Rich versus Poor?

This article paints a very ugly picture pitting the ultra-rich against the almost-homeless. Apparently some hedge funds are attacking banks for trying to help defaulting homeowners stay in their homes. Here's my novice approach at explaining this. The hedge funds are anticipating a certain level of defaults due to the current housing and lending markets, and are buying mortgage bonds that at discounts due to the higher rates of default. If banks step in and offer fixes for defaulting (or almost-defaulting) borrowers, the hedge fund betting on the increased defaults might take a loss instead of a profit.

If that didn't make sense, try this: "Some hedge funds say they are concerned that banks that both sell the derivatives contracts and handle mortgage payments could be involved in a form of market manipulation. The funds fear that banks are making concessions on the underlying mortgages to avoid making good on derivatives contracts that pay off in cases of default."

Here's the full article for your analysis. Enjoy! http://www.ft.com/cms/s/3ae806a2-0fa6-11dc-a66f-000b5df10621.html