Living Wills Are Due for Some Banks on July 1 but FDICs Hoenig Sees No Cure-All

ABI Bankruptcy Brief | June 26, 2012

June 26, 2012

NEWS AND ANALYSIS

LIVING WILLS ARE DUE FOR SOME BANKS ON JULY 1, BUT FDIC'S HOENIG SEES NO CURE-ALL

Some of the biggest banks are being asked to submit by July 1 road maps for how they can be quickly and cleanly liquidated, but a top regulator said that he does not back using the so-called living-will process to break them up, the Wall Street Journal reported today. Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., also does not think that the new regulatory process will end "too big to fail"-- the expectation that the government will bail out faltering financial firms rather than risk the damage their failure would inflict on the system. "I want it to have good results, but it will not be the cure-all," Hoenig said in an interview. While the living wills will force bank management to better understand their own institutions, the largest firms will remain excessively big and complex, with too much of an impact on the economy, he said. The living-will process was established in 2010 by the Dodd-Frank Act. Read more. (Subscription required.).

REPORT: HOMEOWNERS SHOW INCREASED INTEREST IN EXPANDED HARP

A recent government report showed that more underwater homeowners have been taking advantage of an expanded Home Affordable Refinance Program (HARP) to refinance their loans and obtain lower interest rates, the New York Times reported on Friday. According to the June report by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, in the first quarter 180,000 mortgages were refinanced through what is known as HARP 2, almost double the 93,000 in the fourth quarter of 2011 and the highest quarterly number since the HARP program started in 2009. The program was expanded last fall with several modifications, including the removal of certain fees and a second appraisal, and an extension of the deadline to Dec. 31, 2013. In addition, the cap was removed on the loan-to-value ratio. When the program began, there had been a ceiling of 125 percent, meaning loans could not be underwater by more than 25 percent. Read more.

BIGGEST U.S. BANKS CURB LOANS AS REGIONAL FIRMS FILL GAP

The biggest U.S. banks are extending less credit amid a faltering economic recovery as regional lenders step in to fill the gap, Bloomberg News reported today. Total loans at the four largest U.S. banks -- JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. -- fell 4.9 percent to $3.04 trillion in the first quarter from the same period in 2010, according to data compiled by Bloomberg. Lending by the 17 smallest of the 24 firms in the KBW Bank Index increased 9.8 percent to $1.27 trillion. Citigroup, the third-largest U.S. lender by assets, and Charlotte, N.C.-based Bank of America reported the biggest drops. Total loans at New York-based Citigroup fell 10 percent to $648 billion in the two-year period, while those at Bank of America declined 7.6 percent to $902.3 billion. Read more.

U.S. DEFENSE DEPARTMENT PLANS TOUGHER RULES ON SMALL LOANS

The U.S. Department of Defense plans to strengthen rules designed to curb abusive lending to servicemembers as Congress considers changes to a 2006 law that regulates small loans, according to a senior military officer, Bloomberg News reported today. The Senate Armed Services Committee approved amendments to the Military Lending Act on June 6 as part of its annual review of defense policy, including one that would tighten the definition of "payday loan" to cover other high-interest products. Congress passed the law in response to complaints from the Pentagon that so-called payday loans were often harmful for servicemembers and that they affected troop readiness. The law effectively banned payday lending to members of the military by limiting the loans to an interest rate of 36 percent. The proposed changes would also require the Pentagon to study and regulate installment loans aimed at members of the military. "The legislation has been extremely effective in stamping out abuses involving these types of credit," Colonel Paul Kantwill, director of legal policy in the Department of Defense's Office of the Undersecretary for Personnel and Readiness, said in testimony to the Senate Banking Committee today. Kantwill said in his testimony that the department may publish advance notices of proposed rulemaking once it is clear what changes may be included in the final legislation. Read more.

Click here to read the prepared witness testimony from today's hearing.

ANALYSIS: BIRMINGHAM LIKELY TO PAY A PRICE FOR JEFFERSON COUNTY'S BANKRUPTCY

While officials from Birmingham, Ala., say that they have a lot to offer municipal-bond investors, the city is the county seat for Jefferson County, which last year filed the biggest municipal bankruptcy in U.S history, the Wall Street Journal reported today. As Birmingham weighs a return to the bond market, its leaders will soon find out if the city will pay a price for the county's chapter 9 filing. Though Birmingham offers a jobless rate below the national average, a credit rating on par with New York City's and lots of cash in reserve, it is likely the city will pay higher interest rates than similarly credit-worthy cities and towns. The city and county keep their finances separate, and the contrast between them is stark. Jefferson County recently cut back services at its hospital for the poor and skipped a debt payment to preserve cash. County officials expect to run out of reserves by October. Read more. (Subscription required.)

ABI IN-DEPTH

LATEST CASE SUMMARY ON VOLO: SAMSON V. WESTERN CAPITAL PARTNERS, LLC (IN RE BLIXSETH; 9TH CIR.)

Summarized by Elie Ian Herman of Pace Law School

The Ninth Circuit ruled that termination of the automatic stay under Section 362(h) applies to all the debtor's personal property securing a creditor's claim, rather than just the personal property scheduled as securing that claim.

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: SUPREME COURT DECLINES TO HEAR NET EQUITY ISSUE

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent post looked at the U.S. Supreme Court’s decision to pass on the opportunity to decide how the claims of investors in Bernard L. Madoff Investment Securities LLC should be calculated.

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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