjustable mortgages, according to data compiled by UBS AG and Credit Suisse Group. Subprime mortgages go to borrowers with blemished credit.
"I would see an increase in the cost of servicing a loan for this year," said Marina Walsh, a senior director in the Mortgage Bankers Association's research and economics department. "Late payments can get pretty time intensive and you have to hire people with a certain skill set who have to be trained."
Per-loan profit for servicers declined by 44 percent to $58 in 2006 from $104 in 2005, Walsh said.
To succeed, Ross will have to coax delinquent borrowers to pay again, said Jeffrey Kirsch, chief executive of American Residential Equities, which specializes in getting people to pay overdue mortgage bills.
"There are not a lot of firms out there able to handle nonperforming loans," Kirsch said. American Home is not known for its expertise in the field, he said.
Many of the mortgages Ross will service went to applicants who did not document how much money they made, Keefe Bruyette's George said. Alt-A mortgages, a specialty of American Home, are available to borrowers with good credit who generally cannot or choose not to verify their income with pay stubs or tax forms.
Ross's company has also joined with Richard Branson's Virgin Group of London to bid for Northern Rock, the London lender bailed out by the Bank of England, and with Blackstone Group and six other investors for a 26 percent stake in lender IFCI of New Delhi.