HOUSE APPROPRIATIONS COMMITTEE NIXES FHA USE OF EMINENT DOMAIN TO SEIZE MORTGAGES
In approving legislation for FY2015 for the Department of Housing and Urban Development, the House Appropriations Committee included a general provision that prohibits the Federal Housing Authority (FHA) from financing or refinancing a loan that has been seized using eminent domain. "The Committee continues to be concerned about proposals for local governments to seize underwater performing mortgages and then refinance them into an FHA product," the committee wrote in its report on the legislation. "Both an FHA official and the former head of the Federal Housing Financing Agency raised significant concerns about the proposal and its negative effect on private capital availability, mortgage credit, and its harm to investors and taxpayers." More than 20 municipalities in California and elsewhere have publicly considered a plan using eminent domain, and some have entered into an advisory services agreement with a mortgage firm for this purpose, according to the committee. The language is an initiative of the Securities Industry and Financial Markets Association, which commended the action, saying that "should FHA allow this scheme to move forward, investors in pension plans, 401Ks, mutual funds and other savings and retirement accounts will suffer the losses." Click here to read the House Appropriations Committee report.
U.S. MORTGAGE COLLECTORS LOOK TO SILENCE HOMEOWNERS IN LOAN DEALS
Mortgage payment collectors at companies including Ocwen, Bank of America Corp. and PNC Financial Services Group are agreeing to ease the terms of borrowers' underwater mortgages, but they are increasingly demanding that homeowners promise not to insult them publicly, consumer lawyers say, Reuters reported yesterday. In many cases, they are demanding that homeowners' lawyers agree to the same terms, and in others they even require borrowers to agree not to sue them again. These clauses can hurt borrowers who later have problems with their mortgage collector by preventing them from complaining publicly to agencies such as the Consumer Financial Protection Bureau, lawyers said. If a collector, known as a servicer, makes an error, getting everything fixed can be a nightmare without litigation or public outcry. A 2013 report by the National Consumer Law Center found that servicers routinely lost borrowers' paperwork, inaccurately input information and failed to send important letters to the correct address -- or sometimes just didn't send them at all. New York's Superintendent of Financial Services, Benjamin Lawsky, said that he is investigating Ocwen's use of these clauses. Read more.
SALLIE MAE DEBT CONTRACTOR THREATENS STUDENT BORROWERS AFTER CO-SIGNERS DIE
Seven borrowers who had been paying their Sallie Mae student loans on time for years were unexpectedly threatened with asset seizures after a Sallie Mae contractor demanded that they immediately repay tens of thousands of dollars simply because a family member had died, the Huffington Post reported yesterday. All were victims of what the Consumer Financial Protection Bureau calls "auto-defaults," or the largely legal practice of immediately declaring borrowers' private student loans to be in default after the death or bankruptcy of a loan co-signer. Since an April report by the CFPB highlighted the troubling practice, the financial services industry has spent four weeks on the defensive, arguing that borrowers who face the demands are often delinquent on their debts, or are just out of college and thus unable to shoulder the burden. What's more, they argue, borrowers should've known that they could face auto-defaults because it's detailed in their loan contracts. But the experiences of seven consumers, who independently contacted the Huffington Post to share their stories, documents, correspondence and conversation notes detailing their interactions with Delaware-based Sallie Mae and its debt collector, Simm Associates, suggest that the practice ensnares even good borrowers who have faithfully been repaying their student loans on time for years. Read more.
For more information on the student loan debt crisis, be sure to attend ABI's Student Loan Debt Symposium on May 30 at Georgetown University Law Center, featuring scholars, consumers, practitioners and policymakers examining the student debt crisis and its possible solutions.
COMMENTARY: THE FED'S BLUEPRINT FOR FINANCIAL CONTROL
Federal Reserve Governor Daniel Tarullo's recent statements that the central bank must "broaden the perimeter of prudential regulation, both to certain nonbank financial institutions and to certain activities by all financial actors," would take the Fed far beyond the current power it exercises thanks to the Dodd-Frank law passed in the aftermath of the 2008 financial crisis, according to a commentary in today's Wall Street Journal. Under Dodd-Frank, ultimate financial regulatory power resides with the Financial Stability Oversight Council (FSOC), a council of 10 regulators chaired by the Treasury and which includes the Fed chairman. The FSOC can designate asset managers, mutual funds, hedge funds, or even broker-dealers as systemically important financial institutions (SIFIs), a classification that puts an institution under the Fed's regulatory authority. The council has already designated large insurers AIG and Prudential as SIFIs, and it has many more nonbank financial companies in its sights. Tarullo proposed ditching complex Basel III capital and liquidity regulations and reducing regulations on small banks. The new system he outlined would use simpler, Basel I capital charges for small banks on the grounds that the failure of these banks would pose no threat to financial stability. Once a bank joins the "club" of the 80 largest institutions, however, the Federal Reserve should be its regulator, Tarullo said, and regulation should focus on annual stress tests. The very largest institutions, U.S. global banks and nonbank SIFIs, should receive the most intrusive Fed oversight and be required to satisfy the full range of new international macroprudential rules, he added. The regulatory relief that Tarullo proposes for small- and medium-size banks is likely to lead in time to their demise, according to the commentary. Read more. (Subscription required.)
NEW BANKRUPTCY FILING FEE INCREASES EFFECTIVE JUNE 1
The Judicial Conference of the United States has approved several bankruptcy-related fee increases to take effect starting June 1. Based on the chapter, the cost to file will be:
- Chapter 7: $335
- Chapter 13: $310
- Chapter 9, 11 and 15: $1,717
- Chapter 12: $275
The fee schedule changes are projected to raise about $35 million per year for the courts, based on current case loads. For more information, please click here.
NEW CASE SUMMARY ON VOLO: BROOKS V. CHASE BANK USA (11TH CIR.)
Summarized by Jeffrey Snyder of Bilzin Sumberg Baena Price & Axelrod LLP
The Eleventh Circuit reversed the district court's decision reversing a bankruptcy court and remanded the case for determination of attorneys' fees. The Eleventh Circuit ruled that the bankruptcy court did not abuse its discretion when it refused to allow the bank to set off statutory damages and attorney's fees awarded under Florida Consumer Collection Practices Act against a pre-petition consumer credit card debt discharged in the bankruptcy.
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: COURT CONFIRMS SBARRO'S REORGANIZATION PLAN
A recent blog post examines Sbarro's reorganization plan, which was recently approved by the U.S. Bankruptcy Court for the Southern District of New York.
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.
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