Bottom Fishing
by Richard
We have a new leading indicator pointing towards eventual recovery.
Fresh sand in the gills…from some of the biggest fish in the business.
This past Monday marked the launch of PennyMac, aka Private National Mortgage Acceptance Company LLC. The listed partners are Highfields Capital Management and BlackRock, Inc., the mega fund manager made even larger from their blockbuster acquisition of the Merill Lynch proprietary fund family.
You have to dig a little deeper to learn that the executive staffing of PennyMac will come from former top management of Countrywide bank, and the new company will be headquartered in Calabasas, California, also Countrywide’s home base.
They won’t even have to move, which is just as well given the state of southern California’s residential real estate markets.
They will not be targeting the securitized mortgages so much in the news today. That would take more time. And, it would to take some extensive DNA testing to determine paternity of these sliced and diced mortgage tranches which are several iterations removed from their original funding sources, and this spectacle promises to be a bonanza to the tort bar.
Instead, their target market will be defaulted and delinquent “Whole Mortgages”, i.e. loans still on the books of the originating lender.
During the Jurassic lending period, prior to securitization, these exotic loans were known simply as….mortgages.
A PennyMac Saved is a…?
They haven’t reached critical core meltdown status….yet. But the smart money is pointing to this market as being the next shoe to drop. It won’t be a function of death by derivatives or wildly inflated credit ratings, but just plain, old fashioned, garden variety upside-down loans with owners turning in the keys.
I call this encouraging, because whatever animus you may hold against firms like Countrywide, these are very smart business people, who realize that a complete market cycle runs from….mania to panic to crash….to eventual recovery.
Corroboration of their timing comes from Goldman Sachs, maybe the savviest of the investment brokers, who recently bought a loan servicing business to open another window to distressed residential real estate debt.
When hedge funds, investment banks, and veteran lenders start sniffing over the remains of this decimated market, capitalism is revivified and vindicated.
These graduates of the Gordon Gekko school of situational ethics will do more to restore liquidity and price discovery in these frozen markets than all the bipartisan government intervention that could every be implemented.
This will not make them popular….profiting from the very mess they created in the first place.
But as our hero in the movie said, “If you want a friend…get a dog.”
