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U.S. Trustee Program Reaches $50 Million Settlement with JPMorgan Chase to Protect Homeowners in Bankruptcy

 
 

March 3, 2015

 
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  NEWS AND ANALYSIS

U.S. TRUSTEE PROGRAM REACHES $50 MILLION SETTLEMENT WITH JPMORGAN CHASE TO PROTECT HOMEOWNERS IN BANKRUPTCY

The U.S. Trustee Program (USTP) has entered into a national settlement agreement with JPMorgan Chase Bank, N.A. (Chase) requiring Chase to pay more than $50 million including cash payments, mortgage loan credits and loan forgiveness to over 25,000 homeowners who are or were in bankruptcy, according to a USTP press release today. Chase will also change internal operations and submit to oversight by an independent compliance reviewer. The proposed settlement has been filed in the U.S. Bankruptcy Court for the Eastern District of Michigan, where it is subject to court approval. In the proposed settlement, Chase acknowledges that, in bankruptcy courts around the country, it filed more than 50,000 payment change notices that were improperly signed, under penalty of perjury, by persons who had not reviewed the accuracy of the notices. More than 25,000 notices were signed in the names of former employees or of employees who had nothing to do with reviewing the accuracy of the filings. The rest of the notices were signed by individuals employed by a third-party vendor on matters unrelated to checking the accuracy of the filings. Chase also acknowledges that it failed to file timely, accurate notices of mortgage payment changes and failed to provide timely, accurate escrow statements. Read more.

SENATE DEMOCRATS URGE RELIEF FOR STUDENT BORROWERS

A group of Senate Democrats, led by Elizabeth Warren of Massachusetts, last week urged the government to offer relief to distressed borrowers, even if that dampens the profit it makes from collecting on people with outstanding loans, Bloomberg News reported on Friday. In a letter to Education Secretary Arne Duncan last Wednesday, the six senators wrote, "It is not the job of the Department of Education to maximize profits for the government at the cost of squeezing students." The letter noted that a recent Congressional Budget Office estimate indicates that the federal government will bring in $110 billion from these loans in the next decade. The Department should make it easier for people to use the few tools available for demanding a refund on their student debt, the senators wrote. Borrowers who believe that their college committed fraud or lied to them -- about job prospects or graduation rates, for example -- can file what's known as a "defense to repayment" claim against the school, according to federal law. But Warren and other senators have railed against the Department for not making it clear enough to students how they could make such a claim. Some point out, however, that there are risks inherent in handing money to people who might just get a degree in "basket-weaving," without checking their credit score, and lenders typically expect to be compensated for such risks. Education expert Kevin Carey wrote in the New York Times this month that the federal aid program "lends money to students at below-market interest rates, regardless of credit history, with no money down, to purchase an asset that can't be repossessed in the event of default." Read more.

For more on student loans and bankruptcy, be sure to register for the next ABI Live Webinar on March 18 titled, "New Developments in Student Loans: Need to Know," or purchase ABI's Graduating with Debt: Student Loans under the Bankruptcy Code.

 

COMMENTARY: DEBT-SADDLED MUNICIPAL BUDGETS GET A LIFELINE

While underfunded public-employee pensions and health-insurance benefits for retired state and local workers are experiencing escalating fiscal problems, a recent ruling by the Supreme Court may help state and local governments scale back these benefits, according to a commentary in yesterday's Wall Street Journal. Several cities and states have tried to reduce the scope of retiree health care services, or to increase the portion of the premiums paid by retired workers going forward. Public unions have frequently sued, claiming that the benefits are vested for life -- roughly parallel to the legal arguments the unions have made against efforts to curb future pension costs. In late January, however, the Supreme Court issued a unanimous decision that will increase the chances of local governments winning such lawsuits. M&G Polymers v. Tackett involved a collective-bargaining agreement that provided certain retirees, along with their surviving spouses and dependents, with a full company contribution toward the cost of their health care benefits "for the duration of [the] Agreement." The contract was subject to renegotiation after three years, but the critical legal question was whether the retirement health care benefits continued even after the agreement expired -- in effect, whether the intent was to vest these benefits for life. The union argued that the contract did vest these benefits for life, and the Sixth Circuit Court of Appeals agreed. The Supreme Court reversed, noting that to prevail, the plaintiffs, in this case the union, had to supply concrete evidence that lifetime vesting of retiree health benefits was what both parties to the agreement intended. Read the full commentary.

AMERICAN REFINANCING BOOM SEEN FIZZLING, BONDS SHOW

A refinancing boom in U.S. mortgages this year is turning out to be greatly exaggerated, according to Bloomberg News. In January, concern mounted among U.S. mortgage-bond holders that homeowner refinancing was about to soar, decreasing the value of their securities. Last month, however, premiums fell on bonds backed by loans unlikely to refinance. The drop in interest rates that helped fuel a January surge in refinancing applications has reversed, with the cost of a 30-year mortgage rising 6 percent over the past three weeks from a 20-month low. That sparked higher demand in the $5.6 trillion market for government-backed mortgage bonds, although refinancing levels are expected to stay low for the foreseeable future. Read more.

COMMENTARY: A FINANCIAL SYSTEM STILL DANGEROUSLY VULNERABLE TO A PANIC

Dodd-Frank restrictions on the Federal Reserve's powers to act as lender-of-last-resort, coupled with restrictions on federal guarantees for bank deposits and money-market funds, pose a threat to U.S. and global financial stability, according to a Wall Street Journal commentary yesterday. The heart of the 2008 crisis was a panic following the bankruptcy of Lehman Brothers. Due to its losses from this bankruptcy, the Reserve Primary Fund "broke the buck," touching off a run on other money-market funds. Once the crisis abated, however, there was growing public concern about "moral hazard" -- that government backstops and guarantees incentivized risky behavior in financial markets. The Dodd-Frank Act (July 2010) pulled back the Fed's lender-of-last-resort powers for non-banks. They can now be exercised only with the approval of the Treasury secretary, and the Fed cannot lend to a single institution as it did with AIG. It must now only lend under a broad program, and must also meet heightened collateral requirements. The financial system is the plumbing without which an economy cannot function, and that system can be destroyed by the spreading contagion of a run. The weapons that regulators used to end the last crisis need to be restored and strengthened, according to the commentary. Concerns about moral hazard should not bar the Fed from being the lender of last resort to solvent institutions (as best it can determine) that are panic victims, not undue risk-takers. Read more. (Subscription required.)

LATEST ABI PODCAST EXAMINES "BANKRUPTCY SURVIVAL CALCULATOR"

ABI Resident Scholar Prof. Anne Lawton talks with Profs. Lynn LoPucki and Joseph Doherty of the UCLA School of Law about their forthcoming article in the UCLA Law Review titled, "Bankruptcy Survival." LoPucki and Doherty discuss their article and the model they have created for predicting a chapter 11 case's probability for a company to emerge as a stand-alone business after bankruptcy. The "Bankruptcy Survival Calculator" utilizes variables and data from the LoPucki Bankruptcy Research Database. Click here to listen to the podcast.

To try the "Bankruptcy Survival Calculator, please click here.

To view the LoPucki Bankruptcy Research Database, please click here.

DISCOUNTED SUBSCRIPTIONS TO AUDIO ABI JOURNAL AVAILABLE FROM MODIOLEGAL!

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PRE-ORDER NOW: ABI'S NEWEST PUBLICATION EXAMINES ISSUES SURROUNDING LITIGATION AND LIQUIDATION TRUSTS IN BANKRUPTCY

ABI's newest publication, A Practitioner's Guide to Liquidation and Litigation Trusts, tackles issues surrounding litigation and liquidation trusts established in an insolvent company's bankruptcy proceedings. Such cases as General Motors, ASARCO, Tronox, Enron and Bernard L. Madoff Investment Securities LLC have established these types of trusts as vehicles that can be separated from the insolvent company's business operations to administer assets that have uncertain recoveries or that may require significant time to handle (such as environmental claims). A Practitioner's Guide to Liquidation and Litigation Trusts is designed to give bankruptcy and other professionals an overview of how and when trusts can be used to handle significant large-scale litigation matters and the liquidation of other assets for the purpose of accumulating recoveries and distributing them across multiple claimants. The book offers guidance on the most common issues faced in establishing, managing, monitoring and ultimately concluding a liquidation trust or litigation trust. Convenient checklists, relevant case citations and references to bankruptcy-related issues, as well as recommended forms of trust agreements and suggested provisions for bankruptcy plans and disclosure statements, are also provided in this 300-page guide (which includes a separate thumbdrive containing more than 500 sample pages from liquidation and litigation cases).

A Practitioner's Guide to Liquidation and Litigation Trusts is currently available for pre-order (make sure to log in to receive the ABI member price of $85).

NEW CASE SUMMARY ON VOLO: IQBAL V. PATEL (7TH CIR.)

Summarized by William Wallo of Weld, Riley Prenn & Ricci SC

Finding that the Rooker-Feldman doctrine did not preclude pursuit of the plaintiff's claims, the Seventh Circuit Court of Appeals reversed the district court's dismissal of a civil racketeering complaint.

There are more than 1,500 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: SUPREME COURT HOLDS A CONSUMER'S RIGHT TO RESCIND A HOME LOAN UNDER TILA DOES NOT REQUIRE THE FILING OF A LAWSUIT

The Truth in Lending Act (TILA) provides, in the event the lender fails to make certain required disclosures, a right of the consumer borrower to rescind a home loan "by notifying the creditor . . . of his intention to do so" within three years of the date that the loan was consummated under 15 U.S.C.  Sect. 1635(a), according to a recent blog post. In its opinion in Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790 (2015), the U.S. Supreme Court held that a simple letter will suffice. In Jesinoski, the consumer borrowers sent a letter to Countrywide Home Loans rescinding their loan within three years following consummation of their loan.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

ORDER YOUR PRINTED COPY OF THE FINAL REPORT OF ABI'S COMMISSION TO STUDY THE REFORM OF CHAPTER 11!

Order your printed copy of the Final Report of ABI's Commission to Study the Reform of Chapter 11! The 402-page Final Report contains more than 200 discrete recommendations of chapter 11 policy reforms. ABI's Commission to Study the Reform of Chapter 11 was established in 2012 with a mission to study and propose reforms to Chapter 11 of the Bankruptcy Code and related statutory provisions. After months of deliberations, the Commission unanimously adopted this report to provide to Congress. For the special price of $40, you will have all the testimony, studies and figures that went into compiling the recommendations at your fingertips! Click here to order.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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THIS WEEK:

SP15
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UPCOMING EVENTS:

ABI Live Consumer Webinar: "Student Loan Update"
March 18, 2015

BBW15
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ASM15
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9th Annual Credit and Bankruptcy Symposium
May 7-8, 2015
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17th Annual New York City Bankruptcy Conference
May 14, 2015
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ABI/St. John's Forty-Hour Bankruptcy Mediation Training
May 17-21, 2015
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14th Annual Litigation Skills Symposium
May 19-22, 2015
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22nd Annual Central States Bankruptcy Workshop
June 11-14, 2015
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20th Annual Southeast Bankruptcy Workshop
July 23-26, 2015
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  CALENDAR OF EVENTS
 

2014

March
- Paskay Bankruptcy Seminar
March 5-7, 2015 | Tampa, Fla.
- ABI Live Consumer Webinar: "Student Loan Update"
March 18, 2015
- Bankruptcy Battleground West
March 24, 2015 | Los Angeles, Calif.

April
- Annual Spring Meeting
April 16-19, 2015 | Washington, D.C.

May
- Credit and Bankruptcy Symposium
May 7-8, 2015 | Uncasville, Conn.
- New York City Bankruptcy Conference
May 14, 2015 | New York, N.Y.
 

 

 


- Forty-Hour Bankruptcy Mediation Training
May 17-21, 2015 | New York, N.Y.
- Litigation Skills Symposium
May 19-22, 2015 | Chicago, Ill.

June
- Central States Bankruptcy Workshop
June 11-14, 2015 | Traverse City, Mich.

July
- Southeast Bankruptcy Workshop
July 23-26, 2015 | Amelia Island, Fla.

 

 
 
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