Hedge fund eyes US servicing platform

Cambridge Place Investment Management – a London-based hedge fund manager backed by Trigold founder Martin Finegold – is rumoured to be looking to buy a US servicing platform to cash in on the expected boom in sub-prime delinquencies.

CPIM, in which Finegold is a partner, declined to comment on the rumours, but one US adviser, who asked not to be named, says Cambridge wants to purchase a servicing platform that can handle sub-prime loans.

The source adds: “It isn’t interested in lending, but it wants to be in the default business.”

The default business is a hot niche in the US. Even though residential loan delinquencies have been relatively mild, some industry executives, such as Wall Street firms that have mortgage conduit operations, are bracing themselves for a tidal wave of loan delinquencies as sub-prime adjustable rate mortgages readjust, causing some consumers to go delinquent on their loans.

Payment option ARMs form about 10% of the US origination market, which could total $3trillion this year.

Default servicers make their living by curing delinquent ‘scratch and dent’ loans. Sometimes the default servicer forecloses on the property, but often they set up new payment plans with borrowers hoping to make the loans current again.

Countrywide Financial Corporation, the largest lender in the US, recently revealed that 75% of its payment option ARM customers choose the cheapest mortgage payment option each month. Countrywide CEO Angelo Mozilo is so concerned about the high ratio of ARMs the company has that he has written letters to customers warning that US rate rises could lead to knock-on rises in their payments.

Finegold is best known for masterminding Kensington Mortgages back in November 1994. He served as chairman and chief executive of the company until 2000 but still has an investment in it.