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Here’s the rip-off as I see it. For an outlay of $750,000, the bank rids its books of a mortgage worth $2 million, for which it receives $4,250,000. It gets twice as much as the junk is worth.
The more the banks holding junk mortgages pay for this toxic waste, the more the government will pay as part of its 85 per cent. So the strategy is to overpay, overpay, and overpay. Paying 15 per cent is a small price to pay for getting the government to put in 85 per cent to take the most toxic waste off your books.
It started in 1996—at the same time that the San Jose Mercury News was preparing a story exposing the US government’s marketing of crack coc aine into South Central Los Angeles in the 1980’s. The year before Hamilton Securities had launched a company in the inner city to provide data servicing for our software tool, Community Wizard. The Wizard used geographic information systems software (GIS) to map the geographic patterns of government investment, including defaulted mortgage loans of the Department of Housing and Urban Development (HUD). At that time we put three maps up on the Internet site for a place-based survey for the HUD loan sales. They showed defaulted HUD mortgages in New Orleans, the District of Columbia and South Central Los Angeles.
High and expensive rates of HUD mortgage defaults coincided with areas of heavy narcotics trafficking in South Central LA. It seemed understandable that someone might want the Wizard team to be otherwise occupied when the San Jose Mercury News published the “Dark Alliance” series regarding the Iran-Contra drug dealing in South Central Los Angeles. Otherwise we might notice the suspicious patterns that exist between HUD defaulted mortgages and government sponsored narcotics trafficking.
Wizard may have revealed that allegations that some US-guaranteed mortgage securities were fraudulently issued and were illegally draining HUD’s reserves merited serious investigation. Was it possible that the US Treasury and the Office of Management and Budget (OMB) were operating HUD as a slush fund to illegally finance black budget operations? The possible securities fraud implications would be without precedent. Were covert operations and political graft the political raison d’être for HUD’s existence?