Summary
Yes, we will face the demise and break-up of dozens if not hundreds of sub-prime mortgage shops.
Yes, we also will watch many prime mortgage originators suffer misfortune, dragged along by the foreclosure/buy-back non-performing loans that have plagued sub-prime lenders and servicers and the adverse impact on housing values virtually every foreclosure brings to bear.
But is now the time to act?
Analysis
In the past two months I have advised no fewer than a dozen private equity and hedge fund companies regarding the opportunities--and pitfalls--of investing in the mortgage space, particularly the sub-prime arena, both on the origination and the servicing sides.
Since the Fall of 2006, no less than Merrill Lynch, EMC/Bear and Morgan Stanley all have bought sub-prime and "Alt-A' (non-conforming loans) origination platforms. We will see more of this as the Wall Streeters attempt to salvage what they can from former loan originator/seller/customer companies that now are going broke. Street companies not only bought loans from these selling originators or sub-prime loans, the banks loaned them money with which to fund the loans as well.
Yes, there is an opportunity. But when does one act? Now? In six months? In a year?
When I worked for Ronald Perelman and Jerry Ford, I learned an important lesson: you make your money when you buy, not when you sell.
In this arena, timing is everything. Congress appears to be poised to add even more regulation to the high-cost/sub-prime originators. What effect will that have on future deal values? When will the price slide end?
Tming is everything. The more patient ones will win this war of opportunity.
