(Bloomberg News) Goldman Sachs Group Inc., which survived the subprime mortgage crisis by making bets on a housing decline, is raising money for a new fund that will buy home-loan bonds to benefit from an improving real-estate market.
The U.S. Housing Recovery Fund is expected to finish its first round of capital raising and open April 1, according to a marketing document obtained by Bloomberg News. It will focus on senior-ranked securities without government backing, many of which now carry junk credit grades.
"Stabilization in U.S. housing fundamentals is creating an attractive investment opportunity," the New York-based bank said in the document dated this month. "Many of the ingredients are in place for continued improvement in housing," including near-record affordability, a better supply-and-demand balance and policy makers' renewed focus on bolstering real estate.
Goldman Sachs Asset Management is joining hedge-fund managers Kyle Bass and Metacapital Management LP in seeking cash for new mortgage funds. They're following firms including Cerberus Capital Management LP, CQS U.K. LLP and Canyon Partners LLC that started similar investment pools after prices slumped last year. Values in the $1.1 trillion market for so-called non- agency mortgage securities are soaring this year after Europe's sovereign-debt crisis eased and the Federal Reserve was able to sell $19.2 billion of the notes, underscoring demand.
Selected By Fed
Goldman Sachs was among a handful of banks selected by the Fed to bid on the mortgage bonds acquired in the bailout of American International Group Inc., drawing complaints from others on Wall Street who were shut out of the process. The firm bought $6.2 billion of the debt in a Feb. 8 auction. Unlike Credit Suisse Group AG, which won a Jan. 19 auction, the bank failed to immediately flip most of the securities to clients bidding through it, regulatory data on trading volumes showed.
Andrea Raphael, a spokeswoman for Goldman Sachs, declined to comment on the fund.
Home-loan debt that isn't backed by government-supported Fannie Mae and Freddie Mac or U.S. agencies includes so-called option adjustable-rate mortgages and Alt-A ARMs issued during the housing boom that peaked in 2006. The securities later sunk in value amid a property slump and record defaults.
Typical prices for the most senior bonds tied to option ARMs rose to 57 cents on the dollar last week from 49 cents in late November, a 16 percent gain, according to Barclays Plc data. Bonds backed by Alt-A ARMs increased 8 percent to 52 cents on the dollar, from 48 cents in December.
Those securities remain below their 2011 highs of 65 cents and 68 cents, respectively, after falling as low as 33 cents and 35 cents in 2009. Option ARMs allow borrowers to pay less initially than the interest they owe by increasing their balances, while Alt-A loans often went to borrowers who didn't document income.