SAN BERNARDINO BANKRUPTCY COULD RAISE HURDLES FOR MORTGAGE SEIZURE PLAN
San Bernardino County, Calif., is forging ahead with deliberations on a proposal to seize delinquent mortgages, despite its largest city's decision on Tuesday to seek chapter 9 bankruptcy, American Banker reported today. The California city is not directly involved in the proposal, but industry members say that its bankruptcy could interrupt funding and create other hurdles for the county and its partners. San Bernardino County, which is considering a plan to use eminent domain to restructure underwater mortgages, is still planning to host its first meeting to discuss mortgage modification proposals tomorrow. The proposal has raised the ire of investors in private-label mortgage-backed securities, who could face significant losses if the loans are seized. The county recently joined forces with two of its cities, Fontana and Ontario, to form the Homeownership Protection Program Joint Powers Authority, which would be empowered to use eminent domain for the modifications if the county decides to go forward with the plan. Read more.
In related news, a Wall Street Journal editorial today said that expensive labor agreements are threatening municipalities across the U.S. The city council of San Bernardino, Calif., which filed for chapter 9 on Tuesday, is running a $45 million deficit on a $130 million budget and did not have enough cash to pay its vendors or workers. As in Stockton, Calif., tax revenues have plummeted in recent years due to high home foreclosure and unemployment rates while labor costs have exploded. Since its biggest creditors—workers and retirees—have been unwilling to renegotiate contracts and benefits, the city has had to cut its workforce by 20 percent in the last four years. Read more. (Subscription required.)
MORE HOMES FACED FORECLOSURE RISK IN JUNE
Banks are increasingly placing homes with unpaid mortgages on a countdown that could deliver a swell of new foreclosed properties to the housing market by early next year, potentially weighing further on home values, the Associated Press reported today. June provided the latest evidence of this trend, as the number of U.S. homes entering the foreclosure process for the first time increased on an annual basis for the second month in a row, according to a report yesterday from foreclosure listing firm RealtyTrac.
California in particular saw a big spike in foreclosure starts, or homes placed on the foreclosure path for the first time. They increased 18 percent versus June last year, the firm said. Read more.
TRANSCRIPT NOW AVAILABLE: U.S. TRUSTEE PROGRAM HEARING ON PROFESSIONAL FEES
Business bankruptcy attorneys looked to justify their professional fees at a public hearing June 4 to consider the U.S. Trustee Program’s (USTP) proposed guidelines for fee applications. At the meeting, seven commenters from private practice, academia, and professional associations made presentations and responded to questions from a panel of USTP officials. The public forum provided a productive exchange of views and perspectives that will assist the USTP in developing the final Guidelines to enhance attorney disclosures, compliance with statutory standards for the award of professional fees, and public confidence in the integrity of the bankruptcy process. The USTP expects to post a revised draft of the proposed Guidelines within 60 days for an additional brief comment period. Click here to read the June 4 hearing transcript.
BANK OF AMERICA'S MORTGAGE LOAN CUT HAS FEW TAKERS AMONG HOMEOWNERS
When Bank of America Corp. sent letters to 60,000 struggling homeowners offering to slice an average $150,000 off their loans, the lender got an unusual response from most of them: silence, Bloomberg News reported yesterday. Homeowners who fell behind on their payments began receiving the mailings in May as part of the bank’s effort to meet terms of the $25 billion industry settlement over foreclosure abuses. More than half have not responded due to "borrower fatigue," which causes them to tune out the offers, according to the Charlotte, N.C.-based bank. Bank of America, which pledged almost half of the fines and assistance in the February settlement with state and federal officials, is critical to determining how many U.S. homeowners are helped by the landmark deal. Housing advocates say that relying on the same companies that committed loan servicing abuses to avert foreclosures may result in yet another program that helps fewer people than intended. Read more.
CLOCK IS TICKING ON FINANCIAL CRISIS CHARGES
Time is running out for U.S. securities regulators to file civil charges for alleged wrongdoing during the financial crisis, the Wall Street Journal reported today. Federal laws under which the Securities and Exchange Commission usually goes after alleged fraud and other misdeeds have a five-year statute of limitations. The five-year limit is causing SEC officials to race to file lawsuits in some cases and ask lawyers representing the targets of certain investigations to give the agency more time. The SEC intends to file charges against the firms and people involved in the creation of a $1.6 billion mortgage-bond deal called Delphinus CDO 2007-1, which imploded within months of being created. Among those likely facing civil charges are Mizuho Financial Group Inc. and former employee Alexander Rekeda. The Japanese bank underwrote and sold the mortgage-bond deal, while Rekeda assembled it. Read more. (Subscription required.)
REGULATORS AIM TO GET IT RIGHT ON THE VOLCKER RULE
As the head of the Commodity Futures Trading Commission, Gary Gensler is among a team of regulators racing to meet a July 21 deadline for the most controversial provision of the 2010 Wall Street reform law: the Volcker rule, the Washington Post reported today. Defenders believe the rule could help ward off the next potential crisis by curbing risky trading. But the regulation has stirred tremendous backlash from the industry and even some former regulators. Gensler dutifully defends the new regulation, which is meant to prevent government-backed banks from gambling with their own money — the kinds of trades that nearly brought down Wall Street in 2008, according to its supporters. Gensler notes that industry lobbyists submitted more than 30,000 comment letters, demanding clarifications and exemptions, slowing the work. Analysts and officials doubt that regulators will make the July 21 deadline set by the Dodd-Frank Act.
ANALYSIS: REGULATORS' SHAKE-UP SEEN AS MISSED BID TO POLICE JPMORGAN
As part of the effort to overhaul supervision of the nation's largest banks after the financial crisis, the Federal Reserve Bank of New York in mid-2011 replaced virtually all of its roughly 40 examiners at JPMorgan Chase to bolster the team's expertise and prevent regulators from forming cozy ties with executives, the New York Times' DealBook blog reported yesterday. However, those changes left the New York Fed's front-line examiners without deep knowledge of JPMorgan's operations for a brief, yet critical, time period. Forced to play catch-up, the examiners struggled to understand the inner workings of a powerful investment unit. At first, the examiners sought basic information about the group, including the name of the unit's core trading portfolio. By the time they got up to speed, it was too late. In May, JPMorgan disclosed a multibillion-dollar trading loss in its investment unit. Read more.
“SUBJECTING BUSINESS PROJECTIONS TO SCRUTINY IN VALUATION DISPUTES” WEBINAR TO BE HELD ON JULY 30!
Reassembling the speakers from the highest-rated panel at the New York City Bankruptcy Conference this year, ABI will be holding a live webinar on July 30 at 11 a.m. ET titled, "Subjecting Business Projections to Scrutiny in Valuation Disputes." Panelists include:
Moderator David Pauker of Goldin Associates, LLC (New York)
Martin J. Bienenstock of Proskauer (New York)
David M. Hillman of Schulte Roth & Zabel LLP (New York)
Bankruptcy Judge Robert E. Gerber (S.D.N.Y.)
The panel will address:
How much deference should management projections be accorded?
How do you determine whether projections are unrealistically optimistic or pessimistic?
What is the relevance of "market consensus?"
How do management’s incentives impact projections?
The webinar is available to ABI members for $75 and is approved for 1.0 CLE hours in Calif., Ga., Hawaii, Ill., N.Y. (approved jurisdiction policy) S.C. and Texas. CLE approval is pending in Del., Fla., Pa. and Tenn. To register, please click here.
LATEST CASE SUMMARY ON VOLO: BEAL BANK USA V. WINDMILL DURANGO OFFICE LLC (IN RE WINDMILL DURANGO OFFICE LLC; 9TH CIR.)
Summarized by Daniel Glasser of Chipman Glasser, LLC
The Ninth Circuit BAP ruled that the bankruptcy court did not abuse its discretion by denying a secured creditor's Rule 3018(a) motion. That motion sought to amend a favorable plan-confirmation vote cast by the assignor of the claim before the assignor transferred the claim to the secured creditor. The Ninth Circuit BAP affirmed that withdrawing a previously cast vote for the purpose of blocking plan confirmation does not amount to "cause" under Rule 3018(a). The Ninth Circuit BAP also affirmed the bankruptcy court's findings with respect to plan feasibility and good faith. These rulings, however, were based on the evidentiary record and do not mark a change in the law.
More than 550 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: FURTHER EXAMINATION OF SAN BERNARDINO’S BANKRUPTCY
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent post takes a closer look at the chapter 9 filing of San Bernardino, Calif.
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 anti-modification rule for home mortgages in chapter 13 should be repealed, subjecting mortgage debts to bifurcation like any other secured claim.
Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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