The Homa Files

This was a new one to me…

In the book Catastrophe, Dick Morris includes a chapter on PennyMac — a joint venture set up by former high-level executives at Countrywide Financial. The name stands for Penny Mortgages After Countrywide.

Here’s the scheme:

Penny Mac buys distressed mortgages from failing banks at the lowest possible prices, works out affordable deals with homeowners, and then re-bundles and re-sells the now “performing”.loans.

For example, according to Morris, Penny Mac recently bought $558 million of home mortgages from the FDIC, which acquired the notes after the collapse of the First National Bank of Nevada. PennyMac paid only $42.2 million, averaging only $.30 to $.50 on the dollar. PennyMac keeps $.20 on every dollar that it initially recovers, with an increase to $.40 down the line.

Think about it. Countrywide executives made bad loans, sold them in packages to investors,  and then, they buy them back as distressed loans at a deep discount, restructure the terms — since they have plenty of spread to play with — and then sell the loans again, at a profit.

Makes you scratch your head, doesn’t it?

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This entry was posted on July 14, 2009 at 7:15 am and is filed under Financial Crisis, Housing - Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.