Never one to go with the crowd — and with a track record of buying distressed companies at bargain basement prices — billionaire investor Wilbur Ross is bucking Wall Street’s fears of all things subprime.
His company plans to "continue to seek acquisitions of prime, Alt-A and subprime servicing.”
And he’s putting its money where his mouth is, recently buying Option One Mortgage, H&R Block's distressed mortgage servicer.
Acknowledging "the problems of the subprime lending industry” in a statement, the company said it still regards "mortgage servicing as an attractive business” with "considerable economies of scale attached to it.”
The $1.1 billion sale is expected to close May 30 and includes $41 million in mortgage servicing rights, $100 million of retained receivables, and $65 million for "other servicing related assets” priced at $85 million.
Ross’s company said it will "offer positions with comparable terms to a substantial portion of the employees” with the mortgage servicer.
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Ross previously agreed to acquire $42 billion in mortgage servicing rights from American Home Mortgage Investment.
The combined total of $95 billion will produce the second-largest subprime servicing portfolio in the U.S., just behind Countrywide Financial, which was in subprime mortgage trouble when Bank of America paid $4.1 billion for it in January.
Option One, battered by the nationwide mortgage crisis, currently services a portfolio of around $53 billion in subprime mortgages, the fourth largest in the nation. The subprime mortgage subsidiary collapsed last year as higher interest rates and falling home prices led many borrowers with poor credit to default on their loans.
H&R Block — which has been seriously damaged by the subprime crisis — stopped allowing Option One to originate mortgages after an earlier agreement to sell the division to Cerberus Capital Management collapsed.
Though it appeared Ross was going to buy troubled lender Ambac last month, the company instead bought $1 billion worth of Bermuda’s Assured Guaranty, initially buying $250 million worth of common stock and committing to buying an additional $750 million at the company's option in the future.
A specialist in leveraged buyouts, Ross amassed his considerable fortune by purchasing troubled companies in tired industries such as coal, steel, telecommunications, foreign investments and textiles, improving management to make their balance sheets more appealing and then reselling them.
Ross built his investing reputation as the foremost bankruptcy adviser, cleaning up the junk bond mess of the 1970s.
During the 1990s he ran a private equity fund for three years, then opened his own shop to take advantage of the bankruptcy deals on which he had to remain neutral as an adviser.
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