Category: Uncategorized

  • APOR Consequences If the CFPB’s Funding Is Illegal

    Posted by

    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. ↩︎

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

    Posted by

    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…)

  • CFPB Funding Sophistry from the Office of Legal Counsel

    Posted by

    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.

    (more…)

  • The Letitia James Indictment Falls Short

    Posted by

    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.

    (more…)

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

    Posted by

    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.

    (more…)

  • Typepad and the Future of Credit Slips

    Posted by

    Bob Lawless

    As many of you have seen, Typepad is closing down on September 30. They have hosted this blog since 2006.

    The good news is that we are moving the blog to a WordPress site. The URL, creditslips.org, will remain the same. We hope the new format is a little cleaner than our current site. We hope that work is done in a week or two. Until then, it seems that Typepad is having more problems as we get closer to the shutdown date. In fact, it ate the first draft of this posit. Please have patience if the Typepad site suffers from periods when it is not accessible.

  • Pulte’s Latest Bad Faith Accusation

    Posted by

    Adam Levitin

    Bill Pulte’s newest fraud claim against Lisa Cook is more outlandish and desperate than his original attack.

    Pulte’s latest claim is based on Cook having rental income from 2021 second home mortgage in Cambridge. Pulte alleges that this means that Cook defrauded the lender by claiming the property as a second home, when it was actually intended as an investment property.

    Once again, this is Pulte acting in bad faith to abuse his authority. There is no basis whatsoever on the current evidence for Pulte to be making a mortgage fraud referral to DOJ for Cook’s Cambridge mortgage. (more…)

  • Teaching Trustee Exemption Planning in Bankruptcy

    Posted by

    Pamela Foohey

    Since I began teaching the bankruptcy survey course, I've added extra material apart from the textbook that I've named "trustee exemption planning." The core of this material is Schwab v. Reilly, 560 U.S. 770 (2010), which I've assigned more or less in its entirety. The case is a useful vehicle to discuss how to claim exemptions, what debtors (and their attorneys) may do if the value of property is unclear, what trustees likewise may do if the value of property is unclear, and how trustees may make money for creditors from an estate. The debtor, Reilly, also has a moving story about opening a restaurant and wanting to keep kitchen equipment that is sentimental to her. I give students her handwritten schedules outlining every piece of equipment she seeks to retain. The case also outlines how a trustee can preserve value for the estate beyond the relevant exemptions.

    But the case is getting older. The forms modernization project updated Schedule C to align with its holding. Enter a new case, published about a month ago, In re Collins, Case No. 24-54928, Judge John E. Hoffman, Jr., Bankruptcy Court for the Southern District of Ohio. Bill Rochelle highlighted it for its clarification of what a trustee must do to object to an exemption claiming "100% of FMV." I am posting about the opinion to further highlight it for its usefulness in teaching about exemptions in consumer bankruptcy.

    (more…)

  • 23andMe Bankruptcy

    Posted by

    Adam Levitin

    Quite a bankruptcy week. First there was Forever21's gone forever 22, and now we have 23andMe. Kudos to the Slips' own Melissa Jacoby and her co-authors Sara Gerke and Glenn Cohen for having the most timely publication ever regarding the 23andMe bankruptcy filing. But there are some weird things about this case, namely the debtor acquiescing in a massive stay violation and the St. Louis, Missouri, venue.

    (more…)

  • Predatory Financial Inclusion and the NCUA Ostrich

    Posted by

    Adam Levitin

    Shame on the National Credit Union Administration (NCUA). The NCUA announced that it would stop publishing data on overdraft and NSF fee income for individual credit unions. It did so in the name of…financial inclusion! 🤯 What really makes my head spin here is that NCUA still has a Democratic majority on its board. wtaf.

    The concern apparently animating the NCUA’s decision to cease publishing institution-level data and only put out aggregate figures is that CUs with high overdraft fee income will be tagged as predatory institutions and suffer reputational consequences, discouraging them from offering for-fee overdraft services, which according to the NCUA Chair “can be the best option in a bad situation” … or which can also result in a $40 latte. To claim that “the previous data collection policy incentivized credit unions to avoid serving the needs of low-income and underserved communities” is sheer nonsense. Instead, it is just obfuscating the extent to which some credit unions are taking advantage of their members. What's worse, NCUA's move presages what might be a broader "going dark" move in bank regulation, in which the publicly available call report data will contain less and less granular information, masking the real financial condition of institutions and allowing regulators to sweep problems under the rug.

    Several years ago, Aaron Klein at Brookings did a great study looking at how OD/NSF fees were a key revenue component for a small number of small banks. Klein observed that "It is disturbing that regulators tolerate banks that are mostly or entirely dependent on overdraft fees for profitability."The NCUA announcement spurred me to do the same for credit unions. The results are more troubling.

    (more…)