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In the face of radical uncertainty, some entrepreneurs are finding ways to make money in today's credit market. Yesterday, Bloomberg ran an article on bank charges and mark to market accounting, but the lead for their article told an interesting story of entrepreneurship.
A hedge fund manager purchased a mortgage from a bank for 60 cents on the dollar and then contacted the home buyer who owed money on the mortgage. The manager offered to lower the debt--not just refinance for lower payments but to actually lower the debt. Bloomberg says the manager was "protecting his investment" by making it easier for her to pay. The borrower accepted.
The bank was better off because it was able to sell one of it's mortgages. The hedge fund manager was better off because he will likely collect the remaining money owed on the mortgage and finally, the home owner is better off because she'll pay less and the likelihood of keeping her home increased. Everyone wins in this deal.
Congress is working on passing a now-watered-down version of cram down and the president is talking about intervening in the mortgage market in a variety of ways including further uses of the Troubled Asset Relief Program (TARP) and the Government Sponsored Enterprises (GSE), Fannie and Freddie. In the face of the uncertainty caused by government's selective intervention, bankers and mortgage holders are having trouble deciding when and at what prices to sell their mortgages. The entrepreneur in the Bloomberg story is taking a risk--one that would likely not be necessary if government stopped intervening.
Events like it are probably taking place all over the country right now and we just aren't hearing about it. Entrepreneurs like the hedge fund manager are working to find profit opportunities, but at the same time they are helping everyone with which they make a deal.