While the likes of PIMCO et al are doing their level best to put poor people out on the street, heroes like LL Funds and Deer Park Road Corp. are standing up for the little guys. Which include themselves because, as junior bondholders, they’re just as screwed when someone gets foreclosed.
At the center of the debate is Ocwen Financial Corp., an embattled mortgage servicer that’s been more aggressive than its competitors in slashing loan balances and lowering interest rates for borrowers -- sometimes three or four times. BlackRock, Pacific Investment Management Co. and others say Ocwen is failing to do its job by modifying loans in ways that make no sense in order to avoid foreclosures. The hedge funds dispute that and say everyone gets more money when Ocwen keeps people in their homes….
Investors who benefit most from Ocwen’s strategy of leniency are mostly so-called junior bondholders. They’re the ones who’ve bought riskier slices of the securities. Prolonging the length of time borrowers stay in their homes can lead to big returns from interest payments and possible windfalls from legal settlements with lenders.