New figures released today from the Federal Reserve Bank of New York showed that household debt -- including mortgages, credit cards, auto loans and student loans -- rose $129 billion between January and March to $11.65 trillion, the Wall Street Journal reported. That was the third straight quarterly increase, a sign that perhaps Americans are finally borrowing again after years of focusing on fixing their finances. Mortgage balances -- the lion's share of U.S. household debt -- increased $116 billion, thanks in part to fewer people going into foreclosure, which drags down mortgage debt. Auto-loan balances grew $12 billion, and student-loan balances increased $31 billion. The nation's student-loan tab is now $1.1 trillion, according to this measure. Household debt is correlated historically to bankruptcy filings. At the same time, the amount of credit card debt outstanding dropped to the lowest levels on record going back to 2003. Credit card balances fell $24 billion to $659 billion, just slightly below the level from a year earlier. Read more. (Subscription required.)
SIFMA: DETROIT'S LTGO TREATMENT WOULD "SHATTER" MUNI INDUSTRY
Detroit's bankruptcy exit plan would "send shock waves through the municipal bond market," and the federal judge overseeing the case should reject it, the Securities Industry and Financial Markets Association (SIFMA) argued yesterday in a brief filed with the bankruptcy court, Bond Buyer reported today. SIFMA said that it realizes the difficulty that Detroit has faced in crafting a plan of debt adjustment that allows it to deliver essential services and repay obligations. But its proposal to repay limited-tax general obligation (LTGO) bondholders only 10-13 percent would be illegal under Michigan law, unfairly discriminate against a class of creditors, and wreak "havoc" on a muni industry that treats GO bonds as a gold standard. There is no precedent in chapter 9 for impairing so badly a class of creditors like the LTGO bondholders, SIFMA argues. Detroit has reached a settlement with its unlimited-tax general obligation bondholders that calls for a 74 percent recovery. Read more.
FANNIE, FREDDIE REGULATOR SIGNALS BROAD SHIFT IN HOUSING POLICY
Fannie Mae and Freddie Mac should focus on making more credit available to potential homeowners, a shift in mission ordered by their regulator that could stabilize the uneven housing recovery and entrench the mortgage-finance titans as their fate is debated on Capitol Hill, the Wall Street Journal reported today. The move, outlined by the Federal Housing Finance Agency in a report released today, marked a clear shift in priorities at the agency under the new leadership of director Mel Watt, the former North Carolina congressman who took over in January. The FHFA controls Fannie and Freddie, which were rescued from collapse by the government in September 2008, while they operate under a legal process known as conservatorship. Some policymakers have faulted ambiguous provisions around when banks must repurchase defaulted mortgages for creating credit standards that are unnecessarily restrictive. Fannie and Freddie, at the FHFA's direction, yesterday unveiled steps to give lenders a greater shield against so-called "put-backs." Read more. (Subscription required.)
EDITORIAL: NEW LEGISLATION AIMS TO FIX THE MORTGAGE MARKET
In the credit bubble of the last decade, the housing market essentially became a tool of the financial system. To sate the banks' demand for mortgage-related securities, many loans were made not on the basis of sound lending standards but on the unsound premise that house prices would perpetually increase -- a practice that led to the bust and to the bailouts of Wall Street and of Fannie Mae and Freddie Mac, according to a New York Times editorial on Friday. A bipartisan bill that the Senate Banking Committee is expected to vote on soon seeks to rejuvenate the housing finance market while guarding against the excesses of the past. The Housing Finance Reform and Taxpayer Protection Act of 2014 aims to ensure broad and steady access to sustainable and affordable mortgages, in part by providing an explicit government guarantee to attract investment in 30-year fixed-rate mortgages and other loans. It also seeks to protect taxpayers from future bailouts partly by requiring those who package and sell mortgage loans to hold capital to absorb losses. Importantly, according to the editorial, it includes a new financing provision, essentially a fee on government-guaranteed securities, to generate money for affordable housing. However, it faces an uncertain future in the full Senate. Read the full commentary.
GEITHNER: THE PARADOX OF FINANCIAL CRISES
Financial crises are devastating, but unlike threats to national security, Americans don't give their presidents much in the way of emergency authority to fight them, according to a commentary by former Treasury Secretary Timothy Geithner in today's Wall Street Journal. That reluctance stems from the fear of "moral hazard": the valid concern that market actors who can expect a bailout in case things go wrong will be encouraged to take too many risks. That same fear typically makes governments, even when they do have the authority, too slow to act, according to Geithner. On "Lehman weekend" (Sept. 13-14, 2008), the government had no ability, in the absence of a willing buyer, to prevent the investment bank from collapse. And that's why Presidents Bush and Obama had to ask Congress for successive waves of emergency authority. Ultimately, Congress provided both presidents with the authority to prevent the collapse of the financial system and get the economy growing again. Yet the actions taken were highly controversial, deeply unpopular on the left and the right, and met by vocal skepticism from academics and the public. Read more. (Subscription required.)
NEW CASE SUMMARY ON VOLO: KNAUB V. ROLLISON (IN RE ROLLISON; 10TH CIR.)
Summarized by Lars Fuller of BakerHostetler
The Tenth Circuit ruled that it lacked jurisdiction to review appeal of the BAP's reversal and remand order. The Tenth Circuit also ruled that because the BAP remanded to the bankruptcy court to take evidence and rule on the unconsidered-damages issue, reversal and remand order was not final, and thus, not appealable. Under 28 U.S.C. §158(d)(1), the Tenth Circuit's jurisdiction was limited to "final" decisions or orders of the BAP. The BAP's remand to the bankruptcy court to take evidence and adjudicate the undecided issue constituted "significant further proceedings," and thus, the BAP's reversal and remand of bankruptcy court was neither final, nor reviewable by the Tenth Circuit.
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: WHY DESIGNATING MUTUAL FUNDS AS SIFIS COULD HURT RETIREES
A recent blog post said that mutual funds pose no threat to the stability of the financial system, but that regulators appear determined to designate them as systemically important financial institutions -- a move that could hurt millions of Americans who depend on the funds as retirement savings vehicles.
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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).
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