Real Estate

DETROIT BECOMES BIGGEST U.S. CITY TO FILE FOR BANKRUPTCY

Detroit today became the biggest U.S. city to file for bankruptcy as it officially sought bankruptcy court protection from its creditors while it tries to eliminate a budget deficit and cut its long-term debt, Bloomberg News reported today. The city listed assets and debt of more than $1 billion in a chapter 9 petition filed today in federal court in Detroit. Kevyn Orr, the state-appointed emergency fiscal manager, warned in May that the city might run out of cash. His proposal to restructure more than $17 billion in debt and long-term obligations includes cutting pension payments, ending cost-of-living increases, removing some workers from the system and making the rest pay more. "Without a significant restructuring of its debt, the city will be unable to break the cycle of damaging cutbacks in essential municipal services and investments," Orr said in a report. The case is City of Detroit, 13-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit). Read more.

For an analysis of the situation in Detroit, municipal distress and chapter 9 bankruptcy, be sure to pick up a copy of ABI's Municipalities in Peril: The ABI Guide to Chapter 9, Second Edition, from the ABI Bookstore.

LEGISLATION REINTRODUCED TO STOP EMINENT DOMAIN PROPOSALS AIMED AT UNDERWATER HOMEOWNERS

Rep. John Campbell (R-Calif.) reintroduced "The Defending American Taxpayers from Abusive Government Takings Act" today to stop city and county governments from enacting eminent domain policies aimed at underwater homeowners, according to a press release today from Campbell's office. Despite the failure of Mortgage Resolution Partners LLC (MRP) to receive approval for their eminent domain proposal by San Bernardino County, Calif., and Chicago last year, local governments and cities around the country are entertaining similar proposals. Cities in California and Nevada continue to consider MRP's proposal for local governments to seize mortgages from bond trusts to cut balances and help homeowners. MRP recently sent letters to securities trustees and loan servicers asking them to verify their roles in specific deals and provide information about individual mortgages that could be purchased. MRP must try to negotiate to buy the loans before municipalities can use powers known as eminent domain to force the sales, and then they would then lower the principal owed. The moves signal a renewed battle over the initiative, which has drawn opposition from bondholders such as Pacific Investment Management Co. and DoubleLine Capital LP and at least 18 trade groups representing the finance industry, homebuilders and real-estate firms. Rep. Campbell introduced the same measure last year in response to the MRP proposal. "Using eminent domain to seize mortgages is not only legally questionable," said Campbell, "it represents a complete abrogation of private property rights. The federal government and the American taxpayer would be forced to bear all the risk in the event of a failure." To read Rep. Campbell's press release on the legislation, please click here.

To read the Bloomberg News analysis, please click here.

SENATORS REACH DEAL ON STUDENT LOANS, PREPARE FOR VOTE

Under pressure from the White House, senators are quickly moving forward with a plan to change how the government sets federal student loan interest rates, tying them to market rates but imposing caps on how high those rates can go, the Associated Press reported today. Senate Majority Leader Harry Reid (D-Nev.) said today that a vote could come this week. The deal was brokered by a bipartisan group of senators who have been negotiating for weeks, with the help of Department of Education staffers who have been camped out in their offices. Under this new deal, finalized today, undergraduates would all pay the same interest rate, a change from recent years when some low- and middle-income students received a lower rate. Graduate students and parents of students would have their own rates, which would be higher than those for undergraduates and have higher caps. The plan is expected to save the government $715 million over a decade, according to aides. For the coming school year, undergraduates would see rates of 3.86 percent. That's lower than the current fixed rate of 6.8 percent, but the new rate could go as high as 8.25 percent in future years. Graduate students would pay about 5.41 percent for the coming year and up to 9.5 percent in the future. Loans taken out by parents for their dependent children would have an interest rate around of 6.41 percent that could go as high as 10.5 percent. Right now, graduate students have interest rates of 6.8 and 7.9 percent, while parents pay 7.9 percent. Read more.

ANALYSIS: REGULATORY RIFT DEVELOPS GLOBALLY OVER FINANCIAL SYSTEM

Global regulators are pursuing disparate approaches to protecting the financial system against future shocks, fracturing an agreement forged in the wake of the 2008 financial crisis to adopt a coordinated response, the Wall Street Journal reported today. Policymakers, at odds over how to reduce risk in the financial system, are disagreeing over what the proper capital levels should be for banks, derivatives regulation, criminal prosecutions of bankers and even the appropriate forum for brokering agreements on financial-services issues. Countries such as the U.S., U.K. and Switzerland are demanding that banks build thicker capital cushions to absorb losses and bigger liquidity buffers than most other European countries are embracing. European and U.K. officials have shown a greater willingness than their U.S. counterparts to rein in bankers' pay and target bad behavior with criminal prosecutions. The U.K.'s banking supervisors have also urged some European and U.S. banks to restructure their U.K. operations and have pressured foreign branches of banks from many countries -- from crisis-hit countries like Cyprus to Switzerland and the U.S. -- to stockpile additional funds in their British arms. The different approaches have led to cross-border sniping, with its European Union officials threatening retaliation if the U.S. imposes its rules abroad. Britain's push has led it afoul of European counterparts, who criticize the country's aggressive approach as a violation of the bloc's "single market" rules. U.S. Treasury Secretary Jacob Lew said yesterday that global coordination shouldn't come at the expense of tough rules. Some executives say privately that the discord gives them a chance to delay or water down rules by pitting regulators in different countries against one another. Read more. (Subscription required.)

DID YOU MISS MONDAY'S abiLIVE WEBINAR DISCUSSING § 1111(b) ELECTION, PLAN FEASIBILITY AND CRAMDOWN ISSUES? RECORDING IS NOW AVAILABLE!

If you were not able to join Monday's well-attended abiLIVE webinar examining § 1111(b), a recording of the program is now available for downloading! Utilizing a case study, ABI's panel of experts explored the issues surrounding a lender's decision on whether or not to make an election under § 1111(b), plan feasibility and voting. The abiLIVE panel also walked attendees through the necessary mathematical analyses used to examine these issues. The 90-minute recording is available for the special price of $75 and can be purchased here.

NEW abiLIVE WEBINAR ON AUGUST 20: HOW WILL THE NEW U.S. TRUSTEE FEE GUIDELINES IMPACT YOU?

The new U.S. Trustee Fee Guidelines will affect all attorneys and firms who work on larger chapter 11 cases filed on or after November 1st. ABI's Ethics & Professional Compensation Committee will present a panel of experts, including Cliff White, the director of the U.S. Trustee Program, to discuss some of the ways the new guidelines could change day-to-day operations in firms, issues relating to the new market rate benchmarks, and how these changes might alter insolvency practice. Register today to hear government, attorney and academic perspectives on this important and timely topic.

ABI GOLF TOUR UNDERWAY; NEXT STOP IS THE MID-ATLANTIC BANKRUPTCY WORKSHOP IN AUGUST

The next stop for the ABI Golf Tour is the Hershey Country Club, in conjunction with the Mid-Atlantic Bankruptcy Workshop. Final scoring to win the Great American Cup — sponsored by Great American Group — is based on your top three scores at seven scheduled ABI events, so play as many as you can before the tour wraps up at the Winter Leadership Conference in December. See the Tour page for details and course descriptions. The ABI Golf Tour combines networking with fun competition, as golfers "play their own ball." Including your handicap means everyone has an equal chance to compete for the glory of being crowned ABI's top golfer of 2013! There's no charge to register or participate in the Tour.

ABI IN-DEPTH

NORTON JUDICIAL EXCELLENCE AWARD NOMINATIONS OPEN

Nominations are now open for the 8th Annual Judge William L. Norton Judicial Excellence Award, to be presented during the ABI luncheon at the annual meeting of the National Conference of Bankruptcy Judges on Nov. 1, 2013. The award is presented by ABI and Thomson Reuters each year to the current or retired bankruptcy judge whose career embodies the same continued dedication and outstanding contributions to the insolvency community as the award’s namesake, Judge Norton. Nominations are considered by a committee made up of representatives from the Norton treatise and past ABI presidents. Nomination forms are available from Clay Mattson at Thomson Reuters ([email protected]) and should be submitted by July 29.

NEW ABI "BANKRUPTCY IN DEPTH" ON-DEMAND CLE PROGRAM LOOKS AT PRINCIPLES OF PROPERTY OF THE ESTATE: DEMYSTIFYING EQUITABLE INTERESTS

In this 90-minute seminar, Profs. Andrew Kull of Boston University School of Law and Scott Pryor of Regent University School of Law provide an in-depth analysis of a legal principle that has become, in their words, "a long-lost area of the law": § 541 of the Bankruptcy Code. Seeking to demystify what is meant by "property of the estate" and, in particular, the distinction between legal or equitable interests of the debtor in property, Kull and Pryor describe the legal entanglements that ensue when legal title belongs to one person but the equitable title belongs to someone else. The cost of the seminar, which includes written materials and qualifies for 1.5 hours of CLE, is $95. To order or to learn more, click here.

ASSOCIATES: ABI'S NUTS & BOLTS ONLINE PROGRAMS HELP YOU HONE YOUR SKILLS WHILE SAVING ON CLE!

Associates looking to sharpen their bankruptcy knowledge should take advantage of ABI's special offer of combining general, business or consumer Nuts & Bolts online programs. Each program features an outstanding faculty of judges and practitioners explaining the fundamentals of bankruptcy, offering procedures and strategies tailored for both consumer and business attorneys. Click here to get the CLE you need at a great low price!

NEW CASE SUMMARY ON VOLO: UNITED JOINT VENTURE LP V. NOBLE (IN RE JENNINGS; 11TH CIR.)

Summarized by Lyndel Anne Mason of Cavazos, Hendricks, Poirot & Smitham, PC

The Eleventh Circuit ruled that the chapter 7 trustee's decision to close the estate as a "no asset" estate and not sell or settle a state court's judgment in favor of the debtor was within his business judgment under § 544(a), and the district court deference to that decision was affirmed.

There are more than 900 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: BIG BANKS' WARNINGS ABOUT LEVERAGE RATIO FAIL THE SMELL TEST

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A new blog post finds that the new leverage ratio is a relatively modest proposal that can be easily addressed by affected banks without material capital raises or changes in distribution policy.

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

When will the dowward trend of consumer bankruptcy filings turn around?

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 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.

Have a Twitter, Facebook or LinkedIn Account?

Join our networks to expand yours.

2013

August
- Mid-Atlantic Bankruptcy Workshop
    August 8-10, 2013 | Hershey, Pa.
- abiLIVE Webinar: How Will the New U.S. Trustee Fee Guidelines Impact You?
     August 20, 2013
- Southwest Bankruptcy Conference
    August 22-24, 2013 | Incline Village, Nev.

September
- ABI Endowment Golf & Tennis Outing
    Sept. 10, 2013 | Maplewood, N.J.
- ABI Endowment Baseball Game
    Sept. 12, 2013 | Baltimore, Md.
- Lawrence P. King and Charles Seligson Workshop on Bankruptcy & Business Reorganization
    Sept. 18-19, 2013 | New York
- abiLIVE Webinar: Complex Requirements and Ethical Duties of Representing Consumer Debtors
     Sept. 24, 2013
- Bankruptcy 2013: Views from the Bench
    Sept. 27, 2013 | Washington, D.C.

October
- Midwestern Bankruptcy Institute Program and Midwestern Consumer Forum
    Oct. 4, 2013 | Kansas City, Mo.
- ABI Endowment Football Game
    Oct. 6, 2013 | Miami, Fla.
- Professional Development Program
    Oct. 11, 2013 | New York, N.Y.
- Chicago Consumer Bankruptcy Conference
    Oct. 14, 2013 | Chicago, Ill.
- International Insolvency Symposium
    Oct. 25, 2013 | Berlin, Germany

November
- Austin Advanced Consumer Bankruptcy Practice Institute
   Nov. 10-12, 2013 | Austin, Texas
- Detroit Consumer Bankruptcy Conference
   Nov. 11, 2013 | Detroit, Mich.

December
- ABI/St. John’s Bankruptcy Mediation Training
    Dec. 8-12, 2013 | New York

ANALYSIS: FORECLOSURE WAVE AVERTED AS DOOMSAYERS DEFIED

The U.S. has not seen the surge of delinquent homes predicted by market researchers, academics and Wall Street analysts following the settlement of the government's investigation into faulty mortgage practices, Bloomberg News reported today. The flood failed to materialize, even after the five biggest U.S. mortgage servicers reached a $25 billion settlement with federal and state regulators in February. Instead, the number of properties for sale shrank to the fewest in a decade, prices appreciated at the fastest pace since 2005, and the gradual healing of the housing market helped boost consumer confidence and the economy. Banks have stepped up foreclosure alternatives to avoid legal challenges. They are forgiving debt, modifying payment plans and approving short sales that allow homeowners to sell for less than they owe. Read more.

U.S. MORTGAGE-BACKER ROLE GROWS AS FISCAL TALKS DELAY FIX

The federal government's role as the backer of most U.S. home loans is becoming entrenched as fiscal issues divert Congress and the White House from a housing-finance overhaul that would shift more risk to private capital, Bloomberg News reported today. At the core of such an overhaul is the future of Washington, D.C.-based Fannie Mae and McLean, Va.-based Freddie Mac, the government-sponsored enterprises (GSEs) that provide market liquidity by buying home loans and bundling them into securities. As they neared collapse in 2008, the companies were placed into federal conservatorship. "It is vital to the long-term health of our country’s housing and financial markets that our elected leaders seek to bring the conservatorships to a conclusion, and to define the government's role and requirements for housing finance in the future," said Federal Housing Finance Agency acting director Edward J. DeMarco. Housing-finance reform is only “number two or three” on the agenda for Congress, Jim Millstein, the former U.S. Treasury Department chief restructuring officer who now runs advisory firm Millstein & Co., said. "The reality is that a now-four-year-long conservatorship is no longer even threatening to become a nationalization of the mortgage market," said Millstein. "It is becoming the nationalization of the mortgage market." Read more.

DODD-FRANK SWAP-CLEARING RULE GETS CFTC FINAL APPROVAL

Wall Street's largest swap dealers, including Goldman Sachs Group Inc. and JPMorgan Chase & Co., will be required to guarantee trades at clearinghouses starting in March under a rule made final by the top U.S. derivatives regulator, Bloomberg News reported today. The five-member Commodity Futures Trading Commission voted unanimously in a private process yesterday to complete the final determinations, the agency said. The rule, which had been scheduled for a public vote, determines which credit and interest-rate swaps must be guaranteed at clearinghouses owned by LCH.Clearnet Group Ltd., CME Group Inc. and Intercontinental Exchange Inc. "Central clearing lowers the risk of the highly interconnected financial system," CFTC Chairman Gary Gensler said. "It also democratizes the market by eliminating the need for market participants to individually determine counterparty credit risk, as now clearinghouses stand between buyers and sellers." Read more.

FINAL VOLCKER RULE TO BE DELAYED UNTIL 2013

Due to the complexity of the Volcker rule, the challenges of agency coordination and the volume of feedback regulators received, government officials are now pointing to the first quarter of 2013 as a more likely deadline over the year-end goal shared previously by participants like Martin Gruenberg, acting chairman of the Federal Deposit Insurance Corp., CNBC.com reported yesterday. "Our goal is to achieve a strong and consistent rule, although the process is not as easy or simple as any of us would like," said Treasury Undersecretary Mary Miller. Miller noted that regulators had received more than 18,000 comment letters on the proposed rule, but they were making "steady progress" toward its implementation. The rule, part of the Dodd-Frank Act, aims to restrict banks from making certain speculative investments for their own gain — also known as proprietary trading. Such practices came under harsh scrutiny during the financial crisis when banks made big bets based on the direction of the economy, while advising clients otherwise. Read more.

EXPERTS SAY BANKRUPTCY AN UNATTRACTIVE OPTION FOR DETROIT

While Detroit appears to be headed toward chapter 9 bankruptcy as political and legal battles continue to stall fiscal reforms required by the state for the release of millions in critical bond funding, financial and legal experts warn that the city should avoid bankruptcy, the Detroit News reported today. Experts say that Detroit, which would be the biggest city ever to file for bankruptcy protection in American history, should steel itself for a long, costly process involving a litany of unknowns if the state allows it to proceed with a chapter 9 filing. "The way the laws are now, it's a really messy option," said Kenneth Whipple, a retired businessman and member of the city's Financial Advisory Board created by Gov. Rick Snyder to help monitor Detroit's finances. "There aren't any cities as big as Detroit in as complicated a legal structure that have gone that way." The city and state have been at an impasse over the specific reforms Detroit must meet as part of a "milestone agreement" to claim $30 million in state bond funding that is currently being held in escrow. Detroit needs the funds to get through yet another short-term cash crunch, but the Snyder administration seems unwilling to budge. Read more.

LIVE WEBCASTS AVAILABLE TOMORROW FROM ABI'S WINTER LEADERSHIP CONFERENCE!

Not able to attend ABI’s Winter Leadership Conference starting today in Tucson, Ariz.? You will not want to miss two events tomorrow available via live webstream: ABI’s Chapter 11 Commission and a concert by ABI’s Indubitable Equivalents dedicated to Steven Golick.

• At 1:15 p.m. ET (11:15 a.m. MT), ABI's Commission to Study the Reform of Chapter 11 will hold its final public hearing of 2012. Members are encouraged to watch the hearing via a live webstream available at http://commission.abi.org. All materials are part of the Commission's record to be transmitted to Congress following the two-year investigation and report.

• At 11:30 p.m. ET (9:30 pm MT), ABI’s Indubitable Equivalents will perform a concert dedicated to ABI member, leader and band mate, Steven Golick, who has recently undergone successful surgery to remove a brain tumor. Steve will be watching from his home in Toronto. Watch the concert live at www.abiband.com.

RICHMOND BAR CALLING FOR NOMINATIONS TO FILL JUDICIAL VACANCY; SUBMISSIONS MUST BE RECEIVED BY DEC. 13

The Judiciary Committee of the Richmond (Va.) Bar Association invites ABI members to submit nominations to fill a judicial vacancy in the U.S. Bankruptcy Court for the Eastern District of Virginia in Richmond. The court is looking to fill the vacancy left by the retirement of Bankruptcy Judge Douglas O. Tice, Jr. Suggestions must be in writing and should be mailed to Virginia H. Grigg, Esq., c/o Richmond Bar Association, P.O. Box 1213, Richmond, Virginia 23218 or hand-delivered to her at the Bar office located at 707 E. Main Street, Suite 1620, Richmond, VA 23219. Nominations must be received by 4:00 p.m. ET on Thursday, December 13, 2012 in order to be considered.

ABI IN-DEPTH

LATEST CASE SUMMARY ON VOLO: KEYSER V. WASATCH TOWERS CONDOMINIUM OWNERS ASSOCIATION INC. (IN RE KEYSER; 10TH CIR.)

Summarized by Brendan Gage of St. John's University School of Law

Affirming the Bankruptcy Appellate Panel, the Tenth Circuit dismissed an appeal by debtor Steven Keyser for lack of jurisdiction because his notice of appeal was untimely under Fed. R. Bankr. P. 8002(a).

There are over 700 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: COURT DECISION SPELLS WIN FOR VITRO BONDHOLDERS

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post examines a U.S. appellate court decision yesterday that upheld a bankruptcy court decision to reject Mexican glassmaker's Vitro SAB’s controversial bankruptcy plan. The decision represented a win for bondholders that have been sparring with the company for years over its debt restructuring plan.

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.

LATEST BLOOMBERG LAW VIDEO: BILL ON BANKRUPTCY- PATRIOT COAL CASE KICKED FROM MANHATTAN TO ST. LOUIS

The decision sending the Patriot Coal Corp. reorganization to St. Louis will focus debate on the near impossibility of convincing a judge in New York or Delaware to send a bankruptcy somewhere else, as Bloomberg Law's Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle discuss on their new video. Click here to watch.

ABI Quick Poll

Despite the "free and clear" language of Sect. 363(f), purchasers of assets in 363 sales may still be liable for injuries to unidentifiable future claimants. (In re Grumman Olson Indus, S.D.N.Y.).

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 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.

Have a Twitter, Facebook or LinkedIn Account?

Join our networks to expand yours.

December
- Forty-Hour Bankruptcy Mediation Training
     December 4-8, 2012 | New York, N.Y.

2013

January
- Western Consumer Bankruptcy Conference
     January 21, 2013 | Las Vegas, Nev.
- Rocky Mountain Bankruptcy Conference
     January 24-25, 2013 | Denver, Colo.

February
- Caribbean Insolvency Symposium
     February 7-9, 2013 | Miami, Fla.

- Kansas City Advanced Consumer Bankruptcy Practice Institute
     February 17-19, 2013 | Kansas City, Mo.
- VALCON 2013
     February 20-22, 2013 | Las Vegas, Nev.

March
- Bankruptcy Battleground West
     March 22, 2012 | Los Angeles, Calif.

ANALYSIS: FINANCIAL REFORM BATTLE CONTINUES OVER DODD-FRANK LAW

The fate of financial reform may be decided in the coming year as congressional leaders on both sides of the aisle attempt to modify the Dodd-Frank Act, the Washington Post reported today. In the two years since Congress passed the far-reaching regulatory overhaul, lawmakers have railed against the law for either not going far enough to reform Wall Street or being too burdensome to the industry. Republicans have sought to dismantle Dodd-Frank through a series of failed bills, placing Democrats on the defensive despite their own misgivings about the law. GOP leaders tucked language into the failed “fiscal cliff” bill that would have cut automatic funding to the Consumer Financial Protection Bureau and stripped regulators of the power to unwind "too-big-to-fail" institutions. Meanwhile, the Senate unanimously passed a bill on Dec. 28 that would direct the Government Accountability Office to examine the economic benefits large banks receive for being "too big to fail." The bill, sponsored by Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.), asks the agency to study whether institutions with more than $500 billion in assets enjoy favorable pricing on their debt because of perceptions that the government will always step in to prevent their collapse. It is unclear whether the House will take up the bill in the next session, but advocates of reform are encouraged by the bipartisan support in the Senate. Read more.

MORTGAGE-FEE PLAN FACES PUSHBACK

The federal regulator of Fannie Mae and Freddie Mac is running into opposition from lawmakers, state attorneys general and consumer advocates over a proposal to raise fees on loans in five states where foreclosures take the longest, the Wall Street Journal reported today. Officials in the states—New York, New Jersey, Illinois, Connecticut and Florida—say that the proposal by the Federal Housing Finance Agency (FHFA) would unfairly punish them for taking steps to protect borrowers from wrongful foreclosures. The five states are "judicial" states where lenders must seek court approval before a foreclosure can be completed. This can make the foreclosure process take longer, and the FHFA says that the delays cause Fannie Mae and Freddie Mac to lose more money on foreclosures in those states. Read more. (Subscription required.)

ANALYSIS: RISK SEEN IN SOME MORTGAGE BONDS

After a surge in bonds backed by mortgages on commercial properties, some investors are finding cracks in the foundations, the Wall Street Journal reported today. Investors flocked to these bonds, which are made up of pools of loans linked to properties such as shopping malls and hotels, because of the relatively high yields they offered. But that demand has sent prices soaring, and yields tumbling to record lows. As well, some investors remain worried that defaults on these loans remain at historically high rates. In November, 9.71 percent of commercial-mortgage loans tied to these securities were at least 30 days delinquent, according to data provider Trepp. Delinquency rates were below 1 percent in October 2008. Nevertheless, investors are buying both older bonds, which were issued when underwriting standards were looser, as well as new ones. Sales of such bonds rose 46 percent to $44 billion in 2012, according to data provider Commercial Mortgage Alert. Richard Hill, a strategist at RBS Securities in Stamford, Conn., forecasts sales will rise to $65 billion in 2013, the highest since the record high of $228 billion in 2007. Read more. (Subscription required.)

ABA: CONSUMERS PAYING DOWN DEBT DESPITE OBSTACLES

The American Bankers Association said today that consumers continued to pay down debt in the third quarter of 2012, but slow job growth and the expiration of a tax cut could mean it will become more difficult to repay loans, Reuters reported. The composite ratio's delinquency rate fell to 2.16 percent of all accounts in the third quarter from 2.24 percent in the second quarter, the ABA said. Bank card delinquencies, which are not part of the composite, fell to 2.75 percent during the quarter, the lowest level since 1994, the group said. Read more.

COMMENTARY: WHAT IS INSIDE AMERICA'S BANKS?

Though the nation's political leaders and bankers have made efforts over the past four years to save the financial industry, clean up the banks, and reform regulation in order to restore trust and confidence in the American financial system, more work is still needed, according to a commentary in the latest edition of the Atlantic Monthly. Banks today are bigger and more opaque than ever, and they continue to behave in many of the same ways they did before the 2008 crash, according to the commentary. According to Gallup, back in the late 1970s, three out of five Americans said that they trusted big banks “a great deal” or “quite a lot.” Since the financial crisis of 2008, trust has evaporated as fewer than one in four respondents in June 2012 told Gallup that they had faith in big banks—a record low. A recent survey by Barclays Capital found that more than half of institutional investors did not trust how banks measure the riskiness of their assets. When hedge-fund managers were asked how trustworthy they find “risk weightings”—the numbers that banks use to calculate how much capital they should set aside as a safety cushion in case of a business downturn—about 60 percent of those managers answered 1 or 2 on a five-point scale, with 1 being “not trustworthy at all.” None of them gave banks a 5. At the heart of the problem is a worry about the accuracy of banks’ financial statements. Accounting rules have proliferated as banks, and the assets and liabilities they contain, have become more complex. Yet the rules have not kept pace with changes in the financial system, according to the commentary. Read the full commentary.

OUTLOOK FOR 2013 RESTRUCTURINGS, PROVIDED BY BLOOMBERG BRIEF

Read what leading restructuring professionals are saying about the coming activity predicted for the retail, real estate, financial services and energy industries this year. Also explore a comprehensive 2012 bankruptcy year-in-review with charts, tables and data. The report is provided as an exclusive to ABI members by our partners at Bloomberg Brief. To download your copy of the “Bloomberg Brief Bankruptcy & Restructuring 2012 Review & 2013 Outlook” report, please click here.

For more on the 2013 bankruptcy outlook, be sure to watch Bloomberg Law Bankruptcy Columnist Bill Rochelle’s latest video post.

ABI IN-DEPTH

LATEST CASE SUMMARY ON VOLO: VIEIRA V. ANDERSON (IN RE BEACH FIRST NATIONAL BANCSHARES INC.; 4TH CIR.)

Summarized by Jennifer Lyday of Womble Carlyle Sandridge & Rice, LLP

The Court of Appeals for the Fourth Circuit affirmed the district court's judgment, which dismissed the trustee's complaint for negligence and breach of fiduciary duty against the former officers and directors of a now bankrupt bank because the trustee did not have standing to bring the derivative claims under FIRREA as the right to pursue such claims belongs to the FDIC, regardless of whether the FDIC wishes to pursue the claims.

There are more than 700 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: COULD 2013 SEE LEHMAN BEING PUT BACK TOGETHER AGAIN?

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog features experts offering their predictions for 2013, including the possible reconstitution of Lehman Brothers.

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

A licensee of a trademark has the right to retain the license even when a debtor rejects the underlying contract creating the license. (Sunbeam Products, 7th Cir.)

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 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.

Have a Twitter, Facebook or LinkedIn Account?

Join our networks to expand yours.

2013

January
- Western Consumer Bankruptcy Conference
     January 21, 2013 | Las Vegas, Nev.
- Rocky Mountain Bankruptcy Conference
     January 24-25, 2013 | Denver, Colo.

February
- Caribbean Insolvency Symposium
     February 7-9, 2013 | Miami, Fla.
- Kansas City Advanced Consumer Bankruptcy Practice Institute
     February 17-19, 2013 | Kansas City, Mo.

- VALCON 2013
     February 20-22, 2013 | Las Vegas, Nev.

March
- 37th Annual Alexander L. Paskay Seminar on Bankruptcy Law and Practice
     March 7-9, 2013 | St. Petersburg, Fla.
- Bankruptcy Battleground West
     March 22, 2013 | Los Angeles, Calif.

April
- Annual Spring Meeting
     April 18-21, 2013 | National Harbor, Md.

BIG U.S. BANKS FACE TOUGHER STANDARDS

The Federal Reserve today outlined a multi-pronged plan to place the nation's largest banks under increasingly stringent capital requirements to guard the financial system from risks posed by "too big to fail" companies, the Wall Street Journal reported today. Fed officials said that they hope to act in the coming months on four separate proposals aimed at the eight largest U.S. firms considered "systemically important" to the global economy, including Goldman Sachs Group Inc., Bank of America Corp. and JPMorgan Chase & Co. Fed Gov. Daniel Tarullo, the agency's point man on regulation, said that regulators could soon propose a higher leverage ratio, which is expected to fall between 5 and 6 percent, for the largest banks. This capital measure gauges equity against total assets and is favored by some regulators as a better measure of a bank's ability to withstand stress. Regulators are also working on a requirement that these banks hold a minimum amount of long-term debt, a separate charge based on a firm's reliance on volatile forms of short-term funding, and a special surcharge agreed upon by international regulators. Read more. (Subscription required.)

COMMENTARY: THE CORKER-WARNER HOUSING REFORM WON'T WORK

The Corker-Warner bill, introduced last week by Sens. Bob Corker (R-Tenn.) and Mark Warner (D-Va.), proposed a new government agency to insure mortgages, but it will only ensure the same loose lending that caused the last financial crisis, according to a commentary in today's Wall Street Journal. The bipartisan bill's intent is to eliminate Fannie Mae and Freddie Mac, the two government-sponsored mortgage giants that cratered in 2008 and were bailed out by taxpayers to the tune of $180 billion. The recent financial crisis was the result of government housing policies. Beginning in 1992, these policies required Fannie and Freddie to lower their underwriting standards so people who otherwise lacked the credit standing or financial resources could purchase homes. Fannie and Freddie could take on the risks of these loans only because of the implicit backing of the federal government. The agency proposed in the Corker-Warner bill will establish a new government agency, the Federal Mortgage Insurance Corp. (FMIC), to insure mortgage-backed securities and wind down Fannie and Freddie. As with Fannie and Freddie, investors in mortgage-backed securities will not have to worry about the quality of the underlying mortgages. A major feature of Corker-Warner is the requirement that the private sector share the insurance risk with the new FMIC. The bill specifies that a private risk-sharer like a bond insurer must take the first losses, no less than 10 percent on any securitized pool of mortgages. This is intended to protect the FMIC against losses, though it works only if the quality of the mortgages remains high. Read the full commentary. (Subscription required.)

NORTH LAS VEGAS EMINENT DOMAIN PROPOSAL FACES PUSHBACK FROM HOMEOWNER

A controversial eminent domain proposal rolled out in North Las Vegas, Nev., to help underwater homeowners with their mortgages is facing pushback from an unlikely party—a homeowner living in the city, Housingwire.com reported yesterday. Gregory Smith sued North Las Vegas, claiming that an eminent domain strategy, proposed locally with the help of consultancy firm Mortgage Resolution Partners (MRP), violates several portions of the U.S. and Nevada State Constitutions. The plan follows a similar pattern that MRP has proposed in other jurisdictions — namely that homeowners who are underwater in the city can be helped by giving local governments the power of eminent domain to seize property rights, thereby allowing officials to grant upside-down borrowers a principal reduction after taking over their loans. In his lawsuit, Smith suggests that this type of intervention into investor property rights violates the Fifth and Fourteenth Amendments of the Constitution, along with various sections of the Nevada Constitution. Furthermore, Smith claims that the proposal disrupts contractual rights granted to all U.S. citizens through the Constitution, as well as the Commerce Clause, which governs interstate commerce. If such a plan were to stick and make it into law, Smith says roughly 5,000 local mortgages would qualify, with MRP targeting loans that are current, underwater and owned by private securitization trusts. This is not the first time MRP has managed to stir up debate in local municipalities: San Bernardino County, Calif., previously debated the strategy before killing off the idea. Read more.

COMMENTARY: WIELDING DERIVATIVES AS A TOOL FOR DECEIT

Derivatives are not always “financial weapons of mass destruction,” as Warren Buffett famously called them, but they are often weapons of mass deception, according to an editorial in Friday's New York Times. Sometimes, banks use derivatives they create to help their clients deceive the public, according to the editorial, and at other times they enable the banks to deceive those clients. The latest revelation of deception by derivatives came in Italian government documents leaked this week to two European newspapers, La Repubblica and The Financial Times. The Financial Times reprted that it appeared as though Italy had used derivatives in the 1990s to allow it to make its budget deficit seem smaller, thus enabling it to qualify for admission to the euro zone. The report added that it appeared that those derivatives, now restructured, might be exposing Italy to a loss of 8 billion euros ($10.4 billion). Such deception by derivatives is hardly new, according to the editorial. Enron used derivatives called “prepaid forward” contracts to hide debt in a way that made corporate cash flow appear better, something the company thought was necessary to impress the bond rating agencies. The banks have done an excellent job, according to the editorial, of persuading the Financial Accounting Standards Board, which sets the rules, not to mess with them. Rather than force the banks to put the assets and liabilities on their balance sheets, as is required in most other countries, the board has proposed additional disclosures that might make it easier to discern the reality. Read the full editorial.

NEW ABI LIVE WEBINAR ON JULY 15 TO FOCUS ON THE § 1111(b) ELECTION, PLAN FEASIBILITY AND CRAMDOWN ISSUES

Utilizing a case study, ABI's panel of experts will explore issues surrounding a lender’s decision on whether or not to make an election under § 1111(b), plan feasibility and voting. The abiLIVE panel will also walk attendees through the necessary mathematical analyses used to analyze these issues. The webinar will take place on July 15 from 1-2:15 p.m. ET. Special ABI member rate available! Click here to register.

ABI GOLF TOUR UNDERWAY; NEXT STOP IS THE NORTHEAST BANKRUPTCY CONFERENCE ON JULY 12

The next stop for the ABI Golf Tour is the famed Newport National course in Newport, R.I., in conjunction with the Northeast Bankruptcy Conference on July 12. Final scoring to win the Great American Cup—sponsored by Great American Group—is based on your top three scores at seven scheduled ABI events, so play as many as you can before the tour wraps up at the Winter Leadership Conference in December. See the Tour page for details and course descriptions. The ABI Golf Tour combines networking with fun competition, as golfers "play their own ball." Including your handicap means everyone has an equal chance to compete for the glory of being crowned ABI's top golfer of 2013! There's no charge to register or participate in the Tour.

ABI IN-DEPTH

NEW ABI "BANKRUPTCY IN DEPTH" ON-DEMAND CLE PROGRAM LOOKS AT PRINCIPLES OF PROPERTY OF THE ESTATE: DEMYSTIFYING EQUITABLE INTERESTS

In this 90-minute seminar, Profs. Andrew Kull of Boston University School of Law and Scott Pryor of Regent University School of Law provide an in-depth analysis of a legal principle that has become, in their words, "a long-lost area of the law": § 541 of the Bankruptcy Code. Seeking to demystify what is meant by "property of the estate" and, in particular, the distinction between legal or equitable interests of the debtor in property, Kull and Pryor describe the legal entanglements that ensue when legal title belongs to one person but the equitable title belongs to someone else. The cost of the seminar, which includes written materials and qualifies for 1.5 hours of CLE, is $95. To order or to learn more, click here.

ASSOCIATES: ABI'S NUTS & BOLTS ONLINE PROGRAMS HELP YOU HONE YOUR SKILLS WHILE SAVING ON CLE!

Associates looking to sharpen their bankruptcy knowledge should take advantage of ABI's special offer of combining general, business or consumer Nuts & Bolts online programs. Each program features an outstanding faculty of judges and practitioners explaining the fundamentals of bankruptcy, offering procedures and strategies tailored for both consumer and business attorneys. Click here to get the CLE you need at a great low price!

NEW CASE SUMMARY ON VOLO: MARSHALL V. MARSHALL (IN RE MARSHALL; 9TH CIR.)

Summarized by Lovee Sarenas of the U.S. Bankruptcy Court for the Central District of California

The Ninth Circuit upheld the decision of the district court to affirm three decisions of the bankruptcy court involving the chapter 11 bankruptcy estate of Howard Marshall III and his wife, Ilane, that was appealed by Pierce Marshall. First, the Ninth Circuit held that a party has no due process right to a random assignment of a bankruptcy case absent a showing of bias or partiality by the presiding judge. Thus, assigning the debtor's chapter 11 case to Judge Bufford, who was the presiding judge in the related chapter 11 case of Vickie Marshall, was not an error. The appellate court rendered a broad view of "related cases" as defined under the bankruptcy court's local rule 1015-2(a). The circuit court rejected evidence of bias solely from the bankruptcy judge's adverse decisions in the Vickie Marshall bankruptcy case against Pierce for purposes of 28 USC sec. 455. Without more, the Ninth Circuit opined that decisions based on facts shown or events that took place during the court's decision do not demonstrate bias.

There are more than 900 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: FURTHER EXAMINATION OF THE CORKER-WARNER BILL

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post takes a closer look at the bill introduced last week by Sens. Bob Corker (R-Tenn.) and Mark Warner (D-Va.). The post finds that the bill's explicit guarantee of backing of risky mortgages is better than the implicit one Fannie and Freddie had, but a more fundamental approach would be to demand that financial actors internalize and capitalize the risks themselves.

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

Law firms should provide support for law student-staffed bankruptcy clinics for consumer debtors.

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 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.

Have a Twitter, Facebook or LinkedIn Account?

Join our networks to expand yours.

2013

July
- Northeast Bankruptcy Conference and Northeast Consumer Forum
     July 11-14, 2013 | Newport, R.I.
- abiLIVE Webinar
     July 11-14, 2013 | Newport, R.I.
- Southeast Bankruptcy Workshop
     July 18-21, 2013 | Amelia Island, Fla.

August
- Mid-Atlantic Bankruptcy Workshop
    August 8-10, 2013 | Hershey, Pa.
- Southwest Bankruptcy Conference
    August 22-24, 2013 | Incline Village, Nev.

September
- ABI Endowment Golf & Tennis Outing
    Sept. 10, 2013 | Maplewood, N.J.
- ABI Endowment Baseball Game
    Sept. 12, 2013 | Baltimore, Md.
- Lawrence P. King and Charles Seligson Workshop on Bankruptcy & Business Reorganization
    Sept. 18-19, 2013 | New York
- Bankruptcy 2013: Views from the Bench
    Sept. 27, 2013 | Washington, D.C.

October
- Midwestern Bankruptcy Institute Program and Midwestern Consumer Forum
    Oct. 4, 2013 | Kansas City, Mo.
- ABI Endowment Football Game
    Oct. 6, 2013 | Miami, Fla.
- Chicago Consumer Bankruptcy Conference
    Oct. 14, 2013 | Chicago, Ill.

November
- Austin Advanced Consumer Bankruptcy Practice Institute
   Nov. 10-12, 2013 | Austin, Texas
- Detroit Consumer Bankruptcy Conference
   Nov. 11, 2013 | Detroit, Mich.

December
- ABI/St. John’s Bankruptcy Mediation Training
    Dec. 8-12, 2013 | New York