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Consumers Paying Down Debt Helps Boost U.S. Expansion

ABI Bankruptcy Brief | October 16, 2012
 
  

October 16, 2012

 
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CONSUMERS PAYING DOWN DEBT HELPS BOOST U.S. EXPANSION

Federal Reserve figures show that household debt as a share of disposable income sank to 113 percent in the second quarter from a record high of 134 percent in 2007 before the recession hit, Bloomberg News reported yesterday. Debt payments on that basis are the smallest in almost 18 years, while the delinquency rate for credit cards is the lowest since the end of 2008. The progress that consumers have been making will allow gross domestic product to absorb stepped-up deficit reduction by the federal government next year and keep on expanding, according to Mark Zandi, chief economist at Moody’s Analytics Inc. He sees GDP growing 2.1 percent in 2013, a bit slower than this year’s projected 2.2 percent, as Congress allows some, but not all, of the scheduled year-end tax increases and spending cuts to go ahead. The GDP number will mask stronger growth for the private side of the economy, which Zandi expects to increase to 3.6 percent from 3.1 percent. Read more.

FED GOVERNOR'S PLAN TO LIMIT BANK SIZE FUELS DEBATE

While academics, politicians and even former bank chiefs have called for the nation's banking behemoths to be broken up or shrunk, Daniel K. Tarullo, a Federal Reserve governor who oversees bank regulation, said in a speech last week that an important part of a bank's balance sheet could be capped at a set percentage of the nation's gross domestic product, the New York Times DealBook blog reported yesterday. That a regulator at the Fed – the most powerful of the banking industry's overseers – would say that such a structural overhaul of the financial system might be considered was a sign that the policy debate over what to do about "too big to fail" might be shifting. Some Republicans looking to repeal the Dodd-Frank Act say that they still want to constrain large banks. Their concern is that the law may lead the market to believe that the government protects large banks. In turn, investors might then provide cheap loans to the biggest banks, fueling even more growth in the banks' balance sheets. "I am completely open to the proposal because of my similar concern about the growing size of institutions that are too big to fail," said Sen. David Vitter (R-La.). "Beyond this specific proposal, there is a growing nonpartisan consensus to do a lot more to limit the size of the megabanks." Read more.

BANKS SEE HOME LOANS AS GATEWAY TO BIG GAINS

Federal stimulus has ignited a boom in mortgage refinancing, and the trend could continue as the government steps up its support of the broad housing market, according to a report in the New York Times DealBook blog on Friday. In the third quarter, banks may have likely originated as much as $450 billion of home loans, according to estimates by Inside Mortgage Finance, a publication that tracks the industry. That figure, which includes both refinances of existing mortgages and new loans to buy a house, would be a considerable jump from the previous period. In the second quarter, banks originated $405 billion, with 68 percent in refinancings. In September, the Fed announced plans to buy large amounts of mortgage-backed bonds. The proposal has driven the price of such securities higher, letting banks earn an even bigger financial gain when they sell mortgages into the market. Read more.

ANALYSIS: FLIPPING HOUSES IS ONCE AGAIN A BOOMING BUSINESS

Flipping houses earned a bad reputation during the housing boom thanks to speculators who bought and sold millions of homes in search of easy profits, but the practice is gaining popularity again as the nation’s real estate market shows signs of life, the Washington Post reported yesterday. The number of flips rose 25 percent during the first half of 2012 from the same period a year earlier, according to research firm RealtyTrac, and the gross profit on each property averaged $29,342. Areas of the country that were hit particularly hard by the housing crash have seen the most pronounced boom in flipping, as investors gobble up foreclosures and short sales — properties sold for less than the owners owe on the mortgage — and resell them to buyers eager to take advantage of record-low interest rates. The Phoenix area leads the country with nearly 10,000 flipped properties during the first half of this year. Las Vegas, Los Angeles, Miami and Atlanta also are high on the list. Read more.

NEW JERSEY CASE MAY UPEND HOME LOAN DISCRIMINATION RULES

A fight between the government and residents of what remains of Mount Holly Gardens in New Jersey has now reached the U.S. Supreme Court, which may decide in the next several weeks whether to take up a case with nationwide implications for the housing industry, Bloomberg News reported yesterday. Civil rights advocates are battling the industry over whether the 1968 Fair Housing Act authorizes discrimination suits even without allegations of intentional bias. Lower courts have said that suits can claim that a government policy or company lending practice has a discriminatory effect, known as "disparate impact," even if that was not the intent. Mount Holly has been buying up what it says had become a blighted, high-crime neighborhood, with an eye toward redevelopment. The opponents say that the effort has hurt black and Hispanic residents, devastating the township's only predominantly minority neighborhood. Although the Mount Holly case involves municipal action, the U.S. Justice Department also enforces the disparate impact doctrine against financial institutions. The statute lacks the language supporting this doctrine, which Congress affirmatively included in other laws, so it should not apply, said Jeffrey Naimon, a banking attorney with BuckleySandler LLP. The courts have disagreed. "Allowing disparate impact claims under the FHA would render illegal many legitimate governmental and private activities designed to promote the general welfare of the community," Mount Holly argued in its appeal to the Supreme Court. Read more.

CFPB REPORT FINDS PRIVATE STUDENT LOAN BORROWERS FACE ROADBLOCKS TO REPAYMENT

The Consumer Financial Protection Bureau (CFPB) Student Loan Ombudsman released a report today saying that private student loan borrowers are sometimes surprised by the terms and conditions of their loans, are given the runaround by their loan servicer and have few options to refinance or modify repayment for a better deal, insideARM.com reported. "Graduates don't have a fair chance to pay back their debts if they are faced with surprises, runarounds, and dead-ends by student loan servicers," said CFPB Director Richard Cordray. "Student loan borrower stories of detours and dead-ends with their servicers bear an uncanny resemblance to problematic practices uncovered in the mortgage servicing business," said CFPB Student Loan Ombudsman Rohit Chopra, who authored the report. Earlier this year, the CFPB announced that outstanding student loan debt crossed the $1 trillion mark. The Dodd-Frank Act established an ombudsman for student loans within the CFPB to assist borrowers with private student loan complaints. Today’s report, which was mandated by Congress, analyzed approximately 2,900 private student loan complaints, comments, and other submissions and input from borrowers. The report found that roughly 95 percent of the complaints are about loan servicing – when borrowers try to pay back their debt or are unable to pay. Read more.

Click here to read the CFPB report.

STUDY: WELL-OFF WILL BENEFIT MOST FROM CHANGE TO STUDENT DEBT RELIEF PLAN

While the federal government is making changes to its income-based student loan repayment plan to help borrowers with relatively high debt, a report released today by the New America Foundation, a nonprofit and nonpartisan policy institute, says that the changes ultimately will provide only marginal help for borrowers who are at the greatest risk of default, the New York Times reported. Rather, the changes would provide big benefits to middle- and high-income borrowers, particularly for those seeking a graduate degree, the authors found. The report says that at least one financial planning company is telling law school students that the changes could allow them to write off $100,000 in student debt. Under current rules, borrowers pay 15 percent of their discretionary income, based on a formula that is meant to exclude money spent on basic life necessities. The remaining balance and accrued interest is forgiven after 25 years of payments. The Obama administration is tweaking the program to lessen the burden for some borrowers by expediting changes that will reduce monthly payments from 15 percent of discretionary income to 10 percent and forgive outstanding balances after 20 years of payments, instead of 25 years. The New America Foundation report says the changes to income-based repayment could provide some benefits to all participants. But the primary beneficiaries would be high-income, high-debt participants who could make relatively small payments for 20 years and then have a large part of their debt forgiven, the authors said. Read more.

Click here to read the New America Foundation report.

WATCH COMMISSION HEARING LIVE TOMORROW!

ABI's Commission to Study the Reform of Chapter 11 will hold a public hearing tomorrow, October 17, at the LSTA Annual Conference in New York. The event will be live webcast beginning at 3:15 p.m. ET at the Commission's website (commission.abi.org).

SHOW YOUR SUPPORT FOR STEVEN GOLICK, A COLLEAGUE AND ABI LEADER

Our friend Steven Golick (Osler Hoskin & Harcourt LLP, Toronto) is facing a medical crisis. He has been diagnosed with a serious brain tumor, requiring complex surgery and treatment. Steven’s spirits are very strong and he and his family remain optimistic, but he can use our support. A prominent international restructuring attorney and an ABI member since 1994, Steven is also a founding member of the ABI house band, the Indubitable Equivalents. Because the band is important to Steven, his fellow band-mates have organized a new Blog site for Steven's friends and colleagues to show their love and support at this critical time. Please click on this link to share your thoughts with many others, and post as often as you'd like.

ABI IN-DEPTH

LATEST ABI PODCAST EXAMINES LITIGATION SURROUNDING THE DISSOLUTION OF A DISTRESSED LAW FIRM

The latest ABI podcast features Executive Director Sam Gerdano talking with Paul Hage of Jaffe, Raitt, Heuer & Weiss, PC (Southfield, Mich.) and Dylan Trache of Wiley Rein LLP (McLean, Va.) about unfinished business litigation and other issues surrounding the dissolution of a financially distressed law firm. Click here to listen.

MEMBERS WILL NOT WANT TO MISS ABI'S PROGRAM AT NCBJ'S ANNUAL MEETING ON OCT. 26

Members planning to attend the 86th Annual NCBJ Annual Conference in San Diego from Oct. 24-27 will not want to miss the exciting line-up scheduled for the ABI program track on Oct. 26. In addition to roundtable discussions on the hottest consumer and business bankruptcy topics, ABI will be hosting a ticketed luncheon that will feature the presentation of the 7th Annual Judge William L. Norton, Jr. Judicial Excellence Award and entertainment by Apollo Robbins, a sleight-of hand artist, security consultant and self-described gentleman thief. Click here to register for the Conference.

To view the list of ABI programs on Oct. 26 and the full NCBJ Annual Conference schedule, please click here.

ABI's Chapter 11 Reform Commission will also be holding a public hearing on Oct. 26 from 2:30-4:30 p.m. PT at the San Diego Marriott. Interested parties have the opportunity to submit testimony at the hearing. For further information, please contact ABI Executive Director Samuel J. Gerdano at sgerdano@abiworld.org.

LATEST CASE SUMMARY ON VOLO: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA V. CITY OF BOSTON (IN RE SW BOSTON HOTEL VENTURE LLC; 1ST CIR.)

Summarized by Neal Paul Donnelly of the U.S. Bankruptcy Court for the District of Delaware

In a dispute between a developer-debtor and its primary secured lender, the BAP affirmed the bankruptcy court's decision to calculate postpetition interest (§506(b)) owing to the lender at the contractual default rate. The BAP also reversed the lower court's ruling as to when the post-petition interest began accruing, finding that the lender had been oversecured since the petition date, so that was when the lender became entitled to interest payments under § 506(b).

There are more than 650 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: SUMMARY OF KEY DIFFERENCES BETWEEN CHAPTER 9 AND CHAPTER 11 BANKRUPTCY

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post summarizes several of the key differences between chapter 9 and chapter 11 bankruptcy.

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

Bankruptcy courts should adopt formal loss mitigation procedures to facilitate the negotiation of residential mortgage modifications for consumer debtors.

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

HAVE YOU TUNED IN TO BLOOMBERG LAW'S VIDEO PODCASTS?

Bloomberg Law's video podcasts feature top experts speaking about current bankruptcy topics. The podcasts are available via Bloomberg Law's YouTube channel so that you can access the programs from your computer or device of your choice! Click here to view the Bloomberg Law video podcasts.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 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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THIS WEEK:

 

WATCH THE CHAPTER 11 COMMISSION HEARING LIVE TOMORROW AT 3:15 P.M. ET VIA WEBCAST!
CLICK HERE
Oct. 17, 2012

 

 

SE 2012
Oct. 18, 2012
Register Today!

 

 

ABI/ST. JOHN'S "BANKRUPTCY AND RACE: IS THERE A RELATION?" SYMPOSIUM
Oct. 19, 2012
Register Today!

 

 

COMING UP:

 

 

ABI'S PROGRAM AT NCBJ'S ANNUAL MEETING
Oct. 26, 2012
Register Today!

 

 

MEXICO 2012
Nov. 7, 2012
Register Today!

 

 

4TH ANNUAL PROFESSIONAL DEVELOPMENT PROGRAM
Nov. 9, 2012
Register Today!

 

 

SE 2012
Nov. 12, 2012
Register Today!

 

 

SE 2012
Nov. 29 - Dec. 1, 2012
Register Today!

 

 

MT 2012
Dec. 4-8, 2012
Register Today!

 

 

ACBPIKC 2013
Jan. 24-25, 2013
Register Today!

 

 

ACBPIKC 2013
Feb. 7-9, 2013
Register Today!

 

 

ACBPIKC 2013
Feb. 17-19, 2013
Register Today!

 
   
  CALENDAR OF EVENTS
 

October
- International Insolvency and Restructuring Symposium
     October 18, 2012 | Rome, Italy
- ABI/St. John's "Bankruptcy and Race: Is There a Relation?" Symposium
     October 19, 2012 | Queens, N.Y.
- ABI Program at NCBJ's Annual Conference
     October 26, 2012 | San Diego, Calif.

November
- U.S./Mexico Restructuring Symposium
     November 7, 2012 | Mexico City, Mexico
- Professional Development Program
     November 9, 2012 | New York, N.Y.
- Detroit Consumer Bankruptcy Conference
     November 12, 2012 | Detroit, Mich.
- Winter Leadership Conference
     November 29 - December 1, 2012 | Tucson, Ariz.

  

 

December
- Forty-Hour Bankruptcy Mediation Training
     December 4-8, 2012 | New York, N.Y.

2013

January
- Rocky Mountain Bankruptcy Conference
     January 24-25, 2013 | Denver, Colo.

February
- Caribbean Insolvency Symposium
     February 7-9, 2013 | Miami, Fla.
- Kansas City Advanced Consumer Bankruptcy Practice Institute
     February 17-19, 2013 | Kansas City, Mo.


 
 
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