REPORT: HAMP INCREASED MORTGAGE RENEGOTIATIONS, BUT ONLY REACHED ONE-THIRD OF TARGETED HOUSEHOLDS
A recent report by academics and Federal Reserve researchers revealed that the 2009 Home Affordable Modification Program generated an increase in the intensity of renegotiations while adversely affecting the effectiveness of renegotiations performed outside the program. Renegotiations induced by the program resulted in a modest reduction in the rate of foreclosures, but did not alter the rate of house price decline, durable consumption or employment in regions with higher exposure to the program. The overall impact of HAMP, according to the report, will be substantially limited since the renegotiations it induces will reach just one-third of its targeted 3 to 4 million indebted households. To read the full report, please click here.
COMMENTARY: TOO MUCH PROTECTION FOR DERIVATIVES IN BANKRUPTCY
Current "safe harbors" in the Bankruptcy Code are too broad and amount to little more than a subsidy to the derivatives industry, according to a commentary by Prof. Stephen Lubben in the New York Times DealBook blog today. The safe-harbor provisions Prof. Lubben addresses are derivatives and repo contracts that are exempt from the automatic stay, the prohibition on termination of contracts with the debtor, the prohibition on constructively fraudulent transfers and the prohibition on obtaining preferential treatment on the eve of bankruptcy. Similar provisions protect "securities contracts," and open up the argument that any transaction that occurs in the general vicinity of a broker-dealer is immune from the normal rules of bankruptcy. Prof. Lubben's concern with the safe harbors is not so much the statutory provisions but the role that courts have come to play in expanding the provisions beyond their already-broad statutory language. Read more.
DEBT COLLECTORS CASHING IN ON STUDENT LOANS
As the number of people taking out government-backed student loans has exploded, so has the number who have fallen at least 12 months behind in making payments — about 5.9 million people nationwide, up about a third in the last five years, the New York Times reported on Sunday. Nearly one in every six borrowers with a loan balance is in default. The amount of defaulted loans — $76 billion — is greater than the yearly tuition bill for all students at public two- and four-year colleges and universities, according to a survey of state education officials. In an attempt to recover money on the defaulted loans, the Education Department paid more than $1.4 billion last fiscal year to collection agencies and other groups to hunt down defaulters. Unlike private lenders, the federal government has extraordinary tools for collection that it has extended to the collection firms. Overall, the government recoups about 80 cents for every dollar that goes into default — an astoundingly high rate, considering that most lenders are lucky to recover 20 cents on the dollar on defaulted credit cards. Read more.
TOUGHER DODD-FRANK FIDUCIARY STANDARD FOR BROKERS STALLED
Despite support from both Wall Street and consumer advocates, a U.S. Securities and Exchange Commission proposal to raise standards for brokers advising retail investors has run aground, Bloomberg News reported yesterday. The SEC, which has been drafting a rule for almost two years, has scheduled no action on the measure as 2012 wanes and a presidential election approaches. SEC Chairman Mary Schapiro, who pushed to include the measure in the Dodd-Frank Act to ensure that clients receive equal treatment from brokers and investment advisers, said that other rules will probably take precedence in coming months. Dodd-Frank instructed the SEC to consider mandating that brokers operate under a fiduciary standard as rigorous as that for investment advisers. Lawmakers sought the uniform standard to eliminate investor confusion over the roles of brokers and advisers, and to protect customers from being overcharged or sold inappropriate products. Schapiro declined to predict when the SEC will act on the rule, which is considered optional under Dodd-Frank. The agency is "steadily working through all the mandated rulemakings," she said. Read more.
SOME EXPERTS SEE AIG BAILOUT SUCCESS AS A DOUBLE-EDGED SWORD
The Treasury Department estimated yesterday that its pending sale of shares in global insurance giant American International Group would put taxpayers in the black, four years after the government rescued the company in one of the largest bailouts of the financial crisis, according to a Washington Post report today. Officials estimated that after the sale, the Treasury and the Federal Reserve will have netted $194.7 billion from its AIG investment, about $12 billion more than the government committed in aid. The stock sale would leave Treasury with approximately 317 million shares in AIG — a 21.5 percent stake in the company, down from a high of 92 percent — and leave open the possibility for future additional profit as the government exits the company. However, some experts insist that even a largely successful bailout comes with its own set of circumstances. "It creates perverse incentives,” said Prof. William Black of the University of Missouri-Kansas City Law School. "There's an enormous danger to providing bailouts to systemically dangerous institutions and, in particular, bailing out their creditors 100 cents on the dollar." Christy Romero, the special inspector general for the government’s bailout fund, the Troubled Assets Relief Program, shares concerns that the success of the AIG bailout could lead investors to expect the government to rescue other firms whose failure could threaten the economy and thereby does not adequately discourage excessively risky practices. Read more.
LATEST CASE SUMMARY ON VOLO: IN RE KNIGHT-CELOTEX LLC (7TH CIR.)
Summarized by Attorney Karl Johnson
Affirming the district court, the Seventh Circuit held that the bankruptcy court did not abuse its discretion by finding that a trustee was not judicially estopped from assigning claims against the principal of corporate debtors due to the trustee's failure to state an intent to pursue or abandon those claims in an application to employ counsel; instead, the omission was found to be a harmless violation of the disclosure requirements of Section 327(a) and Rule 2014(a) because the claims had been prominent in prior court records and because it "defie[d] belief to think that the trustee would abandon a possible multimillion dollar recovery on behalf of the companies’ creditors without a word."
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: SECOND CIRCUIT TO WEIGH IN ON TRADING OF BANKRUPTCY CLAIMS
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post examines how the Second Circuit Court of Appeals recently heard arguments in a case that could have substantial implications on the trading of bankruptcy claims. While the court could choose to resolve the case, Longacre Master Fund, Ltd. v. ATS Automation Tooling Systems Inc., based on a straightforward analysis of New York contract law, it may also take the opportunity to consider the controversial claims trading case of Enron v. Springfield Associates decided several years ago by the district 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.
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Bankruptcy courts should have unfettered discretion in adjusting fee applications, even when no party-in-interest has raised objections.
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