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Updated 10/07/08

To: US Congressional Members And Banking Regulators

The $700(+) billion bailout will not solve the liquidity problem for America’s banks. It may buy us several months as we burn through those funds. After this we could face hyperinflation or some other equally unpleasant and hard to manage dynamic in the economy.

This crisis started in the humble, but ubiquitous mortgage and housing markets. The crisis will not be resolved until we fix the problems in the mortgage and housing markets.

The $700 billion addresses existing mortgage loans, and only a portion of those. It does nothing to attract investors to newly originated or future loans suffering from the lack of transparency and flawed risk forecasting models from legacy operating standards.

As such, it would be unrealistic to expect liquidity to come from the government bailout.

Private and commercial capital resources such as pension funds or individuals will not return liquidity to the pipeline unless and until they get credible and effective risk/return forecasts from the housing industry.

The link immediately below will take the viewer to a description of risk modeling solutions for mortgage backed securities investors that have been granted two US patents, validated for mathematical soundness by an independent actuary, successfully applied in court testimony for litigation purposes, and field tested for 20 years in private practice consulting: SOLVING THE CRISIS

However, in order for these solutions to work, it is necessary for large industry participants such as the GSEs or banking regulators to agree to try this approach.

I have already forwarded the web link to managers at Fannie Mae, FDIC and the Federal Reserve Board of Governors for their vetting.

It is my respectful request and fervent hope that you ask, encourage or direct banking regulators and GSEs to try this approach. These tools work and can provide the necessary transparency to justify an investor’s return to the mortgage pipeline.

The Phoenix market should be up and running with these tools within the next 14 days. Every lender wishing to, will gain free access to the tools and risk information for a yet to be determined period to test the system.

Following the test period, it is expected that the cost will be about $25.00 per mortgage package to produce the report. This venture should be self sufficient from a financial perspective, assuming legacy industry players allow this to function without attack or back-room resistance. If allowed to proceed quickly, it is possible that long term stabilization of the housing and mortgage sectors can begin within weeks of launch.

Please appeal to the senior decision makers at Fannie Mae, FDIC and/or the Federal Reserve Board to lend their support here and try this very workable solution to restoring stability and credibility to our housing and banking industries. I welcome your questions.

Respectfully,

Robert Rothstein
206-525-7267 Seattle