HEDGE FUND BEAR-ISH ON SUBPRIME RELIEF

The New York Post reports:

A big hedge fund on one whopper of a winning streak is picking a bitter fight with Bear Stearns over whether renegotiating loans for homeowners struggling with subprime mortgages is fair play.

Paulson & Co., an $11 billion hedge fund, has written regulators over concerns that Bear and other investment banks may be engaged "in market manipulation" when the banks' mortgage-issuance units modify loans so that homeowners can avoid foreclosure.

The Madison Avenue-based Paulson is ready to do major battle.

It penned letters to the Federal Reserve and Commodity Futures Trading Commission and hired former SEC Chairman Harvey Pitt to provide legal advice, according to The Financial Times.

The letters make no bones about the threat to the value of Paulson's trades from what it called "uneconomic transactions." Also signing at least one letter were representatives from hedge funds Hayman Capital Partners and Elliott Associates.

At issue is the motivation behind efforts by Bear's EMC Mortgage unit to renegotiate subprime home loans, and whether it's solely to prevent homeowners from losing their houses, or, as Paulson's general partner John Paulson told The Post, simply "to artificially inflate the value of derivative securities."

Paulson said that he strongly supported loan modification when valid, but that some of these "second chances" appear to be just "market manipulation" from Bear.

Tom Marano, Bear Stearns' mortgage chief, declined to comment.

You haven't heard the last of this one.