The country’s former largest mortgage lender revamps in the person of the same officials.
The New York Times ran a full report in its Business Section last March 3 about the rise of former Countrywide officials who set up a new mortgage company after leaving the office when the mortgage industry has turned sour. Stanford Kurland, former CEO of the now Bank of America-acquired mortgage firm, formed the Private National Mortgage Acceptance Co. (PennyMac) together with his former colleagues last March 2008. So why feature it then after a year?
The NYT wanted to remain unbiased in its follow up report. It cites, “While some critics are distressed that Mr. Kurland and his team are back in business, the executives say that PennyMac’s operations serve as a model for how the government, working with banks, can help stabilize the housing market and lead the nation out of the recession… But lawsuits against Countrywide raise questions about Mr. Kurland’s portrayal of his role. They accuse him of being at the center of a culture shift at Countrywide that started in 2003, as the company popularized a type of loan that often came with low “teaser” interest rates and that, for some, became unaffordable when the low rate expired.”
Here’s how the company works. Kurland, sensing potential profit from the messed up market, buys properties from financial institutions at way below current market rates. Because firms need to reduce their inventory, sellers will be forced to short sale. PennyMac puts this property in the market for a price that it can earn a profit but still below the house’s current value. It becomes cheaper for the buyer then to transact with the company since it would snap a price that is lower than the depreciated cost of the property.
But the real issue here is the speculation that surrounds the company’s motives. Last month, the company disclosed its home loan purchases from the Federal Deposit Insurance Corporation worth $558 million. With heavy buying in an effort to help the economy revive, should Americans put back their trust on the officials who were once part of a company that spurred the development of hybrid mortgages and eventually brought the entire economy to a windfall?
In an interview by MSNBC.com, Kurland stated, “My leaving Countrywide has a lot to do with having a different strategic view,” Kurland said. “I have a reputation in the market that, unfortunately, is tainted by things that transpired after I was gone.” The report adds, “(He) said the new company will have an advantage because it’s unburdened by a legacy portfolio and has the flexibility to offer unique solutions to individual borrowers.”
Since PennyMac is still a legal enterprise, there’s no reason why it should cease its operations. But until the cases filed against Kurland and his team that relate to their awareness and carelessness of the high risk that their products possessed remain pending, we stay dubious with their next motives aside from earning out of the crisis.