Investors Buy Delinquent Mortgages to Get Cheap Properties

With home prices rising, big real estate investors have discovered another source of cheap property: bad mortgages. American Homes 4 Rent, the second-largest single-family landlord after Blackstone Group, Barry Sternlicht’s Starwood Waypoint Residential Trust, and Altisource Residential are stepping up acquisitions of nonperforming loans, or NPLs, to expand their holdings of homes to operate as rental properties.

Hedge funds, private equity firms, and real estate investment trusts, which have raised more than $20 billion to purchase rental homes, are buying mortgages as banks face new regulations that make it more expensive to hold soured loans. The Department of Housing and Urban Development is also auctioning loans to stem losses at the financially troubled Federal Housing Administration.