They Can Go Home Again

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Ample Opportunity

Given Countrywide's role as the poster child for the popped housing bubble, PennyMac is already drawing attention. When its mortgage defaults rose sharply, Countrywide was forced to sell to Bank of America (BAC) for $6 a share. Kurland calls his new outfit "ultra-consumer-focused," and says he wants to work with advocacy groups to improve conditions for borrowers in distress, and that because he's buying the loans cheaply and has access to capital he'll be better able to negotiate. "We'll have the greatest level of flexibility to work out these loans," he says.

But consumer advocate Bruce Marks, founder of the Neighborhood Assistance Corp. of America, says he's skeptical that "bottom feeders" such as Kurland really have homeowners' interests at heart. "The predators are resurrecting themselves. He knows where the most valuable assets are." Marks says he'd like to see PennyMac and other loan investors commit in writing to not foreclose on homeowners, freeze rates, and restructure the loans so the payments will be affordable.

Koss says his new employer, the privately held lender Mortgage Network, has managed to survive because it avoided the risky loans that got other large publicly traded lenders such as Countrywide in trouble. "As a public firm you need to have earnings going up in nice orderly fashion every quarter," he says. "There's nothing neat and orderly about interest rates."

Indeed, some folks see ample opportunity to profit from the current chaos. Thomas Barrack, founder of Los Angeles money management firm Colony Capital, invested some $36 billion since 1991, buying up office buildings, hotels, and condo towers, much of it in the early 1990s when commercial real estate was in a slump. He now has many of his 200 employees scouring bond documents and other filings looking for investment opportunities in distressed mortgage debt.

Deep Pockets

Jeff Gault used to run a division of KB Home (KBH), the big homebuilder that has seen its business plummet in the past two years. Last year Gault's new company, LandCap Partners, raised $350 million from wealthy individuals and institutions. He's using the money to buy up as much as $1 billion worth of land—suitable for residential construction—from overextended developers. Gault figures lot values have fallen as much as 50% in overbuilt markets such as Las Vegas and the Inland Empire east of Los Angeles. The NAR reported that home sale prices have fallen most steeply in the Western states. In February they declined 13%, to a median price of $290,000.

Kurland spent 27 years at Countrywide, rising to president and chief operating officer, before leaving in 2006. Kurland says PennyMac's strategy is to buy large portfolios of home loans from banks at a discount and then restructure the loans to keep borrowers in their homes. He has staffed the outfit with a handful of former colleagues that some former Countrywide staffers describe as among the more cautious leaders at the big lender. "There were two groups at Countrywide," Koss says. "One was more willing to take risks. The others were more conservative."

Kurland says he left Countrywide after disagreeing with the company's board over a number of issues including "organizational structure, succession, and how risk and balance sheets should be managed." A Countrywide spokesman disputed that, issuing a statement that "Mr. Kurland's departure from Countrywide did not relate to disagreements regarding the company's risk management or strategy."

In any case, Kurland has backing from some deep pockets. That includes BlackRock (BLK), the big investment firm that manages $1.3 trillion. Laurence Fink, BlackRock's chief executive, is a childhood friend of Kurland's. The other partner is value investor Highfields Capital Management, which manages $11 billion.

Palmeri is a senior correspondent in BusinessWeek's Los Angeles bureau .