Hey! Wanna invest in a new mortgage company founded by a key architect of bankrupt Countrywide? Of course you do.
PennyMac, the mortgage vulture founded by Angelo Mozilo #2 Stanford Kurland, has filed for a $750 million NYSE IPO and would like to trade under the ticker “PMT”.
In March, Henry Blodget explained how the PennyMac business 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 filing touts Kurland’s Countrywide as an actual selling point (and PennyMac does have a point, since you’d imagine that an architect of the housing bubble knows more about the industry’s ins and outs than anyone).
From the section on competitive advantages, they say:
Investment and operational team with extensive experience in the residential mortgage business.
PennyMac’s senior management team includes 14 individuals with over 250 years of collective experience in the residential mortgage business, and this team has been executing the investment and portfolio management strategy on behalf of the PennyMac funds since August 2008. Mr. Stanford L. Kurland, our and PennyMac’s chairman and chief executive officer and former president and chief operating officer of Countrywide Financial Corporation, or Countrywide, is well recognised for his leadership in developing Countrywide’s strategic direction, financial management, risk management activities and organizational and governance structure. Mr. Kurland helped grow Countrywide’s loan origination and servicing capabilities.
However, they do acknowledge the downside of all this. From the risks section:
Publicity and media attention concerning litigation and investigations involving Countrywide and certain of its former officers could have an adverse impact on PennyMac and us.
There are several lawsuits pending against Countrywide and certain of its former officers. It has been reported that the SEC may be considering bringing a proceeding against Countrywide’s former chief executive officer. Certain of the officers of PennyMac who are former employees of Countrywide, including Stanford L. Kurland, our chairman and chief executive officer, who was chief operating officer of Countrywide until September 2006 have been named as defendants in lawsuits in which Countrywide and other employees and former employees of Countrywide are defendants. Neither we nor PennyMac nor any of our officers in their capacity as officers of PennyMac or us are party to, nor do any such parties expect to become party in such capacities to, any current or future litigation relating to Countrywide. However, we cannot assure you that existing or future, if any, investigations or litigation will not generate publicity or media attention or adversely impact PCM’s and PLS’s ability to conduct their respective businesses and us.