Below is an excerpt from a Chapter out of my forthcoming book which publishes both in written and electronic format later this fall. It is a top to bottom examination predating the National Association of Mortgage Field Services (NAMFS) and concluding with the Buczek Enterprises Affair. As opposed to the rhetoric I display on Foreclosurepedia, the book is written in a mainstream format. The reason for this is to dovetail with the Mission Objectives over at Everyman SuperPAC. It was Contracted to be a Trilogy; a three part series, with one book coming out later next year and the final book as we enter into the Presidential Election Cycle. In a few of the cases I redacted the names of the Sources I dealt with, but by in large there will be enormous fall out with respect to the internal, day-to-day operations of many of the NAMFS Members. The vast majority of information revealed in the Trilogy has never seen the light of day. The eBooks come with some of the raw interviews which have never been released, either.
The Shadow World Of The Mortgage Field Services Industry
Before we get ahead of ourselves, let me digress and set the stage. The United States, along with virtually all developed nations, were riding on a high tide in the real estate industry. Fueling this was predominately a term known commonly as Mortgage Backed Securities (MBS). Credit Debt Obligations (CDO) and debt swaps factored into this artificial backdrop wherein bankers and lawyers; clerks and stock traders, were all involved in an orgy of epic proportions. The culmination of the insanity came on Monday, 15 September 2008, when Lehman Brothers filed for bankruptcy. Two days later, when Hank Paulson, US Treasury Secretary, realized that the dominos had begun to fall, the case of American International Group (AIG) created a term which will forever go down in history: Too Big To Fail.
The thumbnail sketch we are concerned with is the discussion of how things worked to create a pipeline of foreclosed homes which are the lifeblood of the Industry. To give you an understanding of the volume which was thrust upon an ill equipped Industry, let’s look at the foreclosure rate in 2000: 470,000. Between 2000 and 2004 that rate rose and fell; 700,000 in 2002 and finally 640,000 in 2004. In 2005, though, the rate began to skyrocket. By 2006 the number had almost tripled to 1,215,304 and in 2011 it reached nearly epic proportions at nearly 4 million. Keep that number in mind as we begin to discuss an Industry which dealt with mere fractions of these kinds of numbers and are even still technologically incapable of doing such today.
Here is how it went down. Wall Street had a great idea to package home loans together. They decided to call this bundling mortgage backed securities (MBS). These MBS were then sliced and diced up and resold to investors. The money was obscene; the profit margins were gargantuan. But, it wasn’t enough. Wall Street reached out to the lenders, the originators, and demanded more loans. The only problem was that the lenders had already blown through all of the folks with good credit so they began churning the gutter; the sub prime types. Where a person normally would need a credit score in the 620s and at least 20% down, they started to drop the score requirements to the upper 500s and then finally at a flat 500. The politicians knew that by allowing this to happen, they too could capitalize in the form of voting constituencies. Where normally a person needed to have say $40,000 on a $200,000 note, people were moving in with nothing down.
The soothsayers began rolling in people from all walks of life. Mind you, this wasn’t racially motivated. The only color anyone cared about was green. Look, John Q. Public walks into one of these firms; hell, they are sitting in front of their computer in their underwear just back from the ER after picking up their welfare check. So, they sit down and fill out all the paperwork. Presto! The Bank approves them for a McMansion. John Q. Public figures that if the Bank approved them they must be able to afford it. I mean, after all, the Bank knows what they are doing, right? The reality is that the Bank knew that the mortgage wouldn’t sit on their desk long at all as it would be bundled up and tossed out on the Stock Exchange. When AIG was brought in to insure on the front and back end, the US Government actually had to issue Waivers For Gaming Licenses. So, as the Banks began to bundle their securitized pools and reselling them at breakneck pace; as Moody’s, Standard & Poors and Fitch began putting their gold stamp of approval on virtually everything that came across their desks, the Credit Default Swap (CDS) came into our vocabulary — in a damn big way. Moody’s, et al., knew that the securities based upon the sub prime garbage were risky, at best, but the fees were clouding what little judgment was left.
AIG had a great hustle going. With nearly 81 million life insurance policies totaling just north of $1.2 Trillion, they were in the game for the long haul; life insurance, home and auto, construction — AIG was a one stop shop. When they were initially approached, AIG was skeptical that in a market where there was virtually no risk of a loan going south, why would anyone want to insure the note? The Banks knew, though, that they had packaged a tremendous amount of shit in a bag with some egg whites on top. AIG agreed to write the policies and the Banks were able to insure their potential losses. As such, the Banks having their trick bag insured, were now able to crank out yet more loans. There were hundreds of millions of dollars in fees spread just within AIG alone. It was a spending spree which made drunken sailors blush. What could go wrong?
The market tanked. The entire MBS Industry fell into the very hole it had dug for itself. The teaser rates that lured in the millions of people began a steep, upward trajectory. The Adjustable Rate Mortgage (ARM) finally came home to roost. When the music stopped; when no one had chairs other than the Banks, reality began to set in. When asked why no one was regulating what was to become the largest financial collapse and bail out in the history of the world at least the answer was honest, “We were making too much money.”
There is a difference between being able to hack out a few blog posts so that NAMFS Members cut you a check and actually produce investigative journalism. Granted, I write from the Gonzo perspective on the blog, the reality is that there never has been and never will be another person whom will have the same level of Sourcing and literary content that I did. I don’t write for pay; I suppose some journalists get a degree and that is their career and cheers to them. I have always written because I actually enjoy writing. For human beings to be able to communicate ideas amongst each other is why democracy is what it is today.
The email response I received after publishing my Closing Piece yesterday was overwhelming. As I am never one to deal in the form letter bullshit, let this serve as a thank you. Many were disappointed that I am leaving; I venture the guess that Eric Miller probably went out and tied one on with his pals. 😉 What I wrote and why I wrote was to evoke a visceral discussion of that which is right and wrong. I worry that with my departure there will be no one whom will stand up to the criminals in the Industry. I do not hate people for making money; I hate people whom commit crimes to obtain money. History will look back upon these dark times and document those whom remained silent. In one of my last Articles, I will make some dire predictions about what firms will be gone in the next 12 months and probably release the financials to prove such.
The reality is that in the same way the United States was incapable of exporting democracy to the Middle East, I fear that the Industry has already programmed Contractors with the belief that they are nothing more than expendable resources. Whether it is this Industry or anywhere, any time that we treat our fellow human beings in such a vile manner, it is truly indicative of how we ultimately are as a species. In all honesty, I really haven’t missed the 0730EDT phone calls of a Contractor whining about not getting paid and afraid to go public. Now, I finally will be able to release those files as well.