You may have missed this December 25th2018 article in the Wall Street Journal: https://www.wsj.com/articles/a-hedge-fund-makes-billions-off-americans-underwater-mortgages-11545742800. The article covers a hedge fund that purchased over $8 Billion of delinquent second mortgages. The properties backing these secondary liens were all “underwater”.
The “underwater” problem still exists today for approximately 2.2 million single family homes but that is down substantially from its peak of 12 million homes.
Non-performing second loans were trading for pennies on the dollar. In fact, according to the article Fir Tree, the hedge fund covered in the article, was able to purchase $9 billion in face value non-performing second’s for $1 billion!
The article also points out that Fir Tree did their due diligence by scouring through the files to look for missing documents, misstatements and other lending issues. Their due diligence enabled them to sue lenders and insurers for their bad lending practices.
Bottom line is that this hedge fund is doing exactly what note investors, trained properly, can do, albeit on a smaller scale.
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