Stanford Kurland: the architect of subprime returns
Mar 13, 2009
Kurland: back in business
Until last week, no one outside finance had heard of Stanford L. Kurland. Yet now he's public enemy number one in the US press and blogging world. "You could say he's brilliant," says Charles Laurence on The First Post: few have shown such agility in exploiting first boom, then bust. But to others, he's a "subprime creep". As one consumer group told the New York Times, he's "like the arsonist who sets fire to the house and then buys up the charred remains and resells it".
As president of Countrywide – America's largest mortgage lender until its crash last year – Kurland helped devise and mass-market the dodgy mortgages that helped get us into this mess, says The Independent. He escaped in time to cash in a personal $200m worth of shares. Now he's back. His firm, PennyMac, is buying back those same toxic mortgages from the US government and ailing banks for pennies in the dollar – and Kurland is making millions all over again.
It's giving a blatant V-sign to the American taxpayer – but Kurland doesn't care. In fact, he thinks he's doing America a favour. "It is horrible what transpired in the industry," he sighs. But PennyMac is part of the solution. It is buying distressed mortgages so cheaply that it can offer attractive repayment terms to struggling homeowners, thereby collecting the repayments or getting the house in event of foreclosure. It's a win-win situation.
Little is known of Kurland, says The First Post, other than that he's 56, the family name is Latvian, and he boasts of a charitable foundation run with his wife, Sheila. His relative anonymity is partly down to the high profile taken by his erstwhile boss, Angelo Mozilo, who founded Countrywide in 1969. Kurland, formerly the firm's auditor, joined the group in the 1970s and was generally known as the "soft-spoken" number two. But it was under his watch that the predatory practice of peddling 'teasers' (whereby low-income customers were seduced into taking huge mortgages by low 'introductory' interest payments that quickly ballooned) really got going. In the six years before he abruptly quit in 2006, Countrywide's portfolio mushroomed from $62bn to $463bn.
Kurland's departure rang alarm bells because he was generally seen as Mozilo's successor. "What did Stanford Kurland know?" asked a blogger on the Irreverent Stocklist in early 2007. "I am expecting something gigantic to break in the near future for Countrywide." There was certainly a huge clue in the fact that, by now, executives had cashed in around $800m in share options. In the event, Countrywide staggered on for a year, chalking up billions in losses before it was rescued by Bank of America last July. It remains a multi-billion-dollar nightmare.
The Bank has already paid $8.7bn to settle suits from states contending that Countrywide defrauded investors by hawking defective mortgages. Several actions against CEOs, including Kurland, are still extant. Still, he's "not hurting", says The Huffington Post. In fact, his "excellent adventure" is going so well that PennyMac, which already holds $800m in home loans, expects the figure to rise to $15bn within 18 months. "Greed," as one well-placed lawyer remarks, "is a growth industry." The price paid by Kurland is an avalanche of rage.
Has anything changed at Kurland's outfit?
When Bank of America bought Countrywide last year, Angelo Mozilo declared that the Bank would "reap the benefits of what we have sowed". Yet, with some predicting that the Bank may take a further $33bn hit from the purchase, evidence suggests it's Kurland's outfit PennyMac that will actually benefit, says The New York Times. Based in the same Los Angeles suburb where Countrywide once flourished, Stanford has also hired at least a dozen top Countrywide executives to man the firm, which is backed by BlackRock and hedge-fund Highfields Capital. He presents this as an act of redemption. "It is very important to the entire team here to be part of the solution."
Some things haven't changed, not least the aggressive tactics of PennyMac's telesales staff, who spend 15 hours a day contacting "the greedy, the unfortunate and the remorseful in thrall to a mortgage that Kurland has bought back", says The First Post. In dozens of cases, PennyMac moves to initiate foreclosure. But if the householder is willing to resume paying, PennyMac will slash the interest rate back to 'teaser' level. Many couldn't care less about PennyMac's history – all that matters, says one customer, "is that we know our house is secure and our credit is safe".
The real loser, says The Huffington Post, is the US taxpayer. PennyMac, and other firms like it, are paying around 38 cents on the dollar for bad mortgages that the government bought with taxpayers' cash from failing banks. The firm recently paid the Federal Deposit Insurance Corporation just $43m for $560m worth of mostly delinquent loans. No wonder one executive describes business as "off-the-charts good".
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