Analysis Cost of Settling Mortgage Cases Varies Widely by Agency

Analysis Cost of Settling Mortgage Cases Varies Widely by Agency

ABI Bankruptcy Brief | November 12, 2013
 
  

November 14, 2013

 
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  NEWS AND ANALYSIS   

ANALYSIS: COST OF SETTLING MORTGAGE CASES VARIES WIDELY BY AGENCY

As U.S. regulators make a big, likely last push to punish banks for selling mortgage securities that caused huge losses during the financial crisis, different regulators are demanding vastly different amounts to resolve investigations triggered by the same alleged sins, the Wall Street Journal reported today. The wide divergence stems from the different aims and strategies underpinning the suits, from seeking to punish the perceived worst behavior to simply trying to get the most money back. The huge range in settlements also reflects regulators' different legal tools. While there aren't hard-and-fast rules for how federal agencies calculate financial penalties in civil cases, top SEC officials say that the agency's punishment power is blunted because it can't take investors' losses into account when working out fines. JPMorgan's deal with the FHFA, announced on Oct. 25, cost $4 billion to settle allegations of shoddy disclosures on mortgage securities. So far, the housing regulator has gotten $5.2 billion from three settlements -- and more from two other deals where the amount wasn't disclosed. Since 2011, the FHFA has filed civil lawsuits accusing 18 banks of shoddy disclosures on mortgage securities. JPMorgan bank is expected to pay an additional $9 billion to the Justice Department, New York Attorney General's Office and regulators to resolve similar claims. In contrast, the SEC has collected a total of $570.6 million in mortgage-securities settlements from three big financial firms: Credit Suisse Group AG, JPMorgan and Royal Bank of Scotland. Read more. (Subscription required.)

FEDERAL REGULATOR LAYS DOWN THE LAW FOR CONSULTING FIRMS

The Office of the Comptroller of the Currency on Tuesday issued the first detailed standards for consulting firms hired by banks to comply with enforcement orders, the Washington Post reported yesterday. Consultants are supposed to work at the behest of regulators to provide objective assessments of an institution's problems. But lawmakers have raised doubts about the independence of consultants handpicked by financial firms accused of wrongdoing. Under the new guidance, the OCC requires banks to disclose any potential conflicts of interest, including former employees working for the consultant and any financial or business ties. The agency wants banks to document disciplinary actions taken against the consultant and the resources the firm has to complete an assignment, among other things. The bank regulator is to take all of these factors into consideration before approving the use of a consultant. The OCC routinely requires banks to hire independent consultants to identify and correct problems outlined in an enforcement action. Nearly a third of the 600 actions taken by the OCC from 2008 to 2012 mandated that banks retain consultants, according to the agency. Tuesday's guidance only applies to consultants used in enforcement actions involving harm to consumers, fraud or significant violations of the law. Read more.

U.S. CRACKS DOWN ON JUNK-LOAN RISKS

Fees for bankers and payouts for leveraged-buyout funds are at risk of being crimped as federal regulators crack down on underwriting standards in the market for high-risk, high-yield loans, Bloomberg News reported yesterday. The government, in an annual review of bank credit, looked at a $429 billion sample of leveraged loans and found that 42 percent were "criticized," or classified as having a deficiency that might lead to a loss. Starting in September, the government sent letters demanding that banks draw up plans to improve the quality of their loans and a warning that regulators will pay close attention to high-risk loan performance in stress tests. "We're looking to deter the origination of criticized or below-standard loans," said Martin Pfinsgraff, senior deputy comptroller for large bank supervision at the Office of the Comptroller of the Currency. The attempt to curb overreach in the leveraged-loan market will test whether regulators have the tools to stop asset-price bubbles from emerging more than five years after the financial crisis triggered the worst recession since the Great Depression. Federal Reserve efforts to spur growth with near-zero interest rates and asset purchases are causing investors to rush into higher-yielding debt, undeterred by declining credit quality. "You got a higher growth rate in high-risk assets basically because we have a rate environment that enables that," Pfinsgraff said. Debt-underwriting revenue at eight of the largest U.S. and European investment banks, including JPMorgan Chase & Co. and Deutsche Bank AG, rose 19 percent in the first nine months of this year to about $14.3 billion, the most since the credit crisis, according to data compiled by Bloomberg. Much of the increase this year has been driven by leveraged finance, industry analytics firm Coalition Ltd. said in an August report. Read more.

HOUSING-BIAS ACCORD SCUTTLES U.S. SUPREME COURT CASE

The settlement of a New Jersey housing-bias lawsuit scuttles a U.S. Supreme Court showdown that might have shielded lenders from discrimination suits pressed by the Obama administration, Bloomberg News reported today. The Supreme Court had been set to hear arguments next month in the case, a clash between the town of Mount Holly and residents who sued over the redevelopment of a predominantly minority neighborhood. The Mount Holly town council yesterday approved settlement of the dispute. The accord averts the prospect of a watershed change in the scope of the 1968 Fair Housing Act and a separate law the administration has used against lenders. The court was considering requiring proof of intentional discrimination and barring "disparate impact" claims, which focus on the effect of a disputed policy without requiring evidence of intent. President Obama's administration is relying on disparate-impact arguments in suits over housing and auto loans. Bank of America Corp., Wells Fargo & Co. and SunTrust Banks Inc. have agreed to pay at least $480 million to settle claims since December 2011. The U.S. Consumer Financial Protection Bureau has embraced the disparate-impact approach under the Equal Credit Opportunity Act. The settlement is a missed opportunity for lenders, said Camden Fine, president of the Independent Community Bankers of America, which represents smaller lenders. He said legal uncertainty over disparate impact is "creating havoc among lenders." Read more.

TOMORROW: EXPERTS TO EXAMINE STUDENT LENDING AND BANKRUPTCY AT ABI WORKSHOP PROGRAM

Experts will tackle the hot topic of student lending issues in bankruptcy on the abiWorkshops series' new program, "You Can't Discharge Student Loans in Bankruptcy - Or Can You?" The program will be held tomorrow from 9 a.m. to 3 p.m. ET in the ABI Headquarters Conference Center in Alexandria, Va. The abiWorkshops series provides attendees two great ways of participating: You can register to attend in person at the ABI Conference Center, or you can participate via a live webstream! Topics that will be covered on the Nov. 15 program include:

- Student Lending Today: Who Borrows, How Much, Delinquency & Default Trends
- Repayment Options: Income Based Repayment and New Lender/Servicer Programs
- Litigation under §523(a)(8): What Proofs Are Needed? Evidence Demonstration

For more information or to register for the "You Can't Discharge Student Loans in Bankruptcy - Or Can You?" abiWorkshop on Nov. 15, please click here.

LATEST ABI PODCAST EXAMINES LESSONS TO BE LEARNED FROM DETROIT AND OTHER MUNICIPALITIES IN DISTRESS

The latest ABI Podcast features ABI Resident Scholar Kara Bruce speaking with George Mason University Prof. Frank Shafroth about Detroit and lessons to be learned from the current state of municipalities in distress. Shafroth is the principal investigator for a study by George Mason's State and Local Government Leadership Center titled "The Great Challenge Facing America's Cities." Shafroth talks about the study, which examines the financial situations of Detroit, Chicago, San Bernardino, Calif., Pittsburgh, Providence, R.I. and Baltimore to provide insights into municipalities that may face financial struggles in the future. To listen to this program and access ABI's Podcast archive, please click here.

For more information on municipal distress, make sure to pick up a copy of ABI's Municipalities in Peril: The ABI Guide to Chapter 9, Second Edition, available in the ABI Book Store.

ABI GOLF TOUR UNDERWAY; LAST STOP FOR 2013 IS WINTER LEADERSHIP CONFERENCE IN DECEMBER

The 7th and final stop for the 2013 ABI Golf Tour is on Dec. 5 at the Trump National Golf Club, held in conjunction with ABI’s Winter Leadership Conference. Final scoring to win the Great American Cup — sponsored by Great American Group — is based on your top three scores from the seven ABI events. See the Tour page for details and course descriptions. The ABI Golf Tour combines networking with fun competition, as golfers "play their own ball." Including your handicap means everyone has an equal chance to compete for the glory of being crowned ABI's top golfer of 2013! A 22-handicapper won the tour event at July’s Southeast Bankruptcy Workshop. There's no charge to register or participate in the Tour.

NEW ABILIVE WEBINAR LOOKS AT HOW TO HIRE THE RIGHT FINANCIAL ADVISORS

ABI's Financial Advisors & Investment Banking Committee is proud to present the next abiLIVE webinar, "How to Hire the Right Financial Advisors," on Dec. 11 from 1-2:15 p.m. ET. The program will provide attendees with an overview and basic understanding of the different types of financial advisors that may be relevant for in- and out-of-court cases. Topics include:

- The different types of financial advisors available;
- The benefits and limitations for each category of advisor; and
- How to select the right advisor for the job.

Speakers on the webinar include:

-Daniel F. Dooley of MorrisAnderson (Chicago)

-Gregory S. Hays of Hays Financial Consulting LLC (Atlanta)

-Ivan Lehon of Ernst & Young (New York)

-Allen Soong of Deloitte CRG (Los Angeles)

-Teri Stratton of Piper Jaffray & Co. (El Segundo, Calif.)

Registration is $75 for ABI members/$175 for non-members. Have a number of colleagues that would like to participate? Take advantage of group pricing for ABI members: register 5 or more and the registration cost drops to $60 per person!

Click here for more information and to register.

ABI IN-DEPTH

RENEW YOUR ABI MEMBERSHIP BY DEC. 31 AND SAVE!

Beginning in January 2014, ABI will institute its first dues increase to the regular dues rate in six years. The $20 increase will ensure that ABI can continue to provide you with the latest and most effective tools available in insolvency information and education. You can lock in 2013 rates, and additional discounts, for up to three years by using a multi-year renewal option (save $75!). You can also save 10 percent on future dues by opting into the automated dues program. To renew your membership and save, please go to renew.abi.org.

ETHICS CLE AVAILABLE! NEW "BANKRUPTCY IN DEPTH" VIDEO PREVIEWS UPCOMING SUPREME COURT BANKRUPTCY CASES

Available now for purchase from ABI's eLearning Center (http://cle.abi.org) is a new "Bankruptcy In Depth" video featuring ABI Resident Scholar Kara Bruce and Eric Brunstad of Dechert LLP (Hartford, Conn.) previewing the bankruptcy cases that the Supreme Court will consider during its 2013 term. Brunstad, who has argued many cases before the Court and is an expert in bankruptcy appellate practice, discusses in depth Law v. Siegel, which questions whether the court may use its general equitable authority under §105 of the Bankruptcy Code to surcharge a debtor's exempt assets, and Executive Benefits Insurance Agency v. Arkison (In re Bellingham), which will address the bankruptcy court's authority to adjudicate Article III matters. He also provides a candid view of what it is like to argue a case before the Court and an in-depth analysis of the issues involved with the upcoming cases. Available for the member price of $75, ABI will also seek 1.25 hours of ethics CLE credit in 60-minute-hour states and 1.5 hours of credit in 50-minute-hour states for this program. This online CLE program is presumptively approved in CA, DE, FL, GA, HI, IL, NV, NJ, NY (Approved Jurisdiction Policy), RI and SC. Credit hours granted are subject to approval from each state, which has not been determined. To purchase the new "Bankruptcy In Depth" video, please click here.

ABI LAUNCHES SIXTH ANNUAL WRITING COMPETITION FOR LAW STUDENTS

Law school students are invited to submit a paper between now and March 4, 2014 for ABI's Sixth Annual Bankruptcy Law Student Writing Competition. ABI will extend a complimentary one-year membership to all students who participate in this year's competition. Eligible submissions should focus on current issues regarding bankruptcy jurisdiction, bankruptcy litigation, or evidence issues in bankruptcy cases or proceedings. The first-place winner, sponsored by Invotex Group, Inc., will receive a cash prize of $2,000 and publication of his or her paper in the ABI Journal. The second-place winner, sponsored by Jenner & Block LLP, will receive a cash prize of $1,250 and publication of his or her paper in an ABI committee newsletter. The third-place winner, sponsored by Thompson & Knight LLP, will receive a cash prize of $750 plus publication of his or her paper in an ABI committee newsletter. For competition participation and submission guidelines, please visit http://papers.abi.org.

NEW CASE SUMMARY ON VOLO: HERITAGE PACIFIC FINANCIAL LLC V. MONTANO (IN RE MONTANO; 9TH CIR.)

Summarized by Lars Fuller of Baker & Hostetler LLP

The Ninth Circuit BAP affirmed bankruptcy court rulings granting summary judgment dismissing the lender's §523(a)(2) complaint. The BAP affirmed that the lender's deficiency claim was barred by California anti-deficiency statute (CCCP 726) based on the facts. The BAP also affirmed that there was no abuse in discretion the in bankruptcy court's granting the debtor's motion for attorney fees and costs under §523(d), after initially denying the motion and after granting the debtor's motion for reconsideration.

There are more than 1,000 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI’s Volo website.

NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: FURTHER EXAMINATION OF THE SETTLEMENT IN THE SUPREME COURT HOUSING-BIAS CASE

The Bankruptcy Blog Exchange is a free ABI service that tracks more than 80 bankruptcy-related blogs. A recent post takes a closer look at the recently settled Mt. Holly, N.J., housing-bias case that was pending before the Supreme Court.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

Can litigant consent enable the bankruptcy court to enter final judgment in a matter which, after Stern, falls outside the court's constitutional authority?

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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TOMORROW:

 

 

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COMING UP

 

 

Delaware
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Western Consumer Bankruptcy Conference
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Rocky Mountain Bankruptcy Conference
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  CALENDAR OF EVENTS
 

2013

November
-abiWorkshop: "You Can't Discharge Student Loans in Bankruptcy - Or Can You?"
   Nov. 15, 2013 | Alexandria, Va.
- Delaware Views from the Bench
   Nov. 25, 2013 | Wilmington, Del.

December
- Winter Leadership Conference
    Dec. 5-7, 2013 | Rancho Palos Verdes, Calif.
-abiLIVE Webinar
    Dec. 11, 2013

  


January
- Western Consumer Bankruptcy Conference
    Jan. 20, 2014 | Las Vegas, Nev.
- Rocky Mountain Bankruptcy Conference
    Jan. 23-24, 2014 | Denver, Colo.

February
- Caribbean Insolvency Symposium
    Feb. 6-8, 2014 | San Juan, P.R.


 
 
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