LibreMax's Lippmann Pushes To Cut Mortgage Balances

Nov 7 2011 | 1:17pm ET

Proponents of mortgage-debt forgiveness have a new backer: Hedge fund manager Greg Lippmann.

Lippmann, who made his name at Deutsche Bank betting against subprime mortgages, told investors in his LibreMax Capital that the majority of mortgage modifications are missing the mark, Bloomberg News reports.

"Principal reductions are necessary to help ameliorate the housing crisis," Lippmann told LibreMax clients in an Oct. 31 letter. Lippmann added that "prominent economists from both the left and the right" back cutting mortgage balances, and noted that mortgage modifications that don't cut principal—such as those that only reduce interest rates—actually make borrowers 1.7 times more likely to default.

Less than 6% of mortgage renegotiations in the second quarter included principal reductions, and more than 10 million defaults could occur without them.

Lippmann isn't alone among hedge fund managers calling for principal reductions. Metacapital Management's Deepak Narula last month wrote that principal reductions "would go a long way towards ending the large overhang on the housing market of foreclosed homes, which would otherwise take several years to clear."

Lest one think that Lippmann's push is entirely altruistic, LibreMax has invested in mortgage-backed securities that would benefit from principal reductions. But Lippmann did says that he's built a portfolio "reasonably insulated with regard to different modification outcomes."


In Depth

JOBS Act Propels Real-Estate Crowdfunding Platform

Oct 21 2014 | 2:57am ET

If D.J. Paul were a real estate development, he would be described as “multi-use...

Lifestyle

Balyasny Pays Over $6M For Lakefront House

Oct 22 2014 | 10:29am ET

A venture headed by hedge fund manager Dmitry Balyasny just paid $6.2 million for...

Guest Contributor

Hedge Funds Weather A Data Management Perfect Storm

Oct 22 2014 | 12:28pm ET

From a regulatory standpoint, nearly every development since the crisis has placed...

 

Videos

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

October 2014 Cover

Deeply flawed risk benchmark

Most traders agree that proper risk management is the key to successful trading. However, many traders depend on the deeply flawed measure of standard deviation as a benchmark of risk. Here we put it ...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.