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February 20, 2014

what's what?

Here is some news that demonstrates the modern disconnect in different ways!

Since you are reading this, you probably heard that yesterday Facebook purchased a messaging app called WhatsApp in a deal that could be worth up to $19bn.  A bit of tech business news, that, which rocketed all over Twitter and the other various platforms where the digicognoscenti hang.  It's the biggest deal ever for a VC-funded company!  WhatsApp is on track to scale to a billion users!  Etc.  (And of course then jokes.  Always with the jokes.  Personally, I like this one.)

And of course in the real world, people are watching the Olympics or praying for the Ukraine or playing GTA 5 or eating dinner.  This is tailing effect to the weird mirror world that Silicon Valley tech billionaires live in: a transaction that is only salient to them gets swirled out into the world where we take our own garbage out, and we're supposed to get all hepped up because tech wealth is virtuous and we've run out of things to worship.

The world still spins, but their world spins more fabulously.

And here's the other way to demonstrate the disconnect, based on Jeff Bezos' recent purchase of the Washington Post for $250 million, we can calculate the relative value of the Post, with it's paid dead-tree circulation of over 400,000, with it's place in history and all its Pulitzers, as compared to WhatsApp.

WhatsApp is worth seventy-six Washington Posts.

Have a great Thursday!

Posted by mrbrent at 10:19 AM

February 18, 2014

meet the servicers

This is the best trend piece I've read all week, and by best of course I mean yikes: the NYT finds that the mortgage abuse that cost The Banks so much a couple years ago are back and better than ever:
Shoddy paperwork, erroneous fees and wrongful evictions -- the same abuses that dogged the nation's largest banks and led to a $26 billion settlement with federal authorities in 2012 -- are now cropping up among the specialty firms that collect mortgage payments, according to dozens of foreclosure lawsuits and interviews with borrowers, federal and state regulators and housing lawyers.

Now, it's not really the business of a news article to bring this up, but this is an example of the Efficiency of Markets Solving Everything.  The mere act of attending to mortgages got The Banks into a little hot water, so some smart guys thought to themselves, hey, maybe there's some way that we can buy the part of the mortgages that's a headache for The Banks (the trying to collect money part), and then find ways to make even more money doing it.

So then everyone is cheered and the crisis is over and Niall Ferguson smugs it up all over the place.

Yeah but, the thing that the Market is really efficient at is making money, not attending to consumer needs.  Servicers don't make money by being thorough and competent — they make money by doing it quickly, and, in some cases, by doing it poorly:

...the specialty servicers are buying the rights to collect payments at discounts, along with the loan advances -- the money that the servicers pay to investors to cover any delinquent payment. The sooner the servicer can make the loan current again, the sooner investors pay back the servicers' advance in full. That kind of arbitrage could incentivize servicers to offer modifications that cause borrowers to default again, investors say.

Arbitrage!  Which is good for the servicers, because it's too impossibly complex to explain to someone watching World News Tonight.

And if that's not sinister enough, check this:

The servicers also have relationships with companies that can benefit from foreclosures.

William Erbey, Ocwen's chairman is also the chairman of Altisource Residential, which buys up delinquent mortgages and owns foreclosed homes turned into rentals. Altisource's loans are serviced by Ocwen. According to securities filings, Mr. Erbey recuses himself from issues that relate to both companies and Ocwen adds it has a "strictly arms-length business relationship" with Altisource.

Recusal notwithstanding, I'd say the fact that an industry that has sway over whether homeowners are foreclosed upon or not has any kind of relationship at all with an industry concerned with globalized, centralized slumlording should raise all sorts of alarm bells.

Posted by mrbrent at 9:34 AM