Credit Slips Roundup!

[Joanne98]

Bankruptcy in the Senate, December 4

posted by Bob Lawless

I'm in Providence, Rhode Island, for a field hearing of the Senate Judiciary Committee. The hearing is "Credit Cards and Bankruptcy: Opportunities for Reform." The other witness are former Credit Slips guest blogger and attorney for the National Consumer Law Center John Rao, Bankruptcy Judge Thomas Small of the Eastern District for North Carolina, and Professor John Chung of the Roger WIlliams University School of Law. The cab driver from the airport was among the most friendliest I've encountered and was pointing out the many fine features of Providence as we drove in. It's always nice to have your first contact with a place be with someone who is proud of their town.

One of the topics will be S. 3259, the Consumer Credit Fairness Act introduced by Senators Whitehouse and Durbin. This bill defines a "high cost consumer credit transaction" as one in which the interest and fees create an interest more than 15% higher than the rate on 30-year U.S. Treasury obligations (up to a maximum of 36%). Right now, that would be a credit transaction with an interest rate a little over 18% 19%. The bill then would subordinate to all other claims in a consumer bankruptcy any "high cost consumer credit transaction" and would excuse from the means test any bankruptcy caused by a "high cost consumer credit transaction."

http://www.creditslips.org/creditslips/2008/12/bankruptcy-in-t.html

Bankruptcy Filing Rate Climbs Slightly in November

Don't let other headlines fool you. On a daily basis, the bankruptcy filing rate rose in November and went over 5,000 for the first time since the 2005 changes to the U.S. bankruptcy law. The 91,355 filings in November were a decline in absolute numbers from October, but spread over a month with only 18 business days, that's a daily filing rate of 5,075 and a 2.6% increase from October. If we don't count the day after Thanksgiving as a business day, the November filing rate represents an 8.6% over October. As always thanks to Automated Access to Court Electronic Records (AACER) for the data.

The November daily filing rate of 5,075 is an increase of 36.9% over the same time period the year before. The short-term trend over the past few months is a big part of the increase. The November 2008 increase in the bankruptcy filing rate comes on the heels of increases in July (2%) August (2%) September (2%) and October (8%). Remember that even small monthly increases compound to large annual increases. For example, if bankruptcy filings rose 2% each month, that translated into a 29% annual increase. The tightness of credit and the overall economy are the reasons for the increases in the bankruptcy filing rate.

With only one month left in the year, it doesn't take advanced math to estimate total bankruptcy filings for the 2008 calendar year. We are just a few hundred bankruptcies short of 1,000,000 for the calendar year, and we can expect about 100,000 filings in December. For the record, however, in 2008 we will have:

Continued>>>
http://www.creditslips.org/creditslips/2008/12/bankruptcy-fili.html

The Role of Recourse in Foreclosures

posted by Adam Levitin

Martin Feldstein has been pushing a mortgage bailout proposal that has been getting some undeserved attention (see here and here, e.g.). Feldstein gets (here, and here) how central negative equity is to the economic crisis. Homeowners with negative equity have a reduced incentive to stay in their home if the mortgage is burdensome. Negative equity fuels foreclosures, which in turn force down housing prices, setting off a downward spiral. Feldstein is right to focus on negative equity as a key issue for housing market stabilization. The problem is in his solution--it is based on a few erroneous factual premises, all of which could have been discovered with very limited Google searches.

Feldstein argues for the government to partially refinance mortgages with low-interest loans. That’s not a unique idea, and the problems involved with having the government assume private mortgage debt (e.g., bail out lenders and socialize losses) are well-known.

Feldstein adds a twist, though. He recognizes the problem with socialized losses and tries to guard against that by insisting that the government refinanced part of the mortgage be “recourse”—that is the government could look not just to the house for satisfaction of its debts, but also to the homeowner’s other assets. (Feldstein would also make this debt non-dischargeable in bankruptcy, something which rightly gives Ian Ayres pause.)

Feldstein believes that having “non-recourse” mortgages is a major factor encouraging homeowners to walk away from underwater properties. He writes:

Continued>>>
http://www.creditslips.org/creditslips/2008/12/the-role-of-rec.html

[DJ13]

1. S. 3259, the Consumer Credit Fairness Act... (up to a maximum of 36%)

If they think 36% is an acceptable ceiling for interest rates they shouldnt bother with that legislation.

Thats an absurd rate, and one that is so high this legislation becomes nothing more than a PR exercise for Congress to claim they "did something to benefit the consumers" without really doing anything at all.

That needs to be reduced to a maximum rate of 24%, and then set strict guidelines that would need to be followed before that 24% can be charged to a consumer.

Its time to grow a pair Congress, and actually help the consumer.

[Joanne98]

2. I agree. 15% should be tops. NO FEES EITHER!