Guess who holds your mortgage now? It's your friendly neighborhood hedge fund.
Dozens of hedge funds, private equity groups and other investors have plunged into the beaten-down mortgage market in recent months, buying tens of thousands of distressed loans and foreclosed properties around the country. They hope to profit from the woes of banks and other investors holding mortgages that have plummeted in value as home values sink and defaults soar.
They are buying them from Wall Street investment banks eager to rid themselves of bad assets. Merrill Lynch & Co., for example, said this week that it would sell mortgage-linked investments once valued at $30.6 billion for just $6.7 billion to Lone Star Funds, a distressed-debt investor in Dallas.
Still, there are some worries that desperate borrowers unwittingly may be giving up protections - such as the right to sue the original lender - when they agree to a modification.
"Borrowers are not represented by an attorney or anybody who can advise them about the legal effects of what they're signing," said Kurt Eggert, a professor at Chapman University's law school.
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