Blaire Cahn has done a lovely write-up at Weil's Bankruptcy Blog (here) of the Ninth Circuit's recent opinion in Montana Department of Revenue v. Duncan, No. 09-36062, 2010 WL 4903952 (9th Cir. Dec. 2, 2010).
Having done my fair share of fee reviews--and I enjoy fee examining work!--I think that the main issue for attorneys seeking payment from estate funds is a question of judgment. It's hard, when someone is in the middle of a case, to take the time to ask, "Should I be doing this work?," especially when clients want 100% top-notch work at all times. But that judgment--at the time someone has to make the go/no-go decision on billing for something--is crucial.
I think that the most rewarding part of fee examining work is having the luxury to call up a professional, if I have a question about the bill, and talk through whether the work (or the expense) was reasonable. Sometimes, the professional explains why some hinky looking number was actually reasonable, and then I don't have a problem with it and can forward it on, quite happily, to the court for a final decision. Sometimes, though, the work or expense really can't be considered reasonable. (My favorite example: billing the cost of a man's shirt to the estate, on the theory that there was an unexpected overnight visit.) The job of a fee examiner is to help the court determine reasonableness, because the court makes that ultimate call.
The tough part about reasonableness is the danger of hindsight bias. I look for "reasonable at the time that the decision to bill/expense something is made"--not for "unreasonable several months later, in retrospect." Hindsight bias really shouldn't complicate the review.
In the end, it's all about using judgment (and then hoping that the court agrees with you). For more of my take on fees, see here.
Jumat, 14 Januari 2011
Rabu, 12 Januari 2011
Best speech using behavioral economics that you've never heard.
My buddy Steve Sather, the author of A Texas Bankruptcy Lawyer's Blog, sent me this link to a speech at the Ass'n of American Law Schools that Annelise Riles was going to give, had she been able to make it to the meeting. Her speech is posted on the Credit Slips blog (here). Her talk would have addressed how we might actually use regulation to change behavior, rather than (my editorial comment here) pretending that we know how to do that. Great stuff!
Minggu, 09 Januari 2011
A hat-tip to Lowering the Bar for this classic Canadian legal opinion.
Jumat, 07 Januari 2011
Details on how the Van Niel mortgage proposal would work.
Here's how the Van Niel mortgage proposal would work.
Banks with borrowers who are underwater but current on their loans should offer the following deal to those borrowers:
(1) The bank reduces the interest rate on the mortgage to a lower rate (at a rate at least equal to what the folks who have defaulted are being offered, thanks to the bailout).
(2) The bank agrees that, for every "X" years that the borrowers remain current on their loans and live in the house (no "spec" properties--just actual homestead-type homes), the bank will reduce the outstanding principal amount of the loan by "Y" dollars.
(3) The borrowers, in exchange for the principal reduction and reduced interest rate mortgage agree that if, they sell the house within "Z" years, they will give any profits made on that sale to the bank. (The potential profit gives the bank an incentive to "deal"-- if house prices improve, it might recoup at least a portion of its lost interest on the reduced interest mortgage and principal reduction.)
Example: House is bought for $300,000; it has a $210,000 mortgage @ 6% for 30 years; borrowers put 30% down on the house. House is now worth $125,000, and the balance due on the mortgage is $200,000. (Welcome to Las Vegas.)
Bank agrees to reduce the interest rate by 1% (revised rate is 5%) AND to reduce the principal on the note by $5,000 per year for 5 years. At closing, the house is valued at $125,000 and the mortgage is $195,000 @ 5% for 30 years.
After year 1, mortgage is paid down to $192,123.04 (less $5,000 = $187,123.04).
After year 2, mortgage is paid down to $184,177.59 (less $5,000 = $179,177.59).
After year 3, mortgage is paid down to $176,165.50 (less $5,000 = $171,165.50).
After year 4, mortgage is paid down to $168,089.17 (less $5,000 = $163,089.17).
If the borrower sells the house in the first five years for any reason, the bank gets any profit made by the sale. At end of a 5-year period, the house may still be worth $125,000 (maybe the value increases--or maybe the borrower is in Las Vegas, so the "floor" on house prices keeps falling--sigh), but the principal on the mortgage has been reduced to a much more manageable $163,089.17.
The homeowner is significantly closer to breaking even, and has much less incentive to hand the keys back to the bank and simply walk away.
One more advantage: the bank doesn't have to write down the value of the home in one big lump--unlike a foreclosure or short sale.
Using future bailout money, if any, to buy down the mortgages of underwater homeowners who are current on their mortgages is as least as productive a use of the money as is giving the bailout money to delinquent NINJA homeowners who have no chance of keeping their houses in the long run.
Over time, everyone wins: the banks won't own the underwater houses because the homeowners will have an incentive to stay in the houses (without feeling like dummies for honoring their obligations) and housing prices won't continue to plummet because there will be fewer neighborhoods with massive foreclosures.
And now you know that part of the reason that I married Jeff Van Niel is that he's very, very smart.
Banks with borrowers who are underwater but current on their loans should offer the following deal to those borrowers:
(1) The bank reduces the interest rate on the mortgage to a lower rate (at a rate at least equal to what the folks who have defaulted are being offered, thanks to the bailout).
(2) The bank agrees that, for every "X" years that the borrowers remain current on their loans and live in the house (no "spec" properties--just actual homestead-type homes), the bank will reduce the outstanding principal amount of the loan by "Y" dollars.
(3) The borrowers, in exchange for the principal reduction and reduced interest rate mortgage agree that if, they sell the house within "Z" years, they will give any profits made on that sale to the bank. (The potential profit gives the bank an incentive to "deal"-- if house prices improve, it might recoup at least a portion of its lost interest on the reduced interest mortgage and principal reduction.)
Example: House is bought for $300,000; it has a $210,000 mortgage @ 6% for 30 years; borrowers put 30% down on the house. House is now worth $125,000, and the balance due on the mortgage is $200,000. (Welcome to Las Vegas.)
Bank agrees to reduce the interest rate by 1% (revised rate is 5%) AND to reduce the principal on the note by $5,000 per year for 5 years. At closing, the house is valued at $125,000 and the mortgage is $195,000 @ 5% for 30 years.
After year 1, mortgage is paid down to $192,123.04 (less $5,000 = $187,123.04).
After year 2, mortgage is paid down to $184,177.59 (less $5,000 = $179,177.59).
After year 3, mortgage is paid down to $176,165.50 (less $5,000 = $171,165.50).
After year 4, mortgage is paid down to $168,089.17 (less $5,000 = $163,089.17).
If the borrower sells the house in the first five years for any reason, the bank gets any profit made by the sale. At end of a 5-year period, the house may still be worth $125,000 (maybe the value increases--or maybe the borrower is in Las Vegas, so the "floor" on house prices keeps falling--sigh), but the principal on the mortgage has been reduced to a much more manageable $163,089.17.
The homeowner is significantly closer to breaking even, and has much less incentive to hand the keys back to the bank and simply walk away.
One more advantage: the bank doesn't have to write down the value of the home in one big lump--unlike a foreclosure or short sale.
Using future bailout money, if any, to buy down the mortgages of underwater homeowners who are current on their mortgages is as least as productive a use of the money as is giving the bailout money to delinquent NINJA homeowners who have no chance of keeping their houses in the long run.
Over time, everyone wins: the banks won't own the underwater houses because the homeowners will have an incentive to stay in the houses (without feeling like dummies for honoring their obligations) and housing prices won't continue to plummet because there will be fewer neighborhoods with massive foreclosures.
And now you know that part of the reason that I married Jeff Van Niel is that he's very, very smart.
Kamis, 06 Januari 2011
Two great mortgage op-eds in today's New York Times
Read Bethany McLean's perspective on 30-year mortgages here, and Alex Perriello's solution to our current crisis in underwater mortgage's here. Alex's solution is eerily similar to the Van Niel mortgage solution (here), which I've been touting for over a year now, and not just because I'm married to the Van Niel in question.
Update (1/7/11): see here for how that proposal might work in practice.
Update (1/7/11): see here for how that proposal might work in practice.
Sabtu, 01 Januari 2011
Here's some nice news on 1/1/11....
Thanks, Dr. Management, Ph.D. blog, for listing me as a top business blog (here)!
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