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Investors Step In To Buy "Toxic" Mortgages

The current housing crisis started with a lot of bad mortgages - mortgages given to people that couldn't afford them. Now banks are stuck with these so-called toxic loans. But a solution may be on the horizon, reports CBS News chief business correspondent Anthony Mason.

Albert Behin and Raj Bhatia are house hunting. But they're not looking to buy the house itself. they're looking to buy mortgages.

Investors like Behin and Bhatia may be the solution to the mortgage mess. They have started a company to buy up distressed home mortgages, those toxic assets that troubled banks are trying to unload, buying more than 50 since last December.

Typically, they pay 40 to 45 percent of the current value of the house.

They show a picture of a stately New Jersey home. The borrowers still owe more than $400,000. But Behin and Bhatia expect to buy it for less than $200,000.

Buying at fire sale prices allows them to offer a break to struggling homeowners.

"A lot of times we go around and offer them 30 to 40 percent below what they're used to paying right now," Behin says.

Behin and Bhatia make their money when they take those stabilized mortgages and later sell them at a profit when the market improves.

Ultimately, it's deals like this that will help banks like Citibank and Bank of America get rid of trillions of dollars of toxic assets that have poisoned the financial system.

The Denver-based AllonHill company does detective work on tens of thousands of bad loans, determining their value for investors eager to buy them. But many banks are still reluctant to sell the loans at deep losses. (Read more in CBSNews.com's EconWatch blog.)

"They don't want to do that because in many cases they would be insolvent," says Sue Allon, CEO of AllonHill. "In many others, they wouldn't be insolvent, they would be in big trouble and it would be a very ugly headline."

But Albert Behin and Raj Bhatia are getting ready:

"We're staffing up to really see how to take advantage of this business," Bhatia says.

The economy will need more investors like them, because the housing market won't find a bottom until the bank's toxic assets find a new home.

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