PennyMac: A Story About Leaders Lacking Ethics in Epic Proportions

Since first hearing of PennyMac, I have been following its growth with great interest. If you are not familiar with this company, you can read a story the NY Times did here. http://www.nytimes.com/2009/03/04/business/04penny.html The thumbnail sketch of the organization is that executives of Countrywide retired shortly before the mortgage crisis unfolded. After the crisis was in full swing, these same retired executives created PennyMac, a company that purchases bad mortgages for mere pennies on the dollar, often from failed banks that the Fed has taken over. After buying these delinquent mortgages, PennyMac restructures the mortgage. The plan is to bundle these mortgages and resell at a significant profit to PennyMac.

In short, the leaders of the company one could argue was singlehandedly most responsible for the mortgage crisis are making a profit from the mess they made. Purists would say this is the free market at work but let us be realistic. There may be nothing technically illegal about what these former countrywide execs are doing, but the lack of ethics is enormous.

I find it very hard to understand why there is not public outrage over this. Upon further investigation, it turns out that BlackRock is a key investor in PennyMac and backed them as they went public this week. http://www.bloomberg.com/apps/news?pid=20601109&sid=aXanGi9qcfcg What is more, BlackRock has been advising the White House throughout the recession. NY Times has raised questions about the propriety of what could be some very close dealing but very few other outlets have reported on this close connection. http://www.nytimes.com/2009/05/19/business/19blackrock.html?scp=10&sq=blackrock&st=cse

BlackRock is creating its own investment fund with Federal financing to purchase distressed mortgage securities. http://www.nytimes.com/2009/07/27/business/economy/27fund.html?_r=1&scp=4&sq=blackrock&st=cse This raises even more questions in my mind. Will BlackRock be purchasing these restructured mortgage securities directly from PennyMac? Why hasn’t the White House come out against the leaders of PennyMac as they have against other corporate executives, many of whom had far less direct involvement in the underlying problems of the economic crisis? Can the leaders of PennyMac, now a public company, be trusted to operate responsibly in restructuring mortgages? Will the leaders of PennyMac drive up the price of the company stock and then bail, leaving investors to deal with the results?

I realize this story is very technical, which is probably why it has not made it out of the business sections. But I think that if the public knew that the leaders of Countrywide (who led during the time Countrywide wrote so many, many bad mortgages) are now profiting from those bad mortgages, there would be enormous outrage.

Apparently, the White House and government are not going to address this breach of ethics. I am begging you to seize this opportunity to bring light to a topic many would rather not be discussed.