Former Countrywide executives cash in on federal housing bailout
After overseeing a company at the very center of the still-imploding U.S. mortgage market, a dozen former executives are now poised to make millions from the housing crisis.
Stanford L. Kurland, the former president of Countrywide Financial the bank that has become most synonymous with the bad mortgage lending practices that eventually caused the housing market to burst, setting into motion the current financial crisis and colleagues from the defunct firm now run PennyMac.
The company, headquartered in the same Los Angeles suburb where Countrywide was managed before it was sold to Bank of America last summer, specializes in buying up bad home mortgages that the U.S. government took over from other failed banks, the New York Times reported Tuesday.
PennnyMac has been buying up some of those mortgages for just a fraction of their value, and they keep a portion of whatever money they collect from the mortgage holder.
PennyMac's business has been "off-the-charts good, said John Lawrence, the companys head of loan servicing, the Times reported.
Although the company is reportedly helping many financially troubled homeowners by slashing interest rates for some strapped homeowners, many are angry that businessmen who oversaw a company that ultimately failed in part due to its subprime lending practices can turn around and profit off the housing crisis.
Countrywide was investigated early last year by the FBI, SEC and the Justice Department for accounting fraud, insider trading and possibly misleading security filings.
It is sort of like the arsonist who sets fire to the house and then buys up the charred remains and resells it, said Margot Saunders, a lawyer with the National Consumer Law Center. The organization has for years sought to limit the sort of abusive lending practices that were employed by Countrywide and other financial companies.
Last June, the state of California, among those states most affected by the housing crisis, sued Countrywide for engaging in deceptive advertising and unfair competition by pushing homeowners into risky loans for the sole purpose of reselling the mortgages on the secondary market.
"Countrywide exploited the American dream of homeownership and then sold its mortgages for huge profits on the secondary market," California Attorney General Jerry Brown said last year.
Countrywide also allegedly gave special loan terms to prominent U.S. lawmakers and former cabinet members.
Kurland has acknowledged "pushing Countrywide into the type of higher-risk loans that have since, in large numbers, gone into default," the Times reported, but he claims he always insisted loans go only to those able to repay them.
It is horrible what transpired in the industry, Kurland said.
The full name of PennyMac not to be confused with FreddieMac is the Private National Mortgage Acceptance Company. It "stands to profit enormously even if it offers to slash interest rates" to attract those holding delinquent loans to resume payments, the Times reported.
The company's biggest deal has been with the Federal Deposit Insurance Corporation. It paid the government agency just $43.2 million for $560 million worth of residential loans, which were formerly on the books of the failed First National Bank of Nevada.
Kurland is seeking to capitalize on a situation that was a product of his own creation, said Blair A. Nicholas, a lawyer representing retired Arkansas teachers who are also suing Mr. Kurland and other former Countrywide executives. It is tragic and ironic. But then again, greed is a growth industry.
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