Subprime lenders efforts to stave off a cash crunch as Wall Street underwriters cut off credit lines is giving contrarian hedge funds a chance to buy up discounted assets on excellent terms: 1) According to regulatory filings disclosed Wednesday, before hedge fund Farallon Capital Management LLC gave a $200 million, five-year asset-backed loan to Accredited Home Lenders Holding Co. at 13% interest, Farallon considered and is still considering taking over the subprime lender, of which it now owns 7.8%. Accredited already sold off $2.7 billion in loans at a discount recently, and Farallon's loan terms give it 3.3 million Accredited options at $10 each over 10 years. 2) Citadel Investment Group LLC, which bought ResMae Mortgage Corp. two weeks ago, yesterday revealed a 4.5% stake in Accredited. 3) Fremont General Corp. said Wednesday it will sell $4 billion of loans at a discount, for a pretax loss of $140 million. 4) Private equity Blackstone Group is buying PHH Corp.'s mortgage unit. Subprime fears calmed Wednesday on the news, as Accredited and Fremont shares rose 11%, to $11.96 and 16% to $10.19 respectively.
Sources: Bloomberg I, II, Reuters UK, BusinessWeek, NY Times, MSNBC, San Francisco Business Times, CNN Money
Commentary: Accredited Home Lenders: Survival in the Quicksand of Subprime • Accredited Home Lenders to Sell $2.7 Billion of Loans • Housing Bubble and Real Estate Market Tracker
Stocks/ETFs to watch: Accredited Home Lenders (LEND), Fremont General (FMT), New Century Financial Corp. (OTCQB:NEWC), Fannie Mae (FNM), Novastar Financial (NFI), Wells Fargo (WFC), Fieldstone (FICC), PMI Group (PMI), MGIG Investment (MTG)
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