Mr Cooper Group Inc (COOP)

[David West]

LargeGreen.

The premise of your ongoing position, related to the escrow markers, hinges on the value of the mortgages, and rightfully so. Unfortunately, we do not know what the value of the mortgages is, or what the claims against them are.

The link below is to one of many studies on the mortgage-backed securities market, and how the marketing of these securities, based on loans that were risky, caused the Stock Market crash of 2008. This study is not all-inclusive, nor is any other study. However, collectively, they do produce a pattern followed by all of the players in the mortgage-backed securities market. Washington Mutual was a player. Underwater brain surgeons produce studies of this nature, and they aim their ideas at minds above the average, leaving the rest of us to founder in the shoals of illusion and guesses.

However, one can simplify a major aspect of selling mortgage-backed securities so that we can understand it and ask questions about it, as it applies to WMI/WMB. All players in the mortgage-backed securities market were guilty of the following aspect: It is legal to sell multiple mortgage-backed securities, using the same mortgage or bundle of mortgages. This practice often results in the mortgage-backed securities having a greater aggregate value than the original mortgage or bundle of mortgages.

Assume WMI/WMB invested $300k in a risky mortgage on a house, and sold securities to various investors, using the mortgage as a backing for the securities, totaling $400k. When the bad risk owner of the house can no longer make payments and defaults, which of the investors in the securities will own the mortgage on the house? Simultaneously, because the real estate bubble has burst, the market now values the house at $200k. The onus of debt to the security investor (hedge funds?) was squarely on WMI/WMB, and this is the reason OTS seized WMB and subsidiaries. The bank did not have the liquidity to repay the investors. The handiest money available was the deposits. FDIC could not allow that to happen. Do not fool yourself into believing WMI/WMB owed any of this money to the common shareholder. The value of our unsecured investment was in our stock shares. The mortgage-backed securities secured the investment of the big boys (hedge funds?).

If WMI/WMB received $400k for the mortgage-backed securities, where did the money go? They probably invested the money in other bad-risk mortgages. Bernie Madoff would be proud.

What if a mortgage in a bundle did not exist at all (through clerical error of course), or what if a mortgage was in more than one bundle? If the reported value of the WMI/WMB loan portfolio was $350b, how much of that figure reflected non-existent mortgages or duplicate mortgages?

My opinion on the outcome of the escrow markers:

Historically, they are worthless. However, hope is eternal. Sometime between now and the moment the escrow markers are deleted from our trading accounts we will know.

It is clear the true value of the mortgages is likely much less than reported, and the FDIC-R is now sorting through this maze of confusion. Assuming there is anything left after claims are resolved, the FDIC-R should return it to the Liquidating Trust where it will enter the waterfall. Only time will reveal the outcome. I think there will be value returned; how much is the question. Another question is who will receive the returned value? I know that sounds like an evasion, but speculation us futile.

My immediate concern is whether WMIH will be up-listed to a major exchange or not. The status of WMIH is that the BOD or CEO has not listed the stock to any exchange, and that makes WMIH a privately held company. If you recall, they made the statement early on during/or after exit that they might not list to any exchange. Anyone can trade on WMIH stock (as they are doing now) without the approval of WMIH. If the BOD or CEO does not list the stock, the shareholder will forever be in a fog of confusion and misinformation on what is fact or fiction.

Best regards,
David West

Link to study:

http://sociology.berkeley.edu/sites/default/files/faculty/fligstein/The%20Transformation%20of%20Mortgage%20Finance2.pdf