BANKERS BURIED IN LAWSUITS SAY NEW LOAN RULES FALL SHORT
Bankers who gathered yesterday to hear top housing regulator Melvin L. Watt reveal mortgage rule changes said that changes won't do enough to expand credit to many Americans who have been shut out of the housing market, Bloomberg News reported yesterday. Watt, the director of the Federal Housing Finance Agency, outlined a new plan aimed at loosening underwriting standards to make home loans more affordable and easier to set for borrowers with poor credit. Lenders big and small have imposed credit standards above those required by the two government-controlled companies to reduce the amount of buybacks. Bankers at the conference said that government lawsuits over loans with errors, which have cost lenders tens of billions of dollars, remain the biggest obstacle to expanding credit. "You have this heavy penalty environment and you want people to lend more: Those are two conflicting things," said Tom Wind, executive vice president of home lending at Jacksonville, Fla.-based Everbank Financial Corp. The mortgage finance agency has forced banks to repurchase defaulted home loans with a balance of $81.2 billion from 2011 to 2013 alone. The FHFA plans to exempt lenders in some cases who make one-time errors from buying back mortgages. Watt said lenders who show a pattern of abuse and make a set number of loans that violate the terms will be on the hook for repurchases. To broaden lending, Watt added, Fannie Mae and Freddie Mac may start to buy mortgages with down payments as low as 3 percent. The two companies currently require a 5 percent down payment on most loans. Federal Housing Administration loans, given to borrowers with weaker credit scores and generally requiring down payments of 3.5 percent, have been plummeting as higher mortgage insurance premiums make the loans more expensive. Lenders such as Wells Fargo & Co. and JPMorgan Chase & Co. use "overlays" -- restrictions tougher than those required by Fannie Mae and Freddie Mac -- to reduce their buyback risk. Lenders agree when they sell the loans to repurchase them if they don't meet the standards they guaranteed. Read more.
ANALYSIS: PARTNER EXITS MAGNIFY WOES OF DESTABILIZED FIRMS
Law firms are facing increased competition for work at a time of slack demand for legal services, making rainmaking partners at troubled firms especially tempting targets for rivals looking to gain an edge, according to a Wall Street Journal analysis yesterday. But raids of key lawyers or practice groups can further destabilize firms, sowing doubt among those who remain about a partnership's future even as leaders work to turn things around. "Once you publish those [financial] figures, the vultures circle," said Tony Williams, a legal consultant and former managing partner of the British law firm Clifford Chance. To be sure, not all departures are equal. Firms that have had a bad year or two often ask unproductive partners to leave. The trick, legal experts say, is in coaxing stronger lawyers to hang in there while firm leaders try to clean up the balance sheet. That becomes more complicated once a firm's woes become public. The most dramatic recent example is Dewey & LeBoeuf LLP, the New York law firm whose 2012 implosion was the largest law firm failure in history. Roughly two-thirds of its partnership fled during a rocky six months marked by disputes over special pay deals and concerns over the firm's financial viability. After Dewey sought chapter 11 protection, owing hundreds of millions to creditors, former partners who refused to sign on to a settlement with the defunct firm's estate were hit with lawsuits attempting to claw back past compensation. Read more. (Subscription required.)
COMMENTARY: A RATE CAP FOR ALL CONSUMER LOANS
While the Obama administration has proposed much-needed improvements in federal rules that are supposed to protect service members from predatory loans that trap them in debt, a national lending standard and interest rate cap are needed for all consumers in order to ensure fair credit in the country as a whole, according to an editorial in Sunday's New York Times. The Military Lending Act sought to protect service members from debt traps by applying a 36 percent interest rate cap and other consumer protections to a subset of products, including certain kinds of payday loans and vehicle title loans. However, open-ended credit, long-term installment loans and some other products fell outside of those rules. Even after the law was passed, a South Carolina lender gave a service member a $1,615 title loan on a 13-year-old car and charged $15,613 in interest — an annual rate of 400 percent — without violating federal law. The new proposed rules close this and other loopholes by applying the 36 percent cap to most credit products aimed at service members, with some common-sense exemptions. Poor and working-class people across the country are being driven into poverty and default by deceptively packaged, usuriously priced loans, according to the editorial. Both the House and Senate have bills pending that would adopt the 36 percent standard for all consumer transactions, including those involving payday loans, mortgages, car loans, credit cards, overdraft loans and so on. Read the full editorial.
OBAMA SIGNS ORDER TO PROTECT CONSUMERS FROM IDENTITY THEFT
President Obama signed an executive order Friday to protect consumers from identity theft by strengthening security features in credit cards and the terminals in which they are processed, the Washington Post reported on Saturday. In an executive order signed at the Consumer Financial Protection Bureau, Obama ordered that government agencies that process payments employ enhanced security features. Those measures include so-called "chip and pin" technology, meaning that secure information is embedded in a chip in a credit card and users must enter a PIN number in order to use the card, much like they currently do with a debit card. Obama announced a new federal "Buy Secure" initiative meant to spur retailers and banks toward using the chip and pin technology rather than the magnetic strips on the back of most credit cards, which are vulnerable to theft. The moves come in the wake of massive data breaches at retailers nationwide.
Read more.
Listen to former White House Chief Information Officer Theresa Payton provide her perspectives on issues surrounding cybersecurity at ABI's Winter Leadership Conference. Payton is one of the nation's most respected authorities on Internet security and now directs an international net fraud prevention firm. To register, please click here.
PENSION FUNDS EYE REDUCING HEDGE-FUND INVESTMENTS
Pension-fund managers across the U.S. are rethinking their investments in hedge funds in the wake of a retreat by the California Public Employees' Retirement System (CalPERS), the Wall Street Journal reported yesterday. In San Francisco, the chairman of the city's pension fund has put on hold a vote to invest 15 percent of its assets in hedge funds. In Austin, Texas, officers responsible for the retirement savings of city police officers are discussing whether to withdraw all of their hedge fund investments. In Harrisburg, Pa., a prominent state official asked the systems that manage money for teachers and other public workers to reconsider the $7.6 billion parked in such investments. The new conversations were spurred by CalPERS, the largest U.S. public pension fund, which last month decided to shed its entire $4 billion in hedge fund investments over the next year. CalPERS claimed that the investments were too small a slice of its $298 billion portfolio to justify the time and expense they required. Read more. (Subscription required.)
USTP UPDATES MEDIAN FAMILY INCOME DATA FOR CASES FILED ON OR AFTER NOV. 1
The U.S. Trustee Program (USTP) has updated the Census Bureau's Median Family Income Data and will apply the updated data to cases filed on or after Nov. 1. For the latest data required for completing Form 22A and Form 22C, please click here.
NEXT FREE COMMITTEE TELECONFERENCE WILL BE THIS THURSDAY WITH ABI'S UTC COMMITTEE EXPLORING STRATEGIES IN PREFERENCE CASES
Members are encouraged to dial-in and listen to or participate in upcoming ABI Committee conference calls. While committee membership is encouraged, it is not required to join the free teleconferences. Upcoming Committee teleconferences include:
- Unsecured Trade Creditors Committee: Thursday, Oct. 23; 4 pm ET
Topic: "Tricks of the Trade: New Issues and Strategies in Preference Cases"
Speakers: Eric J. Haber of Cooley LLP (New York)
- Unsecured Trade Creditors Committee: Tuesday, Nov. 4; 3 pm ET
Topic: "Bank Secrecy Act and Anti-Money Laundering"
Speakers: Mark Gittelman of PNC Bank and Brent Weisenberg
All committee teleconferences are free to ABI members and registration is not required. Simply utilize the following dial-in information:
Call in: (712) 432-1500
Participant code: 692933
ABI MEMBERS IN SOUTHERN CALIFORNIA- DON'T MISS THE SPECIAL TMA EVENT TO BENEFIT THE WOUNDED WARRIOR PROJECT ON NOV. 12
ABI members are invited to attend TMA Southern California's special fundraiser to support the Wounded Warrior Project and SoCal veteran support groups on Nov. 12 at the Beverly Hilton. Funds raised will benefit the Wounded Warrior Project, Veterans Legal Institute and the Public Law Center. For more information or to attend, please click here.
ABI MEMBERS INVITED TO ATTEND RETIREMENT DINNER FOR BANKRUPTCY JUDGE PETER J. WALSH ON NOV. 19
ABI members are invited to a special retirement dinner on Nov. 19 honoring the Hon. Peter J. Walsh's 50 years of dedicated service to the bench and bar. The event will be held at the Chase Center on the Riverfront in Wilmington, Del., and is being hosted by the Bankruptcy Section of the Delaware State Bar Association and the Delaware Chapter of the Federal Bar Association. Questions should be directed to Karen B. Owens at 302-654-1888. To attend, please go to https://sites-pepperhamilton.vuturevx.com/107/772/uploads/judge-walsh-retirement-dinner-form.pdf
VOLO ECLIPSES 1,500 CIRCUIT COURT SUMMARIES! NEW CASE SUMMARY ON VOLO: THAW V. MOSER (IN THE MATTER OF THAW; 5TH CIR.)
Summarized by John Jones of J. R. Jones Law PLLC
The Fifth Circuit affirmed both the district and bankruptcy court's ruling that a forced sale of the non-debtor spouse's homestead interest was not a taking under the Fifth Amendment of the Constitution entitling the non-debtor spouse to just compensation because the property interest was acquired after the enactment of BAPCPA.
There are more than 1,500 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: THE DIFFICULTY IN UNDERSTANDING MORTGAGE-BACKED SECURITIES
A recent blog post examines the complicated nature of mortgage-backed securities and how they are treated under the Bankruptcy Code.
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 §547(c)(2) ordinary course preference defense should be repealed.
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.
