Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Triple A

Tuesday, January 6, 2009
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Wall Street Ratings agencies threatened? Standards too Poor?
Ratings companies used to have a great name. No longer. The subprime mortgage crisis has seen to that. Once seen as being blue chip companies with a sterling reputation, the ratings companies have now come to be seen as part of the sordid network of double dealing in Wall Street in which conflicts of interest and outright dishonesty led to millions losing money, while the fat cats of the ratings companies raked it all in.

The three major ratings companies, Moody’s, Fitch, and Standard and Poor’s, rated baskets of mortgages, bonds and other instruments, huge swathes of which are either in default, have gone bankrupt, are having to be bailed out with tax payers’ funds, or, if they still have value, have lost much or most of it. Yet the ratings companies still exist and, inexplicably, they are still been viewed by the US Federal Reserve as having a role to play in the future rating of financial instruments in the USA. As the Wall Street Journal recently pointed out in an editorial on 3 January 2009, it is almost beyond belief that the ratings companies that were instrumental in getting the USA into its current financial crisis are now being viewed as part of the emerging solution, even though they were a critical part of the problem. Why is this so?

Part of the problem is that until recently no one has presented an alternative way to rate companies. The ratings companies have a quiet oligopoly, which they fiercely protect. The methods they use to rate companies and financial instruments are outdated and, from a fundamentalist point of view, unsophisticated. They rely principally on financial history whose directions and trends are extrapolated into the future. Recent history is decisive proof that these methods do not work when business conditions change significantly. However, the lack of an alternative approach has stymied all efforts to develop new forward-looking models that do not just rely on extrapolating current trends into the future.

This is now changing. The field of behavioral finance has emerged in the last 20 years as a new model to describe financial and economic phenomena. Behavioral finance and economics are different to their classical cousins in that they drop the classical assumption that financial and economic decisions are always rational. They now inject a new idea into these disciplines, that consumers and economic managers sometimes make financial and economic decisions irrationally, or to adopt the de rigueur terminology, under conditions of mixed rationality.

However Wall Street and the ratings agencies never picked up on behavioral economics and finance so their models could never integrate these factors, with predictable results. Their models failed. With behavioral economics and finance there exists a new paradigm on which to build new models of how companies act and how to predict their future valuation. However academic models have still not made the leap to showing how these behavioral finance models can be applied to specific managers and companies to predict their future valuation and profitability prospects.

Yet even this has changed. In the past few years, new models have emerged built on a behavioral finance paradigm, which allow these techniques to be applied at the level of the individual, the management team and the individual company. These models dramatically extend the power of behavioral finance so that it can be harnessed to equity and bond valuations.

One of these models is from the Perth Leadership Institute ( based in Florida in the USA and no doubt others will soon emerge. According to its CEO and Founder, Dr. E. Ted Prince, “The ratings companies are still stuck in the Middle Ages as far as their fundamental conceptual techniques are concerned. Until they adopt behavioral finance techniques and integrate them into their ratings systems, their methods are basically astrology, not science.”

This has revolutionary implications for the ratings companies, and indeed for all of the industry requiring corporate and equity analysis. Current ratings methods are backwards looking because they are based on history. However, behavioral financial ratings are forward looking because behavior is stable over time. For the first time a method exists to provide ratings with true predictive power.

Whether or not the ratings companies will do anything about this is a moot point. Existing industries are infamous for insulating themselves from new models to protect their old ways of doing things, even if they do not work. On all indications we can expect the ratings companies to act in the same way.

The most likely outcome is for new ratings companies to emerge based on new behavioral finance paradigms. That way investors, stockholders and homeowners will have a new and better way to see whether their money is likely to be invested wisely.

It cannot happen too soon.

David P. Michaels - New York - Bureau Chief, MercoPress

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"Behavioral economics and  finance" my aching buttocks! This is another piece designed to shift the ratings agencies bad behavior off on some amorphous quasi-scientific theory that they simply failed to grasp. They are just "victims of their own ignorance and there was never any harm intended". Bullus bullcorn.

Ratings agencies were paid by the companies that they rated. To downgrade or otherwise impugn their ratings meant that that company would immediately fire that ratings agency and hire one of its competitors who would rate them as they wanted to be rated....AAA+...and begin making that profit. Just like the servicers, the ratings agencies behavior was self-centered and profit driven. They never wanted to steer profit to a competitor, so they all played the game along with the lying CEOs in order to keep their own profits rolling in. "Secret methods"...their "secret methods" were to call up the CEOs, ask how the business was going and rate accordingly.

Now they are busted at their scam and trying to make it look like they "just didn't know what they were doing". Boo hoo. They knew exactly what they were doing; they were NOT biting the hands that fed them and that is the root of the problem right there.

Until ratings agencies are paid by the investors this bad behavior will continue. Investors need to be prepared to deliver a specified percentage of their profits to have their companies rated. Only then will the ratings agencies worry more about the investors. After all, no profit for investors would equal no profit for them and their vested interests would immediately shift to where they should have been all along.

I find it amusing that even Congress did not know how ratings agencies were paid until it was too late and formal hearings had begun. If any of our representatives had ever bothered to come to this board, they would have known about the scam years ago.

I am really getting sick of these self-serving PR pieces that are showing up all over the place. They serve only to try to make excuses for all the fraud that was going on. Seems like all companies are jumping on the bandwagon to get these fluff pieces pushed out into the media. Don't be fooled.....they are passing the buck and refusing to take responsibility for their own greed.

Does this author even know about the huge moral hazard and conflicts of interest that were in place for so long? I notice that none of this is mentioned in this piece. Doesn't appear that he does know. If he does know, he is deliberately omitting it from this piece and that seems very calculated to me. So is he an expert or a hack?

The press paradigm seems to be as skewed as the financial paradigm...both have a long way to go before they can be considered as borderline honest!

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4 justice now
Thanks Arky!

I believe it would certainly take far less time to list the innocent than the guilty in this scam.  The victimized home owners are about the only non-willing participants of this disgusting crime.

The vast majority of Lenders, Servicers, Brokers, Real Estate agents,
R. E. Appraisers, Regulators, Rating Agencies, the Media, as well as our own Government Representatives climbed on board the intentionally created gravy train of dishonor and disgust.

No wonder they simply want it swept under the rug and then have the tax payers bear brunt of their greed and corruption.


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