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Subprime Peddlers at it Again: Countrywide Vets Look To Score Big Profits Buying, Fixing, Reselling Bad Loans

June 11, 2009

The San Francisco Chronicle reports:

  • Can folks who made millions peddling subprime loans use that same Midas touch to mint money from the housing market downturn? Former top executives from Countrywide Financial, once the nation’s largest mortgage firm and a poster child for loose lending standards, have launched a company to buy distressed mortgages from banks and the government at a discount, modify the loans so borrowers can afford them and pocket the profits from reselling them.

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  • The fact that some architects of subprime lending now hope to profit from the crisis spawned by the practice doesn’t sit well with many. “It is sort of like the arsonist who sets fire to the house and then buys up the charred remains and resells it,” Margot Saunders of the National Consumer Law Center in Washington told the New York Times. Times columnist Gail Collins was more graphic. “It’s like Jeffrey Dahmer selling body parts to a clinic,” she wrote.
  • Ironically, PennyMac’s approach could benefit struggling homeowners, which has consumer advocates offering cautious compliments. Most banks and investors who own mortgages still seem to find foreclosure preferable to so-called workout solutions; homeowners continue to report that their pleas for loan modifications fall on deaf ears. But PennyMac’s business model is predicated on trying to keep people in their homes.
  • Since PennyMac plans to buy toxic loans at pennies on the dollar - and is buying whole mortgages, not ones sliced and diced into securities owned by multiple investors - it has the liberty to slash homeowners’ monthly payments and even the principal they owe.

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  • PennyMac’s “model suggests the great promise of an aggressive modification strategy; creating win-win opportunities for borrowers and investors,” said Paul Leonard, director of the California office in Oakland for the Center for Responsible Lending. Still, he added: “It’s hard to overlook the fact that these are Countrywide veterans who no doubt contributed to some of the sophisticated schemes to sell bad loans to borrowers and make great profits, who are now finding profitable ways of fixing those loans.”

For more, see Former subprime lenders stand to profit again.

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