PennyMac's Stanford L. Kurland has taken his share of criticism for helping to start the financial crisis. Now he is singing the praises of the government's latest attempt to fix it.
The former Countrywide Financial Corp. president says he has been pushing for a broad refinancing plan for years, arguing that it would reduce defaults, stimulate the economy and return the housing market to normalcy. In a recent interview with American Banker, Kurland threw his support behind the Obama administration's recent refinancing proposal.
"It's the most important thing that I think President Obama could possibly do to win reelection," Kurland, 58, said in early February. "I believe this is being done for all the right reasons, to create the stimulative effect of reducing people's mortgage payments."
The Obama refi plan could also help Kurland's real estate investment trust reduce risk from the loans it buys, and continue expanding beyond its origins as a buyer of distressed mortgages. He founded the company formally known as Private National Mortgage Acceptance Company LLC in 2008, almost two years after resigning as president and chief operating officer of Countrywide. By the end of his 28 years at the giant mortgage lender, Countrywide had made many of the risky loans that are now plaguing its new owner, Bank of America Corp.
Kurland is quick to say that few people understand all the issues that helped create the financial crisis. But his firm is well positioned for its aftermath and what he calls the "the new mortgage market," while Bank of America and other "too big to fail" banks are still struggling.
Regulatory and capital issues are forcing large banks to sell mortgage servicing rights, leaving a void that PennyMac is quickly filling. Bank of America, Ally Financial Inc., and MetLife Inc. have all exited the correspondent lending business, and other big banks are pulling back.
"We are building our volume and we could grow to absorb more of the mortgage demand," Kurland says. "It's really a matter of how quickly our own capacity and systems develop. You have to have an appetite to own mortgage servicing rights, which is a capital-intensive activity."
PennyMac has set a goal of funding $1 billion a month in correspondent loans in 2012; those mortgages made up 19% of PennyMac's mortgage assets at the end of 2011. The company estimates that the correspondent channel is expected to account for $300 billion of the roughly $1 trillion origination market this year.
To reduce the overconcentration of mortgages by the four largest banks, Kurland has suggested that Fannie Mae and Freddie Mac allow investors to borrow greater amounts against the value of their mortgage servicing rights. He raises concerns that nonbanks face capital and capacity constraints in expanding in the channel.
"There is room for more servicers, but I don't think we want little tiny servicers, because the economics won't work. It's too expensive to run a small platform," he says, adding that servicing that is "fully compliant with a high level of customer service requires some scale."
Steve DeLaney, a managing director and senior research analyst at JMP Securities LLC, says one of the unique aspects of PennyMac is that all the employees and proprietary technology resides in a separate, private entity and not in the public REIT.
"They figured out a way to get good treatment, so finance companies will invest in mortgage servicing rights," DeLaney says. "Kurland has a vision that a new type of mortgage entity will be coming out of this, but it's going to be high-quality, servicing intensive."
Though Kurland supports a massive refinancing program, he says that changes still need to be made for the newest version of the Home Affordable Refinance Program, called Harp 2.0, to be viable. The program would allow underwater borrowers with loan-to-value ratios above 125% to refinance if their loans are insured by Fannie Mae or Freddie Mac. Lenders have been given some release from liability, though they would still be on the hook for some claims, including those relating to fraud and compliance issues.
Mortgage lenders increasingly fear that the government-sponsored enterprises will find technical deficiencies in the loans they are sold, and demand buybacks. Kurland proposes that as a solution, Fannie and Freddie should create a penalty for such deficiencies instead of allowing repurchases.
"The GSEs want to make sure the loans they're getting are properly packaged, but they should not create an unsustainable risk for those trying to participate," he says.
Despite widespread industry mistrust of the newly-empowered Consumer Financial Protection Bureau, Kurland says it could be "really positive" for borrowers.
"There are many things that the consumer is dealing with and that they may not understand," he says. "The CFPB could end up being something really positive for the consumer and for business, if they are astute in their initiatives and they bring better clarity and expectations to the process."
But he added some hesitations about the CFPB, adding that the agency has to fulfill its duties "without the attack on business — and that means working constructively. … Business wants to do it right without threats, and that's the positive that would come out of a good CFPB."
Speaking as details emerged about the $25 billion settlement between federal and state officials and the five largest mortgage servicers, Kurland had some pre-emptive protests. He argues that the widespread outrage over banks' robo-signing practices is overblown and led to an undeserved assault on banks.
"It was politically achievable to have an attack on the major banks because of the anger around the mortgage crisis," he says.
When asked what keeps him up at night, Kurland said he is still worried about the remaining hurdles for private capital to come back into a market that is almost entirely controlled by the government.
While he is waiting for that to happen, he runs his business by following a relatively simple lesson — but one that Countrywide and other big mortgage lenders have learned the hard way.
"Zero defects," Kurland says. "It's hard when a loan package is 500 pages long that you're going to get zero defects, but that's the mantra of our company."