Certified Forensic Loan Auditors, LLC

  Upcoming Classes

Search CFLA's Article Archive:

Moving Past Mortgages, Banks Plunge into New Products, Industries

cbsnews.com | February 27, 2014

By Erik Sherman

There was a time when banking was all about taking deposits, lending money and helping companies raise capital. That's changed -- something that became abundantly clear during the mortgage crisis and the Great Recession.

Now, bankers are involved with markets in precious metals; food products; oil, gas and coal; and such commodity metals as zinc, copper, tin, and aluminum, as Matt Taibi recently covered in an article in Rolling Stone.

By using loopholes in regulations -- some of them seemingly tailor-made for the giants of the financial industry -- mega-banks have entered new worlds of operation and speculation. They can own entire chains of production and delivery of commodity goods that can affect world markets.

Here are two examples and some of the risks:

Warehousing commodities

One example of this is Goldman Sachs's (GS) involvement in the aluminum industry. The institution is accused of manipulating the storage of aluminum in such a way as to slow delivery of the widely used metal and drive up its cost, as the New York Times reported last year. According to analysts, the moves may have cost manufacturers and, ultimately, consumers a collective $5 billion globally over just a few years.

Commodities are more than commonly used goods. They are also the fodder for complex financial derivatives that have been used by industries to hedge against costs and ensure supply when needed. However, as became obvious in energy trading, financial derivatives are also tools for speculation.

The danger is that now the banks creating and trading many of the derivative instruments -- essentially betting on what the markets will do -- may control enough of a commodity market to affect prices. Of course, direct manipulation of markets by one company is not legal.

Securitizing rental homes

The banks have also found new opportunities in real estate, the area that helped, perhaps more than any other, bring the global economy crashing down.

Before the recession (and the regulation that followed), banks pooled together groups of mortgages and then sold them off to investors in a process called securitization. A group of mortgages became the security for what was essentially a bond issued by a company created to hold the mortgages. Investors bought the bonds, which allowed the bank to cash out of the mortgages.

The whole system came crashing down as banks expanded their focus to riskier subprime mortgages. More and more homeowners defaulted, and the securitization deals fell apart.

The new real estate target is rental homes. Last fall, private equity firm Blackstone Group (BX) sold a $479 million bond based on single-family rental homes. There were reportedly six times as many investors interested as the deal could handle.

Like the mortgage scheme, this one depends on large blocks of people making regular monthly payments for housing. There's an implicit assumption that housing is perhaps the most important bill of the month for most people.

A little thought, however, suggests a number of potential problems that could eventually blow up. One is that, unlike mortgages, rentals legally demand ongoing investment and maintenance. Someone technically has to fix the roof, deal with plumbing problems and otherwise respond to the reasonable needs of renters. In addition, there are property taxes that can increase.

Some mega-landlord companies have already applied for significant tax reductions. But the large corporations have an underlying disadvantage in these fights: They can't pick up and take their business elsewhere, and it's the residents in the town, not the remote owners, who vote on local policies.

Securitization might make up for this by increasing rents, only that doesn't seem to be working. As Bloomberg reported, in the first three months of the Blackstone deal, rents declined by 7.6 percent according to a Morningstar analysis. The reason was expiring leases and early tenant departures. Things are supposed to stabilize this year, but renters have a much easier time of walking away than mortgage owners. In addition, state laws often favor renters and make it difficult and time-consuming to turn people out, even if they aren't paying rent.

These are still the early days of the financial services industry's new deals. But the signs are already troubling.


Back to February 2014 Archive

CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

SEE BELOW- http://www.certifiedforensicloanauditors.com

Call us toll free at 888-758-2352

Bookmark and Share
Facebook Like us on Facebook
Twitter Follow us on Twitter
YouTube View our YouTube Videos
LinkedIn Connect to us on Linkedin
BBB Logo


Contact us or view our Sample Documents & Audits by completing the form below.

International Bloomberg Securitization Audits


DVD Sets Only $99


FREE Mortgage Fraud Analysis


Order Cutting-Edge Services Now


Quiet Title Packages from Licensed Attorneys


Affiliate Services


CFLA Sponsored Attorney Links


Take-Home Education Package