Lone Star - A Superstar Distressed Mortgage Buyer - Hedge Fund Alpha (formerly ValueWalk Premium)
Lone Star

Lone Star – A Superstar Distressed Mortgage Buyer

Lone Star is one of the largest purchasers of distressed mortgages from federal housing agencies and banks. Below is a previously undisclosed purchase agreement with JPMorgan Chase to sell a pool of 1,500 distressed mortgages to Lone Star for $355 million. For background see the NYT article on this topic – full FOIA report below.

Lone Star’s Distressed Mortgage Bonds

Lone Star bundles together distressed mortgages, many of which are headed toward foreclosure, into unrated bonds that it sells to investors. Most of the payout on these bonds comes from the liquidation value of the underlying mortgages and the sale of the homes after a foreclosure. In this excerpt from a prospectus for one such bond, Lone Star describes the process that its mortgage servicing subsidiary, Caliber Home Loans, uses to determine which distressed mortgages included in the notes will be modified or foreclosed on.

Caliber and Mortgage Modifications

The issue of whether Caliber has an obligation to perform a greater number of modifications under the federal Home Affordable Modification Program, or HAMP, came up in a filing involving Francine Silva in the federal bankruptcy court in White Plains. Ms. Silva’s mortgage was sold by JPMorgan to Lone Star in 2014. Ms. Silva’s lawyer submitted an affidavit from a mortgage consultant on whether Caliber had an obligation to offer Ms. Silva a HAMP modification based on the terms of the purchase agreement. Caliber subsequently offered Ms. Silva another loan modification that she agreed to accept, according to court documents.

Lone Star Progress Report on Loans Purchased From HUD

In 2014, Lone Star bought a pool of about 17,000 distressed mortgages from the Department of Housing and Urban Development. Below is a progress report prepared by Lone Star describing the reasons it foreclosed on some of those loans as of March 15, 2015. The document was released by HUD pursuant to a Freedom of Information request by The New York Times. The document shows that as of March 15, 205, Lone Star reported that of the 1,082 mortgages Caliber had foreclosed on, 656 were vacant at the time of foreclosure.

Royston Bankruptcy Proceeding

The issue of whether Caliber is obligated to offer a HAMP modification to a homeowner under the terms of its loan purchase agreement with JPMorgan came up again in the personal bankruptcy proceeding for Nicola Royston in White Plains.

Mortgage Loan Purchase And Interim Servicing Agreement


Seller and Servicer



Residential Fixed and Adjustable Rate
Nonperforming Mortgage Loans

Dated as of0ctober29, 2014

Mortgage Loan Purchase And Interim Servicing Agreement

This Mortgage Loan Purchase and Interim Servicing Agreement (the “Agreement”) is entered into as of October 29, 2014 by and between, JPMorgan Chase Bank, N.A., a national association (the “Seller” and ”Servicer”), and LSF9 Mortgage Holdings, LLC, a limited liability company having an office at 2711 North Haskell Avenue, Suite 1800, Dallas, Texas 75204 (“Purchaser”).

Seller agrees to sell, and Purchaser agrees to purchase, on the tenns and conditions described below, certain first lien nonperfonning residential fixed and adjustable rate mortgage loans (individually a “Mortgage Loan” and collectively the “Mortgage Loans”), all as described herein.

Seller intends to sell the Mortgage Loans to Purchaser on a servicing released basis. The Mortgage Loans will be interim serviced by Servicer on behalf of the Purchaser from the Closing Date through December 1, 2014 or such other date as is mutually agreed to (the “Servicing Transfer Date”).

Seller and Purchaser, in consideration of the premises and the mutual agreements set forth herein and other good and valuable consideration, agree as follows:

SECTION 1. Agreement to Purchase. Seller agrees to sell, and Purchaser agrees to purchase, on the tenns and conditions stated herein, Mortgage Loans having an outstanding aggregate principal balance as of October 22, 2014 (the “Cut-off Date”) in the amount of $465,633,933.43.

SECTION 2. Mortgage Loan Closing Schedule. Seller and Purchaser hereby agree that the Mortgage Loans to be purchased under this Agreement are described in the schedule (the “Mortgage Loan Closing Schedule”) containing the information for each Mortgage Loan as set forth on Exhibit A. The Mortgage Loan Closing Schedule shall set forth for each Mortgage Loan the interest bearing principal balance thereof as of the Cut-off Date and the deferred principal balance thereof as of the Cut-off Date (together for each Mortgage Loan, the “Cut-off Date Principal Balance”).

SECTION 3. Maintenance and Deliverv of Mortgage Loan Closing Schedule. Seller shall deliver a true and correct copy of the Mortgage Loan Closing Schedule to Purchaser on the Closing Date (as defined herein).

SECTION 4. Purchase Price and Accrued Interest. The purchase price for each Mortgage Loan (for each Mortgage Loan, the “Purchase Price” and for all of the Mortgage Loans together, the “Aggregate Purchase Price”} shall be an amount equal to the product of the Cut-off Date Principal Balance for such Mortgage Loan and the percentage set forth on the Mortgage Loan Closing Schedule for such Mortgage Loan (for each Mortgage Loan, the “Purchase Price Percentage,,).

In addition to the Aggregate Purchase Price described above, Purchaser shall pay to Seller (i) up to 45 days of accrued interest (“Accrued Interest”) on the Cut-off Date Principal Balance of each Mortgage Loan that was not more than fifty-nine (59) days delinquent as of the Cut-off Date at the rate of interest borne by such Mortgage Loan, such interest to be paid for the period from the date last paid through the day prior to the Closing Date, inclusive. The Aggregate Purchase Price plus Accrued Interest shall be paid to Seller in immediately available federal funds by wire transfer on the Closing Date by 5:00 P.M. EST.

Purchaser shall be entitled to all proceeds arising out of the Mortgage Loans received on and after the Cut-off Date including, without limitation, all principal and interest payments, principal prepayments, insurance proceeds, foreclosure proceeds and condemnation proceeds less any Servicing Advances made by Servicer (subject to the limitations set forth in Section 10 hereof) between the Cut-off Date and the Servicing Transfer Date and the Interim Servicing Fee due to Servicer. Any Servicing Advances made by the Servicer between the Cut-off Date and the Servicing Transfer Date shall be itemized by the Servicer.

Purchaser shall be responsible for reimbursement to Servicer of any recoverable Servicing Advances made between the Cut-off Date and the Servicing Transfer Date. Servicing Advances shall mean all customary, reasonable and necessary “out of pocket” costs and expenses (including reasonable attorneys’ fees and disbursements) incurred in the perfonnance by Servicer of its servicing obligations associated with (a) any and all funds advanced by the Servicer for the payment of taxes, assessments, hazard insurance premiums and comparable items, (b) the inspection, preservation and protection of the real property, together with improvements thereon, securing the indebtedness of the mortgagor under the related Mortgage Loan (the “Mortgaged Property”), and ( c) any enforcement or judicial proceedings, including foreclosures and bankruptcy proceedings. In the event invoices for Servicing Advances made between the Cut-off Date and the Servicing Transfer Date are not received by the Servicer prior to the Servicing Transfer Date, Purchaser shall promptly reimburse Servicer within ten ( 10) business days of receipt of notice of such Servicing Advance.

Lone Star

Lone Star

See full PDF below.


Saved Articles