Finding business in subprime ashes

Ashley Milne-Tyte Mar 24, 2008

Finding business in subprime ashes

Ashley Milne-Tyte Mar 24, 2008


KAI RYSSDAL: From the Marketplace Desk of “Ain’t Life Rich,” some former executives at the fallen mortgage lender Countrywide have a new project. They’re starting a new company to invest in troubled mortgages. The Private National Mortgage Acceptance Company, PennyMac, they’re calling it. The idea is to buy up whole mortgages from banks at a discount, not the slices of loans we’ve all heard about. Then they’ll restructure them to make them profitable again.

Ashley Milne-Tyte has that story.

ASHLEY MILNE-TYTE: Banks with dodgy mortgages on their books can lose a lot of money when homes go into foreclosure. PennyMac gives lenders another option. Stan Kurland is CEO of PennyMac. He says his company will take risky loans off a bank’s hands, at a discount.

STAN KURLAND: That gives us enough room to reduce the underlying terms of the mortgage, in terms of the payment rate or even the amount of principal which is owed on the mortgage.

So that homeowners get to stay in residence while they pay off the loan. PennyMac makes a profit when the borrower pays the mortgage down. Christopher Thornberg, of Beacon Economics, says restructuring troubled homeowners’ debt can be a tricky task, so the banks benefit by outsourcing.

CHRISTOPHER Thornberg: Certainly there is a market that can be met out there.

If one lender chose to adjust its mortgage terms, he says, borrowers at other banks would clamor for the same treatment.

Thornberg: This is a circumstance where you really want a third party to be there to make the decision as to who gets the cut and who doesn’t.

Getting someone else to make decisions like that could help banks manage their risk without alienating their customers, but which loans will PennyMac buy? CEO Stan Kurland says it will all come down to money.

KURLAND: Assuming that we can acquire the mortgage at the appropriate price, we will work with any borrower who legitimately wants to work through their issues.

PennyMac is still building its staff. Kurland says he expects the company to get into full swing by the beginning of May.

In New York, I’m Ashley Milne-Tyte for Marketplace.

KAI RYSSDAL: I’m going to tell you something, but you have to promise to keep it in perspective. There was actual good news about the housing market today. Sales of existing homes rose last month after half a year of declines. Don’t believe them if they tell you this is the bottom.

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