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"but I thought Lehmann and the rest of them went bust investing in distressed debt"

They owned the debt at $1 on the $1, then the bubble burst and they owned the house worth, say, $100,000 on the mortgage, but worth $40,000 in the real world. They owned a BUNCH of these foreclosures. Investors wouldn't buy a $100,000 mortgage for that, they would buy it at, say, .40 on the $1? Maybe .20? Who knows. It's what the market will bear. And investors wouldn't take it ALL on themselves, just as much as they wanted. I wouldn't mind buying a forclosure mortgage for $25,000 when there is $100,000 owing from the owner if I believed (and I do) that it would be worth around $100,000 in 5 years (the purchase price two years earlier). Either I would be repaid the 100,000 from the owner, yielding a 400% return on my investment, or I would end up owning the house, which I could then sell the real estate for around $100,000. A 400% profit. Beats the hell out of 10% in a mutual fund, or 3.9 in a cd. The market will eventually correct -- who knows when -- but it will eventually correct. That's the draw. Unfortunately, we're dealing with these mortgage "packets" of 1000 mortgages each, not individual foreclosures. It now becomes a securities game, not a small-time real-estate game.