169,287 New Listings - March 2010 - Last update March 13, 2010 6:15 AM EST$558 Million Worth of Mortgages Being Purchased by Investors from FDIC
On Wednesday 7th January 2008 investors made the announcement that a group of investors (some of whom are former Countrywide executives) have purchased house mortgages worth $558 from the government. It is part of a deal involved with the soured assets of the First National Bank of Nevada that had failed.
The group of investors – Private National Mortgage Acceptance Co. or PennyMac said that the purchase was the first sale of residential mortgage holdings (excluding construction loans) conducted by Federal Deposit Insurance Corp. The deal took place within a week of FDIC declaring its agreement with another group of investors for $13.9 billion. The latter will be buying the remains of IndyMac that had collapsed in July 2008. IndyMac had come to symbolize the boom and bust of the real estate market.
PennyMac plans to make modifications of the mortgages so as to help the foreclosure victims. The line of approach will be similar to that taken by FDIC towards IndyMac and other similar institutions. By this plan, the borrowers who are at risk will pay 3% interest for a stretch of five years. The rates will be reduced to see that the borrowers do not have to pay towards their house mortgages more than 38% of their earnings.
The CEO of PennyMac, Stanford Kurland was upbeat in a news release saying, “We are excited about investing in and managing mortgages in this unique transaction where we share in the economics with FDIC.”
In recent years FDIC has been putting into practice such structured arrangements while selling loans related to construction and development. This is the first time the same is being done with residential mortgages. According to the agreement contracted with PennyMac, initially FDIC will get 80% of the cash flowing in from the modified mortgages and the investor group will get the balance 20%. When after some time the mortgage will reach a certain level the split between the FDIC and the investor will become 60% and 40% respectively. David Barr on behalf of the FDIC said this. In this way the investors would have an incentive to reap bigger profits through a practical plan of modified mortgages. The arrangement is beneficial to all the parties concerned.
In July 2008, the First National Bank of Nevada located in Reno was shut down by an order of the federal regulators on grounds of under-capitalization.
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