Angelo Gordon & Co. is seeking to raise as much as $750 million for a fund to invest in soured mortgages as banks and government agencies sell boom-era home loans at discounts.
The $26.5 billion investment firm, founded by John Angelo and Michael Gordon, is offering the fund through JPMorgan Chase & Co.'s private client group, according to a marketing document obtained by Bloomberg News. The firm is targeting $500 million to $750 million and will primarily invest in nonperforming and previously delinquent mortgages. Allan Krinsman, senior counsel for New York-based Angelo Gordon, declined to comment, as did Darin Oduyoye, a JPMorgan spokesman.
Prices on soured mortgages made prior to the 2008 housing crash have jumped in recent years as investment firms including Lone Star Funds, Oak Hill Advisors and One William Street Capital Management targeted the debt seeking higher returns than those available on other fixed-income investments. The supply remains "favorable" for investors, with about $40 billion available annually to buy over the next few years, according to a report last month by Compass Point Research and Trading.
Major banks and government-backed mortgage companies Fannie Mae and Freddie Mac are increasingly motivated sellers, according to the Angelo Gordon document. Banks accelerated sales of defaulted mortgages last year to avoid the costs of holding the debt, along with the Department of Housing and Urban Development, which sought to shore up the finances of the Federal Housing Administration.
Values of nonperforming mortgages climbed about 10% over the past year, according to the Dec. 10 report by Compass Point analyst Fred Small. HUD, for instance, sold $2.1 billion of loans for 70.4% of the estimated value of the properties in September, compared with less than 50% in a 2012 auction.
Nonperforming mortgages and those that have previously been delinquent offer yields of about 7.5%, and with borrowed money could return 15% annually, according to the Angelo Gordon document. That compares with record-low yields on global sovereign bonds of 1.24%, and yields of 7.1% for U.S. junk bonds, according to Bank of America Merrill Lynch index data.
