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Vulture Funds Make Millions off Gov’t-Backed Home Loans

HeadlineNov 23, 2009

The New York Times reports Wall Street has found a new way to make money from the mortgage mess as millions of Americans struggle to hold on to their homes. Vulture funds are buying billions of dollars’ worth of discounted home loans, and then, in what might seem an act of charity, the funds are helping homeowners by reducing the size of the loans. But as part of these deals, the mortgages are being refinanced through lenders that work with government agencies like the Federal Housing Administration. This enables the vulture funds to pocket sizable profits by reselling new, government-insured loans to other federal agencies, which then bundle the mortgages into securities for sale to investors. While homeowners save money, the arrangement shifts nearly all the risk for the loans to the federal government — and, ultimately, taxpayers.

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