Duh of the Week: A PennyMac for your thoughts

by Ron Daly 

Once upon a time, there was a giant lending house called Countrywide. When the financial crisis struck down a number of lenders in 2008, Countrywide was one of the first to go. Having gone through two years of controversies, lawsuits and accusations by the SEC, Countrywide had to be absorbed by Bank of America. BofA has decided to dissolve the Countrywide brand altogether, as thousands lost their homes and their mortgages due to over-inflated appraisals and bad lending and payment policies. 

But the story doesn't end there. The former Number Two at Countrywide, Stanford Kurland, decided to open a new vulture firm - nicknamed "PennyMac"  [click here for the CU Journal story].

The business model, as it's explained in this Business Insider article, works as such: PennyMac buys bad loans from busted banks or the FDIC for next to nothing, follows up with the homeowner and asks if that homeowner wants to keep paying for the loan at a reduced rate, then makes double the price they paid for the loan in profit. 

Stop laughing, I'm not joking. 

What's so bad about trying to help struggling homeowners, you ask? I think I'll let Margot Saunders' comment in this NYTimes.com article speak for me: 

"It is sort of like the arsonist who sets fire to the house and then buys up the charred remains and resells it."

Exactly. 

A company that caused the housing bubble now makes money helping home owners who were hurt when the bubble burst. If you've got a better "Duh of the Week" candidate, I don't know what it is. 

Enjoy it, PennyMac - and here's hoping lighting doesn't strike twice for the poor people who lost their homes under your former employers' watch. 

By the way, PennyMac is filing to raise $750 million in an IPO. Anyone want to take their GM stock, once trading at $95/share, now at $.75/share, and buy into it? Anyone?

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Comments

[Denise Wymore]

I'm speechless.

crickets...crickets....blink, blink.....

[Elliott]

If you take Kurland out of the equation, its not so crazy. The business model of PennyMac is actually the opposite of the model for Countrywide. Whereas Countrywide sold off bad mortgages, PennyMac buys bad mortgages and makes them affordable. On a macro scale, it seems like PennyMac would actually "detoxify" the securities market.

The Duh part only kicks in when you add Kurland, and the other various ex-Countrywide officials that followed him to PennyMac. Also, calling it PennyMac seems like not such a smooth move, giving the less than stellar performance of FreddieMac (whether or not the comparison was intentional).