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Mar
06

No Surprise: Bankruptcy Filings Jump in February

By | Securitization-MBS

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Monthly Filing Trends 2008 to 2011

Bankruptcy filings rose in February, but the spike in filings keeps with historical trends. According to data from Epiq Systems, there were over 104,000 bankruptcies in February 2012. Spread over the 20 business days during the month, the daily February filing rate was 5,221 as compared to only 4,399 in January. This is a rise of 18.7% in one month, a matter of concern perhaps at first glance but no surprise on further analysis.

It seemed time to update a chart I have used in the past. The graph to the right shows month-to-month changes in the daily U.S. bankruptcy filing rate from 2008 through 2011. Late winter and early spring always see a spike in bankruptcy filing rates -- the cylicality persists even in previous years.

The graphs also show an amazingly consistent trend where the daily bankruptcy filing rate slowly erodes throughout the year. A simple regression on each year implies that the daily filing rate erodes an average of around 1.3% each month from its high in the early part of the year. This downward trend over the course of the year is true even in years like 2009 and 2010 when the total annual bankruptcy rate increased as compared to the previous year. Thus, when bankruptcy filings go up on an annual basis, the bulk of the increase comes in the early part of the year.

Looking at where we have started, it looks more like 2012 will see another decline in bankruptcy filings. Instead of an increase, bankruptcy filings continue to go down. On a year-over-year basis, the February 2012 daily filing rate is a decline of 9.5%.

Although it is still early to put too much stock in such an analysis, extrapolating the filing rate for the first part of 2012 suggests that there will be just under 1.3 million total bankruptcy filings for the year. For comparison, in 2010, just two years ago, annual bankruptcy filings were 1.56 million.

The reason for the decline is two-fold. First, there was less consumer borrowing happening in 2008 and 2009, leaving less of an "inventory" of debt for bankruptcy discharge today. Second, consumers who are living close to the financial edge and who might be candidates for bankruptcy are finding it a little easy to come by more credit today than was true a year ago. This marginal extra bit of liquidity can be enough to stave off a bankruptcy filing. Looking at the long term -- two or three years out -- I would expect to see bankruptcy filing rates begin to move back up as consumers' balance sheets begin to fill back up with debt. Any contractions of the availability of consumer credit also are likely to lead to increases in the bankruptcy filing rate.

Feb
18

Pushback on the San Francisco City Assessor-Recorder Foreclosure Audit

By | Securitization-MBS

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Not surprisingly, there's been some attempts to downplay the significance of the SF City Assessor-Recorder foreclosure audit. The attacks have come in three flavors:  questions about the auditors' own background; questions about the accuracy of the report; and the "who cares, as these are just lousy deadbeats" argument. Even if we acknowledge that there is something to each of these attacks, they don't take away from the core finding of the report, which is that things are FUBAR in mortgage documentation, and that is going to inevitably result in some honest, but unfortunate homeowners being harmed.

The first attack is on the credentials and former activities of the auditors. Given the deeply compromised background of the OCC foreclosure review auditors, this is a chutzpadik attack. The sad truth is that there isn't a huge pool of people who can do this sort of audit. (Yes, takes it takes a thief and all that...) 

The second attack on the audit is to point out that it doesn't get everything right. I address specific criticisms below, but it's kind of irrelevant.  The issue isn't whether the audit gets things 100% correct.  Instead, it's a gestalt point, namely that things are FUBAR in mortgage documentation, both on the front end (securitization) and the back end (foreclosure).  Whatever quibbles one might have with the audit's methodology, it's pretty hard to deny that there aren't serious paper work problems.  

If you want a "neutral" audit of the paperwork screw ups, take a look at MBS trustee exceptions reports (you can get them from servicer bankruptcies, when the trustee files a proof of claim). For the ones I've looked at, the number of exceptions (meaning paperwork problems found by the trustee) outpace the number of loans.  This is on the front-end, before foreclosure, and while many of the problems are minor or don't implicate foreclosures, the trustees also weren't looking for a whole bunch of potential problems. (I would also not assume that most of the problems noted in exceptions reports were ever fixed--the expense would be prohibitive to the servicer. Query whether trustees then insisted on putbacks....)  

In terms of specific problems with the SF audit Housing Wire, Paul Jackson, who has been a steadfast denier of servicing and securitization problems, argues that the audit's legal analysis is flawed because it claims that CA law requires recordaction of assignments. That's only half right. The most recent CA case on the issue, Calvo v HSBC, says that CA requires records to of mortgage assignments, but not deed of trust assignments.

There are questions about whether the CA appellate court got this right, given that California law has long held that differences in form between a mortgage and deed of trust are irrelevant. Let's assume, arguendo, that Calvo got it right. If so, Jackson's criticism is still misplaced as there's a whole separate question about whether those assignments actually happened and can be proven.

Recording has an evidentiary function; lack of recording means that banks will ahve to prove chain of title the hard way. That runs right into the PSA problem and the documentation required by UCC Article 9 (or Article 3 if the note is negotiable)--application of UCC Article 9 doesn't mean "bank wins".  If anything, it just goes back to the question of whether an authenticated PSA can be produced that sufficiently identifies the loan in question. The banks couldn't do that for either loan in Ibanez. There's no reason to believe that was an exceptional case.(If it was, then why on earth the did the banks--or their lawyers--let it run up to the Massachusetts Supreme Judicial court?)  The SF City Assessor-Record audit didn't look into the UCC issue, but it did show that there were transfers that didn't match the PSAs, which means that they cannot happen, so the foreclosure is being brought for a party that is not the deed of trust beneficiary. That's a real problem that is far more serious than recordation of assignments.   

Jackson also criticizes the audit's findings about defects in the substitution of trustee process. He correctly points out that CA law treats a recorded substitution of trustee as conclusive evidence of the authority of the substitute trustee. I'm not sure that has any bearing when the recording was done by a party that lacked authority to do so, as the recording has to be done by the "beneficiaries under the trust deed, or their successors in interest".  If record myself as substitute of trustee for Jackson's mortgage, could that possibly be valid? It's hard to imagine so. 

So that brings us to attack number three--that this is just paperwork and the people who lost their homes were bums anyhow so who cares.  Are we still barking up this no harm, no foul tree?

Yes, this is just paperwork.  But so to is the mortgage loan itself.  If signatures don't matter, then what about the borrower's signature?  Finance is built on an edifice of paperwork.  That paperwork creates and delineates legal rights, which in turn affect the pricing of transactions, both in mortgage originations and in mortgage sales.  It amazes me that shallow statements like this still have currency:

Reckless lenders who sold loans to people who didn’t qualify for the terms are one reason that home values are back to where they were a decade ago. But reckless borrowers who took those loans, making a bad bet that home values would continue soaring, are certainly another.

Yes, there were reckless borrowers, just as there were reckless lenders. But we can't possibly assume that everyone who has lost their home in foreclosure was a reckless borrower. Unemployment has no obvious connection to reckless borrowing and is a major cause of foreclosure.  And lots of people who didn't borrow recklessly (and those who didn't borrow at all) have seen their home prices drop. 

We might compare this to the way the debate on the death penalty has evolved. We're realizing that our criminal law system isn't perfect, and that we execute both guilty and not guilty (including innocent) people. Even if most are guilty, how much of an error rate are we willing to tolerate with the death penalty? Now losing a home isn't at all the same as losing one's life, but it is a pretty severe harm for a family.

In the end, then, the question is what sort of error rate are we willing to tolerate with foreclosures?Is it ok if 25% of foreclosures are improper? How about 10%?  5%?  1%?  That would still be 50,000 improper foreclosures since 2007! 

I would say that the optimal level of error is probably greater than zero, as the marginal cost of eliminating all errors is greater than the marginal harm prevented, but the contracts prof in me balks at this (and oh what a tension it has with the bankruptcy prof and claims estimation). The law has long treated the home as different, be it in property and contract (specific performance as a remedy) or in criminal law (right of defense). There is so much non-monetary value baked into the home that I'm not sure we can assume that the marginal cost of eliminating all errors will surpass the marginal harm.  Be this as it may, it strongly suggests to me that foreclosure needs to be a judicial process. 

Jan
28

The GM & Chrysler Success

By | Securitization-MBS

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During the State of the Union address, the President crowed about the success of the GM/Chrysler bailouts, noting that these companies were thriving again. An NPR program this evening was holding up GM/Chrysler as a beacon of hope for Kodak, as if bankruptcy were now the fountain of corporate youth.  

But this just begs the question of why did the GM/Chrysler bankruptcies work? What made these bankruptcies success stories? NPR raised the question, but had some lame answers, namely that it forced management to make decisions it hadn't wanted to do like cutting loser brands (Saturn, Pontiac). It might have helped focus management decision-making, but that alone can't be the answer, I think. I'm curious to hear readers' thoughts. A few thoughts of my own below the break.

(1) Deleveraging. This one should be obvious. A lot of GM/Chrysler creditors got paid very little, but the 363 sales enabled the firms' good assets to be reployed to companies that were not weighed down with tons of financial leverage and legacy liabilities (CBA terms, retiree benefits, dealerships). Deleveraging, however, only helps if the underlying business is competitive. Apparently it is.

I'm not a car afficianado, but I've got to say that this surprises me. I was not under the impression that GM/Chrysler were turning out particularly great cars in 2007-2008, and I don't have the sense that they're boasting radically different product lines now (I'll find out soon, however, at the DC Auto Show...). But maybe the answer is that they were producing reasonably good cars and now they're able to price them more competitively. Thoughts anyone?

(2) How much of a management shake-up did bankruptcy entail? Perhaps bankruptcy revitalized management. Still, I suspect that what management can do with firms of this size is fairly constrained. 

(3) GM/Chrysler did manage to avoid major layoffs of their own employees. But they also closed down a lot of dealerships. In other words, there was major job loss as a result of their bankruptcies. Not as bad as it might have been, but it wasn't a bloodless operation. The job loss from the dealerships, however, was spread out geographically, rather than concentrated in the Rust Belt. So this was akin to amputating a toe to prevent gangrene from spreading. I'd be curious if anyone knows of any figures on the actual job loss.

(4) Did it help to have the government as DIP lender? That is, does public DIP financing actually facilitate reorganizations because the DIP lender's goal is reorganization, rather than maximization of its economic return? 

Again, I really am interested in hearing thoughts on this. 

 

Oct
31

The next Solyndra?

By | News for the Patriot

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Bad bets.

Earlier today, we highlighted two bankruptcies involving taxpayer-backed loan guarantees for federal social engineering, and involving some bad judgment — or worse.   One might wonder how many more of these taxpayer-backed loan recipients might go under in the coming weeks and months.   CBS might have given us a sneak peek of the next [...]

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Oct
31

A Tale of Two (More) Bankruptcies

By | News for the Patriot

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It was the greenest of times, it was the reddest of ink.

Stop me if this sounds familiar.  The Department of Energy approves multi-million-dollar loan to green-tech energy firm as part of its job-stimulus bill, only instead of stimulating jobs, the company declares bankruptcy.  In this case, it only took a year after the loan was granted for Beacon Power to file for protection from its creditors: [...]

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Oct
09

Bankruptcy Filings Continue to Dip Substantially

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2011 Filings Per DayEpiq Systems has sent their latest bankruptcy filing statistics, and the numbers continue to show a dramatic drop in the bankruptcy filing rate. There were just over 110,000 bankruptcy filings in September which translates to 5,239 bankruptcies per day. Although that rate is about the same as it was in August, it is a 17.9% year-over-year drop from 2010.

Last year, there were 1.56 million bankruptcy filings. This year, we are on a pace to be just above or below 1.40 million bankruptcy filings. Specifically, there will be

  • 1,417,000 filings if bankruptcy filings continue for the rest of the year at the same daily rate (5,644 per day) as they have averaged for the first nine months of 2011
  • 1,392,000 filings if bankruptcy filings continue for the same daily rate (5,293 per day) as they have averaged for September 2011
  • 1,416,000 filings if bankruptcy filings for the remaining three months of 2011 constitute the same proportion of total filings as the average for the last three months of 2009 and 2010 constituted for total filings those years (about 24.3%)

 

Sep
05

Chapter 11 Bankruptcy Venue Reform

By | Securitization-MBS

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This Thursday, the House Judiciary will be holding a hearing on H.R. 2533, which would reform Chapter 11 venue and require corporations (which includes more than true corporations under the Bankruptcy Code) to file in the district in which they are headquartered or in the district in which a controlling affiliate has filed.  So no more bootstrapping of Eastern Airlines, Enron, or GM via tiny affiliates.  And no more Los Angeles Dodgers of Delaware.  

I've submitted a letter in support of the bill to the House.  My previous posts on this topic earned me no love from some former colleagues (some of whom told me as much), and I don't expect this letter (or this blog post) will endear me to them either.  The letter rehearses the problems that stem from forum shopping:  debtors (and DIP lenders) picking and choosing the law they prefer; debtors opting for districts that are more lax in their application of discretionary standards like for cause appointment of trustees; professionals steering cases to districts that will sign off on higher fees, thereby increasing the costs of bankruptcies; the cutting out of local/small creditor constituencies by moving cases to inconvenient fora; and avoidance of labor protests and other informal pressures on courts.  

I continue to be struck by what a weak argument specialization/expertise is for the current system. We've seen courts outside of SDNY/Delaware handle large bankruptcies extremely well, and we've also seen some disasters in those popular filing jurisdictions. Frankly, it's not clear to me how much case outcomes depend on the judge. But be that as it may, expertise is an argument for a single court to handle all large cases, not a pick-your-own-venue system, even if the menu is limited to SDNY and Delaware.  So if it's about expertise, which court is it?  SDNY or Delaware?  It surely can't be the debtor's choice if it's about expertise.   

Also, in drafting this letter, I realized that Chrysler may well have lacked proper venue in SDNY.  IIt's a stretch to claim that Chrysler Realty Co. LLC, a Delaware LLC headquartered in Michigan had its principal assets located in SDNY, when the only SDNY assets scheduled are the realty for Jeep-Chrysler-Dodge of Manhattan and Yonkers Avenue Dodge. By dollar amount these were less than 3% of Chrysler Realty Co., LLC's scheduled assets.  I wonder how many other cases have been filed recently in which there isn't compliance with the venue statute.  (Note that this is not like GM, which bootstrapped its way in to SDNY, which complies with the statute.  That's legal, but it's a bad statute. Borders--also here--and perhaps Chrysler don't even appear to in compliance with the statute.)  

Finally, I'm left pondering where is the UST on this.  Checking on venue seems like it should be a rote part of UST review. If the UST is really concerned about fee levels in bankruptcy, policing Chapter 11 venue is a far better way to deal with it than objecting to fee applications, where the dollars saved are offset by the cost of arguing the objection.  

My former WGM colleagues have a couple of blog posts of their own on HR 2533 (here and here). These posts make the very good point that the local rules for the SDNY and Delaware bankruptcy courts are friendly to out-of-state attorneys (no local counsel required for pro hac vice admission). It's point about telephonic and video hearings really cuts both ways.  But I think it's a stretch to say that because local creditors are get some protection via 503(b)(9) administrative expense claims, 546(c) reclamation claims, 547(c)(2) ordinary course exception to voidable preferences, and 365(d)(4) and 366 protections for landlords and utilities that it's therefore not a problem that venue is being abused.

None of these protections help employees, for example. Admin priority only doesn't apply to prepetition claims.  The ordinary course preference exception is temporally narrow and 546(c) reclamation is not a very powerful tool for most creditors.  But even if these were always meaningful protections for all local creditors, I don't see how that in any way justifies abuse of venue. Is the argument no harm-no foul? If so, none of these provisions mitigates the harm caused by debtors being able to choose venues with easier rejection of CBAs or in which they can funnel more funds to professionals or DIP lenders. The provisions cited on the WGM blog crumbs in comparison to what's at stake with venue. 

Aug
18

Omnibus Update on (Declining) Bankruptcy Filing Rates

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The June bankruptcy filing figures came out while I was away, and the July figures came out a little late. Thus, I have missed the past two monthly posts on the bankruptcy filing rate. Consider this an omnibus update on the pace of bankruptcy filings. As always, the data come courtesy of Epiq Systems.

The big picture is that U.S. bankruptcy filing rates continue to fall, both on a monthly and year-over-year basis. The daily bankruptcy filing rate was 5,484 in June and 5,505 in July. These figures represented year-over-year declines of 10.0% and 14.2% respectively. As compared to one year ago, bankruptcies over the first seven months of 2011 have fallen by 9%. The trend now suggests total annual filings for 2011 will be between 1.40 and 1.45 million, a decline of 7-10% from 2010 when 1.56 million bankruptcies were filed.

During the first seven months of 2011, the bankruptcy filing rate has declined in every state but one: Utah where bankruptcies are up 8%. Historically, Utah always had one of the highest filing rates in the country. Academic research has cited two reasons for Utah's surprisingly high filing rate: (1) relatively harsher wage garnishment laws which raises the cost of not filing bankruptcy and (2) higher-than-average family size which tends to put a family more at risk of financial distress. (See Lars Lefgren & Frank McIntyre, 2010. "Explaining the Puzzle of Cross-State Differences in Bankruptcy Filing Rates," Journal of Law & Economics, 52: 367-93 and Jean M. Lown & Barbara R. Rowe, 2003. "A Profile of Utah Consumer Bankruptcy Petitioners," Journal of Law & Family Studies, 5:113-30.) These findings explain why Utah will tend to have higher bankruptcy rates over time, But, unless there have been changes to the Utah debt collection laws like wage garnishment of which I am unaware, there is no reason why Utah's filing rate should have moved relative to the rest of the country over the past year.

In the other direction, some states have experienced above average declines in bankruptcy filing rates for the first seven months of the year. As compared to the national average of a 9% decline, bankruptcies are down particularly in Vermont (-31%), the District of Columbia (-24%), North Dakota (-22%), West Virginia (-22%), and Montana (-20%). These states (and D.C.) suggest a plausible guess for why Utah is an outlier in the other direction. The guess has nothing to do with policy-based reasons, but instead rests on a statistical artifact.

The variation of the mean of a sample (here the number of bankruptcies each month) is inversely proportional to the square root of the sample size (here the number of people in each state). In English, that means the larger a state's population, the less likely its bankruptcy filing rate will gyrate from month to month. Smaller states--like Vermont and Utah--are more likely to end up on the extremes than larger states. For example, it would have taken 7,272 fewer bankruptcy filings for Texas and its right-at-the-national-average decline of 9% to become the national leading decline of 31%. In the other direction, however, it would have taken only 234 more filings for Vermont's leading decline of 31% to become a middle-of-the-road decline of 9%. All things being equal, Vermont's filing rate will bounce around more than Texas's filing rate. A much better explanation of this idea appears in a wonderful article by Howard Wainer called "The Most Dangerous Equation" and that appeared in The American Scientist. (The original appears to be behind a pay wall, but Google will help you find copies available on the Internet.)

The mathematical facts about variance do not explain the entirety of reasons for the state-by-state differences for changes in the bankruptcy fiing rate. But, they are a big part of the reason. Rather than searching for deep socioeconomic explanations about why Utah or Vermont have ended up at the extremes at this particular point in time, the best explanation is just the math.

Jul
28

Attorney Available Posting – SF Bay Area

By | Foreclosure Blog News, Homeowner Resources

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EDITOR’S NOTE: AFTER MUCH FIGHTING WITH MYSELF OVER THIS I’VE DECIDED TO ALLOW POSTINGS FROM LAWYERS LOOKING TO DEFEND HOMEOWNERS. Here is the first one picked at random. I do not know this lawyer. But I think it is important to start allowing people to see what I see. There are many lawyers out there. Some are good, some not so good. Make up your own mind and if you do use one of them, let me know or post a comment on this blog post.

I’m an attorney located in SF Bay Area. After over a decade in a different area of practice, for over a year have been filing wrongful foreclosure complaints – and doing demurrer and unlawful detainer oppositions — in CA state courts. Also doing consumer bankruptcy filings (Chapter 7 and Chapter 13), incl adversary proceedings.

I also do contract work in same areas for another attorney. In our cases, the northern district bankruptcy judges seem to be sending the state law-based void mortgage and civ code 2923.5 and 2924 claims to state court if no state court complaint has been filed before filing the adversary.

I do not provide loan modification, re-financing, short sale, cash-for-keys, etc. services, except to the extent they are offered as litigation settlement options.

In bankruptcy, some secured loans (home and vehicle) can be modified and/or “crammed down” through bankruptcy motions and litigation

For litigation, except in rare factual circumstances, I prefer cases where no trustee sale has been held, loan and note written between 2003-2007, no unlawful detainer judgment (unless client has means to pay statutorily required undertaking). Property must be located in CA and be owner-occupied residence. I am particularly interested in cases that may involve abuse of the elderly or disabled individuals (particularly reverse mortgages). I prefer state court litigation except for bankruptcies, thus i am not the one to come to for primarily TILA/RESPA cases.

I am currently only taking on cases re: homes located in the general SF Bay and Sacramento regions, sorry. But, for all CA clients I can provide at an hourly rate unbundled legal research and writing services for homeowners representing themselves in foreclosure or unlawful detainer defense litigation.

Otherwise, flat fees for Ch 7 and 13 bankruptcy filings; reasonable retainer + hourly fee for state court litigation. In some cases, may request permission to use co-counsel. I’m sorry but right now i cannot take on any more pro bono clients.

To schedule a free initial consultation — in person preferred, if within geographical region described below — please contact jmoorelawoffice@gmail.com or (415) 728-9808.

Jamilla Moore
The Law Office of Jamilla Moore


Filed under: foreclosure
Apr
03

California Judges Bail Out on Court Hearings

By | Foreclosure Blog News, Homeowner Resources

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We wish this story was an April Fool’s joke, but sadly it is not. Several borrowers who have filed challenges to nonjudicial foreclosures in Northern California and sought a Temporary Restraining Order to cancel a Trustee’s Sale were denied such relief by a “clerk” or “law clerk” who “appeared” at the hearing in lieu of the presiding Judge, who never even appeared in court. The “clerks”, obviously not attuned to foreclosure defense litigation and not understanding the legal arguments being made, simply denied the TRO requests without even the issuance of an Order (as Clerks cannot sign court orders), so the borrower has no Order to take to an appeals court! The borrowers were left with having to file Bankruptcy and thus litigate their issues in the Bankruptcy Court.

Which is not necessarily a bad thing. Many of the decisions which support borrower’s concerns such as legal standing, real party in interest, and chain of title defenses have emanated from the Bankruptcy Courts, including two decisions from the Bankruptcy Court for the District of Idaho and one from the Bankruptcy Court for the District of Nevada (which we previously discussed on this website which said NO to MERS on multiple fronts).

As such, expect more and more filings in Bankruptcy Court, and more and more adversary proceedings inside of the borrower bankruptcies challenging the foreclosure attempts.

Jeff Barnes, Esq.,


Filed under: foreclosure
Mar
07

Goldman analysis: Thumbs Up for Health Insurance Companies

By | Foreclosure Blog News, Homeowner Resources

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Maybe the fact that it came from Goldman will motivate some people to take a second look at where we are on health care. Goldman likes the two biggest health insurance companies because it says profits are going up due to lack of competition and lack of regulation. Like the foreclosure mess, the fact that this is further damaging what was once a healthy middle class doesn’t seem to enter the equation probably because Goldman has a proprietary interest in those companies.

The net result, if Goldman is right about the failure of health-care reform, is that premiums will continue to rise thus further reducing median income which in turn will further reduce housing prices. Fewer and fewer people will be able to afford anything close to reasonable coverage which now costs as much as $30,00 per year for a middle-aged couple. Bankruptcies resulting from medical bills — already at 50% of all bankruptcies — will continue to rise, as will defaults and foreclosures putting further pressure on housing prices. And, as we already know, a decrease in housing prices results in a failing economy. In the courtroom, we say that intent is determined by the result if it was reasonably foreseeable.

Don’t get me wrong. reasonable people can disagree on the issue. But the fact is that while companies in other countries have national health-care plans, some with private insurance companies that are strictly regulated, and some without any insurance companies, some with a mix of public and private, the U.S. has the worst of both worlds — unregulated insurance companies that do not provide a national system under which everyone is covered. The worst consequence is that we have the worst health outcomes and death rate compared to 36 other countries. So the cost factor of providing insurance keeps going up while the benefits are decreased here. Each U.S. company is subject either to lower profits because it does provide insurance to its workers or lower productivity because the good workers are going elsewhere. Only in America.

Between the insurance industry and banking flooding the state and national capitals with lobbyists there isn’t enough hotel space to put lobbyists for us ordinary folk.

March 6, 2010

Obama Wields Analysis of Insurers in Health Battle

By DAVID M. HERSZENHORN

WASHINGTON — To bolster the case for a far-reaching overhaul of the health care system, the Obama administration is seizing on a new analysis by Goldman Sachs, the New York investment bank, recommending that investors buy shares in two big insurance companies, the UnitedHealth Group and Cigna, because insurance rates are up sharply and competition is down.

White House officials on Saturday said that the Goldman Sachs analysis would be a “centerpiece” of their closing argument in the push for major health care legislation. The president and Democratic Congressional leaders are hoping to win passage of the legislation before the Easter recess. Republicans remain fiercely opposed to the bill.

The Goldman Sachs analysis shows that while insurers can be aggressive in raising prices, they also walk away from clients because competition in the industry is so weak, the White House said. And officials will point to a finding that rate increases ran as high as 50 percent, with most in “the low- to mid-teens” — far higher than overall inflation.

The analysis could be a powerful weapon for the White House because it offers evidence that an overhaul of the health care system is needed not only to help cover the millions of uninsured but to prevent soaring health care expenses from undermining the coverage that the majority of Americans already have through employers.

Republicans, however, could also point to the analysis as bolstering their contention that Democrats should be focused more on controlling costs and less on broadly expanding coverage to the uninsured.

The research brief is largely based on a recent conference call with Steve Lewis, an industry expert with Willis, a major insurance broker.

In the call, Mr. Lewis noted that “price competition is down from a year ago” and explained that his clients — mostly midsize employers seeking to buy health coverage for their employees — were facing a tough market, in which insurance carriers are increasingly willing to abandon existing customers to improve their profit margins.

“We feel this is the most challenging environment for us and our clients in my 20 years in the business,” Mr. Lewis said, according to a transcript included in the Goldman brief. “Not only is price competition down from a year ago,” he added, “but trend or (health care) inflation is also up and appears to be rising. The incumbent carriers seem more willing than ever to walk away from existing business resulting in some carrier changes.”

The report also indicated that employers are reducing benefit levels, in some cases by adding deductibles for prescription drug coverage in addition to co-payments, and raising other out-of-pocket costs for employees as a way of lowering the cost of insurance without increasing annual premiums and employee contributions to them.

Kathleen Sebelius, the secretary of health and human services, is expected to discuss the Goldman analysis on two Sunday television talk shows, “Meet the Press” on NBC and “This Week” on ABC.

In his call with Goldman, Mr. Lewis said beneficiaries were feeling the brunt of the changes to existing policies. “Visually to employees, they’re fairly significant,” he said.

But the report also sounded cautionary notes that the administration will probably not want to highlight.

Asked by Goldman analysts about the effort to pass major health care legislation, Mr. Lewis said many employers experiencing increases in their insurance costs were nonetheless apprehensive about the president’s proposal.

“They’re very mixed in their reaction, quite candidly consistent with what we’re seeing in the polling numbers by party lines,” Mr. Lewis said. “I think most people would acknowledge that there’s a need for health care reform; employers continue to be very frustrated. So when they look at what the Obama administration and the Democratic majority state as their goals to increase access and lower cost and rail at what may be termed oligopolistic behavior of carriers in certain markets, I think employers really buy in to that message and have much of that frustration and anger at our lack of solutions.”

And yet, he said, there is little enthusiastic support from employers for the Democrats’ proposals.

“Many of them still view the legislation and the partisanship coming out of Washington as possibly the medicine worse than the disease,” he said. “So many employer groups that we’re talking to feel like it would be a shame to lose an opportunity to do something with respect to health care reform. But many are starting to feel like maybe nothing is better than something in this current environment.”


Filed under: bubble, CORRUPTION, currency, Eviction, foreclosure, Mortgage, securities fraud Tagged: bankruptcies, defaults, foreclosures, Goldman Sachs, health insurance, health-care reform, housing prices
Aug
17

Bankruptcy Judges & DOJ Rip Mortgage Companies

By | Featured, Foreclosure Rights, Housing & Economic Research, Loan Modification

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Below is another story about Servicer abuses… At least some judges see the issues and are not allowing personal viewpoints or prejudices to cloud their assessment of how terrible the situation is for a homeowner in mortgage hardship or distress.

The servicers are also the main players in the massive foreclosure fraud that is occurring around this country.

One would think that at some point, the legal system is going to stop the train of abuses justice suffers because of the systemic fraud that is committed by servicers trying to foreclose on homes they have no financial stake in.

Bankruptcy Judges & DOJ Rip Mortgage Companies

by Karen Weise, ProPublica

“Systemic abuse.” “Extraordinary incompetence.” “Reckless.”  In a growing body of legal cases, judges and the Justice Department are breaking from legal jargon to starkly chastise mortgage companies.

As mortgage delinquencies rise, more and more homeowners are learning the central role that mortgage servicers play in their lives. The legal cases show that role can be distressing. Judges have found that major mortgages servicers regularly mess up basic accounting, improperly credit payments and charge unwarranted fees. They’ve “not done a very good job of keeping the records,” said Judge Samuel Bufford of California.

Mortgage servicers — typically either bank subsidiaries or independent companies — handle the day-to-day work with homeowners, ranging from collecting monthly payments to determining when to modify or foreclose. Problems with servicing often, but not always, occur once homeowners start having trouble making payments.

Complaints to the government about mortgage servicers have soared in recent years. They’ve risen from 31 percent of the complaints that the Department of Housing and Urban Development received in 2006 to 78 percent in 2008, according to HUD spokesman Lemar Wooley.

Problems Exposed in Bankruptcies

Many homeowners in bankruptcy have legal representation and must settle claims with servicers. As a result, the process has revealed and documented a slew of servicer problems.

In many rulings, judges have shown frustration and even outrage. They’ve ruled that servicers have attempted to collect unjustified fees, charged homeowners for unnecessary insurance, failed to properly credit homeowners’ payments and failed to provide evidence to back up fee requests. In most cases, judges demand that servicers fix the problems and unwind the unjustified fees; sometimes, judges award damages and attorneys’ fees.  In one extraordinary case, a judge issued $750,000 in emotional and punitive damages. (We’ve compiled five sample cases and rulings for you to see here.)

The Moffits with their grandchildren.

Take the case of Donald and Phyllis Moffitt of Arkansas.  In June 2008, bankruptcy Judge Audrey Evans issued a restraining order against America’s Servicing Company, a division of Wells Fargo, saying it  must stop attempting to collect payments that the Moffitts did not owe.  In a 41-page ruling (PDF), the judge wrote:

“The evidence supports the premise that ASC’s servicing procedures, as exemplified by the Moffitts’ account, are not organized to assure accuracy and accountability. … ASC misapplied these payments, failed to record the correct information even though Mrs. Moffitt constantly called and talked to ASC’s agents, failed to follow her written instructions, failed to communicate with the Moffitts, sent mortgage statements that were incomprehensible and frightening, began collection calls, and engaged in a litany of mismanagement of the Moffitts’ loan.”

Wells Fargo did not respond to a call for comment.

A 2007 study looked at a majority of Chapter 13 bankruptcy filings in 2006 and found that in 70 percent of the cases studied, mortgage companies claimed homeowners owed an average of $6,309 more on their loans than homeowners believed.

Problems with servicing are not limited to families filing for bankruptcy, Katherine Porter, an author of the study and an associate professor at the University of Iowa’s law school, testified before Congress last year. She said servicers commonly foreclose when they do not have the legal right to do so, impose unwarranted or illegal fees, and miscalculate how much families owe.

In several instances, judges have taken broad action to address persistent problems with a servicer. This May, Judge Elizabeth Magner in Louisiana said her review of multiple cases involving Ocwen Loan Servicing had shown the servicer regularly acted in “bad faith.” The judge said Ocwen had charged improper fees and attempted to collect bankruptcy-related fees after the court closed a case. In one of the cases, Ocwen took 10 months to provide a full accounting of fees.

The judge wrote that Ocwen’s “systematic abuse” required more than monetary sanctions, which had not stopped the behavior in the past, so Magner issued an order (PDF) forcing Ocwen to follow specific accounting procedures.  (We’ve noted before that Ocwen’s servicing procedures have raised eyebrows in the past).  Ocwen’s general counsel, Paul Koches, said the company disagrees with the ruling and is pursuing an appeal in U.S. District Court.

Justice Department Takes Action

The Justice Department’s United States Trustee Program is a watchdog over the bankruptcy process. Its 21 regional offices oversee more than 1,300 private trustees who mediate between debtors and creditors in individual bankruptcy cases.

The Trustee Program’s annual report said combating servicer abuse (PDF) was a top priority last year. The program initiated 68 actions (PDF) against what it calls “systemic abuse” by mortgage servicers, including 25 large servicers such as Countrywide, HSBC and JPMorgan Chase, according to public documents (PDF) and speeches (PDF).  The Trustee Program has sued Countrywide in at least six states.

Countrywide, now owned by Bank of America, is the largest participant in the federal Making Home Affordable program to modify troubled mortgages. A recent analysis by the Associated Press found that at least 30 of the 38 mortgage companies that have signed up for the program have been sued over their servicing practices.

In response to one U.S. trustee’s suit in Ohio, Judge Marilyn Shea-Stonum ruled in May (PDF) that Countrywide had charged fees with “no factual basis” and wrote: “Countrywide’s system is reckless. It appears to me designed to allow each actor in the process to act with indifference to the truth, and to rely solely on the limited information made available at each step. … [The errors in this case] evidence Countrywide’s disregard for diligence and accuracy.”

The judge is currently determining monetary and other sanctions.  Countrywide spokeswoman Shirley Norton said, “We are reviewing the ruling and considering our options.”

Private trustees have sued servicers as well. Debra Miller, a private trustee in Indiana, has been active in litigation where servicers haven’t complied with federal regulations. Typically, she said, private trustees try to obtain settlements that are more about changing practices than monetary compensation.  “Our job is to force mortgage companies to improve their systems,” she said.

Both the Justice Department and private trustees have stepped in to fill what they see as a regulatory void covering mortgage servicers, according to Andrea Celli, a private trustee in upstate New York.

Future Oversight Under Debate

Currently, a hodgepodge of agencies oversees mortgage servicing. HUD, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Trade Commission and the Federal Reserve all have partial authority.

Concern over mortgage servicing was part of the early discussions about the proposed new Consumer Financial Protection Agency, according to Eric Stein, the Treasury Department’s deputy assistant secretary for consumer protection.  The CFPA, as proposed by the Obama administration, would be the primary watchdog for servicer abuses.

Servicers are resisting the new consumer agency. Paul Leonard, a lobbyist for the Financial Services Roundtable, said his organization’s members believe that there should be better coordination among regulators and that existing agencies can handle the responsibility.

Tara Twomey, a lecturer at Standford Law School who co-authored the large study of bankruptcy cases, says that more regulation would help, but it would only be a “Band-Aid.”  “The more fundamental problem is one of market structure,” she said. “Borrowers don’t get to choose their servicer.”

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