Billionaire investor Wilbur Ross Jr. is known for his daring investments in industries which are going through a rough patch.He made his fortune investing in distressed companies in the steel, textile and coal industries, turning them around, and selling them for a handsome profit.
Since the third quarter of last year he has been adding to his $95 billion of subprime mortgage servicing assets. He says:'We intend to keep adding servicing......because we think the mortgage business is fundamental to America. The mortgage business is'nt going away; it's just going to have to be done in a different way going forward.' Dubbed the King of Bankruptcy by clients during his tenure at the Rothschild investment bank, Ross has entered this business when profits are declining.
Right now he is focussing on small banks. 'I believe the next phase of the cycle will be the failure of depository institutions.' He argues that during the savings and loan crisis of the 1970's almost 1500 small banks closed down, while this time, so far there has been not been even one.While the big banks in trouble, like Citi etc. will get funds from some sovereign wealth fund to bail them out, the smaller and regional banks may not be able to do so. He is planning to eventually merge his varied financial investments together to create a 'fully rounded' mortgage business.
As far as government action to help troubled home loan borrowers is concerned, he says,' I don't think you can ever legislate against making foolish loans. My guess is there will be stricter constraints against what people have come to view as predatory lending practices. In terms of solving the problem of people who simply can't pay, it's not terribly clear to me what they can do to help them. Somebody has to take the loss.' He added:'There is nothing wrong in lending to weak credit. There is something wrong in doing it at discount rates and without proper documentation and without conservative appraisals.'
Ross does'nt set a time frame for the revival of the mortgage industry. He knows it is a cycle and he'll be ready to make a fortune when it turns around.