postings by Katie Porter

Prime, Subprime, Deep Subprime, Suprime-Like . . . and hold it, my fav "Aspriring Prime"

posted by Katie Porter

What's in a name? A lot of heartache, potentially, as Johnny Cash explained in A Boy Named Sue.

The consumer finance industry is awash in labels for lending. Despite the lack of data, and clear analysis, that left certain people (apparently nearly all of Wall Street) surprised about the housing crisis, the lending industry is still defining success for itself. Shutterstock_268949369Kevin Wack at American Banker examines the "slippery" definition of subprime, giving examples of Equifax recalibrating the "subprime" and "deep subprime" labels to different places on the credit score range. The result: instantly, the percentage of subprime auto loan originations falls from 36% to 28%.

Labels themselves do not predict default risk (we hope the actual underwriting, including credit score, does that work). But labels do matter. Consistent use of terms such as "prime" and "subprime" help government and researchers study trends and make consistent, reliable determinations about markets. They make sure that various regulators are looking at similar loans, and they help the public evaluate their credit standing.

Maybe this is a project for the Financial Stability Oversight Council, which devoted one-page to consumer protection in its 100-page 2015 report. In what I take as a sign that FSOC should tackle this issue, there is even a heading on "Data Gaps."

The Empiricist Strikes Back

posted by Katie Porter

The Washington Post had a story yesterday about the Department of Education's look at how student loan servicers deal with the Servicemembers Civil Relief Act and its protection to members of the Armed Forces. Senator Elizabeth Warren is drawing on her years of empirical research to question the methodology and the resulting conclusions of the study. (In a warning strike for the Empiricist, Senator Warren and some colleagues asked just why it was taking a large government agency well over a year to conduct a study--a credible claim from someone who conducted several large empirical studies, largely with the help of a few research assistants.)Shutterstock_184208507

As a professor, Warren conducted several large empirical studies, each gathering hundreds of variables on a sample of  more than 1,000 families in bankruptcy. She is miffed that the Department of Education only conducted a detailed review of 55 cases (out of a universe of 20,000). A prior DOJ investigation concluded that 60,000 servicemembers paid too much interest on their student loans, resulting in a $97 million settlement with Sallie Mae and its former subsidiary Navient. Yet, the Department of Education apparently uses a very different legal standard for determining compliance with Servicemembers Civil Relief Act than the Department of Justice. Not surprisingly, with a tiny sample and a narrow analysis, the Department of Education concluded all was well and good.

But as Senator Warren well understands as an empirical researcher, what you find depends on where your look--and if you have your eyes open! Her staff report details other concerns in a report , which reads more like something you'd find on SSRN or in a social science journal than the typical sound-bites of Washington press releases.  Senator Warren had to defend her research methodology and findings, and she always rose to the occasion. Having an Empiricist in Congress means you can expect someone reading your report, not accepting the conclusions. Senator Warren is bringing her research acumen to the government's work--where like in the scholarly world, there are not-so-good studies and good studies. Our servicemembers deserve a hard look at whether their legal rights are being protected, while they are protecting our rights.

 

 

Law of Debtors and Creditors Users (and would-be users)

posted by Katie Porter

As Jason Kilborn has graciously described, Credit Slips is the blogging base of the authors of the Law of Debtors and Creditors, 7th edition, (Aspen/Wolters Kluwer 2015). We have revised the Teacher's Manual this summer and encourage all adopters or potential adopters to download the new version, available at the book's Companion Website. If we you need the professor password, email your Aspen rep or one of us.  Law Debtor Creditors update

The unfun change was discovering a few typos (blush!) in the textbook itself. We created an errata. Distributing that to your students on the first day of class will help everyone.

The fun work was updating the Teacher's Manual to reflect our own experiences in the classroom and your feedback. We hope that we've given improved guidance for certain problems and we updated the discussion to reflect several changes in law.

(One of the younger cohort thought updating jurisdiction was fun; the other decidedly did not, but is extremely thankful to have a Teacher's Manual that will let her survive teaching in a world after Wellness and Arkinson/Executive Benefits/whatever-we-are-calling-that-case.)

The Teacher's Manual update is a wholesale replacement of the prior version, so you can rely solely on it, rather than the prior version, in the future. The  technologically adept co-author (aka the non-jurisdiction person) notes that you can download the TM to an iPad for in class use or annotate the PDF with bubbles and notes in your teaching preparation using Adobe Pro.

Please continue to send us your thoughts and ideas. have a great 2015-2016 year in teaching!

"Quicken" the Development of the Law

posted by Katie Porter

Over the last few years, the US Department of Justice has reached settlements with nearly every major lender with regard to the lending procedures for FHA (Federal Housing Administration) loans. The legal basis for the settlements were alleged violations of the False Claims Act. The total recovery is about $3 billion dollars.Sue me

In the wake of lengthy and expensive investigations and negotiations, lenders have basically . . . whined.  Jamie Dimon said the company was "thoroughly confused" by the FHA's investigations and said he was going to "figure out what to do." That task might be a whole lot easier due to Chase's competitor, Quicken Loans. On Friday, Quicken sued the Department of Justice and the Department of Housing and Urban Development, asking the court for a declaratory judgment and injunction that would halt the government's efforts to bring Quicken to settle its alleged FHA liability. I love this lawsuit!!! 

Continue reading ""Quicken" the Development of the Law" »

Bankruptcy Lawyers Have Right to Work

posted by Katie Porter

 In the debate in Wisconsin over the  Right to Work bill, the legislators opposed to the bill questioned why no businesses were testifying in support of the law, if it was--as stated--going to drive business growth.

The Wisconsin Assembly got an answer when James Murray testified about the Right to Work bill. Mr. Murray explained that if passed, Right to Work would definitely increase his business: helping people file personal bankruptcy. Bankruptcy could become big business in Wisconsin, he said, noting that with a Right to Work law, Wisconsin could climb higher than 12th place on the per capita filing rate. 

Enjoy 7 minutes of brilliant satire and bankruptcy humor, courtesy of You Tube. Hat tip to Professor Michelle Arnopol Cecil for sharing this with me.

 

Are we poor?

posted by Katie Porter

If you have kids who talk as much as mine (gee, wonder where they picked up loquacity as a trait), conversations can go nearly anywhere. My boys, ages 9 and 6, are quite interested in money lately, a phenomenon driven in part by the tooth fairy and their discovery of gift cards at a recent birthday party. Here is a recent excerpt:

"Mom, is the reason that I can't have the Lego Batman DC set because we are poor? Jpeg-194x300

"We are not poor."

"Well, if are rich, then why can't I have it?"

"I didn't say we were rich. We aren't rich."

"Mom . . . . [big sigh of frustration] . . . Are we rich or are we poor?"

I recently read the Opposite of Spoiled by Ron Leiber, a NY Times money reporter. He provides straightforward advice on how to handle these questions and more. Even if one takes a slightly different tact with their kids, I completely agree with his main point:  parents should not avoid these conversations because they are uncomfortable or inconvenient or difficult. Kids talk about this stuff and draw conclusions. Creating a conversation is a way to share your values and learn about your children.

Continue reading "Are we poor? " »

Servicing Matters

posted by Katie Porter

I am so pleased to offer the following post by Carolina Reid, a premier housing researcher at UC Berkeley, about her excellent study of how mortgage servicers matter in creating home-saving opportunities. Welcome Carolina to Credit Slips.

By now we’re all familiar with a plethora of Wall Street financial acronyms, from ABSs to CDOs and CDSs. But what about MSRs (mortgage servicing rights)?  Until a year ago, I had never heard of MSRs, so I was surprised to find out that the rights to collect my mortgage payment are traded on Wall Street, much in the same way mortgage backed securities are traded. And, as a borrower, I have very little control over who purchases the servicing rights to my mortgage, despite the fact that it is usually the servicer who decides whether to offer a loan modification or start the foreclosure process if I become delinquent. Borrowers can’t “shop around” for the best servicer – you get who you get (but maybe you should get upset).

Continue reading "Servicing Matters" »

Scarcity of Money? Or Time?

posted by Katie Porter

How is it that I never find the time to blog? My answer would be that I simply do not have the time. But of course I have the same hours in a day as my co-bloggers. I could argue that I have more demands on my time, but I know very well that we are all busy. Scarcity, a book by Sendhil Mullainathan and Eldar Shafir, has many lessons for busy people, including those of us who are busy thinking about the difficulties faced by people who have a scarcity of income or disposable income after debt. 

The book looks at scarcity in varied contexts such as time, money, food, friendship. It argues that there is a common logic to situations of scarcity: a mindset that captures our attention and changes how we think. At an optimal level, scarcity can create positive focus. But the same capture of the mind can preoccupy us and make us vulnerable to poor thinking and impulse control. ScarcityThe authors find, for example, that being poor reduces a person's cognitive capacity more than going one full night without sleep.

The implications for those in financial scarcity are powerful, particularly in terms of policy intervention. The authors focus on the need for "slack" in program design; for example, job training programs with modular classes that can be taken out of order so if a person misses a class, they can more easily make up the class rather than falling behind on linear content and having to drop out.

My thinking went to chapter 13 and the debate about a "cushion" in chapter 13 plans. While some judges and trustees permit this (or even insist on it), others see it as an indication of weakness. If you deserve a discharge, you need to learn within limits. The scarcity of a confirmed chapter 13 plan, with its 100% draw on all disposable income, creates a mindset that can itself be harmful. People with some financial slack may, in fact, be better able to build the financial habits and position themselves for the rehabilitation that is bankruptcy's goal. Building financial savings into chapter 13 as a necessary expense would reduce the cognitive burden of bankruptcy and insulate people from the harms of financial scarcity after bankruptcy. The result, according to the research of Mullainathan and Shafir, would be debtors emerging from bankruptcy with better self-control, more focus, and stronger decisionmaking.

What do bankruptcy mortgage servicing and ebola have in common?

posted by Katie Porter

A long long time ago in this same galaxy, I wrote what may be Credit Slips' most popular post: What do bankruptcy mortgage servicing and phone sex in common? Today, I bring you a new comparison: bankruptcy mortgage servicing and ebola. At the outset, let me be very clear that ebola is a tragic health care crisis. I do not mean to minimize those deaths and illnesses with a comparison to mortgage servicing--although to be sure, poor mortgage servicing has tragic financial consequences.

Here is the basic analogy. Ebola has a high kill rate. Similarly, screwed up mortgage servicing can be the death knell for homeownership. Ebola is currently epidemic in West Africa, just as the foreclosure crisis made mortgage servicing a top-line policy problem. And despite the publicity, both ebola and foreclosure--as epidemiological matters--are rare. This is one of the reasons that investment and research on both problems has lagged behind more common occurrences such as, respectively, malaria and mobile banking. We have known about the risks of ebola for years, yet the global community is still struggling to find fixes. Again, in parallel, it has been twelve years since Hank Hildebrand wrote "The Sad State of Mortgage Service Providers," and six years after Tara Twomey's and my research on mortgage servicing errors in bankruptcy hit the front pages of newspapers. While improved, bankruptcy mortgage servicing is still a threat to a healthy bankruptcy system.

Screen Shot 2014-09-24 at 10.27.33 AMMy favorite recent case in point:  In re Williams, in which a couple filed a second bankruptcy solely to save their home--the exact reason for their first bankruptcy. (At least you can only get ebola once!) The Williams alleged that Ocwen had not properly serviced their mortgage during their first bankruptcy. Ocwen pursued a foreclosure after the debtors had completed their chapter 13 plan and refused to accept debtors' payments. Its proof of claim alleged 28 missed payments and an arrearage of $43,388.82.  U.S. Bankruptcy Judge Brendan Shannon (Bankr. Del.) ultimately found the debtors owed only $16,164.24 (12 payments) and ordered Ocwen to pay the costs and fees of the debtors' second bankruptcy filing and litigation with Ocwen. In describing the situation, Judge Shannon, said that the bankruptcy servicing created an "ensuing mess [that] is "dispiritingly predictable." The system was bogged down with a second case, the debtors threatened and stressed by a second foreclosure, and Ocwen spent its resources on a second round of litigation (instead of helping homeowners get loan modifications.)

Continue reading "What do bankruptcy mortgage servicing and ebola have in common? " »

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

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