NEW YORK (TheStreet) -- Shares of Altisource Residential (RESI) are falling after one of the company's rivals reportedly obtained $3.9B of poorly performing home loans that were sold by the Department of Housing and Urban Development. Altisource specializes in buying sub-performing and non-performing mortgages.
WHAT'S NEW: Private equity firm Lone Star Funds submitted successful bids for $3.9B of soured home loans sold this month by HUD, Bloomberg reported on Friday night. This was the first time that a single bidder had won all of the loans being offered in such a sale of debt previously insured by the Federal Housing Administration, the news service quoted HUD as saying. Lone Star paid an average of about 75c on the dollar, versus the going rate of about 65c at previous HUD auctions, Asset-Backed Alert reported. Other bidders were angered by Lone Star's bid, the website quoted an unnamed source as saying. Lone Star negotiated with HUD beforehand to acquire all of the available loans, another source told the website.
ANALYST REACTION: In a note to investors, Piper Jaffray analyst Michael Grondahl wrote that Lone Star paid about 77.6% of estimated current prices for the loans, versus the 68%-69% that Alitsource had previously paid for similar loans. Lone Star's bids were aggressive, and there is still a large supply of mortgages set to be sold by banks and various government agencies later this year, the analyst stated. He reiterated a $41 price target and Overweight rating on Altisource Residential.
WHAT'S NOTABLE: Altisource Asset Management (AAMC) provides asset management and corporate governance services to Altisource Residential under the terms of a contract between them.PRICE ACTION: In late morning trading, Altisource Residential dropped 8.5% to $36 and Altisource Asset Managemen tumbled 18% to $900. Reporting by Larry Ramer.