Stewie Griffin Meets Wall Street
Yeah, I know its old -- but its still very funny!
Fraud in Real Estate, Mortgages & Homebuilders
An article in the weekend WSJ got me thinking about Real Estate related frauds of all kinds. Titled FBI Probes Unusual Incentives for Home Buyers, it looks at whether the homebuilder's incentives, if not properly disclosed to a 3rd party mortgage underwriter, was a form of fraud:
"When home sales began to slow at the start of the downturn, home builders offered buyers incentives -- instead of reducing prices -- to stimulate demand. The incentives included cars, tuition and credit-card payments, and even cash.
A sign is posted in front of a bank-owned home that is for sale in Richmond, Calif.
Now, federal investigators are questioning whether some of those incentives misled lenders and caused them to write mortgages that were artificially inflated, contributing to today's home-price crash"
Anyone who follows the real estate market long enough will eventually become familiar with various forms of fraud that at times lurks in the industry. Any industry where large sums of money are involved invites unsavory characters. With median home prices well over $200,000, housing was no different.
I do not believe Real Estate related fraud, under most circumstances, is all that widespread or common. One of the many things that made the 2002-2006 housing boom so unusual, however, was that fraud had become pandemic.
What might start out as a minor conflicts of interest slips over time into something more nefarious. When False statements get made to counter- or third parties who in good faith rely on those statements to their detriment, you have the makings of fraud. And what these types of undisclosed misleading statements become the norm, you have systemic fraud.
The most recent cycle saw many different types of fraud perpetrated by various industry players. All together, these various fraudulent actions contributed in a large way to the extent of the housing boom.
Here are what I see as the most common forms of fraud during the 2002 - 06 cycle:
1) Appraisal Fraud: Many appraisers found they could attract more referral business by inflating their appraisals to whatever the selling price was priced at. In a boom, it became easy to justify such fraud by using similarly priced homes in the neighborhood. Any basis of intrinsic value could be ignored, so long as “comparable” properties sold for similarly over-priced amounts.
The overuse of comparables helped justify prices that were increasingly unsupportable. As prices spiral upwards, the use of comparables becomes meaningless. High prices justify higher prices. It eventually reached the point where honest appraisers petitioned Washington D.C. to intervene in the widespread fraud. (The White House chose not to intervene).
2) Referral Fraud: Complicit in appraisal fraud were the real estate agencies that knowingly steered appraisal referrals to those agents they knew would give them the valuation they sought, rather than a true valuation. The agents and agencies were the enablers -- they are the ones who incentivized the appraisers to commit the actual fraud. The agents were the unindicted co-conspirators to appraisal fraud, as they paid for, aided and abetted the actual fraud itself.
Many buyers do not realize that real estate agents legally represent not them but the seller. They are motivated to close the transaction in order to get their commissions. This can lead to "questionable" referrals (including engineers as well).
3) Application Fraud: It was an open industry secret that mortgage applications were usually completed by mortgage brokers, rather than by the borrowers themselves. “Just leave those lines blank, we will take care of them” was a common refrain. Savvy brokers knew how to meet the requirements of each bank in order to get loans approved. Indeed, the “No credit check, no income verification” loans practically invited this kind of fraud.
That the banks knew what was going on and looked the other way, however, does not make this form of financial deception any less a felony.
4) Underwriting Fraud: Just how aware were the banks that these borrowers were unqualified?
An internal memo from JPM Chase reveals exactly how much the banks understood who they were lending to. It involves Zippy, Chase's in-house automated loan underwriting system. The memo's title: "Zippy Cheats & Tricks." It explains to bank employees how to get an unqualified applicant approved for a mortgage. A Chase spokesperson denied that Zippy Cheats & Tricks was official policy; thus we are reassured that this was only "unofficial policy.”
5) Mortgage Fraud: Anyone who filled out a mortgage app, and put false information on it committed fraud. I do not believe, as some fraud apologists have claimed, that this rose anywhere near the level of what has been so disingenuously termed “predatory borrowing.”
We know it happened on more than a few occasions. Where the intent was to obtain financing that the borrower would not have otherwise qualified for, it is fraudulent. That banks should have been more proactive in protecting against this form of deception is no excuse.
The bottom line remains that anyone who overstated assets or income or understated debt or financial obligations committed fraud.
6) Predatory Lending/False Statements: As of this writing, the FBI has arrested nearly 1,000 in connection to this form of fraud. A significant number of borrowers (I don't have a definitive number) may have been subject to predatory lending.
There have been numerous examples of lenders deceptively convincing borrowers to agree to loan terms that are abusive. One of the most common versions in recent years was representing an adjustable rate loan as a 30 year fixed mortgage. Anecdotally, I have seen many examples of this.
Note: This list is really just on the home purchase side, and doesn't even get to the doesn't include the fraud by Moody's and S&P in rating the various RMBS, CDO and CLS and other RE related structured products.
QUESTION: How many forms of fraud were associated with this last cycle in Real Estate, Mortgages, Securitization, Fund Management, Structured Products, etc. ? What other fraudulent activity took place?
What say ye?
How to Get an "Iffy" loan approved at JPM Chase (March 2008)
FBI Probes Unusual Incentives for Home Buyers
Investigators Ask Whether Payments Misled Lenders
WSJ, August 16, 2008; Page A2
Why Can't I Rip DVDs to My iPod?
This is my annoyance of the moment: Why are DVDs a DRM-locked proprietary platform? When I purchase one, why can't I use this on a convenient, portable device such as my iPod?
What a pain in the arse it is to rip a DVD: Frist, you need to use several products (MP4 Converter, Handbrake, Ripper); 2nd, it takes forever. 3rd, and its illegal to do so.
What brought this about recently was The Simpson's Movie -- actually, more of an extended 90 minute episode. I saw it with my nephews (with me snoozing thru parts of it).
However, going through the extras, I started listening to producer/writer commentary. Unbelievably entertaining stuff, like a terrific radio show with several very funny people cracking each other up. I would have liked to put on the iPod for the train, but no such luck.
I can rip the basic movie, but not the special audio commentary. Anyone have a clue how to do that?
The Complete Guide to Converting DVDs to iPod Format
iLounge, November 21, 2005
Rip DVDs To Your Mac To View On AppleTV And iPod.
Mac360, Friday, April 13, 2007
Wicked Cool Info-Graphic: Box Office Revenue
Here is a fantastic bit of Sunday morning chart porn, and just in time for the Oscars: The Ebb and Flow of Movies: Box Office Receipts.
A few interesting things: Search box up top; thumb tab on the bottom -- it slides all the way back to 1986. Mouse over any movie, and you get the full name; click the name, and a short description pops up, including a link to the NYT overrview. That includes cast, reader ratings, trailer and clips, and link to the full NYT review.
My only criticisms: The exact dollar amount of box office should show in the pop up; and Earth tones? No one could think of a more vibrant color set for movies? (yecch)
I'd like to see the same method of info display used for other items: stock and sector performance comes to mind, as do auto sales, Television viewership, Video game sales, Music, etc.
And who created this?
Hey NYT editors, you might want to give props Nice work by Mathew Bloch, Shan Carter and Amanda Cox creating this little beastie. Its terrific . . .
The Ebb and Flow of Movies: Box Office Receipts 1986 - 2007
Baseline StudioSystems; Box Office Mojo
NYT, February 23, 2008
Game Over in Blu-Ray HD contest?
I've mentioned the Blu Ray/HD quandry in the past, but it seems the fight is drawing to its conclusion. In both the US and Europe, Blu-ray discs are significantly outselling HD DVDs.
But its this MacRumors chart (below) that pretty much sums up the battle:
Its hard to see how HD has a shot.
Now the question becomes how fast the prices drop on both the Blu Ray players and movies, but for now, I am sticking with an upconvert Sony for the big TV.
UPDATE: January 8, 2008 8:21pm
Why would prices go down?
As we previously discussed, I suspect many consumers have been on the sidelines awaiting the winner of the format war between Blu-Ray and HD.
As that fades away, the total number of purchases of the winner -- Blu Ray -- will go up significantly.
Thus, economies of scale, mass adaptation, and desires for deep market penetration will drive prices lower.
As to the monopoly issue -- I doubt its an issue. 1) These are video playback toys, not an essential product or service; and B) There is still legit competition from ordinary DVD players (fer cryin out loud, you can still buy VCRs for $29).
My apologies for failing to explain the intermediate steps in my thinking . . .
2007 Movie Theater Attendance = Flat
"Ticket sales at North American movie theaters totaled $9.7 billion, a 4% increase over the previous year, according to Media by Numbers, a box office tracking company.
But attendance was flat, after a narrow increase in 2006 and three previous years of sharp declines. Movie fans bought about 1.42 billion tickets last year, according to Media by Numbers. The high watermark of the last 10 years came in 2002, when moviegoers bought about 1.61 billion tickets . . .
But box office results are always a game of glass half-full and glass half-empty, and the half-empties this time seem more prominent.
DVD sales continue to slump both domestically and abroad. The private money that has washed over Hollywood in recent years is starting to slow, investment bankers say, as more hedge funds go home with little to show. And movie executives are worried about the impending collision between striking screenwriters and the important awards shows."
In other words, except for ticket price inflation, sales were flat . . .
A Film Year Full of Escapism, Flat in Attendance
NYT, January 2, 2008
Blade Runner DVD NOT Released Today
"Due to production and shipment delays from the studio impacting all retailers, this title will not be available to ship by the street date indicated above. We are working with the studio to get this product in stock as quickly as possible. We apologize for any inconvenience.
Isn't that just like a Ridley Scott production? late, over-budget, but brilliant to look at.
Well, this gives me a few more weeks to figure out which version to get (as we discussed last night in the $200 HD/Blu-Ray).
Blade Runner (Five-Disc Ultimate Collector's Edition) ($55, all the crap included)
Blade Runner (Four-Disc Collector's Edition) ($23, just the DVDs -- but available TODAY)
or, do I wait for the HD/Blu-Ray decision?
Some quandry. And I thought this was going to be my last Blade Runner post . . .
HD/Blu-Ray DVDs = $200
Okay, they are not quite $200 -- but there are 4 machines on sale at Amazon.com, starting from $223 - $327, (shipping included). That's damn reasonable for an HD machine.
And, they include 10 free discs (5 with the player & 5 by mail) for the HD machines; The Blu-Ray player includes 5 free (by mail).
These Hi-Def DVD players (not recorders) have now dropped to the point where they are very very tempting . . .
• Toshiba HD-A35 1080p HD DVD Player for
$500 = $327 (with free shipping).
• Toshiba HD-A30 1080p HD DVD Player for
$400 = $233 (with free shipping)
• Toshiba HD-A3 720p/1080i HD DVD Player for
$300 $224 (with free shipping)
• Samsung BD-P1400 1080p Blu-Ray Disc Player for
$500 $280 (with free shipping).
Note: The Samsung BD-P1400 1080p Blu-Ray Disc Player
is Amazon's best selling HD DVD (its Blu-Ray); The Toshiba HD-A2 HD DVD
Player was the best selling HD machine, but it was replaced by the HD-A3 720p/1080i HD DVD Player for
$300 $224 (with free shipping)
Nice find, via PVR BLog
Amazon's Most Wished For, Most Gifted, and Best Selling Items
I like trolling through these pages looking at what people want -- and what actually gets bought.
These are the most "Wished for, Gifted, and Best Sellers" on Amazon:
Fun stuff . . .
Hollywood Studio Exec Explains The Writers' Strike
A studio executive explains the Hollywood writers' strike (as written by striking Colbert Report writers).
Also, the AMPTP finally fights fire with fire, and uses the internet to counter the WGA's ugly smear campaign.