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PennyMac raises $320 million in IPO, less than hoped

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A new firm set up by former Countrywide Financial Corp. executives to invest in troubled home loans fell short of its fundraising goal in an initial public stock offering today.

PennyMac Mortgage Investment Trust priced 16 million shares at $20 each, raising $320 million. The trust had expected to sell 20 million shares at that price. Earlier this month the company had hoped to raise as much as $750 million.

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The stock will begin trading Thursday on the New York Stock Exchange under the ticker symbol PMT.

Calabasas-based PennyMac is the brainchild of 57-year-old Stanford Kurland, who was president of Countrywide until resigning in 2006 -- a year before the company began to crumble amid rising loan losses.

Kurland now hopes to profit by cleaning up the mortgage mess left by Countrywide and other lenders. That has rankled critics who understandably hold Kurland at least partly responsible for the subprime loan boom fueled by Countrywide.

It’s possible that the element of controversy held some investors back from the deal. Or the market may be skeptical of the returns that Kurland and his team can earn from restructuring distressed home loans. The new fund’s fee structure, including a hedge-fund-like incentive fee for management if they meet certain goals, also may have been a deterrent for some investors.

Kurland and other ex-Countrywide officers formed Private National Mortgage Acceptance Co. early in 2008 specifically to begin buying up troubled mortgages from lenders. They’ve already raised hundreds of millions of dollars from private investors. The PennyMac Mortgage Investment Trust -- structured as a real estate investment trust, which means it must pay out the majority of any gains to shareholders each year -- now will be Kurland’s public vehicle.

I wrote a profile of Kurland’s business plan on Tuesday (go here to read it). But to sum up, PennyMac’s pitch is that it evaluates distressed loans one by one to decide on a solution -- either a modification, foreclosure or resale of the loan.

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That custom approach, the firm says, is what sets it apart from many lenders struggling just to deal with the avalanche of troubled borrowers and unused to being creative with modifications.

PennyMac says its overriding goal is to restructure loans to keep borrowers in their homes while still earning a hefty return on the debt.

In the roadshow for the stock offering, PennyMac said it believed its business model was capable of generating 18% to 25% annualized returns on mortgage portfolios, before management fees.

But some investors must have had doubts today despite PennyMac’s use of some heavyweight firms to underwrite the deal: Merrill Lynch, Credit Suisse and Deutsche Bank Securities.

-- Tom Petruno

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