FREEZE IS ON AT GIANT MORTGAGE HEDGE FUND

The New York Post reports:

October 6, 2007 -- Ellington Capital Management, the country's largest mortgage-backed securities hedge fund, sent a letter to investors notifying them that redemptions and withdrawals in two of its funds would be suspended because of a sharp decline in the liquidity of certain mortgage- and asset-backed markets.

The Old Greenwich, Conn.-based hedge fund, which has $5.2 billion in assets, is considered a bellwether for measuring the health of the mortgage-backed securities market.

The fund's redemption suspension covered two mortgage-credit funds with about $1.9 billion in assets between them, according to the investor letter from Michael Vranos, the fund's general partner.

According to the letter, which was obtained by The Post, Ellington's move came after liquidity and value data provided by Wall Street's mortgage-bond desks at the end of September for the bonds in the portfolios varied so widely that Vranos and his colleagues could not assign a fair value to them.

Disturbing.