By Jim Boswell, author of Crush Depth Alert

Late in the fall of 1988 the accounting firm, Coopers & Lybrand (C&L), won a competitive award to construct a computer system that collected the monthly security and loan information relating to Ginnie Mae’s mortgage-backed security program. As a C&L consultant with a math major and a Wharton M.B.A., I was put in charge of testing the system as it was being developed.

Shortly after putting the system up live, the S&L crisis began to show its ugly head. Because a simple rudimentary system that I had developed during testing to rank and evaluate the security-issuing banks showed the recent defaulting issuers at the top of my list, I was put in charge of the risk monitoring portion of the C&L contract—and subsequently for twelve years I directed the staff of about fifteen young “hot shot analysts” to design, develop, and monitor the risk of Ginnie Mae’s program.

During that entire period, every month we received computer updates on more than 400,000 securities and the 7 million FHA and VA loans that backed those securities. As a result of that work in the early 1990s I wrote a couple of articles relating to housing risk for the Mortgage Banking Magazine and one published as part of Jess Lederman’s Handbook on Mortgage Banking. In 1995, as a result of my team’s effort, I was awarded a Vice-Presidential Achievement Award issued through the Department of the Treasury.

In 2000, C&L (now PricewaterhouseCoopers) lost the Ginnie Mae contract and after 25-years working and living in the wonderful city of Washington, DC, I left the city and moved back to my little home town in Indiana to semi-retire.

Early in 2001, fearing the ever-increasing oligopoly-like power of Fannie Mae and Freddie Mac (the GSEs), the Primary Mortgage Insurance (PMI) companies proposed to Congress a program called PMI Choice, which would have allowed Ginnie Mae to compete against the GSEs for the securitization of “conventional-type” loans. Knowing of my previous history with Ginnie Mae, I was hired by another accounting firm, Ernst & Young, to evaluate the risk considerations associated with PMI Choice.

In August 2001 I completed my analysis and wrote a twelve-page synopsis which essentially said that something needed to be done to thwart the power of the GSEs. Knowing full well that if PMI Choice was implemented correctly, Ginnie Mae could easily have competed against the money-making machines and bloated bureaucracies of the GSEs and gain control of mortgage rate policy. Thus, I recommended that the Federal Reserve be brought into the dialogue to evaluate the consideration of PMI Choice.

One month later, even before my risk portion could be rolled up into a more complete PMI Choice evaluation document, the events of 9/11 took place and all the country’s attention shifted away from anything to do with financial or economic matters towards war and homeland security. As a result PMI Choice died a quick death and I semi-retired from the mortgage-backed security industry for a second time.

In 2003, after watching a Congressional hearing on CSPAN one morning regarding problems associated with Fannie Mae’s management, thinking that I might have some insight to offer on the subject, I sat down and wrote the Republican Chair of the Housing Banking Committee a one-page letter and enclosed my twelve-page risk synopsis that I had written earlier as part of the PMI Choice project.

In return I received a thank you letter. As I discovered a short period later, at the time Congress was much more concerned about investigating minor accounting irregularities than anything having to do with the GSE’s influence on the economy so I assume my risk synopsis was simply buried somewhere in their paperwork.

In 2005 the Ginnie Mae risk contract came up for renewal and the federal branch of IBM contacted me and asked if I would be interested in helping them develop a proposal for the work. Already knowing that the GSEs were primarily responsible for driving up nationwide housing prices beyond reasonable risk means, I saw this as an opportunity to reopen the question of PMI Choice.

However, I also knew that if the program was really going to work that Ginnie Mae would have to take the lead and so I began referring to the concept as Ginnie Choice (in lieu of PMI Choice) to IBM. In the process of bringing my IBM colleagues up to date, I said I thought it would help our chances if we could get the Federal Reserve to support our effort. I was fully aware the Federal Reserve Chairman had said that housing was his second biggest economic risk concern after Energy, so I thought the Fed might be interested in gaining control of mortgage rate policy and thus Ginnie Choice.

The IBM partner leading the proposal effort had a Harvard M.B.A. and agreed with that approach. As a result, the IBM partner contacted an old friend that was supposedly one of the leading housing experts at the Federal Reserve and talked to the individual about Ginnie Choice in a brief phone call. The next day I received the following email, which I still keep for documentation purposes:

I spoke yesterday with my friend who is one of the leading Housing PhD economists at the Fed. We chatted about a few things, including Ginnie Choice. He said that something like Ginnie Choice has not been considered by the Fed, and that he thought it would need a Democratic administration to make it a possibility. The prevailing Republican view (and his personal/professional view too) is that the private sector competitors to Fannie/Freddie will gradually erode their market share (currently 45% of the MBS market).

Well, needless to say, someone who had spent twelve years analyzing in detail the banking risk of a $600 billion portfolio of mortgage-backed securities, including the period of the S&L crisis, could not argue about the wisdom of putting such faith in the “big banks” with such a distinguished Fed housing expert, so again the concept of Choice was dropped with less than any serious consideration. Shortly thereafter, I semi-retired from the mortgage-backed security business for the third time in 2006.

In the summer of 2008, the world of housing risk, finally began to blow up as I had been fearing that it would, so on the coaxing of a highly respected colleague of mine, Tristan Yates, I decided to once again get back into the game.

In August 2008 prior to the Government’s taking over control of the GSEs, I wrote an opinion piece for an internet magazine, Minyanville, which explained facts about the GSEs that have still not been made otherwise public.

Later, in the fall of 2008 I went into the Federal Reserve website and found the names and email addresses of eighteen different economists that seemed to have something to do with housing analysis. I then began randomly choosing about six a day and sending an individual email detailing various pieces of evidence that I had accumulated over the years relating to the GSEs and housing risk. I did this for two weeks without receiving a single response then gave up on the Federal Reserve again.

Frustrated with my seemingly waning influence, in February 2009, using my Linked-in profile, I made available through the internet something I called My Solution to the Current Global Financial Crisis. Over the next year that piece of work received approximately 1400 hits, but no further inquiries. By this time I had gone way past any type of Choice program and was proposing additional solutions.

Sticking to my guns, in the first two months of 2010 I sat down and wrote a book called Crush Depth Alert (Fourth Lloyd Productions), subtitled Solutions for Supplying Power to America’s Distressed Financial Systems. Subsequent to the writing of that book which goes in to much greater detail regarding all the above, including taking on the bogus TARP program, I have had articles published by Business Insider, The Street, Seeking Alpha, and SwiftEconomics. Despite all of the above, however, I have yet to be contacted by anyone involved in the current Administration. And in full disclosure I have been a Democrat my entire life and now consider myself an Independent.

On Friday, August 28, 2010, the Chairman of the Federal Reserve assured the public that the Fed was ready, willing, and able to step in and take action if it was deemed necessary to do so to avoid a double-dip recession.

And now with that confidence builder, I have decided to semi-retire for the fourth and what I think will be the final time from the mortgage-backed security industry.

Jim Boswell has an M.B.A. degree from The Wharton School (University of Pennsylvania), an M.P.A. from School of Public and Environmental Affairs (Indiana University), and a B.A. degree from Hanover College. His recently published book, Crush Depth Alert, Fourth Lloyd Productions, explains in detail with supporting exhibits, graphs, and tables the factors that led up to the recent financial crisis while offering solutions on how to move forward.

You can purchase Crush Depth Alert here.

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