Private equity firm to invest $1 billion in high-risk mortgages

by Rachel.Norvell03 Oct 2014
Dallas-based private equity firm Lone Star Funds is continuing its campaign to purchase America’s bad mortgages. The firm’s newest venture includes investing $1 billion in U.S. home loans that were granted to homebuyers unable to borrower from the country’s largest lenders. 

Billionaire John Grayken’s Lone Star Funds is raising money to buy the riskiest portions of bonds, which are mostly backed by loans given to borrowers with trouble credit histories and first-time homebuyers with high student debt, according to Bloomberg News. Caliber Home Loans, which is owned by Lone Star, will originate the mortgages.  

The news comes after the firm purchased about $500 million of bad loans from JPMorgan in July and won an auction for $3.8 billion of soured FHA home loans in a June, according to Bloomberg.

The new loans from Caliber will be granted mostly to Alt-A borrowers (self-employed or have limited documentation) and high-quality subprimse customers, according to documents that the news organization gathered from Lone Star. Interest rates for the loans will be as high as 10% and include a 75% loan-to-value ratio. The mortgages will target borrowers with a credit score between 580 to 700.

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