On The Money with Peter Hebert

July 19, 2010

The Wall Street Reform Bill

Filed under: Legislation and Regulation — Peter Hebert @ 4:41 PM

Dear President Obama,

The Wall Street reform bill with 90 percent of what you had hoped for is missing the most important 10 percent. I’ve reviewed the first 1,000 pages and I was stunned. I do not see this bill as a compromise in order to work with both parties and opposing interests. This bill is a sell out to the Federal Reserve. The next time I hear hail to the chief, I will know it is meant for the Federal Reserve’s governor. Please, do not sign the bill. Wait until AFTER the Financial Crisis Inquiry Commission has made its report. And, do not permit the Federal Reserve to Control the Bureau of Consumer Financial Protection – that should be an independent agency, and it should have a healthy adversarial relationship with the Federal Reserve and the financial sector. Finally, there is still no law that defines predatory lending. Phil Gramm would be proud of your oversight and inaction on the primary reason that collapsed the financial sector. Gramm, after all was the primary culprit that had blocked an attempt at legally defining predatory lending. Please, Mr. President do not sign this bill. The facts will come out, the American public will more fully come to understand this bill over time, and I predict you will be remembered as another Woodrow Wilson who penned words of regret in his memoirs.

Peter Hébert
Publisher and author of Mortgaged and Armed

July 7, 2010

Mortgaged and Armed: Available NOW in electronic book edition on Amazon.com

Filed under: Legislation and Regulation — Peter Hebert @ 3:33 AM


Contact Information
Peter Hébert
Publisher and Author
Freedom House Press
(301) 509-7674

Mortgaged and Armed: a key to understanding mortgage industry tactics
Available NOW in electronic book edition on Amazon.com

July 6, 2010

Peter Hébert and Freedom House Press are pleased to announce the release of Mortgaged and Armeda timely book thatdismantles mortgage finance and lays out an action plan to turn the tables on the mortgage lending industry. This consumer-oriented manifesto will empower households and real estate investors to regain and maintain control when going toe-to-toe with any financial institution.

The electronic edition of the book is now available to download at www.Amazon.com. The title can be found by typing Mortgaged and Armed in Amazon’s search bar. Kindle software, an Amazon.com book reader, is a free download for Mac users and PC users. It’s even available free for the iPod, iPad, the iPhone, Blackberry, and Android. Electronic book readers have never had more options and flexibility. (Kindle is also available as a free download through Apple’s online Application Store). The electronic edition is $9.95.

Hébert said, “Mortgaged and Armed is a take no prisoners approach for home buyers, investors, refinance applicants, and loan modification applicants to fight back. The mortgage lending business within the financial sector has lost the right to have the respect of the American people, and it needs to radically change its business practices. Since Congress is slow to act in any meaningful financial regulation to protect consumers, the American people must take several steps to protect themselves. Mortgaged and Armed is more than a book on financial literacy. It is a preemptive self defense manual.”

Hébert dispels the myths, disinformation, and misinformation concerning mortgage finance and securitization. He refutes the dominant narrative led by former U.S. Treasury Secretary Henry Paulson that there are “toxic assets” and real estate is to blame that is parroted by the mainstream and financial media. Those “toxic assets” are made up of fraudulently originated loans with predatory features not designed to sustain homeownership that were securitized and sold to pension funds. Predatory securitization and finance are to blame for the financial and economic crisis.

Mortgaged and Armed will become available on Amazon.com as a 6” by 9” paperback in late July or early August 2010. Mortgaged and Armed was written without acronyms to make the book readable and intelligible for the average reader. The 370-page book includes a glossary, references, end notes, and an index. The main text is 242-pages in length. The book’s 58-page glossary is packed with real estate, mortgage, financial, and economic terms written in plain English to equip anyone to have the leg up on the typical mortgage lender or loan modification specialist in a call center. There is an extensive 18-page section of end notes with the author’s personal comments in addition to citations. The book’s 14-page reference section is broken down by category that distinguishes between sources like “personal communications” and “research studies.” The book’s 10-page index was developed to enable readers to quickly drill down to the key points of interest. The retail cost of the paperback will be $19.95.

What Others Have Said
Industry: “Most people got a mortgage during the mortgage boom and housing bubble years. Most were badly advised and wish they hadn’t gotten the mortgage they did. Mortgaged and Armed provides enough mortgage fundamentals so no one will repeat their mistakes. The bursting of the housing bubble is the biggest financial fiasco since the Great Depression and deserves to be studied. Peter Hébert was on the front lines during this period and tells many first-hand accounts of what happened. These stories are humorous, sad, insightful, and unforgettable.” ~ David Olson, founder and president of Wholesale Mortgage Access & Consulting, Inc.

Capitol Hill: “From its nuts-and-bolts definitions of mortgage industry terms to its heart-breaking stories about consumers who were railroaded into financial ruin, Mortgaged and Armed gives consumers the information they need to navigate a market that’s often stacked against them.” ~ Congressman Jesse Jackson, Jr. (D-Illinois)

Academic: “The quality of your research shows that you have accomplished your objective in an exemplary manner. Once again, your topic is timely and very important. I am sure it will make a great contribution to the field.” ~ Dr. Richard Broacato, Mount St. Mary’s University in Emmitsburg, Maryland

“Peter’s work on Mortgaged and Armed was nothing short of amazing! It’s such a complex industry. In this very thorough and well-researched book, he has taken the mortgage industry and literally turned it upside down. The comments on Countrywide reads like the book Whistle Blower – you are whistle blowing on the entire industry. I highly recommend Peter and his book Mortgaged and Armed to anyone looking to school himself on the industry.” ~ Cynthia Maubert, Professor of Marketing, Mount St. Mary’s University in Emmitsburg, Maryland

About the Author
Peter Hébert has a Masters of Business Administration degree in finance and marketing from Mount St. Mary’s University in Emmitsburg, Maryland. He was the keynote speaker for his MBA graduating class at Mount St. Mary’s University on its 200th anniversary. He has a Bachelor of Arts degree in journalism and history from the University of Maryland in College Park, Maryland. Hébert has over 20 years experience in residential mortgage lending; residential property management and leasing; commercial and residential real estate marketing and sales; and secondary market experience in due diligence, commercial loan servicing, multi-family loan registrations, and residential loss mitigation. Hébert is a communicator and educator at heart with a passion in taking complex concepts and distilling them so that they are easily understandable for those with an in interest in better understanding. He has experience teaching corporate finance as an adjunct business professor. He has designed and taught several state approved continuing education courses to licensed real estate agents and loan officers. His professional experience includes working with attorneys, plaintiffs, and defendants as a litigation consultant and as an expert witness.

About the Publisher
Freedom House Press is a specialty publisher focused on non fiction titles. The mission of Freedom House Press is to present reliable books with verifiable information that cut through the panoply of misinformation and disinformation. It is in that spirit that Mortgaged and Armed is released. Other titles like Predator Nation and Architects Behind the Crisis are in the pipeline for release in 2010 and 2011. Freedom House Press has special arrangements in place for printing, online fulfillment, wholesale distribution, and retail sales at book stores. More information about the publisher can be obtained at www.FreedomHousePress.com.


June 18, 2010

Federal agencies defrauded, prosecutors nail Lee Bentley Farkas of Taylor, Bean & Whitaker

Filed under: Legislation and Regulation — Peter Hebert @ 9:40 PM

On June 15, federal prosecutors handcuffed Lee Bentley Farkas, the former chief operating officer and current chairman of Ocala, Florida-based Taylor, Bean & Whitaker (TBW) outside of Compass Fitness & Health gym he owns. The following day, the 30-page criminal indictment filed against Farkas in the U.S. District Court in Alexandria, Virginia was unsealed and revealed 16 counts of conspiracy, bank fraud, wire fraud, and securities fraud that equaled $1.9 billion. The United States of America v. Lee Bentley Farkas complaint alleged that Farkas misappropriated funds from Ocala Funding, LLC, Colonial Bank, and the Troubled Asset Relief Program (TARP), and thereby defrauded those firms as well as Freddie Mac, Ginnie Mae, TARP, and the Federal Deposit Insurance Corporation (FDIC).

Farkas and his co-conspirators allegedly attempted to defraud the federal government of $553 million from the tax payer funded $700 billion TARP. Farkas also allegedly led a scheme to misappropriate more than $400 million from Colonial Bank; and $1.47 billion from Ocala Funding, which was owned by TBW, to cover operating losses.

Farkas bought TBW in 1990 when it had six employees, and grew it to employ 300 in its headquarters and many more in 25 branches across the nation. TBW had carved out a lucrative mortgage lending niche by manually underwriting difficult to do loans for the Federal Housing Administration (FHA). By manually underwriting mortgages that FHA’s automated underwriting system had turned down, TBW prolonged some of the risky aspects of the failed mortgage lending business model that had rested on mortgage fraud and predatory lending, which had enabled the housing and refinance boom.

The FHA loans that TBW underwrote and did not perform were one by one desecuritized from the Ginnie Mae pools and one by one sold back to TBW by Washington, D.C.-based Housing and Urban Development (HUD). As a result, TBW’s operating losses mounted with each passing year. The company’s financial problems and Farkas’ alleged fraudulent schemes started in 2002. Those losses translated into a growing amount of real estate owned (REO) and non performing loans it serviced. These were then misrepresented as assets as pledged collateral to secure additional funding to keep the company afloat and fee income coming in from new originations, securitizations, servicing, and refinances.

One of TBW’s funding sources was Ocala Funding, LLC, a wholly owned entity that came into being about January 14, 2005 to provide TBW with a line of credit to cover operating expenses and originate mortgages. Ocala Funding raised capital by selling commercial paper. Ocala Funding sold up to $1.25 billion in in commercial paper to Frankfurt, Germany-based Deutsche Bank and $500 million of the same to Paris, France-based BNP Paribas. That commercial paper was secured by TBW’s non performing mortgages and real estate owned.

Though the secondary market for mortgages collapsed in June 2007, TBW dominated a niche that permitted FHA to become the new subprime to originate mortgages for marginal and unqualified borrowers. After the collapse of the secondary market, many retail mortgage lenders looked to TBW as the means to keep business going. TBW filled the huge void left when Countrywide Financial Corporation and many other firms exited the mortgage business.

Between July 2008 and August 2009, TBW increased its FHA originations and securitization by 81 percent growing its business from $14.8 billion to $26.8 billion. TBW was able to do this, because it owned the FHA manual underwriting niche in the United States. Mortgage industry analyst Guy Cecala believed that TBW’s phenomenal growth was due to either lax underwriting or fraud.

Throughout 2008, Montgomery, Alabama-based Colonial Bank’s Mortgage Warehouse Lending Division in Orlando, Florida provided $70 billion in short-term financing to TBW for 400,000 mortgages. In 2009, Alabama’s financial regulators seized Colonial Bank, and FDIC placed the bank into receivership. On June 7, 2010, Colonial BancGroup, Inc., the parent company, filed for bankruptcy. Winston-Salem, North Carolina-based BB&T Corporation took control of 46 branches and $20 billion in deposits. Colonial BancGroup’s stockholders were wiped out. FDIC insured all of the bank deposits.

In August 2009, Washington, D.C.-based Housing and Urban Development (HUD) pulled its authorization away from TBW and Ginnie Mae assumed TBW’s entire government loan portfolio. That intervention shut TBW down and over 1,000 “traumatized” TBW employees became suddenly unemployed. Farkas’ closely held company filed for Chapter 11 bankruptcy protection on August 24, 2009. Prior to this, TBW was the largest non depository mortgage lender in the nation. TBW’s countless financially desperate and unqualified borrowers became totally out of luck.

The federal government also alleged that Farkas misappropriated $22 million in TBW funds for personal use, and as a result, demanded forfeiture of five properties in Florida and Georgia, a 1929 Model A Ford, a 1937 Pack CV, a 1958 Mercedes Benz Cabriolet, a 1963 Rolls Royce, and five other luxury cars.

Though the charge against Farkas is for $1.9 billion, actual losses approach $8 billion. Farkas’ scheme resulted in FHA and Ginnie Mae’s largest loss on record of about $3 billion. Freddie Mac anticipates $1 billion in losses as a result of TBW. As a result of Farkas and the 1,000 “traumatized” TBW employees, Colonial Bank, one of the top 50 banks in America, failed making it the worst for 2009 and the sixth worst bank failure in history. The FDIC paid out $4 billion in connection with Colonial Bank, and is liable for a large percentage of its $25 billion loan portfolio.

Anthony C. Cochran of the Atlanta, Georgia-based law firm Chilivis, Cochran, Larkins & Bever LLP said, “Mr. Farkas will enter a plea of absolutely not guilty, will vigorously defend against the charges and looks forward to having his day in court to clear his name.” If convicted, Farkas could get between 20 and 30 years for each count in the indictment, and then be placed in a cell the size of a bathroom.

James M. Cole, President Barack Obama’s nominee for deputy attorney general, testified on June 15 during Senate confirmation. Regarding the financial crisis Cole said, “We need to hold people accountable ….One of the main ways to do this is to go after the individual executives who are responsible. It is they who will go to jail, they who will suffer the consequences.” To date, no high level executive has been imprisoned in connection with mortgage fraud, predatory lending, or the financial crisis that devastated the American and global economy.

The sources used to prepare this report included United States of America v. Lee Bentley Farkas (both criminal and civil complaints), Department of Justice, Securities and Exchange Commission, The Colonial Bancgroup, Inc. Form 8-K, Housing and Urban Development, Ginnie Mae, Taylor, Bean & Whitaker Chapter 11 Bankruptcy Filing, Business Week, The New York Times, The Washington Post, CNBC, Bloomberg, St. Petersburg Times, and National Mortgage Professional Magazine.

Peter Hébert
Author of Mortgaged and Armed
(coming late-July 2010 on Amazon.com)

May 27, 2010

Financial sector reform finally here – it’s mostly money talk

Filed under: Legislation and Regulation — Peter Hebert @ 3:31 PM

The New Deal of 1933 meant financial sector reform. So much was wrong back then with the private sector completely unregulated and run amok. FDR’s Glass-Steagall Act of 1933 divided financial institutions into depository and investment-oriented businesses. This was the structural equivalent of engineering baffles into a ship the size of the Titanic so that it would not sink if it again hit an iceberg. Glass-Steagall was also known as the Banking Act. It was this nation’s first attempt at financial sector reform. FDR’s financial reform protected the American household and the broader economy for about 70 years.

Political and social activists throughout the 1930s had correctly pinned the nation’s economic problems on the Federal Reserve. What the Banking Act did not do, however, was repeal or amend the Federal Reserve Act. The financial sector hated Glass-Steagall’s Banking Act, because it curtailed their freedom, undermined synergies, and denied potential profits. By 1999, the Federal Reserve and member banks with their lobbyists rendered Glass-Steagall, the safeguard to the American economy, useless.

Capitalism had developed from monopoly capitalism of the late 19th century and early 20th century to financial capitalism of the late 20th century and early 21st century. That development rested on financial innovation, unregulated markets, and little to no government intervention. The end result was a synthetic economy divorced from the real economy where wealth transferred from the many and concentrated into fewer hands. The risk management that was built into the system by default was government intervention. The political crisis that would inevitably follow would fall onto elected leaders, not the banking establishment.

The secondary market for mortgages collapsed in July 2007 and the financial system came to the brink of entire collapse September 2008. This was not exactly a repeat performance of the stock market crash of October 1929 and the Great Depression that followed. Many of the contributing factors that led to the failure in the markets in the two eras, however, are similar. One was overvalued stocks. Hucksters and shills urged the masses to buy now. Another was accounting rules. The accounting rule scams of the 1920s were no different than the accounting rule changes permitted by the Securities and Exchange Commission today. One factor was different. Consider the sacrosanct economic text book theories taught in business schools. The efficient market hypothesis has proven to be pure nonsense. It is still taught. Institutional investors never understood the risks pension funds under their management were placed into. When our economy collapsed, it was much worse than the 1930s, because America’s collapse pulled down about 85 percent of the global economy, the 27 nations that comprise the G-20.

In May 2010, Congress told the American people that “for the first time ever” we have financial sector reform. Are we a nation of liars or do we despise the facts and record of history? Today’s financial sector reform is mostly talk. Beneath the misleading assurances from Capitol Hill is an ugly and inescapable truth. Lobbyists retained by the financial sector relentlessly fought against financial reform that would satisfy consumer advocacy groups, average investors, and the typical American household. The weapon of choice was money thrown at elected leaders. Money talks. But, who is listening to the voice of history?

Peter Hébert
Author of Mortgaged and Armed
Coming late-July 2010

February 23, 2010

The Rise of the People, Radicalization, and Freedom

Filed under: Legislation and Regulation — Peter Hebert @ 5:16 PM

There has never been an idea so threatening to the banking and political establishment than freedom. Imagine a pension system that can be passed down through the generations so that it can grow and become the foundation for the family tree to grow. Imagine a banking and credit system that encourages households and businesses to take on minimum debt and to pay it off so that assets can grow in value rather than be forever encumbered as like this generation of financial tenants. Imagine a political system where elected representatives are not lawyers, but rather business professionals who actually understand the ramifications of proposed bills and can anticipate each unintended consequence.

The array of subgroups that make up the Tea Party suggests the rise of the people. They are understandably angry and feel disenfranchised. They are fiscal conservatives and libertarians, who value freedom. They also want to take the country back from liberal progressive ideology that took the federal government away from the nation’s founding documents – the U.S. Constitution and the Bill of Rights. Among the subgroups are Second Amendment die-hards and conspiracy theorists. Those conspiracy theories, once the domain of the fringes, have come into the mainstream, and serve as the bonding glue. They dovetail with each to form a cohesive and comprehensive alternative explanation for the complex world around us. Their significance in 21st century America is rooted in a fundamental fact: We’ve lost faith in the mainstream media, the corporate sector, and government. We see them as being in bed with each other, and therefore, alternative explanations are more satisfying than more misleading propaganda.

Each passing news cycle suggests that radicalization in America is becoming more prevalent. Consider these three instances. In June 2004, Marvin Heemeyer of Granby, Colorado rampaged through town in a bulldozer that was fitted as a tank over zoning disputes and liens that put a hurt on him and his own business. When it was over, he committed suicide. In February 2010, Joe Stack of San Marcos, Texas slammed a small plane into an office building that housed the Internal Revenue Service. His action resulted in the injury and death of other(s). In these two instances, death was preferable to life. Also in February 2010, Terry Hoskings of Moscow, Ohio bulldozed his house out of spite to the Internal Revenue Service and RiverHill Bank. His actions, fortunately, only amounted to significant property damage. According to an Internet poll conducted by WLWT News, which reported the Hoskings story – an overwhelming 78 percent responded with good for him, 9 percent responded with not a good idea, and only 13 percent said that he should be prosecuted. These people were not political radicals and they were not domestic terrorists like Timothy McVeigh or Ted Kaczynski (the Unabomber). Instead, they are society’s symptoms that suggest just how fragile we are in the face of government agencies and financial corporations that do not think, feel, breathe, or care.

Radicalization, however, does not need to follow the paths of these people. Imagine a world where groups of people have the power to wage creative destruction safely and on their terms for everyone’s best interests. Citibank, America’s zombie bank, issued the following statement:

“Effective April 1, 2010, we reserve the right to require (7) days advance notice before permitting a withdrawal from all checking accounts. While we do not currently exercise this right and have not exercised it in the past, we are required by law to notify you of this change.”

Radical times demand radical economics. The logical answer to this too big to fail bank is to pull the plug by closing accounts, and transferring funds elsewhere. Consumer choice of this nature is more powerful than a tank, plane, or bulldozer to send the message that we recognize that monster corporations are a threat to America. That pariah of an institution has ruined lives, fortunes, and the American economy. Because Citibank is a corporation that does not mean it is assured life in perpetuity. Out of this type of creative destruction will come better business models and real competition. That may sound radical, but it is what people need to do. As voters, tax payers, and consumers we are the ones who have the right to life, liberty, and the pursuit of happiness … not monster corporations that continue to threaten our lives, freedoms, and our economy. Freedom is radical and it is liberating.

Peter Hébert
Author of Mortgaged and Armed
Coming late-July 2010

October 27, 2009

The SAFE Act, the Home Valuation Code of Conduct, Denials, and Absurdities

Filed under: Legislation and Regulation — Peter Hebert @ 4:09 PM

There are a few lessons that can be learned from what happened after the secondary market collapsed in July 2007 and from the Housing and Economic Recovery Act of July 2008, which was the nation’s first address to the subprime meltdown and foreclosure crisis.  One year of non-stop blame shifting and unashamed levels of denial within the financial sector served to misinform the media and elected officials and in turn the general public. This indirect contempt towards the American household and investors in financial sector stocks did not change any of the facts. Wall Street and the too big to fail banks accepted no responsibility from predatory financial engineering to predatory securitization. Capitol Hill, as a result of a skewed and mean-spirited understanding of issues blamed borrowers and mortgage brokers as evidenced by the Housing and Economic Recovery Act.

 Prior to the Housing and Economic Recovery Act, those absurd denials from the financial sector were addressed by the embarrassments of regulatory risk and marketplace risk. Regulators issued an interagency guidance to curb lender enthusiasm for short–term ARMs, prepayment penalties, and Option ARMs. Some predatory products came off of the shelf. And, that regulatory guidance halted stated income and no income loans to curb mortgage fraud, which more often than not had been directed by lenders and real estate agents … not borrowers. But, that guidance did not end the excesses within the financial sector or end customer abuses given that it was issued in September 2006, because it did not cover many lending institutions. Moreover, while it was indeed appropriate, it was far too late. In July 2007, the secondary market stopped buying mortgaged backed securities, because too many loans did not perform and it had become increasingly obvious that continued reckless underwriting  permitted blatant fraud and downright predatory behavior to become ingrained within the lending industry. The actions of the free market addressed what the regulators had failed in doing, which was their job to protect financial institutions and customers. This painful marketplace correction resulted in the Act paving the way to bailout Fannie Mae and Freddie Mac. After the $700 billion Wall Street bailout through the Emergency Economic Stabilization Act of October 2008, the Federal Reserve became the secondary market, which really was not the role per its initial purpose. Foreigners stopped buying America’s mortgage backed securities. They are not dumb. Can you blame them? Everyone at home was told “toxic assets” were behind the problems within the financial sector. And, the too many embedded journalists failed to unravel the mechanics of mortgage fraud and predatory lending in order to cut through the rhetorical nonsense that only served as more disinformation to befuddle the American public and treat taxpayers like idiots.

 Because nationally-chartered banks and Wall Street firms controlled the narrative with the media and Capitol Hill, the Housing and Economic Recovery Act did not hold themselves accountable. Why should they? The financial sector led the charge to draft the long-winded legislation. It held accountable their strategic partners – mortgage brokers and the state-regulated financial institutions. Within the Housing and Economic Recovery Act is the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act). The SAFE Act requires all loan originators to register with the Nationwide Mortgage Licensing System, which is a good idea. But, the SAFE Act also requires 20 hours of Continuing Education Credit, an exam, and a 75 percent score needed to pass that exam. The SAFE Act is a good idea. But, only licensed mortgage brokers and loan officers with state-chartered financial institutions are required to comply with the training, testing, and passing requirements. Loan officers at the nationally chartered firms were exempted, which is a bad idea. This was just legislative hypocrisy. I can tell you from first hand experience that loan officers at the federally chartered firms are no different from all others. Ask any wholesale account representative after he or she is under sodium pentothal and the truth will come out. Yes, coaching and guiding on the art of structuring the deal did take place. So did other subtle lending abuses. They cared little for small matters like history, which gave way to a host of consumer-oriented legislation starting in the 1960s, a small issue even though such ignorance is why reverse redlining was rampant as alleged in several class action law suits against Wells Fargo, one of the nation’s leading nationally chartered banks. Moreover, the Housing and Economic Recovery Act mistakenly rested on the premise that borrower-directed fraud was widespread. The fact, however, is just the opposite. Industry insiders have an asymmetrical knowledge and power relationship with the general public. Lender-directed fraud was widespread, because it is almost always an inside job. That fraud came from the nationally chartered banks. Their abysmal financial situation is evidence of both a lack of due diligence, a lack of adequate internal controls, and executive incompetence. The magnitude of this type of negligence and incompetence, however, does not justify blame shifting or denial. Consider the appraisal problems at Washington Mutual.

 Washington Mutual, a nationally-regulated mortgage banker, had engaged in egregious bad conduct by brow-beating the appraisers at eAppraiseIT’s to appraise home at values beyond a property’s actual worth. Those fraudulent appraisals, directed by Washington Mutual, ended up posing a financial risk to borrowers, that institution, and the overall economy. (This was not borrower, broker, or state-regulated bank fraud. The fraud came from management at a nationally-regulated lender). The industry’s response was another well-intended though ill conceived and completely misguided regulation called the Home Valuation Code of Conduct. The Home Valuation Code of Conduct permitted lenders to extort payments from the public while everyone worked in the dark. (The banks may have well just said, hand over the money). Prior to the Home Valuation Code of Conduct, a courtesy opinion of value came at no charge from appraisers to loan officers to save time and to prevent ordering a needless appraisal if the value was not there. Moreover, the Home Valuation Code of Conduct penalized competence and rewarded inexperience through a “no appraiser left behind” logic that put all appraisers on an equal footing, which is completely contrary to the free market that rewards competence and excellence. Finally, the Home Valuation Code of Conduct permitted the too big to fail banks with national charters to financially exploit customers through higher costs and the affiliated business agreement by extracting fees for themselves regardless of whether or not they committed to do a loan. The predatory practices built into the Home Valuation Code of Conduct need to be repealed given that there will never be an American Household Abuse and Prevention Act. With collapsed home prices, why wouldn’t a national lender insist on the Home Valuation Code of Conduct? Who cares if a home is $100,000 under water so long as appraisal checks from anxious homeowners across the country hit the bottom line. The Home Valuation Code of Conduct was a consumer shakedown, plain and simple. I wish it was easy as saying that the sponsors of the Home Valuation Code of Conduct need to get booted hard and sent to the curb in 2010, but no can do.  The Home Valuation Code of Conduct was the brain child of “a joint agreement between Freddie Mac, the Federal Housing Finance Agency, and the New York State Attorney General,”[i] which is troubling evidence that the leaders in the industry and those tasked with safeguarding the consumer know not what they do. Or do they?

So, whose interests were the SAFE Act and the Home Valuation Code of Conduct looking towards? These came about as a result of and on behalf of the nationally-chartered banks. This was about government by the strongest of corporations for the strongest corporations. It is, after all, always easier to blame the victim rather than to hold accountable those responsible due to the ramifications of widespread prosecutions in upper management. That cannot happen, because they finance election campaigns. But, if that were to happen, the truth would become evident at home – the demise of the American republic is the result of an unashamed state of political corruption from which all other forms of corruption stem.

At the consumer level, there are some loan officers and real estate agents also living in a complete state of denial.* There is a percentage – the exception not the rule – that refuses to accept any responsibility for the failure in the marketplace, the foreclosure crisis, and the loss in home values. For those still in denial, “it just happened.” For them, this existential problem is rooted in pure mystery. How can they be expected to understand given that roughly one third of them do not even read a daily paper or a bi-weekly magazine.  Yet, the public looks to them as arm chair economists when seeking guidance. For others more comfortable with blame shifting, it was the borrower’s fault and it was the fault of Capitol Hill for misguided public policy that pushed too hard to increase homeownership. While we gained 3 percent in the homeownership rate, we may lose 15 percent through foreclosures. Troubling facts, however, argue against those in blissful ignorance, those in denial, and those who would rather blame everyone else instead of those who run the industry.

Peter Hebert
Author of Mortgaged and Armed (Coming 2010)
LinkedIn Profile

*NOTE: The observation of gross, calloused denial is evident in some of the Continuing Education Courses I teach for licensed real estate agents and loan officers. Those attitudes are reflected in a lack of reading and / or over exposure to one-sided media accounts that serve more as propaganda than as journalism.

[i] “Home Valuation Code of Conduct, enhancing the independence of appraisers,” Freddie Mac, October 1, 2009; Online at http://www.freddiemac.com/singlefamily/home_valuation.html.

October 11, 2009

The G-20 Meetings: An Abysmal Failure in Public Relations

Filed under: Legislation and Regulation — Peter Hebert @ 5:43 AM

Making sense of the three G-20 meetings (Washington, London, and Pittsburgh) and the public blow back since the Panic of 2008 is not difficult. Finance ministers and central bankers have repeatedly met to produce a global New Deal as it relates to accounting, capital reserve requirements for financial firms, better regulation, and more. None of this should be seen as controversial or reason for concern. The 27 nations that are part of the G-20 committed $5 trillion as a stimulus to the global economy. It was needed and certainly unpopular, because the financial fiasco was of the banking sector’s making with the enabling of legislation at the expense of all tax payers in the developed world. The International Monetary Fund was empowered to become the global central bank. In reviewing many of the key documents, everything that the finance ministers have proposed makes sense on paper and as theory. What should cause Americans concern is a global basket of currencies as the new reserve currency since that will result in the loss of the dollar’s value, a decline in America’s strength, and a compromise of our sovereignty for many reasons. There are wide spread implications that have not been adequately addressed by the media or government.

What does not make sense about the G-20 meetings is the lack of adequate or meaningful public relations outreach to mitigate street riots here and abroad. These unelected finance ministers and central bankers have concealed themselves behind political leaders, who in turn have been shielded by riot police. In this regard, the G-20 meetings have been an abysmal public relations failure. These meetings reflect paranoia of the first order. The public has an in-built distrust for organized and concentrated power. And, key members of the financial sector appear to believe that it may never again be safe for them to walk on public streets.

The major disconnect between G-20 finance ministers and the general public is rooted in more than just a lack of regular and easy to understand communications. I believe that disconnect is rooted in the third leading cause for pivotal changes in history – stupidity. There are indeed many smart people at the helm of finance and economics. But, high IQs, abstract thinking abilities, and great academic backgrounds guarantee nothing. What is missing among the G-20 finance ministers is people skills and street smarts. At a minimum what has happened is right out of a psychological text book. It is the definition of group think, which is “a mode of decision making marked by deterioration of mental efficiency, reality testing, and moral judgment that results from group pressures.”

There appears to be four major short comings among the G-20 finance ministers as it relates to public dissent, fear, and anger. First, they are too self-absorbed and self-focused, which denies the validity of public comment. Second, they think they know everything when in fact no one knows everything even in their own areas of subject matter expertise. Third, they think they are all powerful and can do anything, when the results on the ground suggest that the public is not going along. And fourth, they think they have super human qualities of intelligence and ability by virtue of their status when everyone knows the story of The Emperor’s New Clothes. When these factors combine, we have something far worse than stupidity. It is called megalomania. This psychological delusion when projected outwards can become socio-pathic and destructive.

A social upheaval in one form or another and of unprecedented proportions is inevitable unless the G-20 finance ministers begin to engage in radical change in its communications and outreach. Consider the Kent State Massacre or the Waco Massacre and fast forward to the year 2012 as the U.S. dollar collapses as a result of the federal government’s unsustainable and unserviceable debt. The unprecedented stimulus measures this government has taken will destroy the value of the American dollar, and that will end in wide spread panic. Perhaps the most appropriate case study is the Weimar Republic, which ended in political extremism as the backlash to a political crisis unleashed by a fiscal crisis ended in monetary collapse. It is for these reasons, I believe, that so many here and abroad protested. I believe that the wisdom of crowds in the end, hopefully, will prevail.

Peter Hébert
Author of Mortgaged and Armed
Coming late-July 2010

Mortgaged and Armed – An insider’s guide to the financial system

Filed under: Legislation and Regulation — Peter Hebert @ 5:31 AM

Welcome. I will share some of my installements of my Mortgage Money Update (an email newsletter),  excerpts from my book Mortgage and Armed, and commentary on events from time to time.

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