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The way out of the worst U.S. housing slump since the 1930s goes through Angel Gutierrez.

Gutierrez buys bad mortgages a dozen at a time for a fraction of their face value from lenders overwhelmed by the highest number of defaults in 23 years.

When he goes door-to-door to negotiate lower payments for homeowners or pay them to move so he can sell their houses, he's speeding up the recovery. He's establishing a price for the homes and flushing out the least reliable borrowers.

"You buy the mortgage for pennies on the dollar, carry the big stick, tell the homeowner how it's going to be, then double your money very easily," Gutierrez said.

On a sunny day last month, Gutierrez knocked on doors in Imperial Beach, an arid, hilly town of about 26,000 just south of San Diego. There were three Imperial Beach houses on the spreadsheet provided by the mortgage servicer that was selling them; none of the borrowers had made a payment in months.

In Imperial Beach, 15 homeowners lost their properties to foreclosure in the first three months of 2008, compared with four in the same period last year, according to La Jolla, Calif.-based DataQuick Information Systems Inc.

Gutierrez said that because of the legal fees, he avoids foreclosing except when he has to "clean" the title of liens or other legal judgments.

At a one-story, L-shaped stucco house with rose bushes and an American flag hanging from the garage, 62-year-old Armida Leos answered the door. Her 73-year-old husband, Gilberto, a former U.S. Border Patrol officer, had to quit retirement and get a job as a security guard when their monthly mortgage payments jumped to $3,200 from $2,400, she said.

"I feel really bad for my husband because he worked his heart out to get us into this house and now we're losing it," Leos said.

Gutierrez's spreadsheet said the Leos family owed $455,000 on their mortgage.

They had just received notice from San Diego County that their property tax was being reduced because the house had been assessed for $193,000.

Back in his pickup truck, Gutierrez said he was prepared to offer Leos and her husband $5,000 to move out.

Gutierrez and his wife, Brenda, based in San Diego, are a two-person shop in an industry that is attracting deep-pocketed investors such as New York-based BlackRock Inc., which manages $1.36 trillion in assets and plans to raise $2 billion to invest in discount mortgages. Other Wall Street giants like New York-based Goldman Sachs Group Inc. and Morgan Stanley are also getting into the business by bidding on thousands of mortgages at a time.

"At this stage of the game they're playing a very small role, but I expect that that role will accelerate as more people are willing to accept reality," said Sam Zell, the billionaire real estate investor who's called "the Grave Dancer" for buying distressed assets. "The single-family market has to be cleared. No market works unless it clears. If banks can't clear, they can't make new loans. Anything you do to keep people who can't afford it in their houses is another way of delaying the market clearing."

In San Diego's Encanto neighborhood, median home prices slid 38 percent in March from a year earlier, according to DataQuick. Gutierrez, 42, pulled up in front of an L-shaped, one-story stucco house. The grass was tall enough to hide a broken child's swing in the front yard.

Gutierrez, who was eyeballing the property to see if he wanted to bid on the mortgage, checked the gas meter mounted on the garage. It was spinning, a sign the home was probably occupied.

The homeowner was $365,000 underwater after buying the house with no money down in June 2005, according to a spreadsheet listing about 30 loans for sale by a national mortgage servicer that Gutierrez referred to in his truck. If Gutierrez bought the note for 20 cents on the dollar, or $73,000, he could probably get the owner to leave by giving her $5,000 for moving expenses, then sell the home for about $150,000, well below even the neighborhood's declining market value, he said. That would leave him a profit of about $70,000.

"I like the fast nickel," he said. "You buy them cheap, you sell them fast, and you get paid."