Stanford Kurland, author of sub-prime crisis, returns

Kurland struck gold by getting America into the sub-prime mess: now he’s back to cash in again by buying back the toxic mortgages

LAST UPDATED 1:47 PM, MARCH 9, 2009

Stanford L. Kurland was a name familiar to few outside the banking industry until he was nominated as 'Creep of the Week'. Now he stands to test the new media's powers to pillory people in the market place, not to mention the limits of tolerance of the beggared American consumer.

You could say he's brilliant. Anybody still holding a job on Wall Street probably does. But rarely has an obscure name aired in a news story set such a firestorm of rage. A week ago, a Google of his name came up with a few dry reports on the progress of the company of which he was President. Now it triggers an avalanche of blog-born outrage which has spread across the web.

This, in a nutshell, is Stanford Kurland's excellent adventure: as President of Countrywide Financial, until the meltdown of America's largest domestic mortgage lender, he invented and peddled the sub-prime mortgage; he bailed out in time to cash a personal $200 million-worth of shares; now he is buying back these same toxic mortgages for pennies on the dollar, and making millions all over again.

It’s like an arsonist buying the charred remains of a house and reselling it

Many argue that the match which lit the fuse for financial collapse was the 'teaser rate' mortgage. That's the one when you sell a part-time car mechanic a $500,000 mortgage against his $250,000 home with the spiel that by the time the starter interest of, say, 3.5 per cent balloons to eight, he'll be earning enough to meet the more-than-doubled payments, and the property will be worth $500K, easy. This idea was minted on Kurland's watch. It sold so many mortgages that Countrywide's 'portfolio' mushroomed from $62bn to $463bn in six years.

Kurland is now performing his new trick on taxpayers' money. It works like this: Washington bought the toxic assets left over from the bundling of all those 'predatory' mortgages; Kurland buys them back at their current, fractional value; and finally, he re-configures the loan to make it affordable, which he can do because the $500,000 owed is, to him, more like $50,000. If the punter still can't pay, Kurland gets the house.

Genius. The details from his biggest deal so far was reported by Eric Lipton in his scoop for the New York Times. Kurland paid the government's Federal Deposit Insurance Association $43.2m for $560m of defaulted mortgages left behind by the failed First National Bank of Nevada. If he can 'recover' even a minority of those mortgages, he earns millions.

"It is sort of like the arsonist who sets fire to the house," said Margot Saunders of the National Consumer Law Centre, "and then buys up the charred remains and resells it."

The Times' own columnist Gail Collins used a different simile: "It's like Jeffrey Dahmer (the cannibal homosexual serial killer) selling body

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While people such as Kurland can be blamed for providing the products, the consumers can be blamed for taking them out. Over the last few years we have seen an explosion in consumerism, fueled by people living beyond their means. People have to take responsibility for their own actions first and foremost. If you can't afford something, don't buy it. In relation to people such as Kurland proper regulation is required. Make affordability a statutory requirement in relation to mortgage lending (and indeed to unsecured lending as well). It is not so long ago that banks were offering mortgages at ridiculous multiples of earnings, why not enshrine that good old ratio of 3.5 into regulations (I understand it is the long term average). The same applies to credit cards etc. While we're at it cap interest rates so the poorest in society cannot be shafted by those who would lend to them at penal rates. We have heard a lot about banks recently. It appears to me that their greatest sin in this country is lending irresponsibly. Time to sort that out now. Why don't I beieve that will happen any time soon.

Posted by The Anti-Pawn at 12:57pm on March 10, 2009

Once it is established that a person has cost tax payers billions, should he be allowed to do any kind of business or own assets? He should have been driven to bankruptcy except that he has all those politicians in his back pocket, having them given low rates, golden treatment and contributions to their election funds. So he is allowed to rip taxpayers and his country man again probably quadrupling his assets. Politicians- congressmen, senators, republicans and all the secretaries of state and federal Administration have accepted PAYOLA from him or his lobbyists? what else you can expect from them? If there was justice, he should be in the prison, maybe one with air conditioning and single cell?

Posted by Genteel Love at 10:01am on March 11, 2009

In an article about Kurland in the Orange County Register (OC, California) Kurland mentions his old grade school friend who from Van Nuys, California, Laurence Fink (CEO of BlackRock) who he grew up with. In early 2006 BlackRock was one of the first asset management firms to shift its strategy on CMO's and begin shorting them. Kurland, the heir apparent for Angelo Mozilo's job as CEO of Countrywide Financial, surprised the mortgage banking world by quitting Countrywide in September 2006. Kurland obviously knew a lot about the deterioration of loan quality at Countrywide, and in the mortgage industry as a whole. And, as a CPA he undoubtedly understood why Mozilo encouraged the board of directors at Countrywide to authorize a huge stock buy-back program while, at the same time Mozilo was dumping his significant position in option awarded Countrywide stock. Do a key word search on: Real Estate Bubble Timeline. It seems 'the professionals' had a bit of insight into the gathering clouds.

Posted by Curious George at 3:36pm on February 2, 2010