October 19, 2004

Does the math of the mortgage bubble work? Or are the securities, and the derivatives, and ... Are all those fancy other 'financial instruments' taking out more profits than the housing stock can be worth? An attempt to check the math, a government raid and destruction of the tools, and, eight years later, a court vindication.Backtrack from here to the root for more. This seems a sound few bytes that gets the flavor: "Hamilton’s Community Wizard enabled it as administrator of the loan sales to see what the real default experience in locales actually was in order to construct a better actuarial model on which to base pricing. ... Given that HUD’s defaulted loan portfolio was worth hundreds of billions of dollars, the difference between a 35% as opposed to a 90% recovery rate to the taxpayer who had funded the original loans in the first place was considerable. You have to wonder: why was a firm that was actually doing what it was contracted to do attacked and put out of business by its employer?

Continuing: .... for four years this occurred without the government ever presenting a case, or those attacked ever knowing what it was they were accused of. This is not due process, it is political persecution. ...Hamilton was raided and its IT infrastructure including Community Wizard confiscated and, crucially, destroyed.... the costs to the taxpayers in foregone proceeds from the defaulted loan sale program run into the scores of billions. Economically this is equivalent to a covert increase in taxes insofar that it is the taxpayer who foots the bill. For the companies involved the profit margins are so huge that it easily finances whatever political or legal air cover the operation might require. ... ... Hamilton was attacked because with the loan sales program Hamilton had strayed too far into forbidden territory: the land where the real Federal Budget is managed and the real political struggle is over who gets to control access to the Federal credit and through it the most fantastic system of patronage and power in the history of mankind.[iv]..." ----------------- This is a real "follow the money" maze. Years later, finally, the court case got thrown out, the government gave up its attempt to prove the company had done anything wrong, and -- the money's still out there, somewhere. Or isn't.

posted by hank 19 years ago
  • This is giving me a headache. I'm sure there's something important in here, but I can't figure out what it is. Help?
  • According to the preface to this link, there's a huge conspiracy going on where money is apparently being stolen from the government, (by whom exactly seems unclear to me,) by a scheme involving mortgage forclosure recoveries being under-represented. The proof, according to the article, is that mortgage debt as a percentage of GDP is rising much faster than the rate of homeownership. Well, there might be a grand conspiracy here. Or, it might have something to do with the fact that real estate prices are rising 10% per year, while GDP growth has been less than stellar. If you're really interested in monkey business in the US mortgage industry, there are plenty of more important, (and more believeable,) concerns. Notably, accounting fraud at Fannie Mae, which could have a huge impact on the way the entire mortgage industry works.
  • Yeah, every time I hear about how the real estate bubble won't pop I get more and more suspicious. (Also didn't really get the article... sorry) Growing up in TX during the oil bust of the 80s, I learned that real estate is no where near the safe investment it's being presented as, these days. When the economy is flat, real estate goes south in a big, bad way.
  • There might be something of interest here, but the article appears to have been written by a tin foil hat marxist.
  • The claim of possible interest that the article rambles around is: That the US Dept of Housing has a mortage program, which like any mortgage program has some defaults. Like with a bank, the HUD puts the houses from the defaulted mortgages up for sale, in order to recover the mortage loan value. Historically, the HUD only recovered 35% of the loan value on default properties sold - i.e. they sold for much less than the value of the mortgage, the HUD lost money on the default. Administration of the property sale program was supposedly contracted to Hamilton Securities, who had the technical and financial experience to better assess the actual value of defaulted properties when they went up for sale - in simple terms, when a HUD house went up for sale in Hoboken, Hamilton had the expertise to know it was worth $100, and held out for at least close to that, and didn't settle for $35. As a result of Hamilton's expert administration, the HUD started recovering 90% of the value on it's defaulted mortgages. However, supposedly well connected unnamed rich persons had been profiting handsomely under the old corrupt HUD program and making happy 65% profits on the public purse, by buying valuable properties from the HUD for only 35% of their real value. Hamilton was supposedly spoiling things for these unnamed persons, so these HUD abusers brought political pressure to bear, arranged trumped up charges, and got Hamilton raided. Hamilton's computer systems were seized, which is the quickest way the government has these days to destroy any modern company. Hamilton's management contract with HUD was suspended. Eight years later, Hamilton has supposedly been completely vindicated, though the company is destroyed. It should be noted that this case seems to be of particular interest on conspiracy web sites, and not much of anywhere else. However, if these allegations are true to any extent, they should come as no surprise to anyone who's been paying attention lately.
  • I want to try a tinfoil hat. Just once. I always feel guilty making fun without having tried it once, especially since it wouldn't be difficult. It's only tinfoil, I could have one on my head in two minutes. But something keeps stopping me from trying it. Hmmm...
  • It *would* be pretty and shiny!
  • Not for the first time, what meridithea said. When I told my investment advisor that we were selling our house, he said it was a great time to get out of real estate. He said that next time we bought, we'd pay higher interest, but the price of the home we bought would be comparatively lower. I have no trouble believing this because my mother bought her house (a foreclosure) with cash during the bust of the late 80s. As for the link, after a quick skim, I'm with Nal. I'm cynical enough to think it's possible, but there's plenty of room for *ahem* monkey business in the mortgage industry without wandering into tinfoil hat territory.
  • The problem with real estate as an investment is that gains in value don't represent anything beyond a percieved increase in value. At least stocks & bonds (theoretically) rise in value because of concrete expectations about the future. The reason a lot of spreadsheet-slingers think there's a real estate bubble is that prices have risen while rents have not, indicating that there's no scarcity in the supply of housing.