Fitch Predicts U.S. Bankruptcy Filings to Drop Nearly 5 Percent in 2012

ABI Bankruptcy Brief | April 3, 2012

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April 3, 2012

NEWS AND ANALYSIS

FITCH PREDICTS U.S. BANKRUPTCY FILINGS TO DROP NEARLY 5 PERCENT IN 2012

Fitch Ratings issued a new report yesterday saying that bankruptcy filings in 2012 will decrease nearly four to five percent over the total filings of 2011, Reuters reported yesterday. The first three months of 2012 are helping to support that projection, with bankruptcies tracking roughly 8-10 percent below last year, according to Fitch. The effect of decreased bankruptcy filings on credit card ABS collateral has remained very positive, according to the report. Notably, credit card delinquencies and charge-offs fell dramatically last year. Overall losses fell below 6 percent in 4Q 2011, 35 percent better than 4Q 2010. Read more.

MOODY'S: HOME PRICES SEEN DROPPING 10 PERCENT IN U.S. ON FORECLOSURES

As many as 1.25 million of America’s least-cared-for homes are headed for auction after a year-long probe into foreclosure practices kept them off the market, Bloomberg News reported today. The number of sales of repossessed properties probably will rise 25 percent this year from 1 million in 2011, according to Moody's Analytics Inc. Prices for the homes could drop as much as 10 percent because they deteriorated as they were held in reserve during investigations by state officials that were resolved in February, according to RealtyTrac Inc. That month, 43 percent of foreclosures were delinquent for two or more years from a 21 percent share in 2010, according to Lender Processing Services Inc. in Jacksonville, Fla. Homes stockpiled for less than a year sell for about 35 percent below the value set by lenders, according to a March 15 report by the Federal Reserve Bank of Cleveland. At two years, the loss is close to 60 percent. A surge of cheap foreclosures may erode prices in the broader real estate market, even as the economy expands and residential building increases, said Karl Case, one of the creators of the S&P/Case-Shiller home-price index. Read more.

In related news, ABI’s Chart of the Day site has a graph today showing that total delinquent home loans and foreclosures decreased slightly in February. Click here to visit the Chart of the Day site.

COMMENTARY: IT IS BETTER TO RENT THAN TO FORECLOSE

Bank of America will soon be offering a deal in which owners in default sign over their houses to the bank in return for the right to rent them back for three years at the market rate or below, according to an op-ed in today's Wall Street Journal. The idea of renting to owners in default, which has been kicking around since the Depression, according to the op-ed, was revived by economist Dean Baker of the Center for Economic and Policy Research in 2007. In January, Federal Reserve Chairman Ben Bernanke issued a white paper on housing fixes that leaned heavily on the idea of easing the glut of homes for sale by channeling them into rentals. A potential idea of why this sort of arrangement has not been implemented since the housing market has cratered, according to the op-ed, is because of the banks' worry about precedents. The banks fear that if they offer to rent to some owners in default, public opinion may force them to offer the same deal to all. Then there are the issues of who sets the rent, and whether obstinate tenants can be evicted if they get behind on payments or when their leases expire. More than likely, then, banks need a push, according to the op-ed. To this end, regulators could certainly push them, but such micromanagement would generate its own problems. The Obama administration, for its part, could press Fannie Mae to expand its deed-for-lease program, reaching out to mortgagees in default and offering them more than the current one-year lease deal. Read the full commentary. (Subscription required.)

ANALYSIS: CHOICES SHRINK FOR SUBPRIME BORROWERS

A shakeout in the storefront-loan business may make credit even tighter for millions of borrowers with weaker credit histories, the Wall Street Journal reported today. The shutdown of the subprime-mortgage market has forced multiple companies to close hundreds of storefront-lending locations and cut loan origination by hundreds of billions of dollars. As a result, individuals with weaker credit have had a hard time securing new mortgages. Though they still have access to non-real estate loans and bank credit cards, volumes of consumer-finance loans, while stable in recent years, are down sharply from 2007 levels. To be sure, experts say that the explosion in subprime lending played a role in the financial crisis and that some attrition in the industry is healthy. Still, industrywide originations of consumer-finance loans are down by more than half from $127.9 billion in 2007, according to Equifax Inc. Read more. (Subscription required.)

SMALL BANKS SHIFT CHARTERS TO AVOID U.S. AS REGULATOR

An increasing number of the nation's more than 600 savings and loan associations are fleeing the Office of the Comptroller of the Currency as they navigate a shifting regulatory landscape, the New York Times reported today. The Dodd-Frank Act closed their longtime regulator, the Office of Thrift Supervision, and moved them to the comptroller. A few of these institutions are trying to become credit unions, and many others are choosing state oversight. Nationally, 35 have applied to switch from national to state charters since July 2011. While the banks say that they are looking for a regulatory agency that understands them, some former industry experts have expressed concern that the financial institutions are regulator-shopping. Community bankers vociferously deny that they are hunting for lax regulators. What they want, they say, is a regulator more in touch with the issues faced by the nation's smaller banks, which are different from the ones faced by their larger national counterparts. Read more.

PENSIONS FIND RISKIER FUNDS FAIL TO PAY OFF

While public workers' pension funds across the country are increasingly turning to riskier investments in private equity, real estate and hedge funds and seeing that their fees have soared, their returns have not, the New York Times reported yesterday. For example, the $26.3 billion Pennsylvania State Employees Retirement System has more than 46 percent of its assets in riskier alternatives, including nearly 400 private-equity, venture capital and real estate funds. The system paid about $1.35 billion in management fees in the last five years and reported a five-year annualized return of 3.6 percent. That is below the 8 percent target needed to meet its financing requirements, and it also lags behind a 4.9 percent median return among public pension systems. In Georgia, the $14.4 billion municipal retirement system, which is prohibited by state law from investing in alternative investments, has earned 5.3 percent annually over the same timeframe and paid about $54 million total in fees. Read more.

ABI IN-DEPTH

LATEST CASE SUMMARY ON VOLO: SHOUP V. MCCURDY & CANDLER, LLC (11TH CIR.)

Summarized by Paul Avron of Berger Singerman, PA

The Eleventh Circuit reversed the district court's dismissal of a complaint alleging a violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692e, because the plaintiff's allegation that Mortgage Electronic Registration System (MERS), the client that was the subject of a debt collection letter, was not a creditor as identified in the letter stated a plausible claim for which relief could be granted.

More than 450 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: ARE STUDENT LOANS THE NEXT SUBPRIME DEBACLE?

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post explores whether student loan debt will be on par with the financial distress caused by subprime mortgage loans.

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
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