Senator Mike Crapo — you cannot make up names like this in the Oligarchy of the United States — authored a Congressional Bill, last year, S.2155, which initially sought to add some assistance to community banks and install some technical fixes to Dodd – Frank. And while normally not a bad thing, by the time Citibank had caught wind of what was going on, the K Street Lobbyists were mobilized to bring such radical change, that S.2155 was virtually unrecognizable. Initially, S.2155 was set to weaken what is known as the Supplementary Leverage Ratio (SLR), or the leverage ratio, for custodial banks. These custodial banks, which were initially only two US Banks; State Street and Bank of New York Mellon, pissed off John C Gerspach, Citi’s Chief Financial Officer (CFO), whom stated to reporters, during an earnings call,
We obviously don’t think that is fair, so we would like to see that be altered. — Gerspach to reporters Q4FY2017
When the bubble burst in 2008, Citigroup controlled gargantuan derivative portfolios, primarily made up of Collateralized Debt Obligations (CDOs) and Mortgage Backed Securities (MBSs). They held $41.3 trillion in notional derivatives as of March 31, 2008. The vast majority of Citigroup’s exposure, with both types of portfolios, were subprime. Subprime basically means that mortgages were leant to people whom anyone with an IQ above 40 would have known could never be repaid. How Citigroup pulled it off was with a set of smoke and mirrors models which even they had no idea what was represented by them.
On October 28, 2008, Citigroup received $25 billion in Troubled Asset Relief Program (TARP) funds. Less than a month later, it was teetering again and received another $20 billion. But its capital moorings were so shaky that it simultaneously needed another $306 billion in government asset guarantees. And all of this disclosed money spigot came on top of the Federal Reserve secretly funneling to Citigroup over $2 trillion in cumulative loans over more than two years at interest rates frequently below 1 percent.
Citi determined risk by creating creating complex models that determined there was no possibility of the loans defaulting, and took in almost no account of risk management. — , Investment Intern at Vanderbilt Endowment
Five years before the crisis, in 2003, investor Warren Buffett deemed derivatives as Financial Weapons of Mass Destruction. Here is what Buffett said in his 2002 Earnings Statement,
In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.
Even before Buffett made is dire and now prescient prediction, the Federal Reserve Board (Fed), knew the dangers of derivatives,
Indeed, in 1998, the leveraged and derivatives-heavy activities of a single hedge fund, Long-Term Capital Management, caused the Federal Reserve anxieties so severe that it hastily orchestrated a rescue effort. In later Congressional testimony, Fed officials acknowledged that, had they not intervened, the outstanding trades of LTCM – a firm unknown to the general public and employing only a few hundred people – could well have posed a serious threat to the stability of American markets.
, former President and CEO at AirVuz, put it like this,
The toxic “sludge” which was at the root of the 2008 crisis consisted of subprime loans, Alt A loans, CDO’s into which these loans were packaged, and credit default swaps insuring these instruments (primarily the CDO’s). This exposure was heavily concentrated in relatively few places. I believe that the largest holders of these assets/exposure were AIG, Citi, Merrill Lynch, RBS, and UBS. If memory serves all of these players had at least $50b of exposure. There was a second tier of exposure which included Wachovia (through the 2006 Golden West acquisition), Countrywide (purchased by BofA in early 2008), and WaMu (taken over by the FDIC and sold to JPM). Morgan Stanley could probably be included in that second tier as well although they got there very differently, by having a “short” on the subprime market turn into a “long” because they financed their short position in the BBB tranches with a larger long position in the supposedly bulletproof AAA tranches.
So, what is the derivative exposure today? Glad you asked, because the number will boggle the mind of even the most advanced mathematician, as Investopedia opines,
The derivatives market is, in a word, gigantic — often estimated at more that $1.2 quadrillion on the high-end. Some market analysts estimate the derivatives market at more than 10 times the size of the total world gross domestic product, or GDP.
Determining the actual size of the derivatives market depends on what a person considers part of the market, and therefore what figures go into the calculation. The larger estimates of the market come from adding up the notional value of all available derivatives contracts. But analysts who disagree with the largest estimates of the market argue that such a calculation vastly overstates the reality of derivatives contracts, that the notional value of underlying assets does not accurately reflect the actual market value of derivative contracts based on those assets.
According to 2017 data from the Bank for International Settlements (BIS), it’s estimated that the total notional amounts outstanding for contracts in the derivatives market is $542.4 trillion. Meanwhile, they report the gross market value of all contracts to be significantly less at approximately $12.7 trillion.
Ten times the GLOBAL ECONOMY. Let me put that, just a bit easier, into perspective for the common blue-collared worker whom is going to finance the 2019 Bailout.
A quadrillion is a big number: 1,000 times a trillion. Yet according to one of the world’s leading derivatives experts, Paul Wilmott, who holds a doctorate in applied mathematics from Oxford University (and whose speaking voice sounds eerily like John Lennon’s), $1.2 quadrillion is the so-called notional value of the worldwide derivatives market. To put that in perspective, the world’s annual gross domestic product is between $50 trillion and $60 trillion.
There are two terms in money you need to understand. The first is Narrow Money (NM). NM is the total value of the world’s easily accessible currency including coins, banknotes, and checking deposits. Next, there is Broad Money (BM). BM represents coins, banknotes, money market accounts and savings, checking, and time deposits. Global NM is roughly $36.8 Trillion. Global BM is roughly $90.4 Trillion. Now, I want to throw another number out there: Total Value of all Global Real Estate. That value is roughly $217 Trillion. To that point, we have roughly $7.6 Trillion in total Global Coins and Banknotes. Global stock market capitalization is roughly $73 Trillion. Throwing above ground gold in at a spot rate of $1,275/oz we have roughly 187,200 tons coming in at $7.7 Trillion. And finally we have the Fed’s Balance Sheet coming in at roughly $4.5 Trillion with over $1 Trillion made up of Quantitative Easing (QE) trash. The previous five items are comprised within both the Global NM and BM.
These numbers inform us that the rough value of Earth; the total value of everything which could be sold off and brought to bear tomorrow morning to pay the bills, is roughly $344.7 Trillion.
Let’s talk debt, for just a moment. Oh, I know everyone over at American Banker and HousingWire are selling you on a false bill of goods and most assuredly the National Association of Mortgage Field Services (NAMFS) is buying into the belief that all is well in Rome. The problem is that NOTHING is well in this bloated pig we call the economy.
The total amount of Global Debt (GD) weighs in at roughly $215 Trillion. $70 Trillion of that debt was added in only that past decade, by the way.
Twenty one percent of the world’s residential asset value is in North America, with another twenty four percent in Europe. North America, which only houses five percent of the world’s population, is joined by Europe, which houses only eleven percent of the world’s population. To put that into perspective, SIXTEEN PERCENT of the world’s population account for nearly half of the world’s residential asset values. And make no mistake, whatsoever, that the 2008 Crisis, which was merely a dry run to gauge precisely how much a population would take before it openly rebelled.
Over the past several weeks, we have had two history’s largest Wall Street corrections ever. And while many are saying that the ride will take us in the 35K – 50K area, I am not so bearish. In fact, I believe it to be total and complete bullshit. The 121-year-old index is now witnessing its longest bull-run in years and the fact of the matter is that as the Trump era agenda begins to truly kick in — tariffs already imposed upon Canadian Lumber which have begun to hit both new housing starts as well as the Mortgage Field Service Industry — fact of the matter is that when the 25% steel and 10% aluminum tariffs kick in, the light at the end of the tunnel will be permanently be shut off. Here in Tennessee, Trump’s simply stating he is going to do the steel and aluminum tariff plan caused Electrolux to call off a $250 Million expansion of their facility. Here is what The Hill had to say,
Swedish appliance manufacturer Electrolux announced Friday that it will delay a $250 million investment to expand and modernize a plant in Springfield, Tenn., after President Trump‘s announcement of new tariffs targeting aluminum and steel.
What is interesting is the fact that Electrolux sources nearly all of its steel, for production, from within the United States. Raw textiles and material are the name of the game. I mean it is why we wage war, in the modern era. Granted, we have economic hitmen, whom prowl the third world countries, on behalf of the World Bank, negotiating arms sales on behalf of nouveau Banana Republic revolutions, the salient fact is that we leverage those deals by and through bottom dollar pricing, upon astronomical interest rates, which may only be paid for with their natural resources.
I personally support these and other future tariffs provided we never exempt anyone. — Paul Williams, Editor-in-Chief, Foreclosurepedia
So, what does all of this mean to the Mortgage Field Services Industry? Inevitably, it means volume. And a lot of it. 676,535 properties, in the US and its territories, had active foreclosure filings in 2017. This accounted for 0.51 percent of all U.S. housing units. This was down from 0.70 percent in 2016 and well below the peak of 2.23 percent in 2010. Overall, these are the lowest levels since 2005. I want this to sink in, for a moment, to best understand why we are seeing the massive amount of NAMFS Offender Members going under.
In 2010, we had 2,871,891 active foreclosures. This was the peak, for want of better words, of the housing crisis. NAMFS boasted hundreds of Offender Members. Investment capital was everywhere as the priority to get homes back on line became a national security issue. One of those loans, Foreclosurepedia wrote about, back in 2014.
Initially, Concentric Equity Partners (CEP) and TDR Capital ponied the money to purchase AMS, along with Vacant Property Specialists (VPS). Today, MCS really doesn’t exist, other than in name. It is owned by VPS Holdings, United Kingdom. It is a foreign national. PAI Partners, a European private equity firm, with offices in Paris, London, Luxembourg, Madrid, Milan, Munich and Stockholm. PAI manages €5.8 billion of dedicated buyout funds. Since 1994, PAI has completed more than 50 LBO transactions in 10 European countries, representing over €36 billion in transaction value. VPS Holdings Limited (“VPS”) was a leading provider of products and services for the protection and maintenance of vacant properties. Headquartered in the UK, the company operated in the UK, France and Holland, with smaller operations in Germany, Ireland, Italy, Belgium and Spain, plus previous operations in the US. VPS became known to TDR through investments in Phoenix Group when, in 2007, its board asked us to manage their underperforming private equity portfolio, which consisted of a large number of assets including VPS.
In October 2013 we completed the transformational acquisition of Mortgage Contracting Services (“MCS”), a US-based provider of property services on behalf of mortgage lenders. Concurrent with the transaction, VPS’s US business was separated from the European group structure and combined with MCS to create MCS Group.
By de-merging the group, they were able to position VPS for an exit. In July 2014, through a competitive process, we completed the sale of VPS to PAI Partners.
They continued to hold MCS Group until April 2017, they completed the sale of MCS Group to American Securities.
MCS, for all intents and purposes, is American Securities, today. Just like a CDO, companies are being acquisitioned and sliced and diced up for consumption. That should give pause to all of those whom actually believe that Caroline Reaves, the Chief Executive Officer (CEO) of MCS, is important. Reaves is merely a lower level face to a hidden head. And to be clear, Reaves’ history is unspectacular. Identical to that of Shari Nott, National Field Network (NFN), Reaves did several years at First American Title, which had acquired NAMFS founder, John Ward’s, Ward and Associates.
National Field Network (NFN) is only one in a long string of multi-million dollar contrivances of fraud with NAMFS Offender Members have perpetrated by specifically targeting Minority Females and Labor. NFN is currently embroiled in several million dollars of fraudulent billing rendered to Fannie Mae (FNMA), Reverse Mortgage Solutions (RMS), and the US Department of Housing and Urban Development (HUD).
Ken Carroll, representing FNMA, has done everything in his power to obstruct the proper payments owed to Minority Females and Labor with respect to his client’s failure to have proper financial oversight upon FNMA’s subcontractors including, but not limited to, NFN. In fact, Carroll was carbon copied by Victor A Deutch, NFN’s counsel of record, in an attempt to have a chilling effect upon Foreclosurepedia’s First Amendment rights. To date, Carroll has refused to meaningfully assist in any way, shape, or form in the bringing to justice his client’s pet contractor, NFN.
Moreover, though, Carroll has never disagreed that his client, FNMA, should be held responsible for the debt owed by his client’s prime vendor, NFN. Additionally, for those Minority Females and Labor whom have chosen not to take the twenty cents on the dollar offered by Deutch and instead legally filed liens, reports are coming now that Carroll’s client, Fannie Mae, has begun bulk sales of properties, with legal liens filed, in total disregard for the law of the land.
Over the past several years, Foreclosurepedia has been directly responsible for the bankruptcy of nearly $119 Million in NAMFS Offender Member firms when total contract values are calculated. Eric Miller, NAMFS Executive Director, has received an annual salary of $120,240 with $10,000 per year raises recently. Miller’s salary consumes over EIGHTY ONE PERCENT of all NAMFS member dues. That is notable as due to the shuttering of doors by his membership, it is up from seventy one percent only several years ago. Foreclosurepedia has additionally brought to light fraud upon HUD Management and Marketing (M&M) Field Service Manager (FMS) and Asset Manager (AM) Contracts such as our allegations of collusion committed by Mitchell R Davidson, former Market Ready Senior Vice President for Business Development and current Chief Operating Officer (COO) for Purdy Enterprise. Foreclosurepedia estimates that fraud committed against Minority Females and Labor to be in the neighborhood of $10 Million per year.
The fact of the matter is that when volumes decrease, the ability to service debt by NAMFS Offender Members, decreases, as well. In fact, as the foreclosure volumes began to drop under one million assets, NAMFS Offender Members created a term: Chargebacks. Chargebacks are illegal. Chargebacks are claims that contractors finished their work, but generally, did not submit proper photographic evidence or tick the right box on a form. Additionally, chargebacks are taken not from the balance of monies owed upon the property in which services are rendered, but from random properties the contractor is currently servicing. Today, chargebacks are going back nearly FIVE YEARS.
Fifty years ago, there would have been such an uprising against NAMFS Offender Members that the National Guard would have been called out to protect the NAMFS Offender Members. In fact, Miller and NAMFS attempted to sue Foreclosurepedia, into silence, when we simply recommended a public outing of the fraud. Miller and NAMFS retracted their threats after Paul Williams, Editor-in-Chief, Foreclosurepedia directly confronted both Miller and his lawyer by stating it was an attack upon the First Amendment.
Chargebacks are the dirty little secret that no one, including Ken Carroll, want to talk about.
Over the past several years, attrition of skilled labor has hit the Mortgage Field Services Industry incredibly hard. Spearheaded by the outright fraud overseen by Ken Carroll and his colleague Victor A Deutch, the once quoted 100,000+ number of Minority Females and Labor, cited by Sterling Backcheck, are now barely enough to cover the few work orders which remain in the Industry. Many place the number, today, at barely 25,000, if that. And in light of the continued chargebacks in conjunction with the fraud committed by NAMFS Offender Members, there is an extreme concern that when our looming crisis hits towards the fourth quarter of this year, it may be impossible to properly handle the wave of foreclosures most scholars are predicting. In fact, finding skilled labor in any construction field is virtually impossible, right now.
It is not going to get better. And when it comes to racism, go no further than the ALL WHITE Board of Directors NAMFS has had since its founding over 25 years ago. NAMFS sees eye-to-eye with Wells Fargo whom for the first time in the history of the Fed, had a cap put on them and were ordered to remove their Board, themselves, based, in part upon actions like this,
Wells Fargo brokers in Baltimore referred to black borrowers as “mud people” and the mortgages they gave those borrowers as “ghetto loans.”
It is not going to get better for anyone. And at the end of the day, Minority Females and Labor will continue to shoulder the burden of NAMFS Offender Members until they rise up and walk out. Be sure to read tomorrow’s next part in our series.
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