You’d probably think that being one of the major players in the subprime mortgage meltdown wouldn’t be a great career move.
But it worked out just fine for one of them. Namely, Stanford Kurland, the former president of Countrywide Financial, the country’s biggest mortgage lender.
He was just named chairman and chief executive of Private National Mortgage Acceptance Co. (PennyMac). That’s a joint venture between two highly esteemed money management firms: BlackRock and Highfields Capital Management.
BlackRock is led by Laurence Fink, who reportedly was considered for the CEO position at both Citigroup and Merrill Lynch.
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As for Kurland, you may remember his old firm, Countrywide. It had to sell itself to Bank of America earlier this year for $4.1 billion to avoid going under.
That $4.1 billion price tag may sound like a windfall compared to the $2.4 billion JP Morgan Chase will apparently pay for Bear Stearns, but it’s about one-sixth of what Countrywide was worth on the stock market less than eight months prior to its sale.
Put another way, thanks to the policies of Kurland (who left the company in September 2006) and other Countrywide officials, the institution’s shareholders lost 83 percent of their investment in less than eight months.
And why did Countrywide stock drop like a rock?
Because it was issuing subprime mortgages like there was no tomorrow. In 2006 alone, Countrywide granted $40.6 billion worth of them, putting it third in the country for subprime lending behind HSBC and New Century Financial.
Kurland isn’t the only ex-Countrywide executive joining PennyMac. At least nine of his fellow Countrywide bigwigs are going with him, according to Bloomberg News.
Meanwhile, Bank of America just agreed to pay another Countrywide former president, David Sambol, $28 million in cash and stock to stay on and run the unit. Bank of America bought Countrywide as it fell apart.
PennyMac will buy loans "from financial institutions seeking to reduce their mortgage exposures,” it says. In other words, Kurland and his cronies will be buying some of the same paper they issued during their time at Countrywide.
Presumably they’ve learned through their experience which mortgage-backed securities are toxic and which are undervalued gems.
For those in the mortgage industry, Kurland’s plumb new assignment is no big deal.
"It’s really a terrific time to design and build” a mortgage company, K. Terrence Wakefield, a consultant to lenders tells Bloomberg. Kurland and company "have the experience and contacts and relationships to be successful.”
If Kurland thrives at his new venture, he certainly won’t be the first person in the investment world to cause huge losses and then rebound.
Victor Niederhoffer, who first made his reputation as a partner of the legendary hedge fund mogul George Soros, has apparently made and lost at least two fortunes through his investments.
There is a difference between Niederhoffer and the Countrywide crew, however.
Niederhoffer’s mistakes hurt himself and his clients. Countrywide’s mistakes helped push the economy into what probably is a recession and the financial system into a serious crisis.
Many people are to blame for that crisis. But certainly the leaders of Countrywide, including Kurland, played a role.
So the new gig for Kurland and his Countrywide colleagues rightly galls some observers.
"The whole subprime mortgage fiasco was built on sort of Wall Street’s snake-oil salesmen convincing America this is a can’t-miss scheme,” Irv Ackelberg, a consumer lawyer in Philadelphia, tells The Wall Street Journal.
"It sounds like they’ve just morphed into some new version.”
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