tag:billsplace.posthaven.com,2013:/posts Bill's Place 2018-01-15T18:43:51Z Bill George tag:billsplace.posthaven.com,2013:Post/1205878 2017-11-17T14:26:32Z 2018-01-15T18:43:51Z Kicking The Can Down The Road - The REO Hot Potato

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Bill George
tag:billsplace.posthaven.com,2013:Post/1205755 2017-11-16T21:15:06Z 2018-01-15T18:43:50Z Forgive Them, They Were Only Reaching for Yield

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Bill George
tag:billsplace.posthaven.com,2013:Post/1190683 2017-09-12T14:02:20Z 2018-01-15T18:32:49Z Tales of Easy Money 

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Bill George
tag:billsplace.posthaven.com,2013:Post/1167089 2017-06-24T13:32:21Z 2018-01-15T18:24:22Z Could the Housing Market Meltdown Happen Again?

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Bill George
tag:billsplace.posthaven.com,2013:Post/1063281 2016-06-14T13:18:20Z 2016-06-14T13:29:32Z MERS in the News Again

A podcast interview of David Dayan author of the book Chain of Title (26:31):

Odd Lots: How Three Self-Taught Activists Fought the Giant American Foreclosure Machine with Joe Weisenthal and Tracy Alloway - pub. Bloomberg -June 13, 2016.  

More:

During a December 15, 2010 U.S. House of Representatives Justice Committee hearing witnesses gave testimony on issues relating to "Mortgage Servicing and Foreclosure Practices". A critical focus of the discussion was apparent problems with the recordation of land title and note ownership. Witnesses claim that the Mortgage Electronic Registration System (MERS) has failed to reliably record changes in title and note ownership. The accompanying video-clip is a segment from the C-SPAN hearing video (see, C-SPAN Video Library). 

                                         

                                       The History of the Mortgage Electronic Registration System (MERS)

From some internet searches I performed at the beginning of the controversy about the Mortgage Electronic Registration System (MERS), I learned MERS was first proposed by representatives of Fannie Mae at a Mortgage Bankers' Annual Convention in the early 1990's. Some of the materials I saw on-line at that time said that mortgage bankers showed interest in the concept Fannie Mae presented, so Fannie Mae and Freddie Mac each contributed 2 million dollars (4 million total) to develop MERS.

The articles I saw on-line said Fannie and Freddie hired a large D.C. law firm (Covington & Burling) to design and program MERS. And, these articles claimed that, once the design and programming was complete Fannie and Freddie incorporated MERSCorp. and hired Electronic Data Systems (EDS) as ‘facilities manager’ for MERSCorp.  Then Fannie and Freddie sold MERSCorp to a consortium of large mortgage industry participants (mortgage banker securitizers, and mortgages servicers).

It was also noted that as MERS was in development Fannie and Freddie modified some of their mortgage qualification requirements and documentation standards to favor MERS recordings. And, it was noted that without Fannie and Freddie’s interest and support for MERS, MERS probably would not have been a ‘successful’ venture.

I thought this history of MERS was interesting. I’ve also found it interesting that, as the controversy around MERS, and the controversy around the GSE's has brewed over the last few years, the documentation for the history of the creation of MERS and MERSCorp seems to have become more-and-more obscure.

Related information:

(1) Oregon State Supreme Court Media Release of Bart G. Brandrup, et al., v. Recontrust Company, N.A., et al., (USDC Case No. 311CV1390HZ, 311CV1399HZ, 311CV1533SI, 312CV0010HA) (SC S060281), at: http://www.ojd.state.or.us/SCA/WebMediaRel.nsf/Files/2013-06-06_Media_Release.pdf/$File/2013-06-06_Media_Release.pdf

(2) Is FM Watch a Crusader With an Agenda? By Louis Sichelman – RealtyTimes, pub. 7/5/1999 at: http://realtytimes.com/rtpages/19990705_fmwatch.htm

(3) Two Faces: Demystifying the Mortgage Electronic Registration System's Land Title Theory By Christopher L. Peterson University of Utah - S.J. Quinney College of Law, pub. SSRN, at: September 19, 2010, at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1684729

(4) Reston Based Company MERS in the Middle of Foreclosure Chaos By Brady Dennis & Ariana Cha Washington Post -October 8, 2010. http://www.washingtonpost.com/wp-dyn/content/article/2010/10/07/AR2010100702742.html

(5) MERS? It May Have Swallowed Your Loan An obscure company claims to hold title to roughly half of the home mortgages in the nation - 60 million loans By Michael Powell and Gretchen Morgenson - New York Times, March 6, 2011 at: http://www.nytimes.com/2011/03/06/business/06mers.html?emc=eta1&_r=0

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Bill George
tag:billsplace.posthaven.com,2013:Post/868735 2015-06-12T12:44:05Z 2018-01-15T16:01:37Z Wealth Effect / The Great Undoing

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Bill George
tag:billsplace.posthaven.com,2013:Post/863121 2015-05-30T13:26:48Z 2018-01-15T15:57:23Z Negative GDP Growth

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Bill George
tag:billsplace.posthaven.com,2013:Post/844097 2015-04-21T16:16:36Z 2018-01-15T15:44:54Z Systemic Incentives and Mortgage Fraud

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Bill George
tag:billsplace.posthaven.com,2013:Post/766716 2014-11-07T16:00:52Z 2014-11-07T16:16:07Z Mortgage Crisis Deja Vu

In the name of diversity, Watt greases looser credit by mandating mortgages for "very low income" borrowers.

Mortgage Crisis Déjà Vu – Investors Business Daily – Op/Ed - November 5, 2014

http://license.icopyright.net/user/viewFreeUse.act?fuid=MTg2MzU0Nzk=

Dissenting Statement of Commissioner Daniel M. Gallagher Concerning Adoption of Rules Implementing the Credit Risk Retention Provisions of the Dodd-Frank Act By SEC Commissioner Daniel M. Gallagher - Oct. 22, 2014, at:

http://www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370543240793#.VFzCVfnF-So

Relevant video-clips:

Bill Clinton: Laying the Foundation for The House of Cards

Former Mayor of New York City Michael Bloomberg, “Wall Street Didn’t Cause the Financial Crisis, Plain and Simple Congress Caused It”

Warren Buffett testifies before The Financial Crisis Inquiry Commission Who Caused the Financial Crisis?

 


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Bill George
tag:billsplace.posthaven.com,2013:Post/616135 2013-11-05T14:40:38Z 2013-11-05T15:15:18Z "Wall Street Didn't Cause the Mortgage Crisis, Congress Did"

On November 1, 2011, during a "Town Hall" meeting in mid-town Manhattan, a reporter asked Mayor Michael Bloomberg for his thoughts on the "Occupy Wall Street" protests. Mayor Bloomberg responded by, in effect, saying the movement's focus on Wall Street was mis-directed, because in the mayor's words, ". . . . Plain and simple, Wall Street didn't cause the financial crisis, Congress did."

If you are unfamiliar with Michael Bloomberg’s credentials you might logically ask, “Does Michael Bloomberg have the background and experience to make judgment about financial matters?”.  You be the judge:

From Wikipedia

Michael Bloomberg attended Johns Hopkins University. He graduated in 1964 with a Bachelor of Science in electrical engineering. In 1966 he received his Master of Business Administration from Harvard Business School

In 1973, Bloomberg became a general partner at Salomon Brothers, a bulge-bracket Wall Street investment bank, where he headed equity trading and, later, systems development. In 1981, Salomon Brothers was bought and Bloomberg was laid off from the investment bank and given a $10 million severance package. Using this money, Bloomberg went on to set up a company named Innovative Market Systems. His business plan was based on the realization that Wall Street (and the financial community generally) was willing to pay for high quality business information, delivered as quickly as possible and in as many usable forms possible, via technology (e.g., graphs of highly specific trends). In 1982, Merrill Lynch became the new company's first customer, installing 22 of the company's Market Master terminals and investing $30 million in the company. The company was renamed Bloomberg L.P. in 1987. By 1990, it had installed 8,000 terminals. Over the years, ancillary products including Bloomberg News, Bloomberg Message, and Bloomberg Tradebook were launched.  

One year into his second term of office President Bill Clinton explained it this way:

For more on this subject see, "The Role of the Government Sponsored Enterprises  and Federal Housing Policy in the Financial Crisis" at:  http://www.scribd.com/doc/106248756/The-Role-of-the-Government-Sponsored-Enterprises-and-Federal-Housing-Policy-in-the-Financial-Crisis

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Bill George
tag:billsplace.posthaven.com,2013:Post/601016 2013-09-12T13:15:20Z 2013-10-08T17:29:51Z The Ten Thousand Pound Gorilla

A Mortgage Market Out of Balance By Peter Eavis New York Times DealBook Investment Banking Investment Services September 6, 2013. http://dealbook.nytimes.com/2013/09/06/a-mortgage-market-out-of-balance/?_r=0

The above linked article mentions put-back-risk as a possible cause for what, on its face, appears to be an economic anomaly in the current pricing of mortgages. Over the past couple of years, I’ve been reading articles which discuss mortgage put-backs and put-back-risk, and every time I see the phrase put-back-risk I wonder . . . whatever happened to “buyer beware” and I wonder, did Fannie and Freddie abandoned due-diligence in their processes while attempting to buy as many loans as they could buy in order to hit their mandated executive bonus targets?

RE: Put-Back-Risk

In the late 1990's Fannie Mae and Freddie Mac created automated underwriting systems. Fannie and Freddie encouraged mortgage originators to use their automated systems as “conduits” for underwriting and submitting loans to be purchased by Fannie and Freddie. If mortgage originators were using automated underwriting systems developed by the purchasers (Fannie and Freddie) why didn't the systems detect the poorly underwritten loans? Were there no audit procedures in place for ongoing audit and quality testing of the loans the GSEs were buying? I'd like to see an examination of the effect of the automated underwriting systems used by Fannie and Freddie.

In the mid to late 1990’s The GSE's also created the Mortgage Electronic Registration System (MERS) which is a mess because it lacked supervisory controls and audit controls on in-puts (mortgage records) which were supposed to record land title changes and supposed to record changes in mortgage note ownership.

Below, I’ve hyperlinked a couple of interesting articles which discuss important historical information about the competitive environment in the mortgage industry.

For more on this subject, see: Why Big Lenders Are So Afraid Of Fannie Mae and Freddie Mac” By Patrick Barta - Staff Reporter of The Wall Street Journal – pub. April 5, 2001, at: http://online.wsj.com/article/SB986417586751445153.html?cb=logged0.6522271920004229

And, Is FM Watch a Crusader With an Agenda? By Louis Sichelman – RealtyTimes, pub. 7/5/1999 at: http://realtytimes.com/rtpages/19990705_fmwatch.htm  


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Bill George
tag:billsplace.posthaven.com,2013:Post/599919 2013-09-08T13:46:46Z 2013-10-08T17:29:34Z Find the Loan Behind the Loans

FAIR GAME

Find the Loan Behind the Loans

By GRETCHEN MORGENSON - New York Times - Published: September 7, 2013, at:http://www.nytimes.com/2013/09/08/business/find-the-loan-behind-the-loans.html?nl=todaysheadlines&emc=edit_th_20130908

Toward the end of the article the author, Gretchen Morgenson, makes this observation:

“The funding arrangements used by Western Sky and Cash Call are reminiscent of what occurred in the recent mortgage mania. The most egregious predatory lending wasn’t done, for the most part, by big national banks. It was done by smaller subprime mortgage companies like New Century, NovaStar and Fremont General, which made thousands upon thousands of loans.

But these companies wouldn’t have been able to make even 100 loans had they not gotten the money they needed from the big Wall Street banks. The warehouse lines of credit provided by those banks, therefore, enabled the underwriting of billions of dollars in dubious mortgages. Without access to that money, most of the worst loans would not have been written. When Wall Street cut off the credit spigot, these companies folded almost overnight.”

It’s interesting that Gretchen Morgenson focuses on “the Wall Street Banks” as enablers of predatory lending and dubious mortgages. When you consider Fannie's and Freddie’s aggressive purchasing of mortgages which later have been labeled predatory mortgages, or dubious mortgages, it would seem more accurate to include Fannie Mae and Freddie Mac, along with “the Wall Street banks”, as significant enablers of unqualified borrowers, predatory lending and dubious mortgage practices. 

After all, there are those who believe Fannie Mae's and Freddie Mac’s long-term practice of progressively lowering of mortgage qualification standards and their apparent lack of ongoing auditing of borrower qualification standards for the mortgages they bought were major factors enabling mortgage originators to unload their predatory mortgage originations, and their dubious mortgage originations.(1)(2)(3)

Together, Fannie Mae and Freddie Mac were (are) the ten thousand pound gorilla that set the terms for competition in the mortgage industry (and, it seems they still are). And, perhaps more importantly, they had (and have) ‘government endorsement’ for the standards they set.

Footnotes:

1. Qualifications like: income, assets, employment, and if the borrower was actually going to be the resident in the property

2. From Automated Underwriting: “Each entity has its own system; yet despite the different names, the systems are intended to achieve the same goals. Fannie Mae calls her system Desktop Underwriter (DU), while Freddie Mac calls his Loan Prospector (LP). Portfolio and subprime lenders have trade names for theirs, as well.”

(3) Also see: Why Big Lenders Are So Afraid Of Fannie Mae and Freddie Mac By Patrick Barta - Staff Reporter of The Wall Street Journal – pub. April 5, 2001, at: http://online.wsj.com/article/SB986417586751445153.html?cb=logged0.6522271920004229


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Bill George
tag:billsplace.posthaven.com,2013:Post/597064 2013-08-25T16:26:48Z 2013-10-08T17:28:59Z Financial Institution Regulation: More Smoke and Mirrors?

Moody’s Threatens to Cut Credit Ratings of Banks By Peter Eavis - pub. New York Times / Dealbook - August 22, 2013(1)  

Comment from American Banker:

Downgrade Ahead? Moody's threatened to downgrade the nation's largest banks on Thursday, believing that the government is more likely to let them fail in the event of another financial crisis. The move, which could affect Goldman Sachs, JPMorgan Chase, Morgan Stanley, Wells Fargo, and possibly Bank of America and Citigroup, is likely to stoke the fire around the continuing "too big to fail" debate. "Moody's decision to review the ratings will reinforce the beliefs of those who say Dodd-Frank's measures are sufficient to deal with the 'too big to fail' issue," notes Dealbook. "But the actions of lawmakers who do not feel the act is adequate may have also contributed to Moody's actions." Standard & Poor's expressed similar sentiments about downgrading big banks back in June, believing that, while government bailouts were still a possibility, bondholders may be forced to shoulder losses, notes the Financial Times.

Questions:

Is the revenue model for the Nationally Recognized Statistical Rating Organizations (NRSROs)(2) still ‘issuer pay’ (rather than ‘user pay’).(3)

Subsequent to the real estate bubble bursting and the subsequent great financial crisis has the Securities and Exchange Commission developed and implemented sufficient auditing procedures to test the efficacy of the ratings issued by the NRSRO’s.
If the government is strictly enforcing the rigorous stress testing of banks, and if these stress tests use adequate testing procedures and ungameable testing criteria, why wouldn’t the rating agencies be more willing to accept the output from those stress tests as testimony to the safety-and-soundness of the individual financial institutions?
Shouldn’t the government’s stress tests be a better measure of the safety-and- soundness of a financial institution, than is a NRSRO’s quality rating? In my mind, the government’s stress tests should be a better (and more objective) measure of a financial institutions’ safety and soundness, because the government is theoretically protecting investors and taxpayers, while the NRSRO’s may be somewhat conflicted by their ‘issuer pay’ revenue model.

 Footnotes:

1.  Moody’s Threatens to Cut Credit Ratings of Banks By Peter Eavis - pub. New York Times / Dealbook - August 22, 2013,at:http://dealbook.nytimes.com/2013/08/22/moodys-threatens-to-cut-credit-ratings-of-banks/?_r=0%20http://  

2. The history of the Nationally Recognized Statistical Rating Organizations, at: http://http//en.wikipedia.org/wiki/Nationally_recognized_statistical_rating_organization

3.  For more on the ‘user pay’ ‘issuer pay’ revenue models see The Credit Rating Controversy pub. Council on Foreign Relations Campaign 2102 Backgrounder, at: http://http//www.cfr.org/united-states/credit-rating-controversy/p22328


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Bill George
tag:billsplace.posthaven.com,2013:Post/596333 2013-08-21T13:21:26Z 2013-10-08T17:28:50Z Parallels in Political Genius?

Worth reading side-by-side.

‘Political Genius’ Housing Plan Spurs Bubble Talk: U.K. Credit By Svenja O’Donnell - pub. Bloomberg News - August 20, 2013, at: http://bloom.bg/173vFEx

The Clinton Era Roots of the Financial Crisis Affordable-housing goals established in the 1990s led to a massive increase in risky, subprime mortgages. By Phil Gramm and Mike Solon - pub. Wall Street Journal - August 12, 2013, at: http://online.wsj.com/article_email/SB10001424127887323477604579000571334113350-lMyQjAxMTAzMDEwNTExNDUyWj.html?mod=wsj_valettop_email

Three more years: A year and one day after Bill Clinton was inaugurated into his second term as president a PBS NewsHour interview with Bill Clinton was aired. In the interview President Clinton proudly discusses his Affordable Housing Initiative, and how he used regulators to force banks to make loans to borrowers who otherwise couldn’t have bought houses. I’ve copied the relevant portion of the January 21, 1998 PBS NewsHour video interview.
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Bill George
tag:billsplace.posthaven.com,2013:Post/594478 2013-08-12T15:49:54Z 2013-10-08T17:28:28Z Ed Pinto's Great Idea!

The video clip featured below is a portion of a Sept. 8, 2010 Bloomberg interview with Edward Pinto, former Fannie Mae chief credit officer and a Bloomberg News guest Op-Ed contributor, in which he discusses the prospects for a second mortgage market meltdown and the regulation of Fannie Mae and Freddie Mac. Mr. Pinto talks with Carol Massar on Bloomberg Television’s “In the Loop.” (Source: Bloomberg).

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Bill George
tag:billsplace.posthaven.com,2013:Post/591415 2013-07-30T15:29:41Z 2016-07-08T11:40:17Z SAC Hedge Fund and 'Insider Information'

If the SEC is really interested in stopping "insider trading", once the SEC finds the sources of the inside information, which has been sold to any advisor, the SEC should prosecute - to the fullest extent of the law - those sources that have provided the inside information .

One of the biggest motivations for hedge funds (and, for that matter, all actively managed institutional fund advisors) to buy "inside information" is that they can do so using their clients’ brokerage commission dollars to pay for the inside information (using order flow and soft dollar brokerage commissions).

If this kind of transaction is conducted with a 'full-service broker' the soft dollar portion of the commission is not disclosed and it is not transparent. (In the industry such arrangements are known as bundled undisclosed soft dollar brokerage arrangements.) This lack of transparency and lack of disclosure makes the discovery of the violation of insider trading laws [including Reg. FD] very difficult for regulators.

New York Attorney General, Eliot Spitzer's investigations of the brokerage industry in the late 1990's revealed the significance of undisclosed soft dollar commission arrangements. Because of the discoveries during Spitzer's investigations, the SEC was forced to implement the Global Research Analyst Settlement on several large brokerage firms where it had discovered conflicts-of-interest (where advisors' clients' brokerage commissions were used to influence brokerage & analyst favors and create conflicts-of-interest (e.g. late trading in exchange for order flow, mutual fund shelf space for order flow, IPO hot IPO allocation for order flow, early release of analyst opinions for order flow, and etc.).

Later, after a couple years considering how best to regulate soft dollars, former Chairman of the SEC, Christopher Cox was so frustrated at attempting to regulate undisclosed soft dollar brokerage that he sent letters to Senator Christopher Dodd and to Congressman Barney Frank requesting that Congress "repeal or substantially revise Section 28(e) . . . ." which is the law that defines the appropriate uses of institutional client's brokerage commissions.

To see the full text of the letter SEC Chairman Cox sent to Senator Dodd:

Please note: Chairman Cox's letter includes a computational error arising out of a semantic distinction. He says that in 2006 advisors directed almost one billion dollars of their clients’ soft dollar brokerage commissions. In fact, for 2006 the true estimate of institutional advisor directed clients' soft dollar brokerage commissions exceeded ten billion dollars of clients' commissions.




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Bill George
tag:billsplace.posthaven.com,2013:Post/590848 2013-07-27T16:03:29Z 2013-10-08T17:27:43Z The History of the Mortgage Electronic Registration System

From some internet searches I performed at the beginning of the controversy about the Mortgage Electronic Registration System (MERS), I learned MERS was first proposed by representatives of Fannie Mae at a Mortgage Bankers' Annual Convention in the early 1990's. Some of the materials I saw on-line at that time said that mortgage bankers showed interest in the concept Fannie Mae presented, so Fannie Mae and Freddie Mac each contributed 2 million dollars (4 million total) to develop MERS. 

The articles I saw on-line said Fannie and Freddie hired a large D.C. law firm (Covington & Burling) to design and program MERS. And, these articles claimed that, once the design and programming was complete Fannie and Freddie incorporated MERSCorp. and hired Electronic Data Systems (EDS) as ‘facilities manager’ for MERSCorp.  Then Fannie and Freddie sold MERSCorp to a consortium of large mortgage industry participants (mortgage banker securitizers, and mortgages servicers).

It was also noted that as MERS was in development Fannie and Freddie modified some of their mortgage qualification requirements and documentation standards to favor MERS recordings. And, it was noted that without Fannie and Freddie’s interest and support for MERS, MERS probably would not have been a ‘successful’ venture.

I thought this history of MERS was interesting. I’ve also found it interesting that, as the controversy around MERS, and the controversy around the GSE's has brewed over the last few years, the documentation for the history of the creation of MERS and MERSCorp seems to have become more-and-more obscure.

Related information:

(1) Oregon State Supreme Court Media Release of Bart G. Brandrup, et al., v. Recontrust Company, N.A., et al., (USDC Case No. 311CV1390HZ, 311CV1399HZ, 311CV1533SI, 312CV0010HA) (SC S060281), at: http://www.ojd.state.or.us/SCA/WebMediaRel.nsf/Files/2013-06-06_Media_Release.pdf/$File/2013-06-06_Media_Release.pdf

(2) Is FM Watch a Crusader With an Agenda? By Louis Sichelman – RealtyTimes, pub. 7/5/1999 at: http://realtytimes.com/rtpages/19990705_fmwatch.htm

(3) Two Faces: Demystifying the Mortgage Electronic Registration System's Land Title Theory By Christopher L. Peterson University of Utah - S.J. Quinney College of Law, pub. SSRN, at: September 19, 2010, at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1684729

(4) Reston Based Company MERS in the Middle of Foreclosure Chaos By Brady Dennis & Ariana Cha Washington Post -October 8, 2010. http://www.washingtonpost.com/wp-dyn/content/article/2010/10/07/AR2010100702742.html

(5) The MERS Mess (a YouTube posted video-clip of a brief exchange describing some MERS problems taken from U.S. Congress testimony) at:

(6) MERS? It May Have Swallowed Your Loan An obscure company claims to hold title to roughly half of the home mortgages in the nation - 60 million loans By Michael Powell and Gretchen Morgenson - New York Times, March 6, 2011 at: http://www.nytimes.com/2011/03/06/business/06mers.html?emc=eta1&_r=0

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Bill George
tag:billsplace.posthaven.com,2013:Post/587065 2013-07-04T13:36:30Z 2013-10-08T17:26:59Z More on The Institutional Buy-to-Rent Strategy

Surveys Highlight Changing Role for Investors in Housing Market By Conor Dougherty - pub. Wall Street Journal – Developments, July 3, 2013 WSJ http://on.wsj.com/12FQq7q 

If you want to know more about the institutional investors’ role in the current housing market do a key words search on: REO to Rent.

I’ve read a couple of articles recently which mention that the institutions are slowing their purchasing of single family homes because they are not able to find qualified tenants and now they have an inventory of homes ready for lease that remain vacant. I’ve also read that some of the early institutional buyers have begun to sell the homes they purchased because they are satisfied with the gains provided by the bubble that has formed (Och-Ziff).

The above referenced article mentions all cash buyers do not use mortgages and therefore are insulated from interest rate changes. One of the things The Fed has been concerned about is investors ‘reaching for yield' (and taking-on excessive risk) in order to gain returns on their investments in this artificially low interest rate (Bernanke) market. The single family home buy-to-rent strategy seems to be a perfect example of investors reaching for risk when trying to make (uncertain) returns on investments. When interest rates change and yield can be found with less risk, will investors still be attracted to the buy-to-rent strategy? (Disintermediation)

And, the buy-to-rent phenomenon started with all cash purchases, but if you believe the institutions are insulated from interest rate changes key words search: ‘Deutsche Bank Buy to Rent Facility’. The buy-to-rent strategy and the returns promised by the managers selling the strategy were very speculative in the beginning, will the cost of leverage provided by these loans prove to actually work positively for the strategy, or will the interest charged on the loans be another drag on the hypothetical profitability of the strategy.

Another fly in the ointment, it seems many of the institutions which are in the buy-to-rent game may have always thought they could dump-the-risk by securitizing their total portfolio and enticing more (or other) investors to buy into the strategy (think, cash-out). But, it seems the rating agencies are reluctant to provide ratings for any of the proposed securitization plans the buy-to-rent managers and investment bankers have concocted for the strategy. Also, some of the buy-to-rent managers have done their deals using the REIT structure. It seems the SEC is becoming somewhat concerned about misuse and abuse of the REIT structure in some of these deals. Time will tell how the SEC’s concerns manifest in regulatory interpretation / changes.

Other people’s money: It’s interesting to note that the buy-to-rent managers are using institutional investors’ money (in many cases pension plan money) to fund their strategy. The managers receive a management fee off-the-top, the investors hold the riskiest part of the strategy.

“An Early Investor Says Buy-to-Rent Housing is Over” By John Gittelsohn Bloomberg News 6/6/2013 http://www.businessweek.com/articles/2013-06-06/an-early-investor-says-buy-to-rent-housing-is-over





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Bill George
tag:billsplace.posthaven.com,2013:Post/586342 2013-06-29T12:58:11Z 2013-10-08T17:26:51Z What is a "Creepy Assed Cracker"?

Randy Newman is one of my favorite writer / musician / performers. He has family roots in Louisiana and, in his early music, he wrote about some of the cultural paradoxes he saw in that area of the south. 

Mr. Newman's style is very much satire, and because he plays the role of an innocent observer, he gets away with some observations others might not be able to pull-off without being considered unreasonably offensive.* Notice how he uses the word 'cracker' in his song "Louisiana 1927".


In a tribute to Louisiana, after Hurricane Katrina, Aaron Neville performed a "cover" of Randy Newman's song "Louisiana 1927". I read somewhere that Aaron Neville found the word 'cracker' so offensive he substituted the word farmer for cracker. Notice that Aaron Neville's lyrics are word-for-word the same as Randy Newman's except for the one change (cracker to farmer).


Wikipedia the origins of the Southern term "cracker":

Cracker, sometimes white cracker or cracka, is a sometimes racist expression for white people,[1] especially poor rural whites in the Southern United States. In reference to a native of Florida or Georgia, however, it is sometimes used in a neutral or positive context and is sometimes used self-descriptively with pride.[2]

There are multiple explanations of the etymology of "cracker", most dating its origin to the 18th century or earlier.

One of the earliest etymological theories traces this term from Middle English word "cnac" or "craic" which originally meant the sound of a cracking whip, but came to refer to any loud noise, and is attested to by an 18th century letter to the Earl of Dartmoor, given below. In Elizabethan times this could refer to "entertaining conversation" (one may be said to "crack" a joke) and could be used to describe loud braggarts; this term and the Gaelic spelling craic are still in use in Ireland, Scotland and Northern England. It is documented in Shakespeare's King John (1595): "What cracker is this same that deafs our ears with this abundance of superfluous breath?"[3][4]

* For an example of Randy Newman's ability to use satire to say things that otherwise might be considered offensive and not politically correct watch this performance of his song about the slave-trade titled, "Sail Away".
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Bill George
tag:billsplace.posthaven.com,2013:Post/585095 2013-06-20T16:59:03Z 2013-10-08T17:26:37Z Bill Gross Comments on Bernanke's 6 19 2013 Fed Policy Speech

This video-clip was taken from the last couple of minutes of a Bloomberg News interview with PIMCO's Bill Gross. In the interview he talks about the timing of Q.E. "tapering" and he mentions some structural issues which may be impeding the economic recovery. The 7.25% target he mentions is the Fed's unemployment rate target.

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Bill George
tag:billsplace.posthaven.com,2013:Post/583532 2013-06-10T17:45:34Z 2013-10-08T17:26:16Z REO-to-Rent Articles

Investors Cooling on REO-to-Rent By Diana Olick Realty Check CNBC Pub. Friday June 7, 2013, at: http://www.cnbc.com/id/100799067

Also interesting, May 30, 2013 Joint Report on Federally Owned or Overseen Real Estate Owned Properties By U.S. Department of Housing and Urban Development Office of Inspector General and the Federal Housing Finance Agency Office of Inspector General, at: http://origin.www.fhfaoig.gov/Content/Files/May%202013%20Housing%20IGs%20Report.revised.v2.pdf

The report says (at present) there are over 1.9 million mortgage borrowers over 90 days delinquent on their mortgage payments to Fannie and Freddie. I imagine there are also a very high number of defaulted mortgage notes held by banks and non GSE investors. I believe this substantial supply [Shadow Inventory] will depress, and keep a lid-on, home prices for quite awhile.

Over the past couple of years the REO-to-Rent institutional managers and their private equity money sources have created their own mini-bubble* which, it seems, has now priced the REO-to-Rent strategy out of the market. Now they will have to stop buying, try to digest their inventory, and try to figure out a way to earn the returns they promised their investors.

Watch out for the institutional REO-to-Rent IPO (hot potato) exit strategy.

* The Institutional Home Buying Bubble at: http://billsplace.posthaven.com/the-institutional-home-buying-bubble 

Do you wonder who’s picking-up the tab? Read on . . .

An Overview of the Federal Housing Administration Testimony Before the United States Senate Committee on Appropriations, Subcommittee on Transportation, Housing and Urban Development and Related Agencies. Testimony of The Honorable By David A. Montoya Inspector General Office of Inspector General U.S. Department of Housing and Urban Development - June 4, 2013, at: http://www.hudoig.gov/pdf/testimony/FHA%20Testimony%206-4-13%20Final.pdf 

Housing Prices: Up Or Down? Recovery … Or Artificial Housing Bubble Which Is About to Pop? By Washington's Blog Global Research, June 05, 2013, at:http://www.globalresearch.ca/housing-prices-up-or-down-housing-recovery-or-artificial-bubble-which-is-about-to-pop/5337747

REFILE - Blackstone Eyes First ever REO to Rent Securitization By Adam Temkin - Reuters - March 13, 2013, at: http://www.reuters.com/article/2013/03/13/abs-real-estate-idUSL1N0C5CO220130313

Landlord Blackstone Rushes To Capitalize On Housing Bubble By Launching First Ever REO-To-Rent Securitization Submitted by Tyler Durden on zerohedge.com - 03/14/2013, at: http://www.zerohedge.com/news/2013-03-14/landlord-blackstone-rushes-capitalize-housing-bubble-launching-first-ever-reo-rent-s

Also known as, The "Hot Potato". Flip that portfolio to the greater fool (but, as manager, maintain your property management fees).

IPO Preview: Colony American Homes - seekingalpha.com - Jun 4, 2013, see chart at: http://seekingalpha.com/article/1481071-ipo-preview-colony-american-homes?source=google_news

June 5, 2013 Reuters "Colony American Homes (a division of Colony Capital) has postponed its IPO of 20 million shares due to 'market conditions'
http://www.reuters.com/article/2013/06/05/us-colonyamericanhomes-ipo-idUSBRE95411O20130605

From the article: "Rising interest rates and the poor performance of its competitors have made investors wary of stocks which pay high dividends," said John Fitzgibbon, founder of IPO rating website iposcoop.com.

An Early Investor Says Buy-to-Rent Housing Is Over By John Gittelsohn – pub. Bloomberg - June 06, 2013, at: http://www.businessweek.com/articles/2013-06-06/an-early-investor-says-buy-to-rent-housing-is-over

REO To Rental Fed Plan Would Do Little For Housing, Says Goldman Sachs By Loren Berlin - pub. Huffington Post - January 6, 2012, at: http://www.huffingtonpost.com/2012/01/06/reo-to-rental_n_1189392.html


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Bill George
tag:billsplace.posthaven.com,2013:Post/583327 2013-06-09T15:01:48Z 2013-10-08T17:26:14Z REO-to-Rent (No Exit Strategy) The I.P.O. “Hot Potato”

What Could Possibly Go Wrong?

June 5, 2013 Reuters "Colony American Homes (a division of Colony Capital) has postponed its IPO of 20 million shares due to 'market conditions' " 
http://www.reuters.com/article/2013/06/05/us-colonyamericanhomes-ipo-idUSBRE95411O20130605

From the article: "Rising interest rates and the poor performance of its competitors have made investors wary of stocks which pay high dividends," said John Fitzgibbon, founder of IPO rating website iposcoop.com.


Deutsche Bank Loan Signals Rental Home Bond Dreams*

By Heather Perlberg, Jody Shenn and John Gittelsohn – Bloomberg - Apr 19, 2013

Deutsche Bank AG is moving closer to turning U.S. rental home payments into bonds, which would be one of the first new types of securitization since the 2008 credit crisis, and pave the way for an infusion of capital.

A $100 million credit facility the bank arranged for investment firm Five Ten Capital LLC is backed by mortgages on rental houses, according to Chief Executive Officer Rob Bloemker. The structure includes separate loans on each property, helping address one concern raised by Moody’s Investors Service and Fitch Ratings, whose blessings could help sell the debt.

“This has huge implications for the securitization of these assets,” said Steve Blevit, a Sidley Austin LLP attorney in Los Angeles, who worked on the credit line on behalf of Deutsche Bank. “This is the first deal that anyone’s done in this space that has mortgages on each of the properties.”

Single-family rental properties have attracted more than $10 billion from investors including Blackstone Group LP, the world’s largest private-equity firm, which more than tripled its loan led by Deutsche Bank last month. The sale of asset-backed bonds to extract cash and boost returns with borrowed money may aid the transformation of a business once dominated by small investors, which according to Goldman Sachs Group Inc. may total $2.8 trillion, into a new asset class.

Additional Capital

Investors have rushed to acquire single-family properties to rent after home prices fell as much as 35 percent from the peak in 2006. Even with an expanding pool of buyers competing for properties, prices are still down 29 percent. Private equity firms and companies have sought to raise additional funds through borrowing from banks and initial public offerings.

Blackstone, which has invested more than $4 billion to buy 24,000 homes, expanded its Deutsche Bank-led loan in March to $2.1 billion from $600 million. Citigroup Inc. extended a $245 million line of credit in October to Waypoint Homes, an Oakland, California-based firm that owns more than 3,000 rental homes and said this month it planned to sell shares to the public.

“As people see that the single-family for-rent business is a long-term operation you’ll see more financing come into the sector,” Jonathan Gray, global head of real estate for Blackstone, said during an interview in Los Angeles. “I don’t know how it’ll end up with us in terms of the best way to finance it, but I do think securitization will start to be a source of financing.”

Renee Calabro, a Deutsche Bank spokeswoman, declined to comment.

Key Enablers

Securitizations, which involve pooling debt ranging from subprime mortgages to car loans and student debt, were blamed for fueling the housing bubble and subsequent financial crisis by making credit too easily available.

Standard & Poor’s, Moody’s and Fitch were “key enablers of the financial meltdown,” the Financial Crisis Inquiry Commission, created by Congress with a 10-member bipartisan board, said in its January 2011 report. “This crisis could not have happened without the rating agencies.”

The commission’s report also blamed the crisis on lenders’ irresponsible and sometimes fraudulent practices; regulators’ inattention and overconfidence; and the recklessness of borrowers and investors.

Still, reviving the market was a key part of the Federal Reserve’s response to the crisis as it sought to restart lending and boost asset prices.

Rating Comments

Ratings companies began commenting last year on how they would approach an assessment of securities backed by rental homes as private-equity firms accelerated their purchases.

Moody’s said in a report in January that the bonds would be safest if backed by mortgages on each property, rather than secured by a trust that owns a pool of houses. The credit grader said it wouldn’t offer its highest ratings to deals backed by equity structures and that adding mortgages on individual homes carries costs to create and register the loans.

Structures without mortgages would also limit Kroll Bond Rating Agency’s grades, according to analyst Glenn Costello.

If securities were backed by a pool of properties, a bankruptcy could lead to new debt on the homes that would disadvantage bondholders, the ratings companies have said.

That’s not the only concern that Fitch would have about potential deals that could limit its ratings, Dan Chambers, an analyst, said in a telephone interview. There’s also too little history on the skills of operators and data on the performance of the asset, he said.

With institutional investors buying large numbers of homes to rent out in some markets, “if they all go on at the same time, what’s that going to do with occupancies and rents?” he said. “I don’t think we’re going to be at AA for a long time.”

Systematic Basis

Deutsche Bank’s loan to Piedmont, California-based Five Ten “shows mortgages can be documented for each property on a low-cost basis,” Blevit said. “We figured out how to do it on a systematic basis so that it’s not expensive to do.”

Five Ten, which owns about 1,000 homes in seven states, including Florida and Arizona, plans to use its additional funding to buy, renovate and rent more houses, CEO Bloemker said.

“We felt having mortgages on all the properties would give us more flexibility in long term financing going forward,” Bloemker said in a telephone interview from Texas, where the firm is expanding along with Missouri. “It will give us access to better terms and lower rates as this market matures.”

Available financing has “really gone up” with most of the largest banks already offering loans, according to Silver Bay Realty Trust Corp. CEO David N. Miller, whose Minnetonka, Minnesota-based rental-home firm raised $245 million in an IPO in December. The shares rose 2 percent to $20 at 4:15 p.m. in New York extending the gain since the offering to 8.1 percent.

Near Future

Securitization is “certainly a possibility and a strong possibility over time, but I just don’t see it very much in the near future,” he said on a conference call last month.

Laurie S. Goodman, the Amherst Securities Group LP researcher who’s in the Fixed Income Analysts Society’s Hall of Fame, is also skeptical that the bond market will be a significant source of funding for firms renting out homes bought in foreclosures, known as real-estate owned, or REO.

“I don’t think securitization will be the best outlet for the REO-to-rental operators, at least in the near term,” she said in an e-mail. “The rating agencies will be very conservative, and don’t have a rental history they are comfortable with to forecast cash flows.”

Perfect Environment

Part of the reason securitizations may be slow to develop is that the companies involved aren’t sure whether they would want long- or short-term financing, which would affect the nature of their deals, Fitch’s Chambers said. Chris Hentemann, chief investment officer at hedge fund 400 Capital Management LLC, which oversees about $700 million, said it would be a natural progression for the securitized markets to replace bank lending.

Right now would be “the perfect environment for securitizations like this to come to market,” said Hentemann, a former head of global structured products at Bank of America Corp.’s securities unit through 2007. “There’s a lot of capital out there chasing higher yields, so the pricing has become much more normalized and it’s much more efficient for people to bring securitizations to market at good economic levels.”

* http://www.bloomberg.com/news/print/2013-04-19/deutsche-bank-loan-signals-rental-home-bond-dreams.html



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Bill George
tag:billsplace.posthaven.com,2013:Post/582878 2013-06-06T16:23:08Z 2013-10-08T17:26:09Z 'Shadow' home inventory could burden U.S. housing agencies, watchdogs say*

May 30, 2013 (Reuters) - Millions of U.S. homeowners are months behind on payments on government-backed mortgages, raising the risk federal housing agencies will end up facing the cost of managing a fresh flood of foreclosed homes, two government watchdogs said on Thursday.

Some 2.7 million borrowers have missed several payments on mortgages backed by the U.S. government, the inspectors general of the Federal Housing Finance Agency and Department of Housing and Urban Development said in a joint report.

These loan delinquencies represent a "shadow inventory" of homes that could hit the market if foreclosed on, which would need be managed by government-run Fannie Mae or Freddie Mac, or some other federal housing agency. Once seized, these so-called real estate owned properties, or REOs, present significant financial challenges to these government agencies, the report said.

"Not only are current REO inventory levels elevated ... they may rise over the next several years depending on the number of shadow inventory properties that are ultimately foreclosed on," the report stated.

Since the housing market boom and bust, the government has employed billions of dollars to help borrowers manage high-cost loans and stabilize neighborhoods hit by foreclosures. Fannie Mae, Freddie Mac and HUD, which oversees the nation's mortgage insurer, the Federal Housing Administration, have been burdened with a glut of repossessed properties as a result of the housing market collapse.

Not only does the government need to cover maintenance costs, it also needs to hire real estate agents and contractors to rehabilitate and sell the homes. Finding cost-effective ways to deal with the supply poses a challenge, the report said.

"These networks require significant oversight to ensure that they perform effectively and that they mitigate both REO-related expenses and foreclosure's negative effects," the report stated.

The report said the shadow inventory, which is made up of loans that have been delinquent for at least 90 days, is more than seven times the inventory of REOs that Fannie Mae, Freddie Mac and HUD currently own.

"Even a fraction of the shadow inventory falling into foreclosure could considerably swell ... inventories of REO properties," the report warned.

Fannie Mae, Freddie Mac and the Federal Housing Administration are backing about nine out of every ten new home loans. Fannie Mae and Freddie Mac owned about 158,000 REO properties at the end of September 2012, while HUD had about 37,000.

HUD, Fannie Mae and Freddie Mac have all taken steps to shrink their REO inventories, the report noted. Fannie Mae has already launched a pilot program to mitigate the costs of foreclosures, auctioning off some of its properties in bulk to investors with the intention to convert them into rentals

 

* http://www.reuters.com/article/2013/05/30/usa-housing-idUSL2N0EB0U320130530


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Bill George
tag:billsplace.posthaven.com,2013:Post/578600 2013-05-12T14:46:01Z 2013-10-08T17:25:17Z Directors Disappoint by What They Don't Do

FAIR GAME

" Directors Disappoint by What They Don’t Do" By Gretchen Morgenson – Pub. New York Times - May 11, 2013*

Ms. Morgenson:

I'm surprised you didn't include the classic example of ‘Directors Disappointing’ provided by the Board of Directors at Countrywide Financial.

Shouldn't that board have been suspicious of, and more reluctant to approve, Angelo Mozilo's serial changes to his optioned stock liquidation program? Should that board of directors have been less willing to approve and extend the significant corporate 'stock buyback' program, contemporaneous to Mozilo's option sales? And, should that board have recognized it was a buyback program which gave artificial price support to Mozilo's significant sales of his optioned stock? Should the board of directors at Countrywide have been more curious about Countrywide’s mortgage sales (origination) procedures, the risks of mortgage application falsification, and the non-verification of assets and income of mortgage applicants? Should the Countrywide Board of Directors have questioned, and perhaps even requested, the independent audit details for the quality classifications of Countrywide's mortgage investment portfolio. Should the Countrywide Board of Directors have wondered why Stanford Kurland, Angelo Mozilo's heir apparent, abruptly resigned from Countrywide in 2006? (1) An interesting point, Stanford Kurland is a long time friend (and confidant?) of BackRock CEO, Laurence Fink.

It seems Countrywide board members like Kathleen Brown(2) and Henry Cisneros(3) should have had the financial sophistication to be more concerned about what was happening, in general, in the mortgage market, and, in specific, more concerned about what was happening at Countrywide Financial.(4)

Maybe, that board of directors subscribed to former Citibank CEO, Chuck Prince’s business theory. You may recall what Chuck Prince said about the mortgage bubble, ". . . as long as the music is playing, you've got to get up and dance".(5)

But, I think it’s appropriate to ask, should a board of directors be dancing, or should it be calling the tune?

Footnotes:

1. “Kurland left his job as president and chief operating officer of Countrywide in September 2006, just as the housing market began its descent. The previous year, in 2005, he was paid $19.2 million and made an additional $13.7 million by exercising stock options, according to Reuters. See, “Former Countrywide No. 2 Sees Opportunities in Troubled Mortgages” By Matthew Padilla - pub. Orange County Register - June 10, 2008 - at: http://mortgage.ocregister.com/2008/06/10/former-countrywide-no-2-sees-opportunities-in-troubled-mortgages/

Also see: “Inside the Trillionaires’ Club at BlackRock” By Shawn Tully – CNNMoney - August 17, 2009 From “Lesson No 2 When Investments Get Complex, Do Your Homework” at: http://money.cnn.com/2009/08/12/news/companies/blackrock_trillionaires_club.fortune/http://

In late 2006 the company developed a model that put a lower, more realistic number on the incomes subprime borrowers were claiming on their "no doc" loans. The projections were shocking: BlackRock figured that when the loans reset to their new, higher rates in a couple of years, most borrowers would be spending more than half their real incomes on mortgage payments. Foreseeing an avalanche of defaults, BlackRock dumped subprime bonds in early 2007 when the prices were still lofty.

And see, "Those Valley Boys" at: http://www.scribd.com/doc/141134898/Those-Valley-Boys%20http://

2. Kathleen Brown is the sister of, then State of California Attorney General, now California Governor, Jerry Brown. See: Kathleen Brown, Wikipedia: http://en.wikipedia.org/wiki/Kathleen_Brown

3. Henry Cisneros was the Director of The Department of Housing and Urban Development (HUD) during Clinton's first term as president. In that position he was very instrumental in the implementation of Clinton’s Affordable Housing Initiative which is credited with ‘putting enforcement teeth” into Jimmy Carter’s Community Reinvestment Act. see Henry Cisneros, Wikipedia: http://en.wikipedia.org/wiki/Henry_Cisneros

4. “The Tragedy of Countrywide Financial and Angelo Mozilo” By Gary Jacobson pub. Muckety June 28, 2008, at: http://news.muckety.com/2008/06/26/the-tragedy-of-countrywide-financial-and-angelo-mozilo/3712

5. Citigroup Chief Still Bullish on Buy-Outs By Michoyo Nakimoto and David Wighton - pub. Financial Times - July 9,2007. See the quote, at: http://www.ft.com/intl/cms/s/0/80e2987a-2e50-11dc-821c-0000779fd2ac.html#axzz2T5N8MHGw

When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,”

Additional background: Shortly after being inaugurated into his second term as U.S. President, Bill Clinton discusses his Affordable Housing Initiative in a PBS NewsHour interview. “Bill Clinton: Laying the Foundation for The House of Cards”:

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Bill George
tag:billsplace.posthaven.com,2013:Post/577118 2013-05-03T14:03:15Z 2013-10-08T17:24:58Z The True Origins of The Financial Crisis

The True Origins of This Financial Crisis: As opposed to a desperate liberal legend By Peter J. Wallison - pub. americanSpectator.com 2/06/09 http://spectator.org/archivs/2009/02/06/the-true-origins-of-this-finan


This morning I discovered the above referenced article, I thought you might find it interesting.

Background:
Peter Wallison was a member of the congressionally appointed Financial Crisis Inquiry Commission (FCIC). The Commission was charged with the responsibility of studying and reporting on the causes of the current financial crisis, which began in late 2006 with the significant deterioration of home prices and mortgage investments.

The Financial Crisis Inquiry Commission issued it’s "Majority Opinion on the Causes of the Financial Crisis" on January 27, 2011.* The FCIC’s opinion included a dissenting opinion written by Keith Hennessey, Douglas Holtz-Eakin, and Bill Thomas . And, Peter Wallison wrote a separate dissenting opinion which was also included in the FCIC report. On May 16, 2011, Mr. Wallison published a more detailed “Dissent from The Majority Opinion of the Financial Crisis Inquiry Commission” see, amazon.com at: http://www.amazon.com/gp/customer-media/product-gallery/0844772305/ref=cm_ciu_pdp_images_0?ie=UTF8&index=0 .


Watch a brief video-clip taken from a June 2, 2010 FCIC hearing during which Peter Wallison questions Warren Buffett about Buffett's thoughts on what caused the financial crisis.
 
If you would like to see other resources which provide insight into "The Role of the Government Sponsored Enterprises and Federal Housing Policy in the Financial Crisis", click: http://www.scribd.com/doc/106248756/The-Role-of-the-Government-Sponsored-Enterprises-and-Federal-Housing-Policy-in-the-Financial-Crisis
* "The Dodd-Frank Wall Street Reform and Consumer Protection Act" was signed into law on July 21, 2010 – five months and six days before the FCIC issued its “Majority Opinion”. Please draw your own conclusions as to why The Dodd-Frank Act was ‘crafted’ before the FCIC issued its findings.

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Bill George
tag:billsplace.posthaven.com,2013:Post/576965 2013-05-02T16:10:25Z 2013-10-08T17:24:57Z What Happens When the Biggest Buyer Leaves the Market?

Investor frenzy over housing has peaked By Nin-Hai Tseng, Fortune / CNNMoney.com - April 5, 2013 at:http://finance.fortune.cnn.com/2013/04/05/housing-rentals-investors/

Rents for Single-Family Home Flatten as Investors Saturate the Rental Market By Jed Kolko, Chief Economist at Trulia - pub. Forbes.com 4/04/2013, at: http://www.forbes.com/sites/trulia/2013/04/04/single-family-home-rents-flatten/

Review Chapter 1, The Institutional Home Buying Bubble at: http://billsplace.posthaven.com/the-institutional-home-buying-bubble

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Bill George
tag:billsplace.posthaven.com,2013:Post/576764 2013-05-01T13:32:32Z 2013-10-08T17:24:55Z Performance Enhancement = Juiced-up . . . Housing Prices are on a Tear Housing on a Sugar High? In an April 8, 2013 MSN video interview with former Fannie Mae Chief Credit Officer, Ed Pinto, Mr. Pinto explains the fundamentals of the housing market and how the "wealth effect" fueled by artificially low interest rates and abundant borrowed money, rather than increasing incomes, is effecting housing prices (and other asset prices). 

Housing Market Accelerates: Home Prices Jump 9.3% in Quickest Rise Since 2006; Gains Seen Across Country By Nick Timiraos Wall Street Journal 4/30/2013, at: http://online.wsj.com/article_email/SB10001424127887323528404578454612657511232-lMyQjAxMTAzMDAwMTEwNDEyWj.html?mod=wsj_valettop_email

Home Prices Growing At Pre-Bubble Rates On Bernanke Boost, But Big Shadow Inventory Lurks By Agustino Fontevecchia - pub. Forbes.com 4/30/2013, at: http://www.forbes.com/sites/afontevecchia/2013/04/30/home-prices-growing-at-pre-bubble-rates-on-bernanke-boost-but-big-shadow-inventory-lurks/

Peter Schiff and The Coming Housing Collapse: The Fed, Instead Of Lehman, Owns The Mortgage Market By Agustino Fontevecchia - pub. Forbes.com - 3/5/2013, at: http://www.forbes.com/sites/afontevecchia/2013/03/05/peter-schiff-and-the-coming-housing-collapse-the-fed-instead-of-lehman-owns-the-mortgage-market/

In a February 12, 2012 video interview, Warren Buffett, “The Oracle of Omaha” comments on The Institutional Home Buying Bubble, ‘bulk’ single family home property management, record low interest rates, home price values and risks, and suggests that buying a home is a good way to “short-the-dollar”.

<

[Note: The small red cross, above 2012 on the horizontal axis on the graph below is approximately February of 2012, the time that Warren Buffett made his comments in the above linked interview.] 

The Institutional Home Buying Bubble at: http://billsplace.posthaven.com/the-institutional-home-buying-bubble





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Bill George
tag:billsplace.posthaven.com,2013:Post/556088 2013-04-30T14:54:13Z 2013-10-08T17:20:37Z This Time It's Different?
April 30, 2013 - A few days ago I was watching a video-clip of former Fannie Mae Chief Credit Officer, Ed Pinto, discussing the Fed’s artificially induced low interest rates, his views on their effect on home prices, and his views on their effect on what many are calling the current housing market ‘recovery”.
At approximately two-minutes-and-thirty-seconds into the video interview, Mr. Pinto says, ‘These low interest rates are starting to make people buy houses the way they buy automobiles.’ “They don’t ask what’s the price? They ask what’s the monthly payment?*.

Mr. Pinto’s comparison of the economics of home buying, to economics to automobile buying, ignited my curiosity. I began to wonder . . . how are automobile prices, auto financing, and auto sales reacting to this artificially low interest rate environment? This morning I did a key words search on: ‘low interest rates auto sales’.

My search yielded several good and informative articles, one of the articles seemed to survey current conditions more broadly than the other articles. I’ve copied and pasted that article below:

March 2013 Car Sales: Juiced By Low-Interest Loans?*

Spring is finally here, and the jobs picture is brightening--but the biggest factor in rising car sales could be easy money.

March 2013 car sales are being reported today, and for the most part, all the brands sold in the U.S. are posting moderate gains over the same period a year ago. Subaru and BMW are up strongly at 13 percent each, while the domestics are showing single-digit gains. Only the South Korean brands so far are down, with Kia posting the least encouraging numbers of the news cycle.

In all, the seasonally adjusted annual rate (SAAR) in March is expected to reach 15.3 million units, according to a joint survey from J.D. Power and Associates and LMC Automotive. That would be flat against February's numbers, despite the average retail price of a new car going up 3 percent, to $28,504.

The retail sales SAAR of 12.1 million units should remain unchanged as well.

What's at the root of continued healthy sales? J.D. Power and Associates senior vice president of global automotive operations John Humphrey says that the steady upward pressure of price has pushed buyers into longer-term loans, but says shoppers also are leasing more, as well as capitalizing on low interest rates.

Bankrate.com's average for new 48-month auto loans currently sits at 2.44 percent, near historic lows.

"While longer loan terms have traditionally been a cause for concern to the industry due to the risk of purchase cycle extension, it is not necessarily as daunting as it may seem." said Humphrey. "The longer loans are being offset by more leasing and the low interest environment, which means that consumers are able to put more of their monthly payment towards their loan principal rather than interest fees."

The financial climate's led Power partners LMC Automotive to hold its forecast for total 2013 light vehicle sales in the U.S. to 15.3 million units, with the retail sales forecast holding at 12.5 million units.

"We expect the economic environment to improve throughout 2013, as the likelihood of a dark cloud slowing the recovery pace diminishes," said Jeff Schuster, senior vice president of forecasting at LMC Automotive. "Consumers do not appear phased by headwinds from Washington."

The automakers themselves are upbeat about prospects for the remainder of the year. GM predicts a SAAR of between 15 and 15.5 million units for the year; Chrysler estimates the March SAAR at 15.6 million vehicles, including retail and fleet.

* http://www.thecarconnection.com/news/1083302_march-2013-car-sales-juiced-by-low-interest-loans
Do you think lessors are actually increasing their up-front lease contract payments? At what point - in a 48 month purchase or lease contract - does the obligor / purchaser have positive equity in the auto? Are those buyers who are using these methods to finance rapidly depreciating assets (automobiles) economically sophisticated enough to make decisions without close supervision?
Footnote:
(1) Actually, I don’t believe this is a recent phenomenon. I think, when buying a home, most people consider how much they can afford. or are willing to spend on their mortgage payment, then they buy as much house as that payment will allow. Every real estate sales person I’ve ever met encourages this approach to home buying and home affordability.


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Bill George
tag:billsplace.posthaven.com,2013:Post/525795 2013-04-28T17:16:14Z 2013-10-08T17:13:44Z Lighter than Air, The Great Helium Debate
Congress finds it hard to let Federal Helium Program run out of gas
http://youtu.be/GRkrYzG4YNE
If you think this is an easy decision, read the article and the first “reader comment” (by Ferguson Foont). at: http://www.washingtonpost.com/politics/federal-helium-program-how-temporary-becomes-forever/2013/04/26/80ef1148-adb8-11e2-98ef-d1072ed3cc27_story_1.htm 
Imagine a world without balloons (VIDEO) Georgia Congressional Representative, Hank Johnson, on the helium debate. (Copied from C-SPAN.)
If you are interested in other subjects that Congressional Representative Hank Johnson has spoken about, watch  ‘Hank Johnson Guam Capsizing’

and, Congressman Hank Johnson on 'midgets'.


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Bill George
tag:billsplace.posthaven.com,2013:Post/487973 2013-04-25T12:00:00Z 2013-10-08T17:05:58Z Some Thoughts on the Value of Gold

Reversion to the Mean

In an April 16, 2013 Wall Street Journal video interview, Mark Hulbert mentions that a recent academic study places gold’s fundamental value at approximately $800.00 per ounce.(1)

I did some key-words-searches to verify such a study exists, and I found the study to which Mr. Hulbert is referring. The study was conducted by a former commodities trader for Trust Company of the West, Claude Erb and a Finance Professor at Duke University, Campbell Harvey.(2) The study is based upon a time series of rates of inflation as compared to the fluctuations in value of the hedge against inflation (gold). The study puts the mean value of gold, over a long historical time series, at approximately $800.00 per ounce.

It’s also interesting to note, recent industry estimates for the average costs-of-production for one ounce of gold are approximately $600.00.(3) Which raises the question, what premium should a gold buyer pay, to buy the next ounce produced, of a commodity which costs $600.00 per ounce to produce? Or, expressed another way, what is the fair-market (competitive) profit one should expect for producing an ounce of gold?

Footnotes:
1. Video Interview Mark Hulbert - Wall Street Journal, 4/16/2013: http://live.wsj.com/video/golds-fair-value-is-800-an-ounce/EEB6D8E1-F0AA-47B0-A55B-706C2038D57B.html?KEYWORDS=Mark+Hulbert+Gold#!EEB6D8E1-F0AA-47B0-A55B-706C2038D57B
And, MarketWatch pub. The Wall Street Journal 4/16/2013, at: http://www.marketwatch.com/story/golds-fair-value-is-800-an-ounce-2013-04-16
2. The Golden Dilemma By Claude Erb and Campbell Harvey Social Sciences Research Network (SSRN) first posted 6/6/12 at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2078535
3. The Production Cost of Gold May Surprise You pub. SeekingAlpha.com 4/23/2013, at: http://seekingalpha.com/article/1361321-the-production-cost-of-gold-may-surprise-you

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Bill George