'Buffett extends real-estate bet with ResCap pursuit'

Warren Buffett, whose prediction last year of a housing recovery was premature, is raising his bet on a rebound with his $3.85 billion bid for a mortgage business and loan portfolio from bankrupt Residential Capital LLC.

The offer “certainly indicates that he thinks the worst is behind us,” Jeff Matthews, author of “Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett,” said in a phone interview. “Yes, he’s been wrong about housing before. But if you look at any credit metric, if you look at any of the banks and what’s happening in their loan portfolios, it’s getting better.”

 

Foreclosure filings in the US have fallen on an annual basis for 20 straight months, according to RealtyTrac Inc, and home prices jumped 1.8 per cent in March, the biggest monthly increase in at least two decades, as record-low mortgage rates and a dwindling inventory of properties available for sale strengthened demand.

Buffett’s Berkshire Hath-away Inc has prepared for a turnaround by buying a brickmaker, expanding its real estate brokerage and wagering on commercial property through a company jointly owned with Leucadia National Corp. The venture, called Berkadia Commercial Mort-gage LLC, was formed from a loan- servicing and mortgage business purchased out of bankruptcy in 2009 and once owned by ResCap’s parent.

Ally Financial Inc, a Detroit-based auto lender majority owned by US taxpayers, put its ResCap unit into bankruptcy last month to distance itself from the mortgage lenders’ losses and help repay its 2008 bailout following the US housing crash and subsequent credit crisis. US Bankruptcy Court Judge Martin Glenn is scheduled to consider approving auctions for the assets at a hearing today. Berkshire said in a June 11 court filing that it’s seeking to replace Fortress Investment Group LLC (FIG)’s Nationstar Mortgage Holdings Inc as the stalking-horse, or initial, bidder at an auction for ResCap’s mortgage business. Berkshire has also proposed replacing Ally as the first bidder for the Minneapolis- based lender’s loan portfolio.

The billionaire’s Omaha, Nebraska-based firm, which is a ResCap bondholder, offered to match Fortress’s price of about $2.4 billion for the mortgage operations. It’s also proposing fees that are about $60 million lower than Nationstar’s if it’s outbid. Berkshire said it’s prepared to pay $1.45 billion for the loan portfolio, compared with Ally’s $1.4 billion for a sale outside the bankruptcy plan backed by the car lender.

The judge can either accept Nationstar as the stalking horse for the mortgage unit, name Berkshire in its place, or refuse to grant any company the protections, such as the breakup fee, that come with being the initial bidder.

Buffett has “come out with what appears to be a very real offer to buy the assets,” said John McKenna, a managing director at Miller Buckfire & Co, a New York-based financial advisory firm. “The court will ferret out whether it is a tactic or a legitimate interest in acquiring the assets.” A buyer can’t “just show up and feign interest in order to generate a better return.” Nationstar said Berkshire’s request shouldn’t be granted as it may discourage potential investors in future bankruptcies from devoting the time and money required to be a stalking-horse. Susan Fitzpatrick, a ResCap spokeswoman, Fortress’s Gordon Runte and Ally’s Gina Proia declined to comment.