Puerto Rico

JUDGE STRIKES FEDERAL RULE ON FOR-PROFIT COLLEGES

The U.S. Department of Education's rule designed to prevent for-profit colleges from leaving students with debts they struggle to repay was struck down by a federal judge who said the regulation was arbitrary, Bloomberg News reported yesterday. U.S. District Judge Rudolph Contreras ruled on June 30 the department's requirement that at least 35 percent of graduates must be repaying their loans for a college to qualify for federal grants wasn’t based on any facts. "No expert study or industry standard suggested that the rate selected by the department would appropriately measure whether a particular program adequately prepared its students," Contreras ruled. "The entire debt measure rule must therefore be vacated and remanded to the department." Read more.

FHA RESCINDS TOUGH NEW CREDIT RESTRICTIONS ON MORTGAGE LOAN APPLICANTS

In a policy switch that could be important to thousands of applicants seeking low-down-payment home mortgages, the Federal Housing Administration (FHA) has rescinded tough new credit restrictions that had been scheduled to take effect on Sunday, the Los Angeles Times reported on Sunday. The policy change would have affected borrowers who have one or more collections or disputed-bill accounts on their national credit bureau files in which the aggregate amounts were $1,000 or more. Some mortgage industry experts estimate that if the now-rescinded rules had gone into effect, as many as 1 in 3 FHA loan applicants would have had difficulty being approved. Under the withdrawn plan, borrowers with collections or disputed unpaid bills would have been required to "resolve" them before their loan could be closed, either by paying them off in full or by arranging a schedule of repayments. Read more.

COMMENTARY: HOW WALL STREET SCAMS COUNTIES INTO BANKRUPTCY

Wall Street refuses to learn that it is illegal to bribe public officials to get access to lucrative municipal-bond underwriting business because the miniscule price it ends up having to pay for misbehaving has absolutely no deterrent value whatsoever, according to a Bloomberg News commentary on Sunday. In 2009, the Securities and Exchange Commission charged that two bankers at JPMorgan, Charles LeCroy and Douglas MacFaddin, had in 2002 and 2003 privately agreed with "certain" county commissioners in Jefferson County, Ala., to pay more than $8.2 million to "close friends of the commissioners who either owned or worked at local broker-dealers" that had been hired to advise the county commissioners on awarding underwriting business. The purpose of the payments, the SEC alleged, was to make sure the commissioners hired JPMorgan as the underwriter of municipal-bond sales and swaps contracts. According to a suit filed by the county, JPMorgan even agreed to pay Goldman Sachs Group Inc. $3 million if it would not compete for a $1.1 billion interest-rate swap that JPMorgan entered into with Jefferson County. The payments were all undisclosed -- the Goldman money, the suit claimed, was shuffled through a separate derivatives contract created just to make the payment -- and decreased the proceeds the county received from the offerings. To settle the charges with the SEC, JPMorgan neither admitted nor denied wrongdoing, but paid $722 million, including forgiving $647 million in fees that the county would have had to pay to unwind the swap deals. Last November, Jefferson County filed for bankruptcy protection, largely a result of the deals JPMorgan Chase put together. Read more.

ANALYSIS: CONSUMERS UNLIKELY TO REKINDLE THE RECOVERY

After adding more than 250,000 jobs a month from December through February, U.S. employers have added an average of less than 100,000 jobs for the past three months, and as hiring has slowed, so has consumer spending, according to an analysis in yesterday's Wall Street Journal. Retail sales have fallen for two consecutive months. Overall consumer spending fell slightly in May, the Commerce Department said Friday, the first drop in nearly a year. Consumer sentiment tumbled in June to its lowest level since December, wiping out nearly all the recent gains. Beneath the weak May and June numbers lies a deeper problem: The consumer recovery was never as robust as it first appeared. In May, the Commerce Department revised down its estimate of first-quarter spending growth to 2.7 percent from 2.9 percent. Last week, the figure was revised down yet again, to 2.5 percent. That still represents the fastest growth since late 2010, but it is not enough to shift the recovery into a higher gear as some economists were predicting at the beginning of the year. Read more. (Subscription required.)

Meanwhile, the American Bankers Association reported that consumer delinquencies fell in the first quarter for 10 of 11 categories that it tracks, including personal loans, bank cards and direct auto loans. Read more.

CFPB SIGNS OFF ON CONFIDENTIALITY RULES

The Consumer Financial Protection Bureau on Thursday adopted rules outlining how it would handle privileged information it receives from the financial entities it oversees, The Hill reported on Friday. Banks and other financial institutions had aired concerns that secret information it provides to the new agency through the course of regulation might not be kept private. The rules offered by the bureau are aimed at reassuring those institutions. In the new rules, the CFPB states that providing privileged information to the regulator does not mean an institution needs to waive its right to confidentiality of that content when it comes to it being shared with a third party. Furthermore, it states the bureau can share that information with other federal and state regulators without violating confidentiality. Read more.

ABI IN-DEPTH

“SUBJECTING BUSINESS PROJECTIONS TO SCRUTINY IN VALUATION DISPUTES” WEBINAR TO BE HELD ON JULY 30!

Reassembling the speakers from one of the most popular panels at the New York City Bankruptcy Conference this year, ABI will be holding a live webinar on July 30 at 11 a.m. ET titled, "Subjecting Business Projections to Scrutiny in Valuation Disputes." Panelists include:

- Moderator David Pauker of Goldin Associates, LLC (New York)

- Martin J. Bienenstock of Proskauer (New York)

- David M. Hillman of Schulte Roth & Zabel LLP (New York)

- Bankruptcy Judge Robert E. Gerber (S.D.N.Y.)

The panel will address:

- How much deference should management projections be accorded?
- How do you determine whether projections are unrealistically optimistic or pessimistic?
- What is the relevance of "market consensus?"
How do management’s incentives impact projections?

The webinar is available to ABI members for $75 and is approved for 1.0 CLE hours in Calif., Ga., Hawaii, Ill., N.Y. (approved jurisdiction policy) S.C. and Texas. CLE approval is pending in Del., Fla., Pa. and Tenn. To register, please click here.

LATEST CASE SUMMARY ON VOLO: RNPM, LLC V. MERCADO ALVAREZ (IN RE MERCADO ALVAREZ; 1ST CIR.)

Summarized by Bruce Harwood of Sheehan Phinney Bass + Green

Pursuant to §1322(e) of the Bankruptcy Code, the amount of an arrearage under a mortgage secured by the debtor’s principal residence, including the amount of the mortgagee’s attorneys fees and costs recoverable under the mortgage, is determined by applicable nonbankruptcy law, and not the reasonableness, lodestar-based standards of §506(b) or Bankruptcy Rule 2016, which are overridden by §1322(b). Since applicable Puerto Rico law provides that the amount of attorneys’ fees and costs recoverable under "penal clauses"—which permit recovery of attorneys' fees and costs as a percentage of the original principal of the mortgage note—is subject to adjustment on equitable grounds, the Bankruptcy Court properly considered those grounds in reducing the mortgagee’s claim for attorneys' fees from $7,600 (the contract rate, equal to 10 percent of the original principal amount) to $2,000.

More than 500 appellate opinions are summarized on Volo typically within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI’s Volo website.

NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: STOCKTON'S CHAPTER 9 FILING- ANOTHER OUTLIER OR HARBINGER?

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent post examines whether Stockton's chapter 9 filing last week represents a wave of chapter 9 filings to come or will remain a contained event. Last weekend, Pennsylvania extended until Nov. 30 a ban on a possible chapter 9 filing by the capital city of Harrisburg.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll
The full-payment rule in section 1325's "hanging paragraph" for new car PMSIs should be repealed to level the playing field between car lenders and other partially and fully unsecured creditors.

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

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July
- Northeast Bankruptcy Conference and Northeast Consumer Forum
     July 12-15, 2012 | Bretton Woods, N.H.
- Southeast Bankruptcy Workshop
     July 25-28, 2012 | Amelia Island, Fla.
-Valuation Webinar, July 30 at 11 a.m. ET

August
- Mid-Atlantic Bankruptcy Workshop
     August 2-4, 2012 | Cambridge, Md.

September
- Complex Financial Restructuring Program
     September 13-14, 2012 | Las Vegas, Nev.
- Southwest Bankruptcy Conference
     September 13-15, 2012 | Las Vegas, Nev.
- 38th Annual Lawrence P. King and Charles Seligson Workshop on Bankruptcy & Business Reorganization
     September 19-20, 2012 | New York, N.Y.

October
- Nuts & Bolts for Young and New Practitioners - KC
     October 4, 2012 | Kansas City, Mo.
- Midwestern Bankruptcy Institute Program, Midwestern Consumer Forum
     October 5, 2012 | Kansas City, Mo.
- Bankruptcy 2012: Views from the Bench
     October 5, 2012 | Washington, D.C.
- Chicago Consumer Bankruptcy Conference
     October 8, 2012 | Chicago, Ill.
- International Insolvency and Restructuring Symposium
     October 18, 2012 | Rome, Italy