Christopher Whalen Quotes Me on HousingWire, Then Tom Cox Slams Me and Whalen on HousingWire



So, here’s how my day went today…

It started with Christopher Whalen quoting me in his article on HousingWire.  Chris had told me yesterday that he was planning on quoting me in an article, but I didn’t know when his article would appear or where.  So, I found out this morning when I woke up and looked at my phone to find a half dozen “missed calls” from Maine’s consumer attorney “hero”, Tom Cox.

Tom is also a good friend, so I had to chuckle as I returned his calls while reading his text messages, which among other things said:

“I am putting you and Christopher Whalen on my biggest assholes list.  Whalen’s HousingWire article today, quoting you is bullshit!  Are you going to go after Whalen or stand with him?”

Well, I thought to myself, at least I now knew where Chris’ article was quoting me.

But, I was supposed to “go after Chris Whalen?”  The guy who’s co-authoring a new book, Financial Stability: Fraud, Confidence & the Wealth of Nations, which should be out later this year?  The guy who just a few days ago, while appearing as Max Kaiser’s guest on The Kaiser Report, was explaining that the reason we had a financial crisis in 2008 was because of securities fraud?

Max Kaiser: On Wall Street fraud seems to be… you get penalized with a fine.  There’s no criminal investigation. 

Chris Whalen: Well, that’s right.

Max Kaiser:And it seems that the fines on the civil side are always much less than the profit made from the criminal activity to begin with…

Chris Whalen: Correct.

Max Kaiser: So, isn’t fraud the business model of these big banks?

Chris Whalen: It is today because we don’t enforce the law.  I mean, if you really think, why did we have a financial crisis in 2008, it was because of securities fraud.  And the regulators, congress, all of the G-10 nations… their solution to the crisis was more capital… really anything but looking at the issue of fraud.

And a little later Chris said: I think the only way you restore confidence, going back to the title of our book, is if you enforce the rules against fraud.  The first part of the response to the crisis was the right one… throw money at it… the central banks printed money, stabilized things.  But, if you don’t go on to the second piece, which is restructuring and also to some extent, punishing the guilty, then you never give confidence back to investors.  That’s what really happened in 2008.

Here’s Chris on The Kaiser Report from March 17th.  Fast forward to 12:45…

So, Tom wanted me to “go after Chris Whalen?”  Well, just so everyone knows…

Investment banker Christopher Whalen, is the author of the 2010 book, “Inflated: How Money and Debt Built the America Dream.”  Over the past three decades, he has worked for financial firms such as Bear, Stearns & Co., Prudential Securities, Tangent Capital Partners, and today he’s Vice Chair at Carrington. He was also a co-founder and principal of Institutional Risk Analytics until it was acquired by Total Bank Solutions in 2013.

Chris has testified before Congress, the Securities and Exchange Commission and Federal Deposit Insurance Corporation on a range of financial, economic and political issues.  He appears regularly on CNBC, Bloomberg, Fox News and Business News Network.

In addition, until 2013, he edited The Institutional Risk Analyst , a weekly news analysis and commentary on risk and the global political economy.  He also founded newsletters including The Mexico Report, and Washington & Wall Street, now published as a weekly column on Brietbart News.  He is also a frequent contributor to The National Interest, American Banker, Housing Wire and Zero Hedge.

Chris is a member of the Advisory Board of Weiss Residential Research in Natick, MA, and a fellow of the Networks Financial Institute at Indiana State University.  He is also a member of the Finance Department Advisory Council at the Villanova School of Business, a member of the Economic Advisory Committee of the Financial Industry Regulatory Authority (FINRA), a member of the National Association of Business Economists, Professional Risk Managers International Association ( and he was regional director of PRMIA’s Washington DC chapter from 2006 through January 2010.  (I follow him on Twitter @rcwhalen.)

So, “go after Chris Whalen?” Probably not.  I’ve been following Chris for years, since before 2008, and I’m looking forward to having him as a guest on a Mandelman Matters Podcast in the very near future.  From the beginning of the financial crisis, Chris was probably the only “banker” to go after the big banks in a big way.

Chris was also recently on a panel hosted by the American Enterprise Institute, and his presentation, which was titled, “The Bubble is Still With Us,” well… it could have pretty much been written by me.  Among countless other points Chris made as a part of that panel, he said:

“… recent home-price market appreciation will slow this year and that the painful deflation of the housing bubble is still here.”

He also described the recent investor trend, buying up single family homes as being “not rational behavior,” which I have also said quite clearly in the recent past.

Here’s Chris on the American Enterprise Panel.  Fast forward to 58:50…


In Chris’ HousingWire article made the point that he’d made on The Kaiser Report, that the cause of the sub-prime crisis was securities fraud – not the violation of consumer rights.”

“Yet looking at the Dodd-Frank law, the state AG settlement and the regulations promulgated by the CFPB, you’d believe that the problems with consumers were the sole cause of the 2008 financial crisis.”

“One of the factors causing the foreclosure crisis to sludge along and even to large degree run-in-place, is the amount of misinformation that has been allowed to proliferate throughout the country,” notes Martin Andelman, host of the “Mandelman Matters” program and a keen observer of the industry. 

He (Mandelman) continues:

“As time passed and the crisis worsened, absent any factual communications to the contrary, the problems of correlation and causation started to multiply.  Georgetown Law professor Adam Levitin and Tara Twomy, in an effort to explain what was happening to homeowners, published a paper in 2010 titled Mortgage Servicing, that became the gospel for consumer attorneys and then homeowners across the country… and it remains so today. The problem is the paper’s conclusions were wrong.”

The basic thrust of the Levitan Twoomy paper is that mortgage lenders and servicers want to push home owners into foreclosure, gain control over the homes and thereby profit. This fundamental error — that it is good business to push a homeowner into foreclosure – is repeated constantly in the Big Media and by regulators like the CFPB and the State of New York.

Anybody with even the slightest idea about the world of distressed servicing knows that the law now requires that loan modification is the first order of business when a borrower gets into trouble. But apparently the folks at the CFPB and the State of New York, where it can take a creditor up to three years to foreclose on a house, have not gotten the memo. 

If you actually know the world of distressed servicing, there are three golden rules when it comes to a non-performing loan. 

First is keep the owner in the house. 

Second is protect the asset and make sure that maintenance, taxes and insurance are current. And third is to preserve the cash flow of the loan via loan modification, if possible. 

Keeping the family in the house and protecting the asset and cash flow, even with a substantial modification, is always better for the note holder, whether that is Uncle Sam or a private investor.

The conflicting regulatory guidance coming from the CFPB and other regulators makes the job of the nonbank mortgage companies and the large banks problematic. This lack of visibility in terms of costs and business processes makes it very difficult for investors and research analysts to assess the operations of the nonbanks and make informed decisions as to whether or not to recommend these stocks to investors.

For example, in the most recent conference call held by Nationstar regarding its 2013 financial results, Paul Miller from FBR Capital Markets asked CEO Jay Bray repeatedly how the bank is going to go from the current 6bp of profit on its servicing operations to the 11bp target that Nationstar has targeted for investors in its official guidance. 

Miller noted that the various “extraordinary” expenses and restructuring costs had reduced the profitability of Nationstar below 6bp.  At one point, Bray and Nationstar CFO David C. Hisey contradicted each other, suggesting that they really don’t know whether the “extraordinary” expenses that have occurred in the past few quarters won’t continue in the future.

Tom Cox, on the other hand, represents homeowners in the Maine courts every day, and as a result he deals with the foreclosure mill lawyers almost exclusively.  He sees the servicers, and their unwillingness to modify loans, as being the primary problem.

Now, as anyone who reads Mandelman Matters regularly knows, I think the world of Tom Cox.  In fact, recently I posted: Meet Tom Cox, Esquire.  A National Hero in Foreclosure Defense.

But, when it comes to this point, he’s wrong.  Servicers don’t make more foreclosing than modifying… or rather, they do and they don’t.

Servicers, for example, receive 50 basis points for servicing a performing loan, and 125 basis points for servicing a delinquent loan, but delinquent loans also cost a lot more to service.  And yes they get to charge late and other “junk” fees, as they’re called.  But, that’s not nearly enough of an incentive to create the situation we have today.

So, Levitin and Twomey were correct in the sense that the servicers receive higher fees for servicing a delinquent loan, but that doesn’t mean that they make more money when the numbers of delinquent loans reach the levels we have today.

It’s like late fees… they make a company more money too.  But that doesn’t mean that the company wants every payment to come in late.  Banks make more money when people bounce a check, but that doesn’t mean that banks want every check written to bounce.

Last year, Bank of America’s servicing operation was reporting losses of $1 billion a quarter.  One West bank recently sold its servicing operation to Ocwen.  Banks don’t do things like that because the business is profitable.  There are millions of people living in homes in this country that  haven’t made a mortgage payment since Bush was in the White House.  If servicers made more money foreclosing, why aren’t they foreclosing on these homes?

There’s obviously more to this situation than servicers not wanting to modify loans.

Tom Cox recently was complaining to me that a servicer took 90 days to deny a loan modification, and then the homeowner appealed, and it was another 90 days before the loan modification was approved.  His appraisal of the situation was that the servicer made the process take longer on purpose, and was trying to get the homeowner to give up so they could foreclose.

I asked him why a company would make something take longer, and therefore cost more, on purpose?  If trying to foreclose, why not just deny it in a week or two?  Lord knows they have no problem denying a loan modification.  Why not just deny it quickly and foreclose if that’s where the money is?

It seems to me that if a servicer takes 90 days or longer to deny a loan modification, it has to be because they’re trying to modify it.  And if they can’t modify it, there’s something else that’s stopping them from doing so.  I recently saw Bank of America try to modify a loan that was owned by the USDA.  It took so long that they finally just bought the loan back in order to modify it.

Now, I’ve followed several thousand people through the loan modification process.  I’ve also spent countless hours talking with foreclosure defense lawyers, Tom Cox included, about their experiences representing their clients.  And I’ve certainly heard from thousands who were tortured by the process, and am even a graduate of Max Gardner’s famous Boot Camp for attorneys.

So, I certainly understand what has gone on since this crisis began, I’ve had a front row seat and have written so many articles about it that it’s embarrassing.

The question at this point, however, isn’t about what’s gone on… and continues to go on… the question is why.  And to think it’s still going on because servicers make more money, just doesn’t explain it.  There’s more going on than that.

Think about the National Mortgage Settlement.  Bank of America was ordered to do something like six billion in principal reductions.  They went to the investors and 75 percent said yes.  They were given three years to complete them, but they finished in six months.  Why?

We all know what’s gone on, the question is why.  There’s more going on than we know.  It’s not just servicers.  Correlation is not always causation, as the video below makes clear better than anything I’ve ever seen…

“You didn’t see what was, Joan.  You saw what you wanted to see.”


So, stay tuned for Tom Cox on a Mandelman Matters Podcast, and Chris Whalen to follow.  Let’s see what we can find out and maybe we’ll figure out what’s really going on behind the curtain.

Mandelman out.

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