Must Read - Bad loans still make money - Jul 30, 2009 12:06 PM — Scott Jagow

Bad loans still make money - Jul 30, 2009 12:06 PM — Scott Jagow

A group of former Countrywide people launched an IPO today with their new company, PennyMac. Take one guess at what they’re doing. And while we’re at it, let’s talk about why the government’s loan modification program isn’t working.

PennyMac is based in Calabasas, California (sound familiar?), and it plans to make money by buying up failing home mortgages from failed banks and then restructuring the loans. From Forbes/Reuters:

PennyMac’s chief executive is Stanford Kurland, a former president and chief operating officer of Countrywide. At least 10 other top PennyMac officials are alumni of Countrywide, which was also based in Calabasas.

Countrywide was once the largest U.S. mortgage lender, but its aggressive lending practices are widely considered to be a major cause of the nation’s housing crisis.

PennyMac’s business has drawn the attention of critics who have accused Kurland and other Countrywide alumni of trying to profit from a housing crisis they helped create.

Do investors have faith in the crew the second time around? Well, in May, PennyMac predicted its IPO would raise $750 million. It netted $320 million. But the company has raised hundreds of millions from private investors as well, so some people believe PennyMac will find a way to profit.

And why not? What’s left of the mortgage business seems to be doing just fine. The New York Times reports that one reason the government’s loan mod program isn’t going very well is that mortgage companies collect tons of fees on delinquent mortgages:

“It frustrates me when I see the government looking to the servicer for the solution, because it will never ever happen,” said Margery Golant, a Florida lawyer who defends homeowners against foreclosure and who worked in the law department of a major mortgage company, Ocwen Financial. “I don’t think they’re motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It’s a license to do whatever they want.”

More from the article:

“If they do a loan modification, they get a few shekels from the government,” said David Dickey, who led a mortgage sales team at Countrywide and Bank of America, leaving in March to start his own mortgage advisory firm, National Home Loan Advocates. By contrast, he said, the road to foreclosure is lined with fees, especially if it is prolonged. “There’s all sorts of things behind the scenes,” he said…

“For many subprime servicers, late fees alone constitute a significant fraction of their total income and profit,” said Diane E. Thompson, a lawyer for the National Consumer Law Center, in testimony to the Senate Banking Committee this month. “Servicers thus have an incentive to push homeowners into late payments and keep them there: if the loan pays late, the servicer is more likely to profit.”

One more note on a semi-related subject. The Wall Street Journal reports that the Senate has subpoenaed Goldman Sachs, Deutsche and other banks to inquire about possible fraud in the mortgage market:

The congressional investigation appears to focus on whether internal communications, such as email, show bankers had private doubts about whether mortgage-related securities they were putting together were as financially sound as their public pronouncements suggested. Collapsing values for many of those securities played a big role in precipitating last year’s financial crisis.

If they can’t prove fraud, how about absolute and utter negligence?

What’s going on in the short sale world?

What’s going on in the short sale world?

• It is common practice of distributing disinformation – if you call back 10 times a day for 5 days and ask the same questions you will get a wide variety of answers. These are not small discrepancies but black and white answers that would lead a person to believe what the representative is telling them.
• Representatives talk over you and will not listen to questions nor answer then with the intent to frustrate you. In fact, I bet they have in office bets how frustrated they can get you and keep you on the phone.
  
• Incoming fax process – no one knows how it works because it doesn’t.
• Incoming calls to short sale are redirected to telemarketing debt collectors who blatantly lie, pass phone calls back and forth to each other pretending to be supervisors then hang up on you without raising their voices, are very pleasantly trying to frustrate you to hang up or if you are on a cell phone lose your connection – What could be the reason?
• Sending out thousands of letters to customers telling them their short sale will be done within 30 days giving them hope – supposedly by mistake
• Sending out thousands of letters to customers telling them their short sale was declined – supposedly by mistake.
• 1st Tier Telemarketers/Debt Collectors push the limit with threats about payment and collection tactics.
• 1st Tier Telemarketers/Debt Collectors will not let you speak to a supervisor without repeating a scripted question over and over then when they do transfer you the disconnect you.
• Files that actually do make it into their system disappear
• Files that are assigned a negotiator after months are unassigned and kicked back to pending status
• Files that are being reviewed are not updated for weeks or reassigned to a new negotiator not escalated to a 2nd Tier or 3rd Tier Negotiator.
• 1st Tier Telemarketers/Debt Collectors are in places such as Arizona and India. *Nothing against India but these is confidential information.
• Loan Holders with some Lenders have received notices that their confidential information such as social security numbers MAY have been stolen by an ex-employee.
• Even after a short sale has approval India 1st Tier Telemarketers/Debt Collectors still call day after day wasting time and money.
• Blindly out of nowhere a representative will call you with a fake name and tell you your short sale has been declined due to no offer or documents in their file, leaving you to call a 800 number where a new representative will know nothing about it when policy dictates all contact to be noted in the file.
• When any representative is on the phone with you and is “noting the file” a person would be lead to believe that he/she is but when you call back a day or a week later to check there are no notes in the file. None. Zip.

Frustrated Admin who calls these people on a daily basis to go round and round for hours on the phone.