PennyMac to invest in shaky mortgages

BlackRock, Highfields Capital sponsor new company, run by ex-Countryside exec, that acquires and restructures troubled mortgages.

Last Updated: March 24, 2008: 12:52 PM EDT

NEW YORK (AP) -- The former president and chief operating officer of Countrywide Financial Corp. will run a new mortgage company unveiled Monday to acquire and restructure distressed mortgages.

Stanford Kurland, who left Countrywide (CFC, Fortune 500) in late 2006, will head the new venture backed by investment management firms BlackRock Inc. (BLK) and Highfields Capital Management.

The new company, Private National Mortgage, also known as PennyMac, intends to help borrowers restructure loans so they can avoid foreclosure and maintain payments.

Mortgage delinquency and default rates have risen rapidly since the middle of 2007, leading to a growing number of foreclosures.

Countrywide, the nation's largest mortgage lender and servicer, lost about $1.6 billion in the last six months of 2007 as higher defaults forced the lender to boost its provisions for anticipated losses.

Earlier this year, Bank of America Corp. agreed to acquire Countrywide for about $4 billion in stock.

Kurland will serve as chairman and chief executive officer of PennyMac. He spent nearly three decades with Countrywide in a number of executive positions.

PennyMac will raise capital from private investors, acquire loans from financial institutions seeking to reduce their mortgage exposures, and seek to create value for both borrowers and investors through loan servicing.

"We are pleased to sponsor PennyMac, a company that seeks to bring patient capital to the unprecedented distress in residential mortgages," said Laurence D. Fink, BlackRock chairman and CEO.

Jonathon S. Jacobson, Highfields co-founder and senior managing director, said he expects the volume of bank-held, non-performing mortgages will grow dramatically over the next three years.

"PennyMac will be extraordinarily well-positioned as both a buyer and servicer of these assets," he said.

Kurland said the new company will have an advantage because it's unburdened by a legacy portfolio and has the flexibility to offer unique solutions to individual borrowers.

PennyMac's loan servicing activities will be managed through a proprietary servicing operation based in Southern California.