U.S. Trustee Officials Highlight Areas of New Mortgage Servicing Settlement Important to Debtors and Bankruptcy Professionals on Latest ABI Podcast

ABI Bankruptcy Brief | March 6, 2012

March 6, 2012

this issue sponsored by

NEWS AND ANALYSIS

U.S. TRUSTEE OFFICIALS HIGHLIGHT AREAS OF NEW MORTGAGE SERVICING SETTLEMENT IMPORTANT TO DEBTORS AND BANKRUPTCY PROFESSIONALS ON LATEST ABI PODCAST

The latest ABI podcast features ABI Resident Scholar David Epstein talking with Clifford J. White, director of the U.S. Trustee Program, and Ramona D. Elliott, deputy director and general counsel of the U.S. Trustee program, about the $25 billion mortgage servicing settlement announced on Feb. 9. The settlement was reached between 49 states and the five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses. White and Elliott review key portions of the settlement and highlight a few of important areas for debtors and bankruptcy professionals. Listen to the podcast.

For more on the mortgage servicing settlement, be sure to read White and Elliott’s article in the March edition of the ABI Journal.

FLORIDA LAWMAKERS CONSIDER ACCELERATING FORECLOSURES

Lawmakers in Florida are considering measures this week to accelerate foreclosures in the state, one of the hardest hit by the mortgage crisis, underscoring the tug of war over how to spur a housing recovery while protecting the rights of struggling homeowners, the Washington Post reported today. It takes roughly two years to push a foreclosure through Florida's clogged court system, which has a backlog of 368,000 cases and a quarter of the country's foreclosures. Proponents of measures such as those included in the Florida bill, known as HB 213, argue that prolonging foreclosures means delaying economic recovery, and that the faster ailing markets hit bottom, the faster the healing process can begin. Last week, the bill overwhelmingly passed in the House. Among other elements, the bill empowers any lien holder — including condominium associations and homeowners associations as well as banks — to seek expedited foreclosures, including on properties that are deemed abandoned. It would require banks to provide accurate and complete information to courts at the beginning of the foreclosure process, rather than the piecemeal filings that often occur throughout the course of a case. In addition, the legislation would shorten the time — from five years to one — in which banks could sue delinquent borrowers for the difference between how much they owed on a property and what it sold for at a foreclosure sale. Similar legislation awaits a vote in the Senate during the jampacked final week of the legislative session, which ends Friday. Read more.

FHA TO LOWER INSURANCE PREMIUMS FOR MORTGAGE REFIS

The Federal Housing Administration (FHA) will lower mortgage insurance premiums for borrowers who refinance their loans as part of President Barack Obama's plan to improve the housing market, Bloomberg News reported today. The FHA will cut up-front premiums to 0.01 percent from 1 percent under the plan. Annual fees will be reduced to 0.55 percent from 1.15 percent for borrowers with FHA loans made before June 1, 2009, according to a fact sheet distributed by the Obama administration. The changes will increase the reach of FHA’s streamlined refinance program and save a typical borrower about $1,000 a year, according to the fact sheet. As many as 3 million borrowers may benefit from the changes, the FHA said. Read more.

COMMENTARY: FINANCIAL CRISIS AMNESIA

As the financial industry looks to chip away at the financial regulations enacted in response to the financial crisis of 2008, we cannot afford to forget the lessons of the crisis and the damage it caused to millions of Americans, according to an op-ed by Treasury Secretary Timothy Geithner in Friday's Wall Street Journal. A large shadow banking system had developed by 2008 without meaningful regulation, according to Geithner, using trillions of dollars in short-term debt to fund inherently risky financial activity. The derivatives markets grew to more than $600 trillion, with little transparency or oversight. Household debt rose to an alarming 130 percent of income, with a huge portion of those loans originated with little to no supervision and poor consumer protections. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 put in place safer and more modern rules of the road for the financial industry. Yet only four years after the financial crisis began to unfold, Geithner points out that hundreds of millions of dollars are now being spent on lobbyists trying to weaken or repeal financial reform. While opponents of the new regulations are saying that the costs of reform are too high, Geithner points out that credit is relatively inexpensive and growing across most of the U.S. financial system, although it is still tight for some borrowers. He also notes that most of the complexity in the new financial rules is the result of the care required to target safeguards where they are needed, not where they would have a damaging effect. Read the full op-ed. (Subscription required.)

FED STUDY OF STUDENT DEBT OUTLINES A GROWING BURDEN

A report released yesterday by the Federal Reserve Bank of New York suggests that as many as 27 percent of the 37 million student borrowers have past-due balances of 30 days or more, the New York Times reported today. "In sum, student loan debt is not just a concern for the young," the report said. "Parents and the federal government shoulder a substantial part of the post-secondary education bill." The report, which was created by an analysis of Equifax credit reports, said that the total balance of student loans was $870 billion. Of the 241 million with Equifax credit reports (there are 311 million people in the United States), 15 percent had student debt. Forty percent of the people under 30 had outstanding student loans, and the average outstanding debt is $23,300. About 10 percent of borrowers owe more than $54,000 and 3 percent owe more than $100,000. Read more.

Click here to read the Federal Reserve report.

COMPANIES URGE CONGRESS FOR PENSION RELIEF

Business groups are urging Congress to let employers put less money into their pension funds, saying that exceptionally low interest rates are forcing them to set aside too much cash, the Wall Street Journal reported today. A provision attached to the Senate highway bill would change the formula many large companies, including General Electric Co., Boeing Co. and Lockheed Martin Corp., must use to calculate how much to add to their pension funds, potentially shrinking their combined contributions by billions of dollars a year. Though its prospects for passage are not clear, the measure holds appeal in Congress because it would increase the government's near-term revenues, offsetting some of the costs of the highway bill. Setting aside less for pensions would leave companies with smaller tax deductions, requiring them to pay about $7.1 billion more in taxes over 10 years than under current law, according to Congress's Joint Committee on Taxation. Read more. (Subscription required.)

ABI IN-DEPTH

LATEST CASE SUMMARY ON VOLO: STELMOKAS V. KODZIUS (7TH CIR.)

Summarized by George Spathis of Horwood Marcus & Berk Chartered

The Seventh Circuit held that debts are not exempt from discharge by 11 U.S.C. §523(a)(2)(A) unless the alleged fraud relates to something other that a false statement regarding the debtor's overall financial health. The Seventh Circuit seemingly endorsed the narrow view espoused by a number of other circuits, as well as a majority of the bankruptcy courts within the Seventh Circuit. The Seventh Circuit also held that even if the action challenging the discharge under § 523 was not "substantially justified," fees cannot be awarded to the debtor under §523(d), which only applies to "consumer debts." Finally, the Seventh Circuit held that the plaintiff had not waived his right to challenge the improper fee award by not raising it in his response in opposition to the debtor's motion for fees. In the absence of an order requiring a formal response, an argument raised during oral argument was not waived. Similarly, although the argument in the appellate brief to the district court was was short and straightforward, it was enough to preserve the argument.

More than 400 appellate opinions are summarized on Volo. Click here regularly to view the latest case summaries on ABI’s Volo website.

NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: NON-COLLUSIVE MORTGAGE FORECLOSURE HELD PREFERENTIAL BY BANKRUPTCY COURT

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A new post on the ABI-St. John's University School of Law Bankruptcy Case Blog examined the U.S. Bankruptcy Court for the Northern District of Texas’ ruling in In re Whittle Development, Inc. The court found that a pre-petition foreclosure action against real property may be avoidable as a preferential transfer where the foreclosing creditor receives more than it would have in a liquidation under chapter 7, even though the action was non-collusive and complied with state law.

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 requirement that all individual debtors receive credit counseling as a prerequisite for discharge should be repealed. Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

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