Exclusive: Ex-Goldman mortgage chief plans foreclosed home fund
Thu Jul 19, 2012 4:57pm EDT
By Matthew Goldstein, Jennifer Ablan and Lauren Tara LaCapra
NEW YORK (Reuters) - Former Goldman Sachs Group Inc. (GS.N) executive Donald Mullen, one of the architects of the subprime mortgage trade, is trying to raise at least $500 million for a fund that will buy foreclosed homes with an eye toward renting them out.
Mullen, who until January was head of the credit and mortgage business inside Goldman's securities division, began marketing his Fundamental REO Access fund in earnest about a month ago, said seven people familiar with the matter, but who did not want to be identified because they do not work for the upstart fund.
Several sources said Goldman Sachs is serving as the placement agent for the fund and will market it to wealthy investors, including some of its own clients.
Goldman and other investment firms that serve as placement agents can collect fees that range from 1 percent to 2 percent of the total sum raised from investors.
The new fund is part of a growing move by former Wall Street traders, hedge funds and private equity shops to profit from acquiring foreclosed homes and turning them into rental properties for their steady stream of cash.
Two sources familiar with the foreclosed home market said Mullen has told people the fund could raise as much as $1 billion.
Mullen did not return requests for comment. A Goldman Sachs spokesman declined to comment.
Mullen announced he was leaving Goldman in January, after 11 years at the firm. He joined the bank as a partner in July 2001 to head leveraged finance.
As a senior mortgage executive at Goldman, Mullen was actively engaged in derivatives trades that became widely known on Wall Street as "the big short." The deals provided a way for traders and hedge funds to bet against the housing market in the run-up to the mortgage bust.
Before joining Goldman in 2001, Mullen had held top jobs at Bear Stearns, Salomon Brothers and Drexel Burnham Lambert.
The sources familiar with Mullen's fund said it will raise money to go after homes being sold at foreclosure or taken over by banks. The fund will target homes that are selling for between $70,000 and $190,000 and mainly in the southeastern and southwestern regions of the United States.
Money managers are being drawn to the foreclosed home market because the rental market for single-family homes has become lucrative. The goal for many foreclosed home funds is to eventually sell the homes even in blocks, or as part of real-estate investment trust.
The foreclosed home market is attracting interest from individual investors, who are seeking higher income in an environment where 10-year Treasury notes yield a paltry 1.5 percent.
The market got a big shot in the arm earlier this year when the U.S. government announced a trial project to sell-off a big pool of 2,500 single-family homes that Fannie Mae currently owns in some of the hardest-hit housing markets.
On Wednesday, private equity firm Blackstone Group LP (BX.N) said it has spent more than $300 million to purchase over 2,000 foreclosed home across the United States with an eye toward renting them out until the housing market recovers.
Asset management firm TCW, which specializes in fixed-income securities and oversees $128 billion in assets, recently launched the TCW Home Place Partners fund, as an opportunity for wealthy investors to invest in the "housing turnaround" by buying foreclosed homes from banks and federal government agencies.
And in May, Beazer Homes USA, Inc announced it was partnering with private equity firm Kohlberg Kravis Roberts & Co. to buy foreclosed homes.
(Editing by Leslie Gevirtz)