A quick post before I head over to CNBC: Two NYT articles caught my eye this morning on the theme of consumer bankruptcy:
• Filings for Bankruptcy Up 18% in February http://www.nytimes.com/2008/03/05/business/05bankruptcy.html
Americans filed for bankruptcy in growing numbers in February, buckling under the combined weight of rising energy prices, a weakening housing market and sky-high personal debts.
An average of 3,960 bankruptcy petitions were filed per day nationwide last month, up 18 percent from January and up 28 percent from a year earlier, according to Automated Access to Court Electronic Records, a bankruptcy data and management company.
That piece must be combined with the following:
• Countrywide Is Sued Again by U.S. Overseer http://www.nytimes.com/2008/03/05/business/05lend.html
The United States Trustee has filed a second lawsuit against the mortgage lender Countrywide Financial, accusing the company of abusing the bankruptcy process.
In a complaint filed Saturday with the Federal Bankruptcy Court in Miami, the United States Trustee for the Southwest region, Donald Walton, accused Countrywide Home Loans, a unit of the mortgage lender, of wrongly asserting claims related to the property of two Miami borrowers, Jose and Fanny Sanchez, who reorganized their finances in bankruptcy.
The Miami suit comes on the heels of a separate lawsuit in the bankruptcy court in Atlanta also accusing Countrywide of abusing the bankruptcy process.
That new bankruptcy law turned out to be quite a clever stroke of social engineering in ways never envisioned by its drafters . . .
>
Sources:
Filings for Bankruptcy Up 18% in February
JENNY ANDERSON
NYT, March 5, 2008
http://www.nytimes.com/2008/03/05/business/05bankruptcy.html
Countrywide Is Sued Again by U.S. Overseer
REUTERS, March 5, 2008
http://www.nytimes.com/2008/03/05/business/05lend.html
Bank of America must feel like a parent who gave his teenager the Visa card to buy some new jeans, and then got a call from the police that the kid had been arrested for shoplifting.
That new bankruptcy law turned out to be quite a clever stroke of social engineering in ways never envisioned by its drafters
could you elaborate on this? not sure what you mean.
The Countrywide affair triggered a flashback in my memory:
The scene is from “National Treasure” when Cage emerged from the secret treasure location. He is sitting with the FBI agent who is also a Free Mason.
The agent tell Cage: “You know how it works in these cases…someone’s gotta go to jail.”
I’d be surprised that no criminal case could not be brought against Countrywide. I’m no lawyer but this behavior goes way beyond ordinary deceptive commercial practices. After all, Ken Starr was able to imprison people on the flimsiest of “evidence”. It’s a matter of prosecutorial will.
Question is: Do the Feds have it?
Every day I think it’s more likely that Bank of America will back out of the countrywide deal and take a few billion dollar writeoff.
No matter how much market share they think they’ll gain, it won’t be worth the price they’ll have to pay by taking on Countrywide’s debts.
Do the Feds have it?
No.
The next shoe is already dropping, and it makes one wonder which banks have exposure.
“Mish” Shedlock reports: “Last year, developers built 144 million square feet of retail projects in the top 54 U.S. markets and are slated to build another 131 million square feet this year, according to Property & Portfolio Research Inc., a Boston research company. Property & Portfolio Research calculates that demand justified 36% of the new space built last year and will support 15.7% of the space slated to be completed this year.”
36% and 16% demand to supply – the next misallocation of resources.
I guess it’s only fitting to build ghost malls for the developing ghost towns.
Do the Feds have it?
No
Agreed!
For the Feds to show some kahuna
Against corporate misfits’ behavior
That has come to the fore
They find a way to say “Nah!”
BR, must second 2 and 20, there are several ways to interpret that comment. Would love to know which direction you were going…
Barry, if you mean what I think you mean it was very clever engineering; like the leaning tower in Pisa Italy.
It is all white noise surrounding a secular bust/(bubble pop) just getting started in the bond markets. After Chairman Bernake’s suggestions yesterday they must be breathing in paper bags over what comes next. There’s no way that can be done efficiently without so many lawsuits as to choke the system shut. Legislation will be required and can you imagine a new government structure monitoring housing lending in the US. Talk about the music ending! The more inefficient the market becomes from oversight the fewer the people willing to own the assets.
Posted by: 2and20 | Mar 5, 2008 7:50:26 AM “That new bankruptcy law turned out to be quite a clever stroke of social engineering in ways never envisioned by its drafters
could you elaborate on this? not sure what you mean.”
I have the same question.
“The more inefficient the market becomes from oversight the fewer the people willing to own the assets.”
This is the kind of thinking that has gotten us into this mess. Government oversight and regulation can, in many cases, make things *more efficient* by introducing greater transparency and instilling a greater sense of confidence in those that would seek to become investors. When things are like they are right now, with a complete lack of confidence in the what little information is available, our economy comes to a grinding halt.
The sooner that we all learn this valuable lesson, the faster we can move on to re-establishing the proper role of our government in our market economy.
Winston,
“36% and 16% demand to supply – the next misallocation of resources.
I guess it’s only fitting to build ghost malls for the developing ghost towns.”
Nice quote.
Tim Iacono over at “The Mess that Greenspan Made” has a nice graph showing that indeed commercial RE is the next bubble:
http://themessthatgreenspanmade.blogspot.com/
New BK laws make it difficult to discharge credit card debt–thanks VISA. As to secured debt, I am not aware of any changes. However, the net effect is that debtors have to walk away from the house b/c they can’t dishcharge the credit card payment, but they can discharge the mortgage payment–the short fall.
They forgot to put debtors prison into the bankruptcy law but I’m sure Chertoff (as in steal the shirt off) from homeland security will claim executive priviledge to imprison people so that overregulation of the “free market” isn’t applied through “frivolous” lawsuits.
The pliability of the English language is amazing.
The new bankruptcy law just made discharge more onerous. You now have to meet income criteria–if your income is above the median for your area, you would probably be forced to file Chapter 13 reorganization (debtor’s court), instead of Chapter 7 (discharge). You also have to go to credit-counseling, which is just bone thrown to bankruptcy lawyers so they could make an extra buck.
Almost all unsecured debts (student loans are an exception in most cases), including especially credit card debts, are subject to discharge in a Chapter 7, so long as there wasn’t fraud, etc.
Secured debts (i.e., mortgage debts), are only dischargable if the property securing the debt is surrendered, except that some cram-downs already occur, i.e., when the debt is greater than the asset value, the court (at least in my jurisdiction) can write the debt down to the asset value, and discharge the rest, allowing the debtor to keep the asset if he pays the remaining debt. Until recently, it seemed only car loans were thusly done.
Countrywide, the poster/whipping boy for the mortgage industry these days, appeared to have, more than anything, been negligent. A suit in TX on the same matter says, in part because of flawed computer systems, [Countrywide] “does not have policies and procedures in place to properly account for payments”.
Mistaken foreclosures would be a rare thing in the industry, but it would not be unheard of. Countrywide, or any lender, certainly doesn’t want a foreclosure unless it has to, but they are staffed and run by human beings that inevitably make mistakes. Mortgage companies are money companies, not real estate companies. They want money, not property.
But any mistake of Countrywide, which by now represents all that is wrong w/ the residential mortgage industry, or even all that’s wrong w/ America, just like CO2 is now short-hand for all that is wrong w/ the environment, makes big headlines.
I otherwise have no idea what Barry was talking about.
“could you elaborate on this? not sure what you mean.”
Johnny Vee covered it pretty well. The credit card companies were able to push through new bankruptcy laws a few years back that basically screwed the bankruptee. To paraphrase the change, even if you file for bankruptcy, you CANNOT completely walk away from credit card debt.
So the way it used to work was a person would go bankrupt and they would have all CC debt set to $0 and (if possible) could keep their house and enter mortgage arbitration. But since they can’t absolve CC debt anymore, when they file bankruptcy, they have to give up the house (walk away and default) and enter CC debt arbitration.
These days with the sub-prime mess and housing fallout, the net effect is that the banks and mortgage lenders (Countrywide) as just getting SCREWED as every time someone goes bankrupt, they lose a ton of money on that loan. VISA and MC are laughing all the way to the bank.
I’m sure there won’t be any other reprocussions from the CC companies intense greed though, so be happy and spend! ;)
Donkel,
Yes, of course, humans just make mistakes. Let’s see, if I deliberately jack up my unsecured debt to manipulate the effect of the bankruptcy law, I’m commiting fraud. However, if I’m the bank and leverage 8 to 1 on my capital I’m just trying to get yeild. Give us a break pal. The old “I don’t know what you’re talking about” is lawyerese for “Never admit guilt”. The next thing people like you will say is that home buyers are in a conspiracy to bring down the capitalist system. Anyone that can’t see the real conspiracy to turn owners innto renters is blind an/or complicit.
ZOT23,
Credit card debt is still dischargable in bankruptcy. You just have to pass a means test of income to qualify for Chapter 7 discharge of debts now. If you don’t, then you get pushed into Chapter 13, which is a reorganization of debts, none or some of which, may ultimately be dischargable, depending on the situation.
AGG,
Sorry, I mis-placed my tin-foil hat this morning. Perhaps there is a conspiracy afoot to turn owners into renters, but by my reckoning, owning a declining-in-value asset is for schmucks. From whence do you think the term “jingle mail” comes?
And I’m not making apologies for Countrywide. If they, negligently or otherwise, failed to follow the bankrupcty procedures, they should be punished, and there are ample laws in place for just that. I’m just saying their every misstep wouldn’t likely be so newsworthy if they weren’t now so much of a blame-sink for all that ails the mortgage industry, pal.
Hey All,
Unfortunately I have to file BK recently. I lost my wife (I know, poor me) at age 33. The medical bills were way in excess of my ability to repay (p.s. I was fully insured but that’s a different story)
I didn’t qualify for either Chapter 7 (because my income was too greater than 40K – go figure) or Chapter 13 because I’m self employed (i.e. Chapter 13 is for salaried people). So, in effect I was in a crazy limbo: Highly vulnerable to litigation but unable to qualify for protection.
Eventually the attorney’s worked it out and I lost everything. Its a humbling experience to have a 790 FICO score, an excellent job, good assets, only to be wiped out overnight.
Them’s the breaks.
Edit: I should have added: The BK reform of 2005 is a disaster. It screws people by greatly stacking the odds in favor of the creditors.
Jesus. No wonder I had to file! With the grammar above I should be forced to return to second grade….
Sorry All. I was watching a trade and typing at the same time.
“The BK reform of 2005 was a disaster.”
Agreed. I wasn’t offering my opinion on the bill in earlier posts, just its reality.
The thing that most pissed me off about it, and still does, is how the banks acted like they didn’t full well know that a credit card customer could bankrupt and wipe out his debts when they lent him money in the first place. They knew and made money knowing, then pretended there was some morality play going on w/ people bankrupting who could pay them back. Bankers and morals should never mix.
Additionally, it turned bankruptcy into a lawyer’s dream, w/ hurdles so high and costly that only those rich enough to afford a good lawyer could go bankrupt, but then they would have to lie about how rich they were to qualify. It is a classic catch-22 engineered for the benefit of the bankers, lawyers and temple priests known as bankruptcy judges.
All this, and bankruptcy is the only legal cause of action specifically provided for in the constitution. It’s not in the bill of rights because the right to bankrupt was written into the constitution from the very beginning. If congress were to pass a law restricting freedom of speech like this one restricted bankruptcy, it would have long ago been overruled.
So yes, it was a disaster. And still is.
DonKei,
Agreed. You know it one thing for a borrower to mismanage their finances and get in over the head but another to be served with a 500K bill for something that is beyond their control. There needs to be a distinction between the two.
It like being thrown in jail for being the not-at-fault party in an auto accident.
Thankfully, I’m young and will make it back in no time……
Anonymous,
Your situation is actually the very type that bankruptcy law should be designed to help–those that have temporary financial problems due to circumstances beyond their control. But, obviously it doesn’t.
I suppose it’s the law of inapposite consequences at work when the government attempts to do anything. Or, maybe it was just a bad bill written by and for bankers and lawyers.
But best wishes for quickly making a comeback.
Thanks DonKei.
I guess one can argue, people who have been responsible (timely payors of their mortgages), that now or will find themselves unable to refi out of their pending resets or sell in this environment w/out taking a loss are not much different than me.
Even though it is poor planning to have taken an ARM (in the same vein as it was poor planning for my ex-wife and I to NOT have taken out a life insurance policy, even at age 29), those that have performed as expected and been responsible; should they be allowed special consideration if they’re forced into BK?
My recollection is that if you went into bankruptcy over credit card debt and owned your own house, that house was protected under state homestead laws (depending on your state) and you could not be forced to surrender it to pay off the debt. Under the new law, if you have lived in the house for less than 3-3 1/2 years, then the credit card companies bank can force you to surrender the house to recover the debt, although they can take any equity over 125 K. I might be wrong, but thats how I recall it.
Medical bills are what pushed many over the edge, insured and uninsured alike, as an earlier poster commented.
This law was passed at the same time Sir Bubbles first began jacking up interest rates, before he bailed out. Makes you wonder if he knew what the consequences were going to be and the law was passed to protect the banks from what was to come.
Hard to have sympathy for credit card companies. We used to have usury laws.
I can not imagine 20-30% interest being charged on money being created out of thin air. Maybe if they loaned you gold, yes, but the money they give you did not exist until you created it by charging something.
Anon @ 12:36, sorry for your loss. 2/20 and co. still waiting on BR fleshout.