"The business they sold investors as 'secular' is actually 'cyclical,'" writes a bearish analyst of Altisource Residential (RESI -0.7%) and Altisource Asset Management (AAMC -10.5%). "And the cycle is now over."
For RESI to work as a business, the company needs a continuing supply of distressed single family home portfolios to buy, needs to raise capital above book value, and then needs to repeat the cycle. And as Friday's HUD auction of distressed mortgages shows, an improving real estate market and a wave of capital entering the space has about ended the easy money.
RESI was paying a 34% discount to fair market value a year ago for these assets, but Friday's result (of which the company was shut out) showed just a 22% discount - a decrease in profit of nearly 60%.