Lone Star Raises $1 Billion for New Mortgages to Self-Employed

Lone Star Funds raised more than $1 billion to invest in residential mortgages to borrowers such as small-business owners and entrepreneurs, betting on growing demand from that cohort even as higher interest rates have cooled overall US housing demand.

The fund — which invests in newly originated, non-agency mortgages — uses leverage to increase its buying power, giving it the ability to invest in more than $10 billion in mortgages, according to a statement Wednesday. Lone Star has committed roughly one-third of the capital in the new fund since an initial close a year ago.

Lone Star launched its residential ...