ANALYSIS: TROUBLED HOME EQUITY LOANS LOOM ON THE HORIZON
Even a strong recovery is unlikely to rescue many homeowners who are struggling under the weight of multiple mortgages, the New York Times reported today. At Wells Fargo, for example, in the quarter ended March 31, nearly 44 percent of the bank's home equity borrowers paid only the minimum amount due. The Office of the Comptroller of the Currency published in its spring 2012 "Semiannual Risk Perspective" that almost 60 percent of all home equity line balances would start requiring payments of both principal and interest between 2014 and 2017. The amounts owed in these lines of credit climb significantly in coming years. While $11 billion in home equity lines are starting to require principal and interest payments this year, the amount jumps to $29 billion by 2014, the office said. That is followed by a surge to $53 billion in 2015 and $73 billion in 2017. For 2018 and beyond, it is $111 billion. The properties backing many of these loans are no longer worth the amounts borrowed on them. In the first quarter of 2012, the top four banks held $295.1 billion in revolving residential lines of credit, according to Amherst Securities. Using data from the Federal Reserve, Amherst said that Bank of America held $101.4 billion; Wells Fargo, $93.3 billion; JPMorgan Chase, $84.4 billion; and Citigroup, $15.9 billion. As a result, the risks to borrowers cited in the comptroller's office report will also be faced by their lenders. Read more.
"UNDERWATER" MORTGAGE REFINANCING GROWS, BUT CRITICS PRESS FOR MORE ASSISTANCE
The number of homeowners refinancing their mortgages under a revamped federal program grew in May, but critics are still pressing a federal regulator to do more, the Wall Street Journal reported today. For the first five months of 2012, more than 78,000 homeowners who owe more than 105 percent of their property's value have refinanced using the government’s Home Affordable Refinance Program (HARP). That was up from about 60,000 in all of 2011, the Federal Housing Finance Agency said in a report yesterday. In May alone, 21,605 homeowners who owe more than 105 percent of their home's current value completed refinances through HARP. That was up from 15,371 in April and only 4,168 in May 2011. However, relatively few homeowners who are deeply "underwater"—meaning they owe more on their properties than their homes are worth—have completed the refinancing process. Only about 11,000 homeowners who owe more than 125 percent of their home's value have refinanced under HARP to date. Those numbers may rise further since a method to package those loans into mortgage-backed securities became available on June 1. Nevertheless, critics and analysts note that some of the biggest lenders are only refinancing their existing borrowers. They also say that the HARP rules make it hard for borrowers to refinance their loans with new lenders, causing consumers to pay higher-than-necessary rates. Read more. (Subscription required.)
ANALYSIS: NEBRASKA, NOT CALIFORNIA, IS THE OVERALL LEADER OF MUNICIPAL COLLAPSES
Quirks in local, state and federal law have made Nebraska home to almost one-fifth of the more than 220 chapter 9 bankruptcies filed in the U.S. since 1981, according to a nationwide review of federal court records, Bloomberg News reported yesterday. California, with more than 20 times Nebraska's population, is second, followed by Texas and Alabama. California may soon add to its total, as San Bernardino is considering whether to seek court protection this week. The main difference between Nebraska and other states is the kind of governmental bodies that file for bankruptcy: No town, city or county has sought court protection in the state. All 45 of Nebraska’s chapter 9 cases were by special tax districts, most of them owned by residential subdivision developers who used property-tax revenue to pay for streets, sewers and other infrastructure. Read more.
HSBC EXECUTIVES GRILLED IN U.S. SENATE AMID MONEY LAUNDERING ALLEGATIONS
HSBC Holdings Plc executives were grilled by lawmakers over claims that bank affiliates gave terrorists, drug cartels and criminals a portal into the U.S. financial system by failing to guard against money laundering, Bloomberg News reported today. Irene Dorner, president and chief executive officer of HSBC North America Holdings Inc., and other executives appeared in front of the Senate's Permanent Subcommittee on Investigations today at a hearing following the panel’s 335-page report that described a decade of compliance failures by Europe's biggest bank. One of the executives, David Bagley, HSBC's head of group compliance, said at the hearing that he would resign. London-based HSBC enabled drug lords to launder money in Mexico, did business with firms linked to terrorism and concealed transactions that bypassed U.S. sanctions against Iran, Senate investigators said in the report. "The problem here is that some international banks abuse their U.S. access," Senator Carl Levin (D-Mich.), who heads the subcommittee, said at the start of the hearing. “The end result is that the U.S. affiliate can become a sinkhole of risk for an entire network of bank affiliates and their clients around the world playing fast and loose with U.S. rules." Read more.
Click here to read the prepared witness testimony.
CAPITAL ONE SEES CREDIT CARD DELINQUENCIES INCREASE IN JUNE
Capital One Financial Corp. said that delinquencies at its U.S. credit card business rose in June, reversing a four-month decline, while charge-offs eased, MarketWatch.com reported yesterday. Capital One's 30-day delinquency rate for U.S. credit cards edged up to 3.16 percent last month from 3.14 percent in May, according to a filing with the Securities and Exchange Commission. At its international credit card business, the rate increased to 4.84 percent from 4.83 percent a month earlier. Auto-loan delinquencies fell to 5.55 percent from 5.76 percent. Read more.
ABI IN-DEPTH
“SUBJECTING BUSINESS PROJECTIONS TO SCRUTINY IN VALUATION DISPUTES” WEBINAR TO BE HELD ON JULY 30!
Reassembling the speakers from the highest-rated panel at the New York City Bankruptcy Conference this year, ABI will be holding a live webinar on July 30 at 11 a.m. ET titled, "Subjecting Business Projections to Scrutiny in Valuation Disputes." Panelists include:
Moderator David Pauker of Goldin Associates, LLC (New York)
Martin J. Bienenstock of Proskauer (New York)
David M. Hillman of Schulte Roth & Zabel LLP (New York)
Bankruptcy Judge Robert E. Gerber (S.D.N.Y.)
The panel will address:
How much deference should management projections be accorded?
How do you determine whether projections are unrealistically optimistic or pessimistic?
What is the relevance of "market consensus?"
How do management’s incentives impact projections?
The webinar is available to ABI members for $75 and is approved for 1.0 CLE hours in Calif., Ga., Hawaii, Ill., N.Y. (approved jurisdiction policy) S.C. and Texas. CLE approval is pending in Del., Fla., Pa. and Tenn. To register, please click here.
LATEST CASE SUMMARY ON VOLO: PEARSON EDUCATION, INC. V. ALMGREN (8TH CIR.)
Summarized by Sarah Smegal of Bartlett Hackett Feinberg P.C.
The Eighth Circuit Court of Appeals affirmed the orders of the bankruptcy court striking the appellants' demand for a jury trial on the amount of damages in relation to copyright infringement claims and denying an award of attorney's fees sought pursuant to 17 U.S.C. Sect. 505.
More than 550 appellate opinions are summarized on Volo typically 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: REACTIONS TO THE CREDIT CARD SETTLEMENT
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent post looks at reactions to a proposed deal, announced late on Friday, that would transfer almost $7.5 billion from the credit card networks to merchants. In exchange for that payoff, Visa and MasterCard will get a wide-ranging release from future litigation.
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 The anti-modification rule for home mortgages in chapter 13 should be repealed, subjecting mortgage debts to bifurcation like any other secured claim.
Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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