Fitts assigns significant staff to collecting HUD data. These groups experience high turnover, resulting in data collection being lead by very senior people and requiring Fitts to write complaints to HUD regarding double bind --- HUD is stopping the data collection that HUD is ordering and paying Hamilton to do.

Fitts develops the "dream machine" at Hamilton Securities - many tools and databases that increasingly make the HUD portfolios and operations accessible to the HUD officials and marketplace. A new suite of tools based on HUD loan sales pricing information prepares for launch in combination with potential trading and principal operations.

Hamilton discovers that HMDA data is purposefully being made obtuse in presentation and granular place based data is inaccessible.

Publishing single-family data is highly controversial but no one can say exactly why.

HUD orders all HUD data cleansed from Hamilton computers and returned to HUD in 1997, in connecting with firing Hamilton.

The combination of tools is designed to identify reengineering opportunities to create equity value.

A beta version of Community Wizard is distributed gratis to HUD HQ & field offices. The response is significant - accolades from Congressional staff as well.

HUD Secretary Cuomo sends staff over to Hamilton to explore HUD's purchase of Community Wizard. The team from HUD includes Dick Burke.

After AIG mysteriously declines to provide defense per E&O policy, Former General Counsel of CIA, Judge Stanley Sporkin orders Hamilton files and backup tapes under court control; Hamilton's offices seized and HUD investigator tries to take the position that Fitts is not allowed to have a copy of digital memory of the company, including databases and tools. Government investigators insist on supervising the scrubbing of data from computers and laptops sold at auction.

Burke is later reported to Fitts by HUD financial staff as the contract manager for Lockheed's contract with HUD. Allegations grow regarding kickbacks on the Lockheed contract. Retired field staff later describes Burke as a "company man."

Private NY mortgage banker meets with Fitts after first audited financial statements are published. He insists that his business has been tracking total outstanding FHA mortgage insurance and that it is many multiples of what FHA/HUD is saying in their Price Waterhouse audited financials.

Fitts promotes budget tool that documents budget assumptions; declines to provide Hamilton support and name to budgets done that ignore the impact of welfare reform on HUD section 8 and other FHA and HUD programs; Community Wizard indicates that the HHS population in key urban areas in HUD buildings is quite high. This means that HUD and HHS are making contradictory policies and budget decisions for people who are one and the same - living in the same building. For example, while HHS is canceling welfare, HUD buildings have rules that tenants are not allowed to have home businesses. HHS tells HUD they estimate that they have $6 billion of data servicing needs as a result of welfare reform yet the Administration is not comfortable with the ETS model of creating data servicing businesses in neighborhoods that are expected to reduce subsidy flows.

Chief of Staff to Senator Kit Bond, then Chairman of the Senate subcommittee in charge of HUD appropriations tells Fitts in 2000 that HUD is being run as a "criminal enterprise". One of Fitts Senator's Thompson reports on government accounting systems and financial reporting. The 11 agencies not in compliance with laws include HUD and represent approximately 85% of the federal budget- HUD and DOD are missing $3.3 trillion in recent audits. HUD is has $59 billion in undocumentable adjustments in fiscal 1999 and refuses to produce audited financial statements for FY 1999. In fiscal 2000, HUD declines to disclose undocumentable adjustments. Over the period, the appropriations committees and Fitts' congressional delegation support significant appropriation increases for HUD.

AMS is the company that installs, owns and operates HUDCAPS, the system credited with missing $59 billion at HUD in fiscal 1999. As of the time that HUD reports undocumentable adjustments of $59 billion, they have paid AMS $206MM. As opposed to their treatment of Hamilton (who a year prior to having its contract terminated for convenience, had reported a potential opportunity cost of $3.8 MM on a two sales that had successfully generated hundreds of millions in savings in a performance that had been considered quite excellent for government savings), HUD does not fire AMS and does not seize any payments owed to AMS or ask for AMS to take responsibility for any missing money. The Acting CFO charged with cleaning up the undocumentable adjustments is targeted by the HUD IG.

Harvard Endowment interests (NHP, Rod Heller) lead switch in policies from those that resolve issues in a manner that optimize positive return on investment for governments, communities and pension funds to more special interest pork. Heller takes position that government has promised business and profits and that impact on taxpayers and communities is not relevant. The current FHA Commissioner, the current head of LISC and numerous members of the Administration get and return to jobs at Harvard; Harvard Endowment rises from $4 billion to $19 billion during the Administration. Despite extraordinary costs to taxpayers and citizens of Harvard behavior as investor, advisor and/or government contractor in HUD, Russia, Enron, Harvard Endowment profits are fully tax exempt as an "educational institute."

Fitts promotes policies related to government info sovereignty re: federal credit program software and data.

Hamilton hires lobbyist and lobbies Congress to pass legislation requiring place based financial disclosure by federal agencies.

Increased recovery rate from HUD loan sales lowers cost of new mortgage insurance origination under credit reform and generates new budget authority to fund government programs and reduce deficit

Fitts promotes new place based underwriting for multifamily that will integrate equity model promoting things like neighborhood networks and efforts that are successful in moving people to employment.

Fitts tries to persuade the FHA comptrollers and business planning teams to avoid policies that support debt bubbles - they are in violation of the laws on FHA financial management, decrease homeowners equity and will increase debt burdens of average Americans and poor neighborhoods when information technology and NAFTA etc are highly deflationary for these groups.

FHA leads a significant federal credit bubble in coordination with US Treasury and Freddie Mac, Fannie Mae & Federal Home Loan Bank Board; bubble begins after honest FHA comptroller retires as a result of significant doubts as to the intention of the Administration and again after Hamilton is fired and second FHA comptroller leaves.

In 1995, business planning effort, Fitts points out to FHA comptroller and commissioner office staff that the new origination projections for FHA combined with the low income targets issued by FHA for Freddie and Fannie are significantly greater than the demand for target populations. A review of the FHA origination projects inspires one working group comment that to meet the targets, the exploding prison population would have to refinance several times a year from prison to meet the targets. Hamilton is told to have nothing to do with single-family origination or single-family foreclosure and disposition policies.

Portfolio strategy efforts for the FHA Comptrollers office in 1995 indicate that the Price Waterhouse actuarial studies are based on assumptions that Hamilton believes are not appropriate. The question arises where the actuarial study is using questionable assumptions to help cook reserve calculations and the books.

Significant increased volume is made possible by "cooked books" at OMB and appropriation committees after cancellation of loan sales-- by assuming high recovery rates generated by loan sales for purposes of new loan loss reserves appropriated under credit reform law, when in fact HUD has reverted entirely to traditional methods of resolution after cancellation of sales in fall of 1997.

Significant increased volume is made possible by Secretary Cuomo's reengineering initiatives. Consolidation of origination into a few offices with significant turnover of field and staff personnel along with significant increasing in contracting destroys significant institutional memory. A review of HQ and field personnel in charge of budgets and financial operations in FY 2001 can identify no FHA government employees who understand the financial operations.

HUD IG staff predicts a winning bid of $350MM on the first large multifamily loan sale which is valued at $296MM in the hands of the government. They are stunned by the $710MM combination of winning bids.

HUD insists that Hamilton help with analysis and policy development for "M2M" - initiative to deal with significant expiring Section 8 subsidy contracts on multifamily properties, approximately 80% of which are also carrying multifamily mortgage insurance

(1995).

The pricing on the partially assisted trust, closed in 1996, indicates that HUD and communities can do much better than it is doing currently and starts development of the place based trust concept. The initial negotiated state housing finance agency transactions in 1996-7 also indicate the opportunities to move to place based resolutions. Such transactions would illuminate the opportunities of ending the single family churning in low-income areas as well as the expensive multifamily assisted and public housing and welfare subsidies.

The initial high volume of expiring contracts are in New York and LA and bring up significant tax shelter issues in those areas.

Most members of industry assume that HUD cannot do loan sales - then are shocked by the pricing and results after the SE sale.

Ervin & Associates lobbies aggressively to be assigned due diligence duties, when that fails then teams up with Merrill, Cargill as well as Mellon Mortgage as a bidder, due diligence provider, or contractor all of which prove unsuccessful and lobbies other Wall Street firms to market proprietary HUD data.

The strongest resistance to increasing recovery rates is in single family. Deputy Coonts says that it is more important to have a large inventory of foreclosed single-family properties so that HUD can be a "full service real estate operations." HUD issues

$900 MM in contracts to single family servicers to manage the growing portfolio of single family foreclosures in 1998. The HUD IG and Ervin are silent on the higher transaction costs and lower recovery rates of these single-family operations.

From 1995-97, HUD consistently refuses to allow individual bids on single-family loan sales, a suggestion made by Jim McTague of Barons in 1995. McTague indicates that allowing individual homeowners and other nearby to bid for one mortgage will engender tremendous press interest and he will write about it. Fitts, eager to build a competitive retail market for the single-family sales, persists in trying to persuade HUD to not individual bids to $1MM or more. The Deputy Comptroller, Chris Peterson, is adamant that HUD cannot bring in servicers to close this and the logistics are too much trouble. This opposition never makes sense given the political and financial advantages of allowing one on one bids from individuals and homeowners.

HUD General Counsel and HUD IG enforcement teams complain to HUD loan sales team that they can get more money in their offices from civil money penalties if loans are not sold and argue for holding loans out of sale even though the cost to the FHA fund and to nearby homeowners and real estate is much greater; When Hamilton contract cancelled, the HUD IG gets a special appropriation from Senate Appropriations in the same amount as the remaining contract authority for Hamilton contract for Operation Safe Home - bringing the War on Drugs and increased civil money penalties deeply into HUD. Neighborhoods not working are better for DOJ and HUD enforcement business - particularly when it dovetails with private gentrification and the housing and mortgage bubble.

Optimization model significantly shifts yields in the marketplace in a manner that is less than popular with big bidders as well, inspiring Michael Eisenson at Harvard Endowment to tell Catherine Austin Fitts

"F'k you" when expressing his opinion about the optimization technology. (See Edgewood Technology Services)

HUD cancels loan sales on a pretext in 1997 that they cannot do loan sales without Hamilton who has been fired for convenience. This is not true. In 1995, Hamilton enlisted help of HUD IG office to ensure that multiple contractors were hired by FHA. Subsequently, Hamilton helped HUD bring in a series of qualified contractors and had turned over all design books and relevant tools and databases to HUD so that HUD as self sufficient without Hamilton. HUD then returns to using low recovery methods of resolution throughout the defaulted mortgage portfolio.

M2M policies through the appropriation committees in the summer of 1996 result in significant traditional resolutions. AEW (with multiple relationships with Harvard and a lead equity manager investor in AIMCO, now owner of NHP) is hired to process workouts. The lead customer for workouts is AIMCO. Former NHP staff working inside of HUD feed significant inside information throughout the process to NHP and their consultants. Chairman of NHP is alleged to brag that he had the DAS for multifamily fired. One of his partners explains to Fitts that their efforts to have Hamilton fired have failed and as a result "the big boys have gotten together and you are going to jail." The implication is that government officials at HUD must do whatever those who make money on their programs tell them or else they will be fired, framed or killed.

Portfolio strategy analysis of the single-family portfolio by Hamilton immediately prior to being fired showed some unusual "hot spots." This included a $2 billion defaulted mortgage and property inventory in San Bernardino. This is the district of Congressman Lewis, the Chairman of the House Appropriation subcommittee with jurisdiction over HUD. Lewis and his lead staff, Valerie Baldwin, have been reported as very supportive of Ervin. Lewis is subsequently promoted to chair of the Defense appropriation subcommittee. In 1997, a special assistant to the Chairman of Freddie Mac reports to Fitts that they have an unusually large defaulted portfolio in San Bernardino.

HUD IG efforts to assess Bruce Rozet's multifamily portfolio civil money penalties inspires one Washington investigative reporter to comment that the system in the HUD IG office was that Hamilton made money for the taxpayer and lost money for the HUD IG, hence the IG shut them down and targeted them for a criminal investigation; Rozet lost money for the taxpayer, hence they were left to operate and were targeted for a civil investigation that made money for the IG; Ervin lost money for the taxpayer and helped the IG make money, hence Ervin was rewarded. The implications were that the HUD IG running programs (Operation Safe Home) and competing with the program area for revenues indicated significant internal control failures.

HUD IG on multiple occasions tries hard to persuade Congressional staff and reporters that the $2.2 billion savings is phony. HUD IG buries their own audit, which is extremely positive on loan sale program and runs lead auditor out of government; then tries to frame Hamilton by falsifying evidence during office seizure. Property manager provides affidavit re efforts to falsify evidence, which is dismissed by court trustee as "standard operating procedure." Dick Ravitch, close friend and colleague of Bob Rubin, Secretary of the Treasury, and Michael Steinhardt, funder of the DLC, shows up at E2 board meeting in 1997 claiming that the $2.2 billion of savings is phony - and Catherine Austin Fitts takes personal responsibility for the accuracy of the numbers in the face of Ravitch efforts to sabotage.

The cost of these policies to HUD/FHA and homeowners both is in the billions annually. The opportunities for "Tony Soprano" type fraud are significant. The need for far more HUD contracts to handle the portfolio is also large.

Reports from DOJ and HUD indicate that enforcement cash flows are much higher as a result of large defaulted mortgage and foreclosure portfolios This includes debt collection, civil money penalties and asset forfeiture revenues to US attorneys offices, local sheriffs and their informants, court system. DynCorp who runs major IT systems for DOJ and HUD and is said to help manage the PROMIS system for DOJ is the lead DOJ asset forfeiture fund contractor on a $60MM a year contract DynCorp's lead investor and Chairman is Harvard backed Pug Winokur, who is also an investor and board member on Harvard's HUD companies NHP/WMF lead by Rod Heller.

DynCorp, with Pug as investor and now Chairman of the Compensation Committee, experiences litigation regarding sex slavery by DynCorp personnel in partnership with the mafia in Easter Europe which does not interfere with DynCorp's operation of key enforcement IT systems at HUD, DOJ, SEC and for State Department worldwide. DynCorp is not fired or asked for money back as a result of this performance. Apparently, sex slave trafficking and pedophilia by government contractors are not as egregious as Hamilton's supposed $3.8MM error.

Fitts persuades FHA to migrate to place based mortgage and asset disposition; first place based surveys, then small place based bid pieces on the regular auctions; finally place based trusts are scheduled with contractor teams in 1997, after the partially assisted trust in 1996 proves that HUD can achieve superior results with a competively bid trust structure and that structure can manage

Successful application of optimization technology and open competition to HUD loan sales results in dramatic illumination of the impact of competition on HUD performance. Traditional HUD players such as Ervin and NHP (Harvard) lose on the bids by a lot to a variety of new small and large bidders.

Concern over the widening spread between the government and traditional players performance with large financial institutions, including Goldman, BlackRock and GE raises numerous questions about why such an extraordinary difference in cost of capital. Numerous possibilities, such as pension fund management and large financial institution access to equity markets capital and "hot money", include covert methods. Based on research subsequent to the cancellation of the program - including the extraordinary efforts of the Gold-Anti-Trust Action Committee -- this includes whether or not NY Fed members are bidding with large volumes of funds being laundered in from the NSC governed privatization in Russia, other IMF & Ex-Im activities or are bidding with the support of the NY Fed and US Treasury as part of an Exchange Stabilization slush fund operation. Rumors abound that some bidders were using PROMIS software to access deposit information in the FHLB board of Atlanta or by hacking loan sale team computers.

The extraordinary pricing performance of the Wall Street players does raise questions. This includes whether or not the winning teams were bidding to control mortgage files on fraudulently issued mortgages in neighborhoods with patterns of high defaults.

Given the growing success of Fitts' effort to help HUD improve recovery rates on defaulted mortgages, Fitts tries to generate interest in understanding what can lower default rates (default rates being a key assumption other than recovery rates and premium price in the cost of mortgage insurance originations) and for HUD to take those actions that will lower defaults - particularly steps to ensure that people have the skills they need to be economically and financially productive and secure. Fitts promotes the same message to Farmers Home, Congress, and OMB and throughout the HUD and community development constituencies.

Administration and Congress lower the cost of new mortgage insurance by cooking assumptions and books, thus removing incentives to lower real default rates. This permits "bubble economics" which results in large increases in cheap mortgage credit with little or no real attention to job training, jobs and small business growth. Rather, it subsidizes corporations grabbing market share away from small business as NAFTA permits the corporations to move the jobs abroad. As a result, the debt bubble helps liquefy citizen assets to subsidize their every day expenses. Welfare reform leads to much more gentrification, homelessness, and economic dislocation than necessary. Critical to the "debt up, income down" policy, the Administration promotes significant growth in prison construction, privatization and growth. Significant flow of stock market and tax shelter capital into prison investment is supported by new laws to ensure significant growth of prison population from non-violent crimes, including War on Drugs. This includes large increases in the female prison population that are supportive of a self-supporting business model with corporate outsourcing for work such as data servicing.