• APOR Consequences If the CFPB’s Funding Is Illegal

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    Adam Levitin

    In a prior post I noted that if the CFPB’s funding is illegal, it creates a time bomb for the entire US housing market because the Bureau will not be able to update the Average Prime Offer Rate (APOR) that is used to determine the presumptive legality of mortgages.

    The situation is actually worse. If the Bureau’s funding is illegal, it isn’t just a problem going forward. It also implicates the legality of everything the Bureau has done since the Fed stopped running a profit, that is from the 4th quarter of 2022 onward. That is every rulemaking and every enforcement action and every termination of a consent decree becomes suspect if the Bureau’s been acting without legal funding. And that includes the APOR.

    If the Bureau’s funding is illegal, then the APOR is arguably frozen at either the end of Q3 or Q4 2022. I think Q4 2022 because until the end of that quarter it wasn’t know if the Fed was running a profit.1 Here’s why it matters. The APOR for a 30 year mortgage was 6.79% at the end of Q3 2022 and 6.28% at the end of Q4 2022. Right now it’s 6.26%, but it’s been substantially higher at points between 2022 and today. That means that some mortgages that would be QM under the APOR that was listed when the mortgages were made would not be QM if the APOR were frozen at a Q3 or Q4 2022 level. That’s a potential mess for lenders, who face putbacks (they would be in breach of their reps and warrants), a borrower defense to foreclosure, and state AG enforcement.

    Now it would seem easy enough to say “justified reliance” and grandfather everything old in. But I’m not sure that’s how it will work, and that uncertainty is enough of a problem in and of itself.

     

    1. The difficulty in knowing how/when to measure the Fed’s profitability is yet another factor that points toward the absurdity of the OLC’s opinion. Any corporate lawyer will tell you that if you have an incurrence test in your bond, you need a relevant incurrence date. And if you have a maintenance test, you should still know the date of a breach because there’s a notice requirement. There’s nothing at all like this for the CFPB, however. The timing of the Fed’s financial reporting is not synced with the timing of the CFPB draws, which suggests that the draws are not meant to relate to anything in the content of the reporting, including profitability. ↩︎

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  • Russell Vought’s Too Clever By Half: CFPB Edition

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    Adam Levitin

    Oh Russell Vought must think he’s so clever bankrupting the CFPB by asking OLC for an opinion letter saying that the Bureau can’t draw funds on the Federal Reserve System when the Fed isn’t running a profit. After all, killing off the CFPB has been his goal all along.

    But Vought seems to have forgotten a lesson he learned during his first attempt to shutter the CFPB: doing so could crash the housing market.

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  • Encouraging People To File Bankruptcy — A Book To Recommend To Potential Clients

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    Pamela Foohey

    A few months ago, Slipster Bob Lawless, former Slipster Deborah Thorne, and I published Debts Grip: Risk and Consumer Bankruptcy. The book draws on eleven years of data from the Consumer Bankruptcy Project to document the financial consequences of decades of risk privatization for individuals and families across the United States. Some people ultimately will file bankruptcy. Over the past few months, during panel discussions, podcasts, and interviews, we have been asked about the value of people filing bankruptcy earlier. We (well, at least I) think that for many people, filing sooner would be advantageous. People deplete their assets in the years they struggle before filing and suffer psychologically and physically from the stress of unmanageable debts. Based on our data, the stigma of bankruptcy and the inability to make good on their contracts remains a barrier to filing. So, how to encourage people to file? And, relatedly, how to make people feel “good” about their bankruptcies such that they have a better chance at succeeding when they are released post-bankruptcy into the same economic and social structure that may be stacked against them?

    I recently spoke about Debt’s Grip as part of the National Association of Bankruptcy Attorneys‘ meeting. There I saw Adrienne Hines, a bankruptcy attorney from Ohio who I knew from her social media presence as The Lady Like Lawyer (Instagram, TikTok). I picked up her new book, Bankruptcy Magic: The Life-Changing Power of Debt Relief With Dignity. The book puts into a written guide format for people the core message of her social media: that filing bankruptcy can be an effective solution to unmanageable debt challenges for which people do not need to feel ashamed. Adrienne’s social media accounts are an excellent resource for struggling debtors. Her book may be even more excellent. It is part of the answer to the question of how to encourage people to file sooner.

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  • 50-Year Mortgages? The Numbers Don’t Add Up

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    Adam Levitin

    The Trump administration has tried to seize the affordability mantle by proposing a move to 50-year mortgages. Unfortunately, the math doesn’t add up: a 50-year mortgage is a pretty bad idea.

    The United States is unique globally in that our dominant mortgage product is the 30-year, fixed-rate, fully-prepayable, fully-amortized mortgage. The 30-year fixed is the American mortgage, and it is a wonderful financial product. It’s also one that only exists because of substantial government involvement in the market. But shifting it out to a 50-undermines the benefits of the product. (more…)

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  • CFPB Funding Sophistry from the Office of Legal Counsel

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    Adam Levitin

    It takes real skill to bankrupt a government agency, particularly one that is barely functioning. Yet that’s exactly what Russell Vought is trying to do. Vought, you might recall, is the acting Director of the CFPB, and last February he made a big show of declining to draw down funds for the CFPB from the Federal Reserve System, claiming that the Bureau had more than adequate funds on hand. Vought then embarked on a campaign to fire most of the CFPB’s workforce, resulting in significant attrition, even if his efforts remain tied up in court. But now Vought—and remember that this is the guy who also runs the Office of Management and Budget—is claiming that the CFPB will run out of money in early 2026. He claims that the CFPB, relying on a newly issued opinion from the Department of Justice’s Office of Legal Counsel, can only draw down funds on the Federal Reserve System when the system runs a profit, which it is not currently doing.

    Three observations about this incredibly cynical play.

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  • Hospitals Suing Patients – A New Study

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    Melissa Jacoby

    screen shot of SSRN title and author list and beginning of abstract

    My first post on the original Credit Slips was about medical billing and collection; so is this first post on the new Credit Slips. I write to encourage more of you to read Hospitals Suing Patients: The Rise of Stealth Intermediaries, posted this summer on the Social Science Research Network.  This study, by law professor Barak Richman and coauthors at Stanford University’s Clinical Excellence Research Center reports on a hospital’s recent use of collection agencies to sue and enforce judgments (many of which were based on “unsubstantiated and inaccurate billing records”) against patients, and the impact of state law efforts to increase transparency in debt collection. And herein lies the end of my first post on the new Credit Slips, if only to expedite your decision to download this study.

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  • The Letitia James Indictment Falls Short

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    Adam Levitin

    I’m unaware of the federal government having previously charged anyone for fraud based on renting out a second home. Yet that’s what we have with the Letitia James mortgage fraud indictment. We don’t have all the facts available, but based on what is in the indictment, it’s clear why the career prosecutors in the Eastern District of Virginia refused to bring a case:  James doesn’t appear to have made any misrepresentation in her mortgage because the mortgage does not directly prohibit rentals.

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  • Faux Tuition Freezes and Nerd Subsidies: Trump’s Half-Baked Ideas for Higher Education Reform

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    Adam Levitin

    There’s been plenty of coverage of the First Amendment implications of President Trump’s proposed “Compact for Academic Excellence in Higher Education” that was offered to nine universities in exchange for supposedly gaining preferential access to federal grants. But the proposal also has a pair of tuition regulation requirements that have not gotten so much attention, but are in some ways equally troubling.

    The “deal” being offered would require, among other things, that university signatories agree to freeze tuition for U.S. students for five years and, if endowments exceed $2 million per undergraduate, grant free tuition for students pursuing “hard science” programs.

    This sort of federal price regulation is, as far as I’m aware, completely unprecedented. It’s also completely half-baked policy thinking. The impulse to control the cost of higher education is commendable, but the President’s proposal shows a complete lack of understanding of higher education economics and of the science education in particular. Instead, what he has proposed are faux cost controls and a bizarro nerd subsidy that would apply to almost no schools. In other words, rather than serious policy proposals to deal with costs of higher education and to encourage the study of the sciences, the administration has put forth a set of meaningless headline grabbing proposals that would only make things worse.

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  • Singapore’s “Debt Relief Agency” Proposal and Flashbacks to BAPCPA

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    Jason Kilborn

    The Singapore Ministry of Law has launched a public consultation on some proposed personal insolvency amendments, and one in particular struck a nerve based on the disaster of BAPCPA: “MinLaw proposes to introduce a new criminal offence which criminalises the soliciting and canvassing, in the course of any business, of any person to make a bankruptcy application.” The proposed punishment is a S$10,000 fine, three years in jail, or both! The justification for this aggressive proposal is a supposed “increase in the number of debtor-initiated bankruptcy applications where debtors borrow irresponsibly to pay for … consultancy firms’ services in helping them apply for bankruptcy” with the supposed intent of “abusing the [debt repayment scheme] to obtain a discount off their debts.” Sound familiar? This is reminiscent of section 526(a)(4) of the US Bankruptcy Code, introduced in the 2005 disaster, that forbids “debt relief agencies” to “advise an assisted person … to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer” for preparing such a filing. (more…)

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  • Follow Us on Bluesky

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    Bob Lawless

    With the move to WordPress, we can now connect the blog to our Bluesky account. Our posts should now automatically post there. A good way to keep updated on our content is to follow us on Bluesky — @creditslipsblog.bsky.social. No promises, but if there are other social media sites on which you like to see our content, I would be interested to hear your comments.

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Pamela Foohey

Anna Gelpern

Melissa Jacoby

Jason Kilborn

Bob Lawless

Adam Levitin

Christopher Odinet

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