tag:billsplace.posthaven.com,2013:/posts Bill's Place 2019-01-15T15:48:55Z Bill George tag:billsplace.posthaven.com,2013:Post/1363629 2019-01-15T15:48:54Z 2019-01-15T15:48:55Z Why Are There So Many Non-Performing Mortgages Which Haven't Been Foreclosed?

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Bill George
tag:billsplace.posthaven.com,2013:Post/1363626 2019-01-15T15:41:58Z 2019-01-15T15:41:58Z The History of the Mortgage Electronic Registration System (MERS)

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Bill George
tag:billsplace.posthaven.com,2013:Post/1347229 2018-11-25T16:54:30Z 2018-11-25T16:54:45Z Who Pays?

 

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Bill George
tag:billsplace.posthaven.com,2013:Post/1337220 2018-10-29T13:09:57Z 2018-10-29T13:09:57Z The S.E.O. Scam

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Bill George
tag:billsplace.posthaven.com,2013:Post/1334672 2018-10-21T18:36:04Z 2018-10-21T18:38:10Z Yes, Subprime Crisis Was Government's Fault

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Bill George
tag:billsplace.posthaven.com,2013:Post/1333870 2018-10-19T14:19:41Z 2018-10-19T14:31:10Z U.S. Banks Prosper with "The MiFID II Effect"

U.S. Banks Make Hay of European Trading Rules Goldman Sachs and Morgan Stanley gain from consolidation in equities tradingBy Paul J. Davies – wsj.com – October 19, 2018, at: https://www.wsj.com/articles/u-s-banks-make-hay-of-european-trading-rules-1539938668 

A thought: Consolidation? More likely it’s changes in trading concentrations. Those institutions that can trade in the less regulated environment (the U.S.) are increasing the trading done in the U.S. - with U.S. Broker / Banks. This trading venue adjustment is increasing volume and profitability of brokerage trading for U.S. institutions

What is MiFID II? The objective of MiFID II is to force institutional investment organizations, trading in the E.U., to make clear and transparent disclosure of their uses of client brokerage commissions and to itemize the costs of trade execution and disclose and price "research acquisition costs" and other uses of clients' brokerage commissions. The amount institutional investment firms pay-up (using clients’ money) above the costs of transaction execution is known as "institutional soft dollar brokerage".

In 2003 to 2007 the S.E.C. studied Section 28(e). After the SEC studied soft dollar brokerage in depth. Then Chairman of the S.E.C., Christopher Cox, sent letters to then chairmen of the Senate and House banking committees (C. Dodd and B. Frank). In his letters Christopher Cox requested that Congress revise or rewrite Section 28(e) of the Securities Exchange Act of 1934. This section of The Act provides the safe harbor for soft dollar brokerage. See Christopher Cox' letter at: https://www.scribd.com/doc/13752510/Cox-Requests-Legislative-Action

Senator Charles Shumer (D. NY) a well-known friend of full-service brokerage and investment banks, vehemently opposed any changes to section 28(e).  In letters, Shumer attacked Christopher Cox.

I’ve often wondered . . . if the above linked letter may have been the catalyst for Christopher Cox’ departure from the S.E.C. And, I wonder if Christopher Cox was aware of the George W. Bush’s family’s long history and connections to the brokerage industry. Cox was appoint to the S.E.C. by President George W. Bush.  

For more, see: The End of "Soft Dollars"? By John C. Bogle   pub. financialanalystsjournal.com – 2009 #2, at: https://www.scribd.com/document/119339073/Bogle-End-of-Soft-Dollars-FAJ-2009-Nr-2]]>
Bill George
tag:billsplace.posthaven.com,2013:Post/1331585 2018-10-12T16:09:35Z 2018-10-12T17:18:13Z Revisiting the Institutional REO-to-Rent Strategy

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Bill George
tag:billsplace.posthaven.com,2013:Post/1319366 2018-09-07T15:24:24Z 2018-09-07T15:53:21Z Warren Buffett Explains the 2008 Financial Crisis


In this interview Warren Buffett repeatedly cites the financial crisis as beginning in September of 2008 and gaining momentum in 2009.  Framing the great financial crisis in this period ignores the root cause of the great financial crisis. The root cause of the financial crisis was the collapse of the housing bubble.  Single family home prices and the mortgages backing home financing began a rapid and fairly constant decline in March of 2006. The significant loss of value in these two major (related) asset classes - single family homes and mortgages - translated, by September 2008, into the broader banking disaster due to the foreclosure crisis and because banks had been trading financial derivatives and interest rate swaps which were based on single family home values and mortgage values. 

Any discussion of the great financial crisis should begin with the root cause of the crisis. That is, such discussions should include information about how cheap-and-easy single family home financing arrangements fueled demand for homes, which fueled rapidly escalating home prices, which led to the ill-fated single family home price bubble.

 

 

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Bill George
tag:billsplace.posthaven.com,2013:Post/1316942 2018-08-31T15:03:04Z 2018-08-31T15:09:20Z Untrainable - I.Q. and the Job Market

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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