BOSTON (TheStreet) -- Most of us would look at the finance firm PHH (PHH) and see a risky mess with years of double-digit stock losses, but not hedge fund whiz Kyle Bass, who initiated a big stake recently.Bass is known for correctly betting on the housing market's collapse four years ago by shorting U.S. subprime debt that underwrote mortgage securities and his outspoken criticism of several nation's managing of their debt problems. But Bass is a risk taker. His hedge fund, Hayman Capital, recently disclosed a 7.9% stake of just under 4.5 million shares it acquired in the period since Sept. 30, according to a 13G filing. The firm held none of its shares at the end of the third quarter. The shares of the $650 million market value mortgage and commercial finance company PHH have been up only slightly since Bass's investment. The stock may have done better but only last week, the federal government's newest agency, the Consumer Financial Protection Bureau, disclosed that it has launched an investigation into PHH's mortgage-insurance practice, the agency's first publicly disclosed probe. The shares are down 0.4% for the year but have gained 4.2% in the past week. PHH's share prices have been highly volatile and over the past year -- they're down 57%. They have a five-year average annual loss of just under 18%. This latest move underscores a previous bet Bass has made that the housing industry is ready for a rebound. In November, Bass' Hayward bought a 4.9% stake in mortgage insurance firm MGIC ( MTG), which has a market value of $820 million. At that time, he told The Wall Street Journal that his motivation for the new stake was a belief that the worst of the housing market's losses have been absorbed and that it is two to three years away from completely "bottoming out." MGIC's shares are up 5% this year, but over the past 12 months have lost 66%.
Some investors, including Bass, may be thinking that the government probe of the industry will result in nothing but a hand slap, a big fine and some new industry regulations and be able to declare a victory. And that will then be behind PHH and others in the industry by the time the housing rebound gets into full swing. Hayman Capital is a Dallas-based hedge fund founded by Bass in 2005.