Apparently, a couple of former executives at Countrywide have gone into business for themselves. Now, for those of you who have really short memories, Countrywide was pretty much at the epicenter of the mortgage meltdown, and had to go out of business because of the billions and billions of dollars in bad loans they made with their customers' money. In other words, they were irresponsible with others' money.
Can you guess what they're doing now?
This is from today's NYTimes.com.
So it may come as a surprise that a dozen top Countrywide executives now stand to make millions from the home mortgage mess.
PennyMac was born last spring after Mr. Kurland received a phone call from a childhood friend, Lawrence Fink, now the chief executive of BlackRock, which along with other investment groups is trying to figure out how to profit from the decline by buying up distressed loans at fire-sale prices. Mr. Fink lured him back in business, and BlackRock invested.
PennyMac, whose full legal name is the Private National Mortgage Acceptance Company, also received backing from Highfields Capital, a hedge fund based in Boston. Other investors include Atlantic Philanthropies, based in Bermuda and created by the billionaire former owner DFS Group, a chain of airport duty free shops. PennyMac makes its money by buying loans from struggling or failed financial institutions at such a huge discount that it stands to profit enormously, even if it offers to slash interest rates or make other loan modifications to entice borrowers into resuming payments.
Its biggest deal has been with the Federal Deposit Insurance Corporation, which it paid $43.2 million, or the equivalent of 38 cents on the dollar, for $560 million worth of mostly delinquent residential loans left over after the failure last year of the First National Bank of Nevada. Many of these loans resemble the kind that Countrywide once offered, with interest rates that can suddenly balloon.
Under the initial terms of the F.D.I.C. deal, PennyMac is entitled to keep 20 cents on every dollar it can collect from borrowers, with the federal government receiving the rest. Eventually that will rise to 40 cents.
Telephone operators at PennyMac’s offices — working in shifts — spend 15 hours a day trying to reach borrowers whose loans the company now controls. In many cases, they offer drastic cuts in the interest rate or other deals, which PennyMac can afford, given that it paid so little for the loans.PennyMac hopes to achieve a profit of at least 20 percent annually, and it is actively courting other investors in an effort to build its portfolio, which now consists of $800 million in loans, to as much as $15 billion in the next 18 months, executives said. For the borrowers whose loans have ended up with PennyMac, it can translate into an extraordinary deal.
You know what? There was a time when financial people who were irresponsible with other people's money were shunned by society, or forced to pay restitution and banned from the industry, or even thrown in jail, if the negligence was bad enough.
Check this out, from the same article:
In retrospect, Mr. Kurland said, he regrets what happened at Countrywide and in the mortgage industry nationwide, but does not believe he deserves blame.
“It is horrible what transpired in the industry,” said Mr. Kurland, who has never been subject to any regulatory actions.
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.
The lawsuits, including one filed by New York State’s Comptroller, say Mr. Kurland was well aware of the risks, and even misled Countrywide’s investors about the precariousness of the company’s portfolio, which grew to $463 billion in loans, from $62 billion, during the final six years of his tenure.
In other words, he was an executive with a company that had so many bad loans in its portfolio that it sank under the weight, but he's not responsible in any way for any of it? How is that possible?
The simple answer is, it's not. The executives of a financial institution have a fiduciary duty to take "reasonable care" of the money people entrust to it, whether they are stockholders or depositors. That doesn't mean there's no risk, but let's be real here. Countrywide had been around since 1969, and at about the time Kurland joined the company in 2003, its stock was one of the most successful investments in the pantheon, having ourperformed Wal-Mart, WaMu and even Berkshire Hathaway. From 2003 until its purchase and demise in late 2008, Kurland led the company to oblivion.
There has to be a price to pay for that; it sure doesn't seem right that he and his partner are able to profit from the spoils of his previous excesses. If there is no more natural shame in American business, there should at least be enforced shame. It's time to get people like this out of the business, and quite possibly in a jail cell. One can only hope that these lawsuits are successful, but I doubt it; it's likely the stockholders of Bank of America, who bought Countrywide's assets, will end up paying for Kurland's irresponsible leadership.