Mortgages from hedge funds

5 Replies

Through a friend, I got an offer for a 30 year fixed rate mortgage from a hedge fund.  The rate is better than any banks I've seen by about 0.25%.  They do all the servicing of the loan and use standard terms.  I'm not familiar with this option, so was curious if there are risks with using hedge funds for mortgages that I'm unaware of.  Is that a legitimate concern?  Are there specific questions I should be asking or certifications I need to get in writing to avoid risk?

That seems really odd, hedge funds have a much higher cost of capital than banks, and a 30 year fixed rate priced cheaper than banks seems very difficult for them to sell-off. I've never seen a hedge fund or PE fund do something like this. Has your friend or anyone you know used them before? First question I would have is where they are getting the capital to make the loan, since they don't have any deposits and no way they have investor capital for this.

Thanks Abel.  I have friends who've used the guy, and they've had good experiences thus far.  But the banker wasn't able to answer all the questions to make me feel comfortable, including the questions you raised, so I decided to go in another direction.  I didn't want to constantly have the concern on my mind that they might somehow call the loan when interest rates go up over the coming years

No problem. I know funds like Blackstone and now DoubleLine are coming out with mortgage products, but those are usually higher rate mortgages that traditional banks wouldn't do because they aren't guaranteed by Fannie/Freddie. 

Very possible there's a new product I'm not familiar with, just don't see how it would work in practice. If it's 0.25% cheaper than 30 year bank financing, doesn't seem like something the hedge fund could easily securitize or raise capital for to hold.

Originally posted by @Abel Teklu :

No problem. I know funds like Blackstone and now DoubleLine are coming out with mortgage products, but those are usually higher rate mortgages that traditional banks wouldn't do because they aren't guaranteed by Fannie/Freddie. 

Very possible there's a new product I'm not familiar with, just don't see how it would work in practice. If it's 0.25% cheaper than 30 year bank financing, doesn't seem like something the hedge fund could easily securitize or raise capital for to hold.

 Maybe they're creating the securities they want to bet against.

Originally posted by @Dan McGrew :

Through a friend, I got an offer for a 30 year fixed rate mortgage from a hedge fund.  The rate is better than any banks I've seen by about 0.25%.  They do all the servicing of the loan and use standard terms.  I'm not familiar with this option, so was curious if there are risks with using hedge funds for mortgages that I'm unaware of.  Is that a legitimate concern?  Are there specific questions I should be asking or certifications I need to get in writing to avoid risk?

Very surprising!
Do you mind sharing with us their details?

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