* Gordian Sword: "We just might do a good thing for America"
* Jan. letter says success of firm rests on "secret formula"
* Investor group's deep political ties raises eyebrows
By Matthew Goldstein and Jennifer Ablan
New York, Jan 13 (Reuters) - Phil Angelides, formerly the chairman of a federal commission who led investigations into why the financial markets collapsed, is heading an investment group that hopes to "do a good thing" for America while turning a profit from the wreckage of the housing market.
The startup company, of which Angelides is executive chairman, seeks to raise money from investors to purchase troubled mortgages from banks and other financial institutions in order to help keep homeowners from being foreclosed upon, according to a Jan. 4 letter reviewed by Reuters.
The company, Mortgage Resolution Partners, claims its strategy of using "legal and political leverage" to acquire the loans could generate a 20 percent annual return for investors. The company intends to purchase mortgages at a steep discount and re-work them to enable the homeowners to continue making payments, with the firm collecting the proceeds.
"We just might do a good thing for America, and along the way get a great return on investment," says the letter to prospective investors. "If our hopes do not pan out, the amount wagered should be a deductible loss."
In the letter, the mortgage company refers to its political connections as its "secret formula."
Angelides, a former California state treasurer, Democratic politician and land developer, was head of the Financial Crisis Inquiry Commission until last February.
Planning for the Mortgage Resolution Partners began last summer, less than five months after the Commission wrapped up its work in Washington, D.C. In January 2011, the Commission issued a 662-page report that highlighted Wall Street's role in the collapse of the U.S. housing market. ( http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_full.pdf )
Angelides did not respond to an email seeking comment.
Emily Lenzner, a spokeswoman for Mortgage Resolution Partners, said the mortgage crisis was affecting millions of families in California and beyond, having a devastating impact on communities and the economy. She said political initiatives had come up short and "Mortgage Resolution Partners is exploring business and public policy solutions to this critical matter."
In a September interview with Bloomberg television on the housing crisis, Angelides said: "The banks unfortunately aren't doing enough to fix the housing crisis." He added: "I think we need to be much more forceful now about modifications. There are millions of people who can stay in their homes if they have principal reductions."
His move into housing comes at a time when hedge funds, private equity firms and other deep-pocketed investors are looking to scoop up foreclosed homes and earn money by renting them out. The Federal Housing Finance Agency, which regulated Fannie Mae and Freddie Mac, recently received proposals from hundreds of investment groups interested in acquiring and renting out single-family homes federal agencies have foreclosed on.
"The big question is, 'How can he possibly jump to the front of the line when everybody's been jockeying for this and to get to this feeding trough. Perhaps because he knows where the front of the line is?" Laus Abdo, executive director at TriArchic Advisors, a Las Vegas real estate advisory firm which has been focusing on rentals of single-family homes acquired through foreclosure.
Mortgage Resolution Partners is starting off small, aiming to raise about $6 million to study the feasibility of its plan, which mainly focus on acquiring home loans in distressed communities in California.
Most of the group's founding members have deep ties to California and have either political or finance backgrounds. The letter lists former San Francisco Mayor Willie Brown Jr. and Putnam Lovell Securities founder Donald Putnam as early backers of the company.
Putnam, who now heads private equity and investment advisory shop Grail Partners LLC, declined to comment, beyond saying the group "is trying to think of ways to cut through the Gordian Knot of the mortgage crisis." Before Grail, Putnam was involved in numerous transactions including Allianz Group's acquisition of PIMCO Advisors LP and Deutsche Bank AG's acquisition of Zurich Scudder Investment.
Gordian Knot, a reference to a legend involving Alexander the Great, is often a metaphor for an intractable problem and appears to be the inspiration for the investment vehicle that controls Mortgage Resolution Partners - Gordian Sword LLC.
In November, according to the Jan. 4 letter to "potential investor members," the founders of Gordian Sword and at least two dozen other people met at Cavallo Point in Sausalito, California, a posh estate in Golden Gate National Park, "to hammer out a business plan and chart a course through 2012."
But the letter, which asks potential investors to sign a non-disclosure agreement before receiving any further information, is sparse on details. It says the company will use "computer models and other techniques" to determine the best price for a so-called underwater mortgage - a loan on which a borrower owes more than a house is worth. The goal is to acquire loans at a discount and write down the debt to a point where a borrower can continue to make payments.
A good deal of the success of the program rests on Mortgage Resolution Partners' "secret formula," which the letter describes as its leverage in "California politics" and an executive chairman in Angelides, "who will be front-line center stage nationally."
The idea of investment groups buying distressed mortgages and writing down the principal and attempting to make money by keeping homeowners current on their new mortgages isn't totally new. A handful of other investment funds are trying that, including Selene Residential Mortgage Opportunity Fund, founded by mortgage-backed securities pioneer Lewis Ranieri.
But the more common approach is for investors to raise money to buy foreclosed homes and rent them out.
Lenzner, the spokeswoman for Mortgage Resolution Partners, said since the group has just been launched "it's premature to determine" the firm's final approach to the mortgage problem because it is "still in the research and development stage."
(Reporting by Matthew Goldstein and Jennifer Ablan; editing by Claudia Parsons and Edward Tobin)