FHFA SEEKS TO LIMIT MORTGAGE BUYBACKS AFFLICTING BIG BANKS
The Federal Housing Finance Agency (FHFA), the regulator of Fannie Mae and Freddie Mac, plans to help banks avoid being forced to buy back mortgages out of concern that lenders are tightening standards even for the most creditworthy home buyers, Bloomberg News reported today. The FHFA is also standardizing the data Fannie Mae and Freddie Mac collect on each loan so they have more information when buying mortgages from lenders. Banks are requiring credit scores on government-backed loans that are between 100-200 points higher than the minimums set by Fannie Mae, Freddie Mac and the Federal Housing Administration, after the government-controlled agencies demanded that lenders repurchase more than $80 billion in flawed loans over the past three years. PNC Financial Services Group Inc. said on June 12 that it is increasing reserves by $350 million to cover demands, while Bank of America Corp., the second-biggest U.S. lender, said in May that it will buy back $330 million of home loans from Freddie Mac. Read more.
ANALYSIS: BANKS WORRY AS BREAKUP TALK REVIVED AFTER JPMORGAN LOSS
Congress' inquiry into JPMorgan Chase & Co.'s $2 billion trading loss has reignited the question of whether a bank can grow too large and complex for its own executives to oversee, Bloomberg News reported yesterday. The banking industry is taking notice that a move to cap the size of Wall Street firms is gaining traction on Capitol Hill. "There seems to be growing interest in some type of breakup proposal," said Sheila Bair, a former chairman of the Federal Deposit Insurance Corp. The concept is expected to arise today as JPMorgan Chief Executive Officer Jamie Dimon testifies before the House Financial Services Committee on the trading debacle. Last week he told the Senate that the losses, which carved about $23 billion from the bank’s market value, were due to a poor investing strategy coupled with management failures. Senator Sherrod Brown (D-Ohio) seized on that admission at the hearing. "It appears executives and regulators simply can't understand what is happening in all these offices at once," Brown said during the June 13 hearing. "It demonstrates to me that too-big-to-fail banks are, frankly, too-big-to-manage and too-big-to-regulate." While bank lobbyists say they are still most concerned that JPMorgan's trading loss could prompt regulators to write a stronger U.S. rule against proprietary trading, they are also closely monitoring the emerging talk about too-big-to-manage. Read more.
RATING-FIRM OVERSIGHT TO INCREASE
The head of a new federal office charged with overseeing the credit-rating firms pledged to step up scrutiny of an industry blamed by lawmakers for exacerbating the financial crisis, the Wall Street Journal reported today. Thomas J. Butler, a former brokerage executive, was sworn in Monday as director of the Securities and Exchange Commission's Office of Credit Ratings. The office was created by the Dodd-Frank Act in response to allegations that credit-rating firms had rated too highly many of the mortgage-linked securities at the heart of the housing bubble. As one of his first tasks, Butler said that he will explore whether the office will have its own enforcement, examination and rule-writing staff. Such a step would increase the number of people who would devote their full attention to overseeing credit-rating firms, including Standard & Poor's Ratings Services and Moody's Investors Service. Currently, at least 20 people are dedicated to oversight of the credit-rating firms, working in the SEC's different divisions. Butler said that the SEC's most recent budget granted the new office the power to have around 30 employees. Read more. (Subscription required.)
GM SEEN FUELING PENSION DEALS AS EMPLOYERS FACE SHORTFALL
General Motors Co.'s deal to cut pension obligations by $26 billion and shift plans to Prudential Financial Inc. is poised to fuel more transfers as U.S. firms face a retirement-funding shortfall the size of Greece's debt, Bloomberg News reported today. MetLife Inc. and Prudential are among insurers that expect the GM deal to encourage more corporations to offload plans. Pension liabilities exceed assets by more than $435 billion, according to a Bloomberg review of data disclosed by firms in the Russell 1000 Index of large U.S. companies. Greece, facing demands for austerity measures in exchange for rescue funds, had total debt of about $450 billion at the end of 2011. Employers who endured two stock-market crashes in a decade and 10-year Treasury yields near record lows may be tempted to follow GM’s lead by paying insurers to take the risk that market returns are inadequate or that beneficiaries live longer than expected. GM, the largest automaker, said that most of the 118,000 retirees and surviving beneficiaries affected by the shift will get Prudential annuities, with about 42,000 having the option of lump-sum payments. GM pensions were underfunded by $25.4 billion, the largest gap among the biggest U.S. companies, as of Dec. 31. The Detroit-based firm had global pension obligations of about $134 billion. Read more.
REPORT: CEO PAY IS RISING DESPITE SCRUTINY
Despite a lot of noise from shareholders and a few victories at big names like Citigroup and Hewlett-Packard, CEO pay continues to rise, according to a report in Sunday's New York Times. Median pay of the nation's 200 top-paid CEOs was $14.5 million, equating to a 5 percent raise, according to a study conducted for the New York Times by Equilar, a compensation data firm based in Redwood City, Calif. Because the list includes only the CEOs of public companies, it does not capture the many billions that have been earned by top hedge fund managers and private-equity dealmakers in recent years. But even in the more narrow universe of public companies, the complete Equilar study shows that there were not one, but two executives who had nine-figure paydays last year — the first time that has ever happened, according to Aaron Boyd, Equilar's head of research. Read more.
CREDIT CARD COMPLAINTS TO BE AVAILABLE ONLINE
The Consumer Financial Protection Bureau (CFPB) today is launching the first part of an online database of complaints from customers in the $2.05 trillion credit card industry, the Wall Street Journal reported today. The database will list searchable information about individual complaints, including the name of the company responsible for the credit card, the type of complaint and the customer's ZIP Code. Initially, it will only contain credit card-related complaints the bureau has received as of June 1, which means it is likely to have only 100 or so entries at first, according to a senior CFPB official. The bureau, which has been collecting credit card complaints since last July, will add in older complaints later this year. It may also incorporate complaints about other products, such as mortgages and private student loans, in the future. Read more. (Subscription required.)
WEBINAR NEXT WEEK WILL EXAMINE SUPREME COURT'S RULING IN THE RADLAX CASE
Having already examined the oral argument in a previous ABI media teleconference, panelists will reconvene for an ABI and West LegalEd Center webinar on June 26 to discuss the Supreme Court's ruling in RadLAX Gateway Hotel LLC v. Amalgamated Bank. CLE credit will be available for the webinar, which will be held from 2:00-3:30 p.m. ET.
Experts on the program include:
• Adam A. Lewis of Morrison Foerster, lead counsel for Amalgamated Bank before the Court.
• David Neff of Perkins Coie LLP (Chicago), the counsel of record for petitioner RadLAX Gateway Hotel LLC and participant in the argument.
• Jason S. Brookner of Andrews Kurth LLP (New York), whose article was cited in the brief for the respondent.
• Prof. Charles Tabb, the Alice Curtis Campbell Professor of Law at the University of Illinois College of Law, who recently published a paper titled "Credit Bidding, Security, and the Obsolescence of Chapter 11."
ABI Resident Scholar David Epstein will be the moderator for the webinar.
The webinar costs $115 and purchase provides online access for 180 days. If you are purchasing a live webcast, you will receive complimentary access to the on-demand version for 180 days once it becomes available. Click here for more information.
LATEST CASE SUMMARY ON VOLO: IN RE MAHARAJ (4TH CIR.)
Summarized by Dennis O'Dea of SFS Law Group
The Fourth Circuit affirmed the bankruptcy court's denial of confirmation of an individual chapter 11 plan accepted by two classes of creditors, but rejected by a class of unsecured creditors. The court held, in a case of first impression in the circuit courts of appeal, that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) did not abrogate the absolute priority rule as it applies to individual chapter 11 debtors and that the plan could not be confirmed over the dissenting vote of a class of unsecured creditors if the debtors retained any nonexempt property under a plan in which general creditors were not paid in full.
More than 500 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: IS THE "PONZI SCHEME PRESUMPTION" EXPANDING INTO NEW TERRITORY?
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent post examines the expansion of the "Ponzi scheme presumption" by courts, as well as the case of Stoebner v. Ritchie Capital Management, LLC (In re Polaroid Corp.), 2012 Bankr. LEXIS 1926 (Bankr. D. Minn. April 30, 2012), in which a bankruptcy court applied the presumption of intent to defraud a transferor who was not even directly involved in a Ponzi scheme.
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 full-payment rule in section 1325's "hanging paragraph" for new car PMSIs should be repealed to level the playing field between car lenders and other partially and fully unsecured creditors.
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ABI'S Webinar to Discuss the Supreme Court's Forthcoming Ruling in RadLAX Gateway Hotel LLC v. Amalgamated Bank
June 26, 2012 Register Today!