A well-known Greenwich hedge fund is getting into the subprime mortgage business in a big way.
Ellington Capital Management is in the process of finalizing an agreement with Fremont General Corp. to buy $2.9 billion worth of loans and the distressed lender’s real estate business, including its mortgage bond investments and loan origination platform.
Last month, Fremont shuttered its subprime unit after the Federal Deposit Insurance Corp. issued a cease-and-desist order to the company because of poor underwriting standards.
Ellington, which has $4 billion in assets, signed a letter of intent for the purchase, said Michael Vranos, the fund’s founder and chairman.
“Taking over a lot of structure like this is new, but we feel comfortable with the portfolio and with our risk management ability,” Vranos said.
Flush with assets and decades worth of portfolio management experience, hedge funds have increasingly stepped into the breach as subprime-mortgage originators begin a sure and steady economic collapse.
Vranos said the pending purchase of Fremont “is greatly helped by the fact that they are still a viable company, so we don’t have to deal with bankruptcy trustees and creditors.”
