Heeding pleas from industry groups across the country, the Federal Reserve has issued additional guidance to help smaller mortgage lenders and loan brokers comply with new compensation rules that take effect April 1, 2011. Pay structures in which brokers and loan officers are compensated based on the interest rate have been blamed for pushing consumers into unsustainable mortgages and contributing to rising delinquencies. The new rule prohibits this practice to ensure consumers are not steered into loans they can't afford.
http://www.dsnews.com/articles/federal-reserves-loan-officer-compensation-guidance-2011-01-28
Thursday, February 3, 2011
FHA EXTENDS 'ANTI-FLIPPING WAIVER' TO SPEED SALES OF REO HOMES
The Federal Housing Administration (FHA) announced Friday that it is extending the suspension of its 'anti-flipping rule' through the remainder of 2011. FHA Commissioner David Stevens says the temporary waiver will accelerate the resale of foreclosed homes in neighborhoods that are overrun with abandoned properties and blight. The move is intended to help stabilize home values and improve conditions in communities experiencing high foreclosure activity.
http://www.dsnews.com/articles/fha-extends-anti-flipping-waiver-to-speed-sales-of-reo-homes-2011-01-28
http://www.dsnews.com/articles/fha-extends-anti-flipping-waiver-to-speed-sales-of-reo-homes-2011-01-28
FORECLOSURES UP IN 72% OF MAJOR METROS BUT DOWN IN HARDEST-HIT AREAS
RealtyTrac has released its 2010 foreclosure tallies for the nation's largest metropolitan areas. The tracking firm found that foreclosure activity increased from 2009 in 149 of the 206 metros with a population of 200,000 or more. Interestingly enough, the metro areas with the 10 highest foreclosure rates all posted decreasing activity from 2009, but RealtyTrac says foreclosures became more widespread last year as high unemployment drove activity up in parts of the country that had been relatively insulated from the initial foreclosure tsunami.
http://www.dsnews.com/articles/foreclosures-up-in-72-of-major-metros-but-down-hardest-hit-markets-2011-01-26
http://www.dsnews.com/articles/foreclosures-up-in-72-of-major-metros-but-down-hardest-hit-markets-2011-01-26
HUD TERMINATES FHA APPROVAL OF 15 LENDERRS
HUD announced this week that it has terminated the Origination Approval Agreements of 15 mortgage lenders due to poor performance and high default rates. In addition, the federal agency terminated eight lenders' Direct Endorsement (DE) approval. Lenders with Direct Endorsement agreements are authorized to both originate and underwrite an FHA loan. HUD's regulations permit the agency to terminate its agreement with any mortgagee whose default and claim rate exceeds a certain threshold based on their geographic area.
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Bankruptcy Filing Stats
Bankruptcy filings reflect the economy as a whole – and it’s clear we are not on a fast path toward recovery. Consumers are clearly struggling to pay off the debt they’ve accrued over the years, and are turning to bankruptcy as a last resort.
The regions that appeared to be the hardest hit by personal bankruptcy filings were situated in the Southwest, with some exceptions, while the Southeast appeared to experience the most dramatic declines in personal bankruptcy filings. The states that saw the largest increases in bankruptcy filings in 2010 from the previous year included Hawaii (28.9%) California (25.0%), Utah (24.4%) and Colorado (17.4%). Conversely, states that saw drops in the rate of personal bankruptcy filings included Tennessee (-7.2%), West Virginia (-7.1%), South Carolina (-4.1%), Iowa (-3.6%) and Kentucky (-2.7%).
The number of U.S. consumers who filed petitions for personal bankruptcy protection grew 9 percent to 1.53 million in 2010 and this could rise as consumers struggle with excess debt in an uncertain economy, according to the American Bankruptcy Institute (ABI), an association of attorneys and other bankruptcy professionals, and the National Bankruptcy Research Center (NBKRC).
The regions that appeared to be the hardest hit by personal bankruptcy filings were situated in the Southwest, with some exceptions, while the Southeast appeared to experience the most dramatic declines in personal bankruptcy filings. The states that saw the largest increases in bankruptcy filings in 2010 from the previous year included Hawaii (28.9%) California (25.0%), Utah (24.4%) and Colorado (17.4%). Conversely, states that saw drops in the rate of personal bankruptcy filings included Tennessee (-7.2%), West Virginia (-7.1%), South Carolina (-4.1%), Iowa (-3.6%) and Kentucky (-2.7%).
The number of U.S. consumers who filed petitions for personal bankruptcy protection grew 9 percent to 1.53 million in 2010 and this could rise as consumers struggle with excess debt in an uncertain economy, according to the American Bankruptcy Institute (ABI), an association of attorneys and other bankruptcy professionals, and the National Bankruptcy Research Center (NBKRC).
5-year-old federal bankruptcy reforms leaving some people deeper in debt
When tougher bankruptcy laws took effect more than five years ago, Congress wanted to raise the bar against perceived abuse of the system by ne’er-do-well debtors.
But since then?
Lawyers’ fees have more than doubled, online “credit counseling” is the norm, and the pace of personal bankruptcies is growing, nearing 2004 pre-reform levels.
The impact was not much — other than to make it more costly and make more hoops to jump through for anyone filing bankruptcy.
One change is the means test in which debtor income over the previous six months is compared to the state median. Those deemed too wealthy are barred from liquidation in Chapter 7. Instead, they face a five-year repayment plan through Chapter 13 reorganization. It’s a mechanical formula that uses the IRS standards.
Last month, Congress tried to edit the errors out of the 2005 reform, with the Bankruptcy Technical Corrections Act of 2010. It attempts to fix spelling errors, correct bad cross-references, and, in doing so, left at least a few ambiguities.
One question: When is the deadline for reform-ordered credit counseling — the day before filing or the day of filing? No Answer. I say day before.
Families continue to turn to bankruptcy as a result of high debt burdens and stagnant income growth.
Most bankruptcy attorneys provide a free initial consultation for people contemplating it. Call me at (727) 410-2705 for a free consultation in Clearwater, Florida.
But since then?
Lawyers’ fees have more than doubled, online “credit counseling” is the norm, and the pace of personal bankruptcies is growing, nearing 2004 pre-reform levels.
The impact was not much — other than to make it more costly and make more hoops to jump through for anyone filing bankruptcy.
One change is the means test in which debtor income over the previous six months is compared to the state median. Those deemed too wealthy are barred from liquidation in Chapter 7. Instead, they face a five-year repayment plan through Chapter 13 reorganization. It’s a mechanical formula that uses the IRS standards.
Last month, Congress tried to edit the errors out of the 2005 reform, with the Bankruptcy Technical Corrections Act of 2010. It attempts to fix spelling errors, correct bad cross-references, and, in doing so, left at least a few ambiguities.
One question: When is the deadline for reform-ordered credit counseling — the day before filing or the day of filing? No Answer. I say day before.
Reform added mandatory credit advice for two reasons: to rule out other options short of bankruptcy, and to develop financial tools and budgeting ideas for the troubled debtors.
These counseling courses are for those who have been financially irresponsible, not for those who have simply had a run of bad luck. But Everyone must take them.
Across the United States, personal bankruptcies rose 9 percent in 2010, topping 1.5 million. That rate is forecast to go higher in 2011, according to the American Bankruptcy Institute.Families continue to turn to bankruptcy as a result of high debt burdens and stagnant income growth.
Disaster strikes
Many families have been wedged between job loss and mortgage.
Credit rating? Not so good. Bankrutpcy does that to people. A lot of people need a chance to get back on their feet. As long as people are honest in the process, they ought to come out in better financial shape. You will recover in about 2 years.
Free consultation Most bankruptcy attorneys provide a free initial consultation for people contemplating it. Call me at (727) 410-2705 for a free consultation in Clearwater, Florida.
HUD Proposes to Add Sexual Orientation as Anti-Discrimination Factor
The U.S. Department of Housing and Urban Development (HUD) is proposing to add a person’s sexual orientation or gender identity as an anti-discrimination factor for lenders participating in the Federal Housing Administration’s (FHA) loan guarantee programs and other HUD programs.
The proposed rule is available at:
http://portal.hud.gov/hudportal/documents/huddoc?id=LGBTPR.PDF
HUD is seeking public comment on a number of proposed areas including:
1. Prohibiting lenders from using sexual orientation or gender identity as a basis to determine a borrower’s eligibility for FHA-insured mortgage financing. FHA’s current regulations provide that a mortgage lender’s determination of the adequacy of a borrower’s income “shall be made in a uniform manner without regard to” specified prohibited grounds. The proposed rule would add actual or perceived sexual orientation and gender identity to the prohibited grounds to ensure FHA-approved lenders do not deny or otherwise alter the terms of mortgages on the basis of irrelevant criteria.
2. Clarifying that all otherwise eligible families, regardless of marital status, sexual orientation, or gender identity, have the opportunity to participate in HUD programs. In the majority of HUD’s rental and homeownership programs the term “family” already has a broad scope, and includes a single person and families with or without children. HUD’s proposed rule clarifies that families, otherwise eligible for HUD programs, may not be excluded because one or more members of the family may be an LGBT individual, have an LGBT relationship, or be perceived to be such an individual or in such relationship.
3. Prohibiting owners and operators of HUD-assisted housing, or housing whose financing is insured by HUD, from inquiring about the sexual orientation or gender identity of an applicant for, or occupant of, the dwelling, whether renter- or owner-occupied. HUD is proposing to institute this policy in its rental assistance and homeownership programs, which include the Federal Housing Administration (FHA) mortgage insurance programs, community development programs, and public and assisted housing programs.
In addition, HUD is conducting the first-ever national study of discrimination against members of the LGBT community in the rental and sale of housing.
I already thought this was protected hmmm
The proposed rule is available at:
http://portal.hud.gov/hudportal/documents/huddoc?id=LGBTPR.PDF
HUD is seeking public comment on a number of proposed areas including:
1. Prohibiting lenders from using sexual orientation or gender identity as a basis to determine a borrower’s eligibility for FHA-insured mortgage financing. FHA’s current regulations provide that a mortgage lender’s determination of the adequacy of a borrower’s income “shall be made in a uniform manner without regard to” specified prohibited grounds. The proposed rule would add actual or perceived sexual orientation and gender identity to the prohibited grounds to ensure FHA-approved lenders do not deny or otherwise alter the terms of mortgages on the basis of irrelevant criteria.
2. Clarifying that all otherwise eligible families, regardless of marital status, sexual orientation, or gender identity, have the opportunity to participate in HUD programs. In the majority of HUD’s rental and homeownership programs the term “family” already has a broad scope, and includes a single person and families with or without children. HUD’s proposed rule clarifies that families, otherwise eligible for HUD programs, may not be excluded because one or more members of the family may be an LGBT individual, have an LGBT relationship, or be perceived to be such an individual or in such relationship.
3. Prohibiting owners and operators of HUD-assisted housing, or housing whose financing is insured by HUD, from inquiring about the sexual orientation or gender identity of an applicant for, or occupant of, the dwelling, whether renter- or owner-occupied. HUD is proposing to institute this policy in its rental assistance and homeownership programs, which include the Federal Housing Administration (FHA) mortgage insurance programs, community development programs, and public and assisted housing programs.
In addition, HUD is conducting the first-ever national study of discrimination against members of the LGBT community in the rental and sale of housing.
I already thought this was protected hmmm
US Sup Ct Upholds Former Reg Z Rule on Credit Card Rate Increase Disclosures Following Default
The Supreme Court of the United States recently held that, under the version of Regulation Z applicable at the time of the relevant transactions, TILA did not require a credit card issuer to provide the credit card holder with a change-in-terms notice before implementing a provision in the cardholder agreement allowing the bank to raise the card holder’s interest rate, up to a pre-set maximum, following the card holder’s delinquency or default.
A copy of the opinion can be found at:
http://www.supremecourt.gov/opinions/10pdf/09-329.pdf
As you may recall, in January 2009, the Board promulgated a final rule, scheduled to be effective July 1, 2010, which among other things included a new provision, §226.9(g), which requires 45 days’ advance notice of increases in rates due to cardholder delinquency or default, or as a penalty, including penalties for “events specified in the account agreement, such as making a late payment . . . .”12 CFR §226.9(g)(1)(2010). In May 2009, Congress enacted the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act). The Credit CARD Act amended TILA, in relevant part, to require 45 days’
advance notice of most increases in credit card annual percentage rates.
15 U. S. C. §1637(i). Because the Credit CARD Act’s notice requirements with respect to interest-rate increases largely mirrored the requirements in the new version of the new regulation, the Board changed the effective date of those requirements to August 20, 2009, to coincide with the statutory schedule. The transactions giving rise to the dispute at issue in this case arose prior to enactment of the Credit CARD Act and the promulgation of the new regulatory provisions.
The Supreme Court held that the Regulation Z rules were not clear on whether a change to an interest rate that resulted from a previously disclosed provision in a contract would require disclosure. The U.S.
Supreme Court deferred to the Federal Reserve, which in its amicus brief argued that the bank was not required to give the borrower notice under the version of Regulation Z that was in effect at the time.
Plaintiff (“Debtor”) was the holder of a card issued by creditor Chase Bank (“Chase”). The cardholder agreement between the parties provided, in relevant part, that Debtor was eligible for “preferred rates,” but that to keep those rates Debtor had to meet certain conditions. If any conditions in the credit agreement were not met, Chase reserved the right to “change Debtor’s interest rate and impose a non-preferred rate up to the maximum non-preferred rate described in the pricing schedule” and to apply any changes “to existing as well as new balances … effective with the billing cycle ending on the review date.” Debtor brought suit against Chase, alleging that Chase violated Regulation Z because Chase increased Debtor’s interest rate “due to his delinquency or default” and did not notify Debtor of the increase until after it had taken effect.
The district court dismissed Debtor’s complaint, “holding that because the increase did not constitute a ‘change in terms’ as contemplated by §226.9(c), Chase was not required to notify him of the increase before implementing it.” The Ninth Circuit reversed, holding that “because the credit agreement does not alert Debtor to the ‘specific change’ that will occur if he defaults, Chase was obliged to give notice of that change prior to its effective date.” The First Circuit resolved the same question in favor of Chase, the Supreme Court resolved the circuit split and reversed the decision of the Ninth Circuit.
At the time of the relevant dispute, Section 226.6 of Regulation Z required credit card issuers to provide debtors an “initial disclosure statement” to include, among other things, “a disclosure of each periodic rate that may be used to compute the finance charge.” In addition, Section 226.9(c) required that prior notice be given to the debtor “[w]henever any term required to be disclosed under 226.6 is changed or the minimum periodic payment is increased.”
Therefore, the question before the Supreme Court was “whether the Debtor’s interest rate constitutes a change to a ‘term required to be disclosed under §226.6,’ requiring a subsequent disclosure under §226.9(c)(1).” The Supreme Court held that an interest-rate increase does not “constitute a ‘change in terms’ under Regulation Z, when the change is made pursuant to a provision in the cardholder agreement allowing the issuer to increase the rate, up to a state maximum, in the event of the cardholder's delinquency or default.”
Rejecting one among many of Debtor’s arguments against deference to the Board, the Court further reasoned that “there is no reason to believe that the interpretation advanced by the Board is a ‘post hoc rationalization’ taken as a litigation position.” In addition, the Board’s “2004 notice of rulemaking and the 2007 proposed amendments to Regulation Z make clear that, prior to 2009, the Board’s fair and considered judgment was that ‘no change-in-terms notice is required if the creditor specifies in advance that the circumstances under which an increase…will occur,’ and ‘immediate application of penalty pricing upon the occurrence of events specified in the contract’ was permissible.” Therefore, “it is clear that deference to the interpretation in the Board’s amicus brief is warranted.”
A copy of the opinion can be found at:
http://www.supremecourt.gov/opinions/10pdf/09-329.pdf
As you may recall, in January 2009, the Board promulgated a final rule, scheduled to be effective July 1, 2010, which among other things included a new provision, §226.9(g), which requires 45 days’ advance notice of increases in rates due to cardholder delinquency or default, or as a penalty, including penalties for “events specified in the account agreement, such as making a late payment . . . .”12 CFR §226.9(g)(1)(2010). In May 2009, Congress enacted the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act). The Credit CARD Act amended TILA, in relevant part, to require 45 days’
advance notice of most increases in credit card annual percentage rates.
15 U. S. C. §1637(i). Because the Credit CARD Act’s notice requirements with respect to interest-rate increases largely mirrored the requirements in the new version of the new regulation, the Board changed the effective date of those requirements to August 20, 2009, to coincide with the statutory schedule. The transactions giving rise to the dispute at issue in this case arose prior to enactment of the Credit CARD Act and the promulgation of the new regulatory provisions.
The Supreme Court held that the Regulation Z rules were not clear on whether a change to an interest rate that resulted from a previously disclosed provision in a contract would require disclosure. The U.S.
Supreme Court deferred to the Federal Reserve, which in its amicus brief argued that the bank was not required to give the borrower notice under the version of Regulation Z that was in effect at the time.
Plaintiff (“Debtor”) was the holder of a card issued by creditor Chase Bank (“Chase”). The cardholder agreement between the parties provided, in relevant part, that Debtor was eligible for “preferred rates,” but that to keep those rates Debtor had to meet certain conditions. If any conditions in the credit agreement were not met, Chase reserved the right to “change Debtor’s interest rate and impose a non-preferred rate up to the maximum non-preferred rate described in the pricing schedule” and to apply any changes “to existing as well as new balances … effective with the billing cycle ending on the review date.” Debtor brought suit against Chase, alleging that Chase violated Regulation Z because Chase increased Debtor’s interest rate “due to his delinquency or default” and did not notify Debtor of the increase until after it had taken effect.
The district court dismissed Debtor’s complaint, “holding that because the increase did not constitute a ‘change in terms’ as contemplated by §226.9(c), Chase was not required to notify him of the increase before implementing it.” The Ninth Circuit reversed, holding that “because the credit agreement does not alert Debtor to the ‘specific change’ that will occur if he defaults, Chase was obliged to give notice of that change prior to its effective date.” The First Circuit resolved the same question in favor of Chase, the Supreme Court resolved the circuit split and reversed the decision of the Ninth Circuit.
At the time of the relevant dispute, Section 226.6 of Regulation Z required credit card issuers to provide debtors an “initial disclosure statement” to include, among other things, “a disclosure of each periodic rate that may be used to compute the finance charge.” In addition, Section 226.9(c) required that prior notice be given to the debtor “[w]henever any term required to be disclosed under 226.6 is changed or the minimum periodic payment is increased.”
Therefore, the question before the Supreme Court was “whether the Debtor’s interest rate constitutes a change to a ‘term required to be disclosed under §226.6,’ requiring a subsequent disclosure under §226.9(c)(1).” The Supreme Court held that an interest-rate increase does not “constitute a ‘change in terms’ under Regulation Z, when the change is made pursuant to a provision in the cardholder agreement allowing the issuer to increase the rate, up to a state maximum, in the event of the cardholder's delinquency or default.”
Rejecting one among many of Debtor’s arguments against deference to the Board, the Court further reasoned that “there is no reason to believe that the interpretation advanced by the Board is a ‘post hoc rationalization’ taken as a litigation position.” In addition, the Board’s “2004 notice of rulemaking and the 2007 proposed amendments to Regulation Z make clear that, prior to 2009, the Board’s fair and considered judgment was that ‘no change-in-terms notice is required if the creditor specifies in advance that the circumstances under which an increase…will occur,’ and ‘immediate application of penalty pricing upon the occurrence of events specified in the contract’ was permissible.” Therefore, “it is clear that deference to the interpretation in the Board’s amicus brief is warranted.”
HAMP REACHING UNDERWATER AND MIDDLE CLASS BORROWERS: REPORT
Treasury and HUD released a new report Monday on the state of the housing market, including new metrics that provide a more granular view of the Home Affordable Modification Program (HAMP). Most program participants are moderate and middle income distressed homeowners, with a median credit score of 570, who are underwater on their mortgages. Borrowers in active permanent modifications have seen their monthly mortgage payment cut by a median of 40 percent.
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Feds Announce NMLS Registrations Beginning for Subject Depository Institution Employees
The federal depository institution regulators and Farm Credit Administration announced that the Nationwide Mortgage Licensing System and Registry will begin accepting federal registrations.
The announcement was made by the Board of Governors of the Federal Reserve System, Farm Credit Administration, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, and Office of Thrift Supervision.
As you may recall, under the S.A.F.E. Act and the agencies' final rules, residential mortgage loan originators employed by banks, savings associations, credit unions, or Farm Credit System institutions must register with the registry, obtain a unique identifier from the registry, and maintain their registrations.
Following expiration of the 180-day initial registration period on July 29, 2011, any employee of an agency-regulated institution who is subject to the registration requirements will be prohibited from originating residential mortgage loans without first meeting these requirements. The rules include an exception for mortgage loan originators that originated five or fewer mortgage loans during the previous 12 months and who have never been registered.
Further information regarding the registry and the registration process is available at the registry's website:
http://mortgage.nationwidelicensingsystem.org/fedreg/Pages/default.aspx
The Federal Register notice is available at:
http://www.occ.gov/news-issuances/news-releases/2011/nr-ia-2011-9a.pdf
The announcement was made by the Board of Governors of the Federal Reserve System, Farm Credit Administration, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, and Office of Thrift Supervision.
As you may recall, under the S.A.F.E. Act and the agencies' final rules, residential mortgage loan originators employed by banks, savings associations, credit unions, or Farm Credit System institutions must register with the registry, obtain a unique identifier from the registry, and maintain their registrations.
Following expiration of the 180-day initial registration period on July 29, 2011, any employee of an agency-regulated institution who is subject to the registration requirements will be prohibited from originating residential mortgage loans without first meeting these requirements. The rules include an exception for mortgage loan originators that originated five or fewer mortgage loans during the previous 12 months and who have never been registered.
Further information regarding the registry and the registration process is available at the registry's website:
http://mortgage.nationwidelicensingsystem.org/fedreg/Pages/default.aspx
The Federal Register notice is available at:
http://www.occ.gov/news-issuances/news-releases/2011/nr-ia-2011-9a.pdf
US Sup Ct Limits Car-Ownership Deduction for BAPCPA's Means Test
The Supreme Court of the United States recently held that, under BAPCPA’s means test, a debtor in Chapter 13 Bankruptcy who does not make loan or lease payments may not take the car-ownership deduction.
A copy of the opinion is available at:
http://www.supremecourt.gov/opinions/10pdf/09-907.pdf.
This case came before the Supreme Court on certiorari from the United States Court of Appeals for the Ninth Circuit. Petitioner Jason Ransom, a debtor in Chapter 13 Bankruptcy, had liabilities which included $82,500 in unsecured debt, part of which consisted of a claim by respondent FIA Card Services N.A. Ransom, who owned his vehicle outright, contended that under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
(BAPCPA) means test used to determine a debtor’s disposable income, he was entitled to deductions in relation to the vehicle for both “Ownership Costs” and “Operating Costs.” FIA disputed Ransom’s proposed repayment plan stating that it “did not direct all of Ransom’s disposable income to unsecured creditors” because it improperly included the ownership deduction.
As you may recall, Chapter 13 of the Bankruptcy Code enables an individual to obtain a discharge of his debts if he pays his creditors a portion of his monthly income in accordance with a court-approved plan. 11 U. S. C.
§1301 et seq. To determine how much income the debtor is capable of paying, Chapter 13 uses a statutory formula known as the “means test.” The means test instructs a debtor to deduct from his current monthly income “amounts reasonably necessary to be expended” for, inter alia, “maintenance or support.” 11 U. S. C. §1325(b)(2)(A)(i). The result is his “disposable income”—the amount he has available to reimburse creditors.
§1325(b)(2).
As relevant here, the statute provides that “[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service [IRS] fort he area in which the debtor resides.” The Standards are tables listing
standardized expense amounts for basic necessities, which the IRS prepares to help calculate taxpayers’ ability to pay overdue taxes. The IRS also creates supplemental guidelines known as the “Collection Financial Standards,” which describe how to use the tables and what the amounts listed in them mean. The Local Standards include an allowance for transportation expenses, divided into vehicle “Ownership Costs” and vehicle “Operating Costs.” The Collection Financial Standards explain that “Ownership Costs” cover monthly loan or lease payments on an automobile.
The expense amounts listed are based on nationwide car financing data. The Collection Financial Standards further state that a taxpayer who has no car payment may not claim an allowance for ownership costs.
The Supreme Court examined the language of the Bankruptcy Code at §707(b)(2)(A)(ii)(I), which states, “The debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards.” The Court focused on the term “applicable,” stating that whether or not Ransom could claim the car ownership deduction hinged on whether this amount “is “applicable” to him.” The Court then noted that as this term is undefined in the statute they look to the “ordinary meaning of the term” which is “appropriate, relevant, suitable, or fit.”
The Court stated that applicability, in the context of BAPCPA, is determined by making “individualized determination” of a debtor’s monthly expenses. The Court noted that if Congress had not intended to differentiate between debtors who did and did not qualify for a deduction, it “could have omitted the term ‘applicable’ altogether.” The Court also noted that the “statutory context” gives support to this reading as the Code defines disposable income as “current monthly income…less amounts reasonably necessary to be expended.” Lastly, the Court examined the legislative intent behind BAPCPA, which was to prevent perceived bankruptcy abuses by ensuring “[debtors] repay creditors the maximum they can afford.”
Ransom argued that the term “applicable” refers to the deduction tables, directing the debtor to chose the “applicable” ownership deduction of whether he or she owned one or two vehicles. The Court noted that this interpretation made the use of the word “applicable” superfluous, and was contrary to the statutory purpose effected by the means test giving an allowance for ““reasonably necessary” expenses.” The Court further noted that “[e]xpenses that are wholly fictional are not easily though of as reasonably necessary.” The Court also disagreed with Ransom’s contention that this reading would conflate “applicable” with “actual”, noting that although an expense can only be deducted if actually incurred, the actual debtor expenses incurred does not necessarily control, if for instance the debtor’s “actual expenses exceed the amounts listed in the tables….”
The Court also disagreed with Ransom’s contention that the car-ownership deduction cannot cover only loan and lease payments, because a separate sentence of the means test provides that “notwithstanding” the other provisions of the test, “the monthly expenses of the debtor shall not include any payments for debts.” The Court held that this sentence did not apply solely to the car-ownership provision, and that this sentence could only serve to “exclude, and not authorize, deductions.”
Lastly, Ransom argued that his reading of the means test was necessary to avoid results not intended by Congress. Ransom gave as an example of such “senseless results” as that of a debtor timing their bankruptcy filing so that he or she would have only a few car payments left, and thus claim an ownership deduction that would not be applicable soon after entering bankruptcy. The Court stated that such anomalies were “the inevitable result of a standardized formula like the means test”, and Ransom’s reading introduced its own problems, namely, “the strangeness of giving a debtor an allowance for loan or lease payments” when he or she is incurring no such costs. The Court held that all of Ransom’s arguments miss the point of both BAPCPA and the means test, which are to prevent bankruptcy abuses while simultaneously assuring that a debtor has enough money for “reasonable expenses.”
Justice Scalia alone dissented from the majority opinion. His dissenting opinion took issue with the majority’s assertion that Ransom’s reading of the word “applicable” would render it superfluous, noting “[t]he canon against superfluity is not a canon against verbosity.” Justice Scalia then stated that “[t]he point of the statutory language is to entitle debtors who own cars to an ownership deduction” and that an independent interpretation of the tables used was unnecessary as there was “little doubt” that a debtor would be able to choose whether to claim a deduction for one car or two. Scalia also noted that the Court’s job was not to “eliminate or reduce” the “oddities” mentioned by the court, but to “give the formula Congress adopted its fairest meaning.”
A copy of the opinion is available at:
http://www.supremecourt.gov/opinions/10pdf/09-907.pdf.
This case came before the Supreme Court on certiorari from the United States Court of Appeals for the Ninth Circuit. Petitioner Jason Ransom, a debtor in Chapter 13 Bankruptcy, had liabilities which included $82,500 in unsecured debt, part of which consisted of a claim by respondent FIA Card Services N.A. Ransom, who owned his vehicle outright, contended that under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
(BAPCPA) means test used to determine a debtor’s disposable income, he was entitled to deductions in relation to the vehicle for both “Ownership Costs” and “Operating Costs.” FIA disputed Ransom’s proposed repayment plan stating that it “did not direct all of Ransom’s disposable income to unsecured creditors” because it improperly included the ownership deduction.
As you may recall, Chapter 13 of the Bankruptcy Code enables an individual to obtain a discharge of his debts if he pays his creditors a portion of his monthly income in accordance with a court-approved plan. 11 U. S. C.
§1301 et seq. To determine how much income the debtor is capable of paying, Chapter 13 uses a statutory formula known as the “means test.” The means test instructs a debtor to deduct from his current monthly income “amounts reasonably necessary to be expended” for, inter alia, “maintenance or support.” 11 U. S. C. §1325(b)(2)(A)(i). The result is his “disposable income”—the amount he has available to reimburse creditors.
§1325(b)(2).
As relevant here, the statute provides that “[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service [IRS] fort he area in which the debtor resides.” The Standards are tables listing
standardized expense amounts for basic necessities, which the IRS prepares to help calculate taxpayers’ ability to pay overdue taxes. The IRS also creates supplemental guidelines known as the “Collection Financial Standards,” which describe how to use the tables and what the amounts listed in them mean. The Local Standards include an allowance for transportation expenses, divided into vehicle “Ownership Costs” and vehicle “Operating Costs.” The Collection Financial Standards explain that “Ownership Costs” cover monthly loan or lease payments on an automobile.
The expense amounts listed are based on nationwide car financing data. The Collection Financial Standards further state that a taxpayer who has no car payment may not claim an allowance for ownership costs.
The Supreme Court examined the language of the Bankruptcy Code at §707(b)(2)(A)(ii)(I), which states, “The debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards.” The Court focused on the term “applicable,” stating that whether or not Ransom could claim the car ownership deduction hinged on whether this amount “is “applicable” to him.” The Court then noted that as this term is undefined in the statute they look to the “ordinary meaning of the term” which is “appropriate, relevant, suitable, or fit.”
The Court stated that applicability, in the context of BAPCPA, is determined by making “individualized determination” of a debtor’s monthly expenses. The Court noted that if Congress had not intended to differentiate between debtors who did and did not qualify for a deduction, it “could have omitted the term ‘applicable’ altogether.” The Court also noted that the “statutory context” gives support to this reading as the Code defines disposable income as “current monthly income…less amounts reasonably necessary to be expended.” Lastly, the Court examined the legislative intent behind BAPCPA, which was to prevent perceived bankruptcy abuses by ensuring “[debtors] repay creditors the maximum they can afford.”
Ransom argued that the term “applicable” refers to the deduction tables, directing the debtor to chose the “applicable” ownership deduction of whether he or she owned one or two vehicles. The Court noted that this interpretation made the use of the word “applicable” superfluous, and was contrary to the statutory purpose effected by the means test giving an allowance for ““reasonably necessary” expenses.” The Court further noted that “[e]xpenses that are wholly fictional are not easily though of as reasonably necessary.” The Court also disagreed with Ransom’s contention that this reading would conflate “applicable” with “actual”, noting that although an expense can only be deducted if actually incurred, the actual debtor expenses incurred does not necessarily control, if for instance the debtor’s “actual expenses exceed the amounts listed in the tables….”
The Court also disagreed with Ransom’s contention that the car-ownership deduction cannot cover only loan and lease payments, because a separate sentence of the means test provides that “notwithstanding” the other provisions of the test, “the monthly expenses of the debtor shall not include any payments for debts.” The Court held that this sentence did not apply solely to the car-ownership provision, and that this sentence could only serve to “exclude, and not authorize, deductions.”
Lastly, Ransom argued that his reading of the means test was necessary to avoid results not intended by Congress. Ransom gave as an example of such “senseless results” as that of a debtor timing their bankruptcy filing so that he or she would have only a few car payments left, and thus claim an ownership deduction that would not be applicable soon after entering bankruptcy. The Court stated that such anomalies were “the inevitable result of a standardized formula like the means test”, and Ransom’s reading introduced its own problems, namely, “the strangeness of giving a debtor an allowance for loan or lease payments” when he or she is incurring no such costs. The Court held that all of Ransom’s arguments miss the point of both BAPCPA and the means test, which are to prevent bankruptcy abuses while simultaneously assuring that a debtor has enough money for “reasonable expenses.”
Justice Scalia alone dissented from the majority opinion. His dissenting opinion took issue with the majority’s assertion that Ransom’s reading of the word “applicable” would render it superfluous, noting “[t]he canon against superfluity is not a canon against verbosity.” Justice Scalia then stated that “[t]he point of the statutory language is to entitle debtors who own cars to an ownership deduction” and that an independent interpretation of the tables used was unnecessary as there was “little doubt” that a debtor would be able to choose whether to claim a deduction for one car or two. Scalia also noted that the Court’s job was not to “eliminate or reduce” the “oddities” mentioned by the court, but to “give the formula Congress adopted its fairest meaning.”
ISSA ASKS FOR DETAILS OF FANNIE, FREDDIE LEGAL FEES
House Committee on Oversight and Government Reform Chairman Darrell Issa (R-Calif.) wants to know why lending giants Fannie Mae and Freddie Mac are still paying the legal bills for their former executives, the Legal Times reported yesterday. Those bills have run well into the millions of dollars - $24.2 million to defend the former executives and $160 million overall to defend them and the companies in various lawsuits, the New York Times reported this month. Issa yesterday released a letter to the Federal Housing Administration asking for a "full and complete explanation" of the decision to "continue advancing legal fees on behalf of former executives." The letter also asks for employment contracts for former executives Franklin Raines, Timothy Howard, Leanne Spencer and Leland Brendsel, and for communications involving the companies, the Treasury Department and the White House
http://dizzy.abiworld.org/t/1515391/201584/6701/0/y
http://dizzy.abiworld.org/t/1515391/201584/6701/0/y
MORTGAGE FINANCE OVERHAUL TO RAISE COSTS, REDUCE HOME-OWNERSHIP
David Stevens, commissioner of the Federal Housing Administration, which guarantees loans to first-time and low-income home buyers. Ownership rates, which rose from 63.8 percent in 1994 to 69.2 percent a decade later, have since dropped to 66.9 percent, according to the U.S. Census Bureau. Stevens said he expects the rate to fall further.
http://www.bloomberg.com/news/print/2011-01-31/higher-costs-lower-home-ownership-rates-expected-after-housing-overhaul.html
http://www.federalreserve.gov/newsevents/press/bcreg/20110201a.html
http://www.bloomberg.com/news/print/2011-01-31/higher-costs-lower-home-ownership-rates-expected-after-housing-overhaul.html
http://www.federalreserve.gov/newsevents/press/bcreg/20110201a.html
CA App Allows Borroer's Allegations of Loan Modification Misrepresentation to Proceed
The California Court of Appeal, Second District, recently held that a borrower stated claims for promissory estoppel and fraud, in connection with alleged loan modification representations. However, the Court rejected the borrower's efforts to void the related foreclosure sale.
A copy of the opinion is available at:
http://www.courtinfo.ca.gov/opinions/documents/B220922.PDF
The plaintiff borrower filed for bankruptcy, first as a Chapter 7 but then sought to convert to a Chapter 13. She contacted the defendant bank, which allegedly promised to work with her on a loan reinstatement and modification if she would forgo further bankruptcy proceedings. In reliance on that alleged promise, the borrower claimed she did not convert her bankruptcy case to a chapter 13 proceeding or oppose the bank's motion to lift the bankruptcy stay. While the bank was promising to work with borrower, the bank allegedly was simultaneously complying with the notice requirements to conduct a sale under the power of sale in the deed of trust.
The bankruptcy court lifted the stay. But the bank allegedly did not work with borrower in an attempt to reinstate and modify the loan. Rather, it completed the foreclosure.
The borrower filed this action against the bank, asserting a cause of action for promissory estoppel and fraud, among others. She argued the bank's promise to work with her in reinstating and modifying the loan was enforceable, she had relied on the promise by forgoing bankruptcy protection under Chapter 13, and the bank subsequently breached its promise by foreclosing. The trial court dismissed the case on demurrer.
The California appellate court reversed in part, holding: (1) the borrower could have reasonably relied on the bank's promise to work on a loan reinstatement and modification if she did not seek relief under chapter 13; (2) the promise was sufficiently concrete to be enforceable; and (3) the borrower's decision to forgo Chapter 13 relief was detrimental because it allowed the bank to foreclose on the property. The Court therefore allowed the promissory estoppel and fraud claims to survive.
However, the appellate court also held that the borrower's complaint did not allege any irregularities in the foreclosure process that would permit the trial court to void the deed of sale or otherwise invalidate the foreclosure.
The bank argued that an oral promise to postpone either a loan payment or a foreclosure is unenforceable. However, the Court noted that "the doctrine of promissory estoppel is used to provide a substitute for the consideration which ordinarily is required to create an enforceable promise." The Court further noted that a promissory estoppel claim generally entitles a borrower to the damages available on a breach of contract claim.
However, the Court also held that, "[b]ecause this is not a case where the homeowner paid the funds needed to reinstate the loan before the foreclosure, promissory estoppel does not provide a basis for voiding the deed of sale or otherwise invalidating the foreclosure."
The Court also rejected the borrower's allegations that: (1) the trustee under the deed of trust was defective because the "Substitution of Trustee" was signed by the bank's attorney-in-fact; and (2) the foreclosure sale was void because the notice of default mistakenly the wrong beneficiary.
A copy of the opinion is available at:
http://www.courtinfo.ca.gov/opinions/documents/B220922.PDF
The plaintiff borrower filed for bankruptcy, first as a Chapter 7 but then sought to convert to a Chapter 13. She contacted the defendant bank, which allegedly promised to work with her on a loan reinstatement and modification if she would forgo further bankruptcy proceedings. In reliance on that alleged promise, the borrower claimed she did not convert her bankruptcy case to a chapter 13 proceeding or oppose the bank's motion to lift the bankruptcy stay. While the bank was promising to work with borrower, the bank allegedly was simultaneously complying with the notice requirements to conduct a sale under the power of sale in the deed of trust.
The bankruptcy court lifted the stay. But the bank allegedly did not work with borrower in an attempt to reinstate and modify the loan. Rather, it completed the foreclosure.
The borrower filed this action against the bank, asserting a cause of action for promissory estoppel and fraud, among others. She argued the bank's promise to work with her in reinstating and modifying the loan was enforceable, she had relied on the promise by forgoing bankruptcy protection under Chapter 13, and the bank subsequently breached its promise by foreclosing. The trial court dismissed the case on demurrer.
The California appellate court reversed in part, holding: (1) the borrower could have reasonably relied on the bank's promise to work on a loan reinstatement and modification if she did not seek relief under chapter 13; (2) the promise was sufficiently concrete to be enforceable; and (3) the borrower's decision to forgo Chapter 13 relief was detrimental because it allowed the bank to foreclose on the property. The Court therefore allowed the promissory estoppel and fraud claims to survive.
However, the appellate court also held that the borrower's complaint did not allege any irregularities in the foreclosure process that would permit the trial court to void the deed of sale or otherwise invalidate the foreclosure.
The bank argued that an oral promise to postpone either a loan payment or a foreclosure is unenforceable. However, the Court noted that "the doctrine of promissory estoppel is used to provide a substitute for the consideration which ordinarily is required to create an enforceable promise." The Court further noted that a promissory estoppel claim generally entitles a borrower to the damages available on a breach of contract claim.
However, the Court also held that, "[b]ecause this is not a case where the homeowner paid the funds needed to reinstate the loan before the foreclosure, promissory estoppel does not provide a basis for voiding the deed of sale or otherwise invalidating the foreclosure."
The Court also rejected the borrower's allegations that: (1) the trustee under the deed of trust was defective because the "Substitution of Trustee" was signed by the bank's attorney-in-fact; and (2) the foreclosure sale was void because the notice of default mistakenly the wrong beneficiary.
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