However, backed by monies from BlackRock, Inc. and Highfields Capital, Countrywide executives aimed to work with borrowers to restructure, and formed the Private National Mortgage Acceptance Company, nicknamed "PennyMac," in order to resell defaulted mortgages at a profit.
PennyMac’s CEO is none other than the former head of Countrywide, Stanford Kurland, 56, who is now poised to make millions from the disastrous situation he partly produced, while unemployment reaches new highs, the stock market plunges, and Congress debates the largest economic bailout in United States history.
Kurland and a dozen other executives, known for loose business standards and previous high-risk operations, have spent the past year purchasing delinquent deeds. PennyMac operators spend their days counseling desperate borrowers, renegotiating, and cutting interest – which they can well afford, since they acquire most defaults for pennies on the dollar, and now control over $800 million in loans. Their business is healthy and successful again, and they make up to 50% profit on some deals – all of it legal.
No one could argue that they are helping homeowners by making mortgage payments affordable again… but should the same people who got rich tearing it down grow richer by building it back up?
Bruce Marks, CEO of the Neighborhood Assistance Corporation of America (NACA) commented, "These people created the problem and profited from the problem, and the fact of the matter is, we can’t trust them. We are very suspicious, and concerned they are there just to prey on hard-working people."
Kurland agrees that it’s "terrible what happened in the industry," but discounts any personal liability, because he left Countrywide in 2006, before the storm broke. Nevermind that he was instrumental in popularizing the “low teaser rate” loan that would become unaffordable when the rate expired.
Homeowners themselves must accept responsibility for over-estimating their means, and Kurland insists that he wants to be part of the solution. Right now, it’s more profitable to keep people in their homes – but what about when it isn’t anymore? Time will tell if they are stringing homeowners along until the market recovers, and their property values increase, so they can then foreclose.
"Greed is a growth industry," concludes Blair Nicholas, attorney to a group who are suing the former Countrywide bigwigs. "Kurland is seeking to capitalize on a situation of his own creation."
Other lawsuits accuse Kurland of understanding all the risks, but still misleading investors and customers. The National Consumer Law Center seeks to place limits on reckless lending, with Countrywide as their most glaring example of the need to regulate short-sighted practices. Kurland has never faced charges, and his lawyer has filed motions to dismiss the barrage of lawsuits.
To be fair, customers also seem unconcerned. In a recession, self-interest overrides indignant irony, so when their home is no longer threatened, they lay no blame for past transgressions. Also, PennyMac will only buy back about 15,000-20,000 mortgages – a fraction of expected millions– and some analysts even argue that such "bottom feeders" indicate a return to normalcy.
Wellesley College Economist Chip Case says that it is "the sign of pending recovery; those people buying up the stuff that is under-priced because of the panic, and that begins to move things back toward normal pricing."
Capitalism works, even when it leaves a bad after-taste.