Stanford Kurland, the former No. 2 to Angelo Mozillo at Countrywide, has a new business: Buying distressed mortgages at pennies on the dollar. The business is wildly profitable. It is helping to fix the banking system. It is also helping Americans stay in their homes.
Here’s how it works:
Kurland’s new company, PennyMac (!), goes to a demolished bank or the FDIC and buys up delinquent mortgages at, say, 20 cents on the dollar. Kurland’s people then call the delinquent homeowner and say, “How would you like to pay $2,000 a month instead of $4,000?” Once the homeowners realise it’s not a scam, they say “hell, yes.” PennyMac then books the often-massive spread between what it paid for the loan (20 cents) and what it is getting from the loan (50 cents).
- The bank had already taken the loss (good)
- The problem has been addressed at its root (the homeowner can now afford the house)
- The loan owner is no longer in denial.
- The modified loan can be resecuritized.
- This is a private-market solution (the FDIC just does its job)
- There is a market for these loans, despite what Citigroup and Bank of America (which have yet to take the losses on the loans) will tell you.
- PennyMac is funded by Blackstone and other private-market investors, showing yet again that there is money ready and willing to invest in mortgages once they are sold at the right price.
- This doesn’t involve judges, screams, or forced cramdowns
- It doesn’t involve tens of billions of taxpayer dollars shoveled into zombie banks (the FDIC just has to do its job and seize insolvent banks).
The New York Times describes PennyMac in detail here, devoting much time to the irony/horror that Kurland is making hay buying back the trash loans he once sold. Bloomberg describes several other companies that are doing the same thing here.