News

In PG&E Bankruptcy, Another Judge May Play Key Role - ABI

Now that PG&E Corp. has filed for protection from its creditors because of California wildfire liabilities, all eyes are on the bankruptcy court. But another federal judge may wind up playing a prominent role in the case, WSJ Pro Bankruptcy reported. Judge William Alsup of the U.S. District Court for the Northern District of California oversees a criminal case involving PG&E, which is on federal probation after being found guilty of violating the Pipeline Safety Act in connection with a natural gas pipeline explosion that killed eight people in San Bruno, Calif., in 2010. Judge Alsup is set to hear whether the utility violated its probation in that case — and whether he should impose tougher safety restrictions on the company — after the state found its electrical equipment sparked more than a dozen California wildfires in recent years. Judge Alsup has the authority to intervene in the chapter 11 bankruptcy case, which is being overseen by U.S. Bankruptcy Court Judge Dennis Montali. Some observers believe he will do just that. “They could sell tickets for that,” said one former PG&E executive, who noted that Judge Alsup has shown intense interest in protecting the public from PG&E safety lapses. While it would be unusual for a U.S. district court judge to take an active role in a bankruptcy case, it isn’t without precedent. U.S. district judges have the power to issue a “withdrawal of reference” and take back cases, in whole or in part, from bankruptcy courts at any time.


Government Shutdown Throws Rural Housing Markets into Disarray - ABI

Across rural America, the government shutdown has eliminated one of the best options for low- to middle-income homebuyers, a zero down payment mortgage from the U.S. Department of Agriculture, Bloomberg News reported. That’s leaving deals and would-be buyers’ lives in limbo. They’re begging sellers for extensions and struggling to decide when to mention their plans to landlords, said Shane Siniard, a loan officer with SWBC Mortgage Corp. in the Atlanta area, where the biggest share of the USDA loans are made, according to an analysis by Zillow. Siniard, one of the most prolific originators of the loans, has one client with a buyer who is unable to sell because he’ll need a payoff statement from the government.


White House Plans to Overhaul Housing Finance System, Top Regulator Says - ABI

The White House will announce a plan by next month to end government control of Fannie Mae and Freddie Mac in a bid to resolve a long debate over the fate of the two companies that dominate the mortgage market, a top regulator said, Politico reported. Joseph Otting, acting director of the Federal Housing Finance Agency, told employees last week that the administration would not wait on Congress, where attempts to overhaul the housing finance system have repeatedly faltered in the years since Fannie and Freddie were rescued during the financial crisis. “In the next two to four weeks you’re going to be able to see some communication that comes out of the White House and Treasury that really sets a direction for what the future of housing will be in the U.S. and what the FHFA’s part of that will be,” Otting said at a Jan. 17 staff meeting.


Two-thirds of Bankruptcy Filers Cite Illness and Medical Bills as Contributors to Financial Distress

Medical problems contributed to 66.5 percent of all bankruptcies, a figure that is virtually unchanged since before the passage of the Affordable Care Act (ACA), according to a study published yesterday as an editorial in the American Journal of Public Health. The findings indicate that 530,000 families suffer bankruptcies each year that are linked to illness or medical bills. The study, carried out by Dr. David U. Himmelstein, Profs. Robert M. Lawless, Pamela Foohey, Deborah Thorne, a sociologist from the Consumer Bankruptcy Project (CBP), and Dr. Steffie Woolhandler, surveyed a random sample of 910 Americans who filed for personal bankruptcy between 2013 and 2016, and abstracted the court records of their bankruptcy filings. These figures are similar to findings from the CBP’s medical bankruptcy surveys in 2001 and 2007, which were authored by three researchers in the current study (Himmelstein, Thorne, and Woolhandler), and then-Harvard law professor Elizabeth Warren. The current study found no evidence that the ACA reduced the proportion of bankruptcies driven by medical problems: 65.5 percent of debtors cited a medical contributor to their bankruptcy in the period prior to the ACA’s implementation as compared to 67.5 percent in the three years after the law came into effect.


January’s Stock-Market Rally Revives Appetite for Risky Margin Loans - ABI

In the fourth quarter, investors trimmed the amount of margin debt they used to buy stocks at the fastest pace since the financial crisis. But some Wall Street and brokerage executives say those loan levels stabilized or moved higher last month as the S&P 500 rebounded, posting its best January performance since 1987, the Wall Street Journal reported. Margin debt, which is generally considered a gauge of investor confidence, tumbled more than $90 billion in the fourth quarter to $554.3 billion, the lowest tally since December 2017, according to the Financial Industry Regulatory Authority. Although the pace of the decline was jarring, analysts at Bank of America Merrill Lynch and other firms say that the pullback supports the case that the stock market has bottomed and is poised for a rebound — albeit with ongoing spikes in volatility — similar to other recoveries following drawdowns in February 2016 and September 2011.


White House Considering New Candidates for Open Fed Board Seat - ABI

White House officials are considering new candidates for at least one and possibly both empty seats on the Federal Reserve Board for President Donald Trump to nominate, Bloomberg News reported. Fed economist Nellie Liang withdrew from consideration earlier this month for one of the vacancies. Less clear is whether the White House will re[-]nominate Carnegie Mellon University economist Marvin Goodfriend. Efforts the White House has made to contact potential new nominees show that, despite Liang’s withdrawal and the delay in a decision on re[-]nominating Goodfriend, the administration isn’t putting on hold appointments to the Fed board. Trump nominated Goodfriend for the board in 2017, but the Senate didn’t vote on his confirmation. Goodfriend didn’t appear on a list of dozens of re-nominations the White House submitted to the Senate this year.


Judiciary Has Funds to Operate Through Jan. 31 - ABI

The Administrative Office of the U.S. Courts (AO) estimates that federal courts can sustain funded operations through Jan. 31, according to an AO press release. The Judiciary continues to explore ways to conserve funds so it can sustain paid operations through Feb. 1. No further extensions beyond Feb. 1 will be possible. The Judiciary previously had revised its estimate for exhausting available funds from Jan. 18 to Jan. 25. The extensions have been achieved through a multi-pronged strategy of deferring non-critical operating costs and utilizing court filing fees and other available balances. Most of the measures are temporary stopgaps, and the Judiciary will face many deferred payment obligations after the partial government shutdown ends. In recent weeks, courts and federal public defender offices have delayed or deferred non-mission-critical expenses, such as new hires, non-case-related travel, and certain contracts. Judiciary employees have been reporting to work and currently are in full-pay status.


Government Shutdown Leaves Small Business Loans in Limbo - ABI

The longest government shutdown in modern U.S. history is choking the economic lifeblood of many entrepreneurs, the Wall Street Journal reported. The Small Business Administration has stopped approving routine small-business loans that the agency backs to ensure entrepreneurs have access to funds, halting their plans for expansion and repairs and forcing some owners to consider costlier sources of cash. SBA loans are a mainstay for many entrepreneurs, who generally can borrow as much as $5 million to start, buy, expand or run a small business through the agency’s two biggest programs. While the SBA doesn’t directly fund small-business owners, it covers as much as 90 percent of loan losses, giving an incentive to banks and other financial institutions to finance businesses they might not otherwise serve. Lenders say they are still taking loan applications and closing loans that have already received SBA approval. But it isn’t clear when borrowers will get financing. “About half the loans going through due diligence now aren’t going to be able to close before the government opens up,” said John Moshier, president of small business lending at Ready Capital Corp., a licensed nonbank SBA lender in New Providence, N.J.


CFPB Seeking Compliance Authority on Military Lending - ABI

The Consumer Financial Protection Bureau is changing course on its previous decision to stop supervising lending to active duty service members, HousingWire.com reported. Kathy Kraninger, the recently confirmed director of the bureau, sent a letter to Congress yesterday, asking for “clear authority” to supervise for compliance with the Military Lending Act. This turnaround comes several months after Mick Mulvaney, who served as acting director of the CFPB prior to Kraninger’s confirmation, decided that the bureau would stop supervising lending made to active duty service members. Much to the dismay of congressional Democrats, who pushed the CFPB to retain oversight. Under Mulvaney’s changes, the CFPB relied solely on complaints from service members and their families to trigger investigations. Mulvaney had reportedly expressed that the bureau had overstepped its authority by proactively looking into cases against military members without receiving complaints. Now, Kraninger has sent a proposal to clarify the CFPB’s authority to supervise compliance with the Military Lending Act to Vice President Mike Pence and Speaker of the House Nancy Pelosi. The proposal outlines a case for spelling out clearly what authority the CFPB would have over supervising military lending and proposes amending several sections of the Consumer Financial Protection Act of 2010 to outline that, according to the draft, “the Bureau shall have nonexclusive authority to require reports and conduct examinations” in regard to lending to military service members.


Transparency Gets Fresh Look in Bankruptcy Court by U.S. Trustees - ABI

Heightened scrutiny on bankruptcy advisers’ conflict disclosures by the U.S. Trustee Program is sending a new and forceful message that current practices among some participants are likely to face challenges from the Justice Department and has already resulted in greater transparency in two chapter 11 cases, the Wall Street Journal reported. A judge in New York overseeing the Synergy Pharmaceuticals Inc. bankruptcy today will be asked to decide whether to approve Centerview Partners LLC as an adviser to the company on its reorganization. An objection last week from the U.S. Trustee citing “vague client confidentiality concerns” prompted Centerview yesterday to identify by name a connection it previously had sought to keep secret. (Subscription required.)