Q-Law Mission Statement: 2014

New YearIt’s a New Year! Time to look back from whence we came, and look forward to 2014. ~PCQ 

From Infant to Toddler. The Q-Law website site is now four years old.  While still a toddler, it now has developed the features and personality of its father – satirical, acerbic, outspoken, contentious, caustic, etc., etc. I couldn’t be a prouder parent!

Of course, in an effort to set a good journalistic example for my offspring, I strive to always be factual, vetting information and data, and providing links to my sources.  And when I climb onto the soap box of personal opinion, I will say so.  My strongest vitriol is reserved for the hypocritical and intellectually dishonest – of which there is an overabundance today. My greatest passion is for the Little Guy – the average American who has become collateral damage from the political incompetence and infighting in Washington, and the avarice of Wall Street.  Hopefully, these themes should come as no surprise to those reading my prior rants posts.

Crunchy Numbers. 2013 was a pretty good year, statistically speaking.  There were 84 new posts [several quite lengthy], for a total archive of 241. In addition, the Q-Law site contains two voluminous glossaries, one for general real estate and the other for distressed housing. There are 45 articles on all aspects of real estate law, including one tome discussing the plethora of state (Oregon) and federal real estate laws, rules and regulations in place today (here). The website also has a FAQ section that periodically addresses current topics of interest from short sales to foreclosure issues.  All in all, during 2013, the Q-Law site was viewed 28,000 times.[1]  I don’t know if these are good or bad numbers, but they make the effort worthwhile – at least for a four year old toddler.

So What’s Next for 2014?  For the past three years, my blog posts have focused primarily on the foibles of the Big Banks, whose CEOs seemed constantly being sent to the Vice Principal’s office for one infraction or another.  For the latest scorecard on this Rogue’s Gallery of Reprobates, go to the ProPublica post here.  I haven’t done the numbers, but think it’s fair to say that with all the fines, damages, and legal fees the Big Banks have paid, the medical community could have cured cancer.

However, despite the torrid race to the bottom of the banking gene pool, 2013 appears to be a turning point.  The Big Banks are slowly getting off the front page of the Wall Street Journal and other financial papers, which was starting to look like a scandal sheet for shysters. Additionally, despite the misguided and bungled efforts of Washington to regulate the industry into submission, housing is slowly coming back.  Ironically, the politicians in Washington will likely claim credit for this, though the reverse is closer to the mark.

Take, for example, the alphabet soup of so-called “programs,” HAMP, HARP,[2] and HAFA. They were limited solely to loans purchased by the GSEs, Fannie and Freddie.  What this meant was that housing loans sold into the private label secondary market[3]which comprised perhaps 50% of all loans issued during that period – were ineligible for government help. Remember, whether these loans got sold to a GSE or into the private label market was never a decision borrowers made. The government’s approach was akin to randomly providing certain people on the Titanic with life jackets, but not others.

There were other systemic problems with the government programs:  The Big Banks were consistently inconsistent on who qualified and who didn’t.  They could tell a homeowner they didn’t qualify, give any number of reasons, and have no accountability for being wrong.  The homeowner had no choice but to accept the decision.  The most insidious aspect of these programs [as well as the banks’ own in-house “proprietary programs”] was the fact that many of the Big Banks didn’t own the loans in default; they were acting only as servicers. This meant that they got paid to receive payments, and allocate them to taxes, insurance, and perform other record keeping functions.  And in the case of nonperforming loans, they got paid even more.  This meant that it was in their financial interest not to foreclose folks, since the gravy train came to a screeching halt.  The result was that many loans circled the drain for years, in a state of constant default that just got worse over time.  In some cases the servicers did this to move borrowers into more expensive refinanced loans.  In other cases the banks did so to avoid recognizing a loss, since under the accounting rules, they did not need to value their loans at market until the foreclosure occurred.  Until the homeowner was pushed into the abyss, bank’s were permitted to carry their assets at artificial (i.e. pre-crisis) values – that way executive bonuses continued to flow, and bank balance sheets were about as reliable as Lance Armstrong’s urine tests. In still other cases, banks avoided foreclosure, simply hoping that property values would improve, thus reducing losses.

The net effect was that these faux modification and refinance programs took on the appearance of a slow motion kabuki dance, where the process could take over a year, and usually resulted in failure. So here we are, and after six years of fraud and incompetence, caused equally by Big Government and Big Banks, the patient is getting out of ICU; not fully recovered, but ambulatory.

As a result, much of my attention in 2013 was watching the regulatory pendulum, which was beginning to swing wildly in the opposite direction.  Now politicians were racing to pass new laws designed to “fix” perceived flaws in the banking and lending system.  Of course, as I have stated many times, the financial crisis was not the result of the absence of regulations, but the absence of enforcement by the regulators.  At the time, we had the SEC, the OCC, the FDIC, the CFTC, the Federal Reserve, the Secretary of Treasury, and a host of other regulatory watchdogs  – all sucklings on the public teat – supposedly guarding the henhouse.  As it was, they were the defacto doormen, allowing the crooks easy entry. Without exception, the regulators failed miserably.  As reported in the British newspaper, The Guardian, Alan Greenspan, the Fed Chair, told Capitol Hill in 2008:

I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms.

Translation: “I didn’t oversee them because I trusted Wall Street to regulate themselves.”  The inmates were now running the asylum….  So instead of the Administration firing the attention-deficient dupes, politicians, mostly from the Blue States [and many of whom, such as Barney Frank, were enablers for the very perps that caused the financial crisis], seized upon the crisis as an opportunity to pass even more laws. Their crowning achievement in 2010 was to pass the Dodd-Frank Act, a 900-page tome that has spawned approximately 14,000 pages of regulations and is only 39% complete today. Then, just to make sure nary a tree would remain standing, they created the Consumer Finance Protection Bureau, or “CFPB” to generate further paperwork, in the form of laws, rules and regulations that they passed before reading. Recently, after three years of push-pull between the banks and their regulators, the Feds proudly announced that pursuant to the Act, they had finally passed the “Volcker Rule,” which at nearly 1,000 pages, has enough holes in it to make a Swiss cheese creamery proud. I hereby nominate the Dodd-Frank Act for the “Banking Lawyers’ Full Employment Award.”

So for the past six months, as the financial and real estate crisis receded into the rearview mirror of memory, Q-Law has begun to focus on the over-regulation that it spawned.  This new era of nanny-state coddling runs from the ridiculous to the sublime. For example, although Mom and Pop with a few rental homes in their personal estate had nothing to do with causing the financial crisis or housing collapse, today if they sell one of those homes on a contract, they will be subject to regulation; not only will they have to pay a third party Mortgage Loan Originator for assistance, but they will be subject to the Qualified Mortgage and Ability to Repay rules that go into effect this year. Clearly, Dodd-Frank casts a wide – and self-serving – net over many unintended victims, which explains why Washington D.C. continues to see personal income and employment grow compared to the rest of the nation.

I also intend to follow the continuing, though diminishing, negative press generated by our fiends friends at the Big Banks. It’s always amazing to be reminded that there exists on Wall Street an entire industry that believes scruples are a STD, and are thankful they don’t have them.

And since residential real estate sales are gradually taking on the appearance of normalcy, where transactional documents begin to mean something again, and “best practices” among Realtors® resumes,[4] I intend to devote more attention to these issues in my new Realtor® Risk Management blog section, here.       

Drum Roll Please….  Lastly, it is my intention to commence my Q-Law newsletter, which has been on the drawing board for some time.  Its maiden voyage into the ether will occur in the next few weeks.  It will consist of news and articles on real estate, finance, and economics. For those interested, you may sign up here.

That’s it for now. Happy New Year to all! ~PCQ

© Copyright 2014, QUERIN LAW, LLC.



[1] As pointed out in a year-end missive to me by WordPress.com. “The concert hall at the Sydney Opera House holds 2,700 people. This blog was viewed about 28,000 times in 2013. If it were a concert at the Sydney Opera House, it would take about ten sold-out performances for that many people to see it.”  Hmmm. My blogposts and opera? Kinda strange bedfellows, don’t you think?

[2] There were two HARP programs.  The first one was delusionally wrong, because the maximum LTV for refinance was 125%, meaning that folks over 25% underwater could not participate.  However, even to the chronically stupid, it was apparent that almost everyone caught in the collapse of real estate values was 30%, 40% or 50+% underwater.  The second HARP program lifted that LTV limit in 2012 – but by then it was three years into the housing crash.

[3] The “private label market” was the non-GSE secondary market in 2004 – 2008 that purchased residential mortgages from conventional lenders such as Countrywide (now B of A), Washington Mutual (now JPMorgan-Chase), and others.  It is called “private” because (a) it consisted primarily of Wall Street investment trusts that were created to purchase these loans; and (b) to distinguish it from the two major government sponsored enterprises (“GSEs”), Fannie and Freddie. During this time, a lot of lending was virtually unregulated, and many of the loans generated for this secondary market were poorly underwritten. Since the loans didn’t conform to Fannie’s and Freddie’s underwriting guidelines, they were sold into the private label market and failed en masse.  Today, there is no viable private label market for residential loans.

[4] By this I mean that with the market previously dominated by short sales and REO sales, the banks made the rules. A real estate broker could draft the cleanest Sale Agreement ever, but it meant nothing to the banks.  They would simply submit a counter-offer that eliminated all consumer protections, and gave the bank to right to withdraw from the transaction all the way to closing.  Thankfully, those transactions are diminishing.