A new government report suggests that errors made by banks and their agents during foreclosures might have been significantly higher than was previously believed when regulators halted a national review of the banks' mortgage servicing operations, the New York Times reported today. When banking regulators decided to end the independent foreclosure review last year, most banks had not completed the examinations of their mortgage modification and foreclosure practices. At the time, the regulators -- the Office of the Comptroller of the Currency and the Federal Reserve -- found that lengthy reviews by bank-hired consultants were delaying compensation getting to borrowers who had suffered through improper modifications and other problems. But the decision to cut short the review left regulators with limited information about actual harm to borrowers when they negotiated a $10 billion settlement as part of agreements with 15 banks, according to a draft of a report by the Government Accountability Office. The report shows, for example, that an unidentified bank had an error rate of about 24 percent. This bank had completed far more reviews of borrowers' files than a group of 11 banks involved in the deal, suggesting that if other banks had looked over more of their records, additional errors might have been discovered. Regulators had calculated a preliminary error rate of 6.5 percent for all the banks when they negotiated the settlements last year, according to the report. Read more.
EDITORIAL: TROUBLING STUDENT LOANS
Private student loans offer limited consumer protections, leaving borrowers who get into trouble with few options other than default, according to a New York Times editorial today. The Consumer Financial Protection Bureau now finds other problems in this market, which accounts for a bit more than 10 percent of the total student loans outstanding: Borrowers have been forced into default without warning. Borrowers with perfect credit histories can suddenly be required to pay the full amount of the loan if someone who co-signed on the loan dies. These unfair contracts date from the fiscal crisis, when investors were burned by securities backed by sloppily drawn student loans to borrowers who had not been properly vetted, according to the editorial. Federal regulators should begin to clean up the student debt crisis by preventing contracts that unfairly burden borrowers in the private market who owe $150 billion. Terms should be clearly stated, and borrowers should be notified that their loans are at risk, according to the editorial. Read more.
For further perspectives and information on the student crisis, be sure to attend ABI's Student Debt Crisis Symposium on May 30 at Georgetown University Law Center.
FANNIE/FREDDIE FATE HANGS ON SENATE ACTION THIS WEEK
A U.S. Senate plan for Fannie Mae and Freddie Mac, the most thorough yet for winding down the two mortgage financiers, faces a first test this week as its authors make last-minute changes to gather more support, Bloomberg News reported today. The 22 members of the Senate Banking Committee will decide as early as today if the bill, the culmination of more than a year of delicate negotiations among Democrats and Republicans, gains momentum or fizzles. The legislation would replace the companies over five years with federal insurance for mortgage bonds that would kick in only after private investors were wiped out. Current shareholders of Fannie Mae and Freddie Mac would be in line behind the U.S. in getting any compensation from the wind-down. To keep the bill from stalling, committee leaders are trying to win over at least a few of the half-dozen Democrats on the panel who haven't publicly embraced it. The proposed changes include ones that would prevent big banks from monopolizing the mortgage business and that would add stronger protections for lending in disadvantaged communities. Read more.
NOT ABLE TO MAKE IT TO LAST WEEK'S ANNUAL SPRING MEETING? ENJOY A RECAP!
If you were not able to make it to ABI's 32nd Annual Spring Meeting last week in Washington, D.C., here is a recap:
In case you missed the conference, sessions were recorded and will soon be available on http://cle.abi.org, so you have an additional chance to earn CLE from your desk for the sessions that you missed!
ABI IN-DEPTH
NEW CASE SUMMARY ON VOLO: LIRA V. BAYVIEW LOAN SERVICING LLC (IN RE LIRA; 9TH CIR.)
Summarized by Shara Cornell of McGuireWoods LLP
The Ninth Circuit ruled that a party cannot assert improper service as a defense on appeal if it was never raised before the bankruptcy court. Further, the Ninth Circuit ruled that a bankruptcy court is not required to hold a hearing if the notice period expires with no objection under 11 U.S.C. § 102 and LBR 9013-1.
There are more than 1,300 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: FURTHER EXAMINATION OF ENERGY FUTURE HOLDINGS' CHAPTER 11 FILING
A recent post takes a closer look at the chapter 11 filing today by Energy Future Holdings Corp. The filing was also the lead item in the Daily Headlines today.
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
Enforcing pari passu clauses in favor of holdout bondholders by injunction against Argentina will undermine sovereign debt restructurings (NML Capital, Ltd. v. Republic of Argentina).
Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
INSOL INTERNATIONAL
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