President Obama yesterday called on Congress to act on home mortgage relief when it returns for a brief legislative session in September, The Hill reported today. The housing market is widely believed to be the most significant drag on the economy, and Obama was under fire in a recent New York Timesfront-page story for the inability of his administration to address the burden of homeowner debt. "We are going to be pushing Congress to see if it can pass a refinancing bill that puts $3,000 in the pocket of the average family that has not yet refinanced their mortgage," he said. The White House is supporting a trio of Senate Democratic bills that streamline refinancing:
• Sens. Robert Menendez (D-N.J.) and Barbara Boxer (D-Calif.) in May introduced the “Responsible Homeowners Refinancing Act of 2012.” The bill would streamline refinancing for Fannie Mae and Freddie Mac borrowers by eliminating upfront fees and appraisal costs, among other changes.
• Sen. Jeff Merkley (D-Ore.) has a bill called the “Rebuilding Equity Act” for loans of 20 years or less. It would require Fannie Mae or Freddie Mac to pay all closing costs.
• Sen. Dianne Feinstein (D-Calif.) has a bill to aid underwater homeowners by allowing them to receive Federal Housing Administration mortgage insurance.
While significant, the White House-backed legislation falls short of the extensive housing action urged by some. Liberal groups and unions want Obama to replace Edward DeMarco — acting director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac — to force the agency to approve principal mortgage reductions. Others want legislation to allow bankruptcy judges to approve principal reductions in chapter 13. Read more.
CASE AGAINST FORMER FREDDIE MAC EXECUTIVES HINGES ON DEFINITION OF "SUBPRIME"
Figuring out the definition of a "subprime mortgage" by a U.S. judge could determine whether three former Freddie Mac executives misled investors about loans backed by the mortgage giant before it sank, the Wall Street Journal reported today. Lawyers for the former executives, including Chief Executive Richard Syron, sparred at a hearing with the Securities and Exchange Commission over the definition of "subprime" and "subprime-like." The fight came as lawyers for the former Freddie Mac executives urged U.S. District Judge Richard Sullivan to throw out an eight-month-old fraud lawsuit by the SEC alleging that the former executives made "materially false and misleading public disclosures" about the company's housing-market exposure in 2007 and 2008. Lawyers for Syron, Patricia Cook, a former Freddie Mac executive vice president, and Donald Bisenius, a former senior vice president, asked the judge to dismiss the suit because Freddie Mac told investors it did not classify single-family loans using the words "prime" or "subprime." Instead, Freddie Mac provided investors with tables outlining the characteristics of loans, allowing investors to draw their own inferences about loan quality, the lawyers said. The lawyers cited an investor document that said the amount of loans that would have been subprime if the term that Freddie Mac used was "not significant." Suzanne Romajas, a lawyer for the SEC, agreed that there is no universally accepted definition of "subprime," but she said Freddie Mac used a combination of factors to decide whether a certain loan was high-risk, and the former executives should have disclosed all of the mortgages that were vulnerable to potential default. For example, including mortgages with "subprime-like" characteristics would have increased Freddie Mac's overall high-risk loan exposure to 10 percent of its portfolio, not the 0.1 percent claimed by the company, she added. Read more. (Subscription required.)
SUPREME COURT CASE COULD CURB DEBT-COLLECTION LAWSUITS
Fearing that the legal playing field could be tilted against consumers, a group of federal and private consumer agencies have filed briefs in a U.S. Supreme Court case that threatens to shift the cost of a lawsuit to consumers in debt-collection cases, CreditCards.com reported today. In the past, collectors have absorbed court costs in "good faith" suits by consumers, even if the consumer loses, unless the consumers sued in bad faith or for purposes of harassment. Without this protection from fee shifting, people would be discouraged from suing debt collectors, say the Federal Trade Commission, the Consumer Financial Protection Board and a group of private consumer advocacy groups in legal briefs filed this month. There has been a surge in the number of cases filed against debt collectors under the Fair Debt Collection Practices Act, the 1977 federal law that regulates the activities of third-party debt collectors. The case that made it to the Supreme Court, though, could discourage such suits, the agencies say. The case, known as Marx v. General Revenue Corp., revolves around the experience of Olivea Marx, a Colorado woman who racked up student debt and failed to pay it, then was contacted by a debt collector. Marx, a single mother with two young children and a low-paying job, claimed that the collector's vigor went beyond the limits of the law. The collector called her several times a day, she said, and illegally threatened to garnish half her wages and sent a collection-related fax to her employer. She sued, but the lower court disagreed, finding that the debt collector's contact with the woman's employer did not violate the law because it did not specifically mention her debt. The court ordered her to pay $4,543 in costs -- nearly all of which compensated the debt collector for hiring a court reporter and bringing in witnesses. Read more.
TRANSUNION: U.S. AUTO LOAN DELINQUENCY RATE IN SECOND QUARTER AT LOWEST LEVEL
Credit-information company TransUnion Corp. said that the national delinquency rate of auto loans in the U.S. hit its lowest level for the second consecutive quarter since the firm began tracking the data in 1999, Dow Jones Newswires reported today. Auto loan delinquency rates in the second quarter dropped to 0.33 percent, down from 0.36 percent in the first quarter and 0.44 percent in the period a year ago. In addition to increased demand in new and used autos, bank auto debt per borrower rose to $13,427 in the second quarter from $12,689 in the previous year. TransUnion said that despite growing bank auto debt, the majority of states and cities are experiencing declines in their auto loan delinquency rates. Read more.
REGIONAL AIRLINES FACE CLOSINGS, BANKRUPTCY
Regional airlines operate half the nation's scheduled flights, but several of those carriers are being closed or are in bankruptcy court protection, USA Today reported today. They face significant challenges, as the big airlines they often fly for are phasing out smaller and costlier regional jets and cutting some low-traffic regional routes to focus on those that are more lucrative. Delta, the largest operator of 50-seat aircraft among U.S. airlines, will shutter regional carrier Comair after Sept. 29. Pinnacle Airlines, with subsidiaries such as Colgan that have flown for United, US Airways and Delta, filed for bankruptcy protection in April. AMR, the parent company of American Airlines and regional carrier American Eagle, filed for bankruptcy protection in November. "Airlines are finding these smaller jets just don't make them any money," says industry analyst Mike Boyd. "That's why they're shutting down Comair. That's why Pinnacle is in bankruptcy. It's a sector of (the) industry that provides a type of aircraft that's rapidly becoming obsolete." Read more.
ORCHESTRAS FIGHT HARD TIMES THROUGH BANKRUPTCY SEEKING NEW MODEL
Orchestras across the country continue to struggle financially, and some are following the lead of the Philadelphia Orchestra, Bloomberg News reported today. The Philadelphia Orchestra was the biggest among at least five U.S. symphonies to seek court protection in the wake of the 2008 economic collapse. Others include music organizations in Louisville, Ky., Syracuse, N.Y., Albuquerque, N.M., and Honolulu. Though subject to the same harsh realities of bankruptcy as corporations, the recent reorganization in Philadelphia -- and the decreased debt and expenses the group emerged with -- may serve as a model for other symphonies struggling with fewer donors and lower ticket sales. With its turnaround plan approved, the Philadelphia Orchestra Association exited court protection on July 30 after 15 months, having resolved $100 million in claims with a $5.5 million settlement, shrinking its payroll and winning a release from its pension obligations. Read more.
Click here to listen to an ABI podcast that focuses on orchestra bankruptcies.
DON'T MISS THE "WHEN IS AN INDIVIDUAL CHAPTER 11 THE BEST FIT?" WEBINAR ON SEPT. 27!
Chapter 11 can offer significant relief for certain individuals who need a restructuring of their finances. Learn when and how to use this tool in a 75-minute live webinar on Sept. 27 at noon ET. An expert panel will guide you through a successful individual chapter 11 and discuss key issues such as plan confirmation, modification and treatment of future income and secured debt.
Panelists on the webinar include:
• James F. Molleur of the Molleur Law Office (Biddeford, Maine)
• John P. Fitzgerald, III, of the Office of the U.S. Trustee (Boston)
• Raymond J. Obuchowski of Obuchowski & Emens-Butler, PC (Bethel, Vt.)
• Jennifer Rood of Bernstein Shur (Manchester, N.H.)
This panel was the highest rated at ABI's Northeast Bankruptcy Conference in July. The webinar is available to ABI members for $75. To register, please click here.
ABI MEMBERS WELCOME TO ATTEND ACB'S FREE HALF-DAY "BANKRUPTCY: BACK TO THE FUTURE" PROGRAM IN SEPTEMBER
The American College of Bankruptcy invites you to attend a free half-day program on Sept. 28 in Chicago for a discussion of many of the challenging topics facing current bankruptcy and reorganization professionals. Topics to be addressed include recent decisions of the U.S. Supreme Court and Court of Appeals, important work of the Advisory Committee on Bankruptcy Rules, and developments in the field of bankruptcy ethics. The nation’s leading judges, academics and bankruptcy professionals are among the speakers for the program. While there is no cost to attend, seating is limited, so early reservation is suggested. For more information and to register, please click here.
LATEST CASE SUMMARY ON VOLO: NUVEEN MUNICIPAL TRUST V. WITHUMSMITH BROWN, P.C. (3D CIR.)
Summarized by Matthew Heimann of Porzio, Bromberg & Newman, PC
Affirming the district court, the Third Circuit held that the district court did have "related to" jurisdiction under 28 U.S.C. § 1334(b) to adjudicate Appellant's action against the debtor’s accounting firm and counsel regarding an audit report and opinion letter that was prepared for the pre-petition transaction. The Third Circuit enunciated the principles of "related to" jurisdiction and its "conceivability" inquiry that applies to such analyses.
There are more than 600 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 THE FIFTH CIRCUIT’S RULING IN THE PILGRIM’S PRIDE CASE
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post examines the Fifth Circuit's ruling in the Pilgrim's Pride case. The court ruled in the case that a $1 million “enhancement fee" is OK after the company's reorganization plan paid a 100 percent dividend to unsecured creditors.
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 Twombly/Iqbal rule for pleading ‘plausible’ claims has been applied too stringently in dismissing avoidance actions for failure to state a claim.
Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
HAVE YOU TUNED IN TO BLOOMBERG LAW'S VIDEO PODCASTS?
Bloomberg Law's video podcasts feature top experts speaking about current bankruptcy topics. The podcasts are available via Bloomberg Law's YouTube channel so that you can access the programs from your computer or device of your choice! Click here to view the Bloomberg Law video podcasts.
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