PennyMac Stock Has Poor Debut
It was an inauspicious debut for PennyMac Mortgage Investment Trust, the new mortgage REIT founded by former Countrywide Financial CEO Stanford Kurland. The mortgage industry veteran had originally hoped to raise $750 million to buy troubled loans. Instead his fund raised only $335 million and the stock—initially priced at $20 a share—closed its first day down at $19.10.
Kurland’s strategy is to buy portfolios of troubled loans and restructure them. The PennyMac prospectus says the firm will rely on a “high touch” approach aimed at keeping borrowers in their homes through loan modifications. It also has a high-tech tool, something called the Loan Enhanced Normalization Engine, which helps the company determine the best solution for each borrower and loan. PennyMac’s Web site actively invites borrowers to refinance their loans at “Rates as low as 4.99%.” It also lists real estate for sale.
Kurland’s fund kicks off with $2.8 billion in assets, The prospectus says that more than $1 trillion of the nation’s $4 trillion in residential loans outstanding are at risk of default. The filing also says that 53 banks with more than $25 billion in assets have failed so far this year.
As of June 26, 2009, we estimate that the FDIC held more than $3 billion in residential mortgage loans from failed depository institutions. In addition, there were 305 depository institutions with a combined $220 billion of assets on the FDIC's Problem List as of March 31, 2009.
There are a lot of troubled assets out there no doubt. Kurland’s private partnership collects a 1.5% management fee from the trust’s assets and 20% of any profits over 8%. Given how much distress is out there, investors seem to feel there won’t be much left for them.