Monday, April 9, 2012

Kodak files for Chapter 11 insists on Giving employees Bonuses

Eastman Kodak Co. has filed a request with the district court overseeing its Chapter 11 bankruptcy asking for permission to pay around $13.5 million in bonuses to approximately 300 employees to keep them on board during and after the restructuring.

This pay-to-stay practice was ostensibly quashed by bankruptcy reform legislation years ago. But the onetime imaging giant wants the court to grant an exception. It contends that these employees are critical to the company's turnaround and will quit without the incentives.

Historically, the problem with big bonuses in bankruptcy was that conferring them often came at the expense of rank-and-file workers. In 2001, Polaroid filed for bankruptcy and eliminated severance and insurance payments — then turned around and gave top brass $4.5 million in bonuses. Congress made changes to the corporate bankruptcy code in 2005 aimed at preventing this kind of lopsided treatment of executives and ordinary workers, but Kodak wants an exception.

In court documents, the company argues that because the portion of executives' compensation consisting of company stock had become nearly worthless, these employees had taken what amounted to a pay cut by continuing to work there. Without the bonuses, it contends, these workers are likely to be poached by competitors who can offer them more money, and finding people with the knowledge and skills to take their places will be time-consuming and expensive.

Kodak spokesman Christopher Veronda said the bonuses were a necessary response to what he described as an "increased amount" of people leaving the company. "We haven't quantified it but certainly there have been departures," he said.

The Eastman Kodak Retiree Association, which previously clashed with the company over a proposal to cut retiree healthcare benefits, expressed a degree of support for the bonus plan. "Our view on this is that Kodak has to do what it thinks is necessary to make the company competitive by retaining good people," spokesman Bob Volpe said via email. "If these people can help make Kodak successful, maybe there will be less pressure to cut retiree benefits."

The bulk of the money — $8.5 million — would go to 119 workers at the middle management level and above, with the remainder going to 200 employees further down the corporate ladder. Kodak's description of the employees on its bonus list was both sweeping and vague. It said bonus recipients "would be identified based on skills and leadership, on the one hand, and external marketability considerations, on the other hand."

"I'm not sure Kodak provides enough detail to justify the use of these money," Katherine Porter, professor at UC Irvine School of Law, said. Porter said the large number of intended recipients didn't give her the impression of a cash grab by top brass, but she added that the creditors need to get more detail about who these people are and why they deserve extra compensation.

Veronda described the employees as "mission-critical people it would be really costly to replace if they left, and/or leave a real knowledge gap if they left." He acknowledged that the creditor committee might press for more details about who these people are and what they do before agreeing to green-light bonuses.

Ethan Bernstein, a Kauffman Foundation Fellow on leave from Harvard Law School, studied the "flight risk" of CEOs at companies that went through bankruptcy as compared with those that restructured privately, and found that bankruptcy wasn't any more or less likely to lead to a departure. "From a similar framing, the 'smell test' here is whether the bonuses being proposed at Kodak would be supported by those in control of a private restructuring," he said via email. "That's a much harder question to answer."

Steven Kropp, professor at Roger Williams University School of Law, expressed skepticism that upper management would be in high demand, given Kodak's protracted and well-documented struggles to remain competitive. "You're left wondering why are these people so badly wanted, when they're the ones who have basically pushed the company into bankruptcy," he said. Kodak might be concerned about retaining lower-level workers with highly specialized technical skills — a group that could include the 200 non-managers in the company's proposal — but Kropp said these workers are less likely to have the financial means to relocate far from Kodak's Rochester, N.Y., headquarters.

Tuesday, August 2, 2011

Iceland: A place where commonsense may actually prevail.

As one European country after another fails or risks failing, imperiling the Euro, with repercussions for the entire world, the last thing the powers that be want is for Iceland to become an example. Here's why:

Five years of a pure neo-liberal regime had made Iceland, (population 320 thousand, no army), one of the richest countries in the world. In 2003 all the country’s banks were privatized, and in an effort to attract foreign investors, they offered on-line banking whose minimal costs allowed them to offer relatively high rates of return. The accounts, called IceSave, attracted many English and Dutch small investors. But as investments grew, so did the banks’ foreign debt. In 2003 Iceland’s debt was equal to 200 times its GNP, but in 2007, it was 900 percent. The 2008 world financial crisis was the coup de grace. The three main Icelandic banks, Landbanki, Kapthing and Glitnir, went belly up and were nationalized, while the Kroner lost 85% of its value with respect to the Euro. At the end of the year Iceland declared bankruptcy.

Contrary to what could be expected, the crisis resulted in Icelanders recovering their sovereign rights, through a process of direct participatory democracy that eventually led to a new Constitution. But only after much pain.

Geir Haarde, the Prime Minister of a Social Democratic coalition government, negotiated a two million one hundred thousand dollar loan, to which the Nordic countries added another two and a half million. But the foreign financial community pressured Iceland to impose drastic measures. The IMF and the European Union wanted to take over its debt, claiming this was the only way for the country to pay back Holland and Great Britain, who had promised to reimburse their citizens.

Protests and riots continued, eventually forcing the government to resign. Elections were brought forward to April 2009, resulting in a left-wing coalition which condemned the neoliberal economic system, but immediately gave in to its demands that Iceland pay off a total of three and a half million Euros. This required each Icelandic citizen to pay 100 Euros a month (or about $130) for fifteen years, at 5.5% interest, to pay off a debt incurred by private parties vis a vis other private parties. It was the straw that broke the reindeer’s back.

What happened next was extraordinary. The belief that citizens had to pay for the mistakes of a financial monopoly, that an entire nation must be taxed to pay off private debts was shattered, transforming the relationship between citizens and their political institutions and eventually driving Iceland’s leaders to the side of their constituents. The Head of State, Olafur Ragnar Grimsson, refused to ratify the law that would have made Iceland’s citizens responsible for its bankers’ debts, and accepted calls for a referendum.

Of course the international community only increased the pressure on Iceland. Great Britain and Holland threatened dire reprisals that would isolate the country. As Icelanders went to vote, foreign bankers threatened to block any aid from the IMF. The British government threatened to freeze Icelander savings and checking accounts. As Grimsson said: “We were told that if we refused the international community’s conditions, we would become the Cuba of the North. But if we had accepted, we would have become the Haiti of the North.” (Cubans see the situation in Haiti, they count themselves lucky.)

In the March 2010 referendum, 93% voted against repayment of the debt. The IMF immediately froze its loan. But the revolution (though not televised in the United States), would not be intimidated. With the support of a furious citizenry, the government launched civil and penal investigations into those responsible for the financial crisis. Interpol put out an international arrest warrant for the ex-president of Kaupthing, Sigurdur Einarsson, as the other bankers implicated in the crash fled the country.

But Icelanders didn't stop there: they decided to draft a new constitution that would free the country from the exaggerated power of international finance and virtual money. (The one in use had been written when Iceland gained its independence from Denmark, in 1918, the only difference with the Danish constitution being that the word ‘president’ replaced the word ‘king’.)

To write the new constitution, the people of Iceland elected twenty-five citizens from among 522 adults not belonging to any political party but recommended by at least thirty citizens. This document was not the work of a handful of politicians, but was written on the Internet. The constituent’s meetings are streamed on-line, and citizens can send their comments and suggestions, witnessing the document as it takes shape. The constitution that eventually emerges from this participatory democratic process will be submitted to parliament for approval after the next elections.

Some readers will remember that Iceland’s ninth century agrarian collapse was featured in Jared Diamond’s book by the same name. Today, that country is recovering from its financial collapse in ways just the opposite of those generally considered unavoidable, as confirmed yesterday by the new head of the IMF, Christine Lagarde to Fareed Zakaria. The people of Greece have been told that the privatization of their public sector is the only solution. And those of Italy, Spain and Portugal are facing the same threat.

They should look to Iceland. Refusing to bow to foreign interests, that small country stated loud and clear that the people are sovereign. The people of Iceland took a stand against fraudulently created debt and refused to pay it. The United States placates to our creditors as if they have the capabilities to "get" their money by force. Most of our "so-called" deficit was created by Credit Default Swaps, Junk Bonds and Speculation. Now the New Debt Deal is cutting much needed social programs so that the United States can pay back some of this fraudulent debt to the same Banking Conglomerates that created this mess in the first place. Iceland is refusing to bow to the International Banking Bullies like the rest of the world. I don't think that it is a coincidence that no news outlet is reporting this story, they don't want citizens of other countries to get the same idea. The IMF is just a Puppet of the International Banking Community, The loans they give never work and usually leave the country who undertakes an IMF loan in worse shape, these loans are usually cannot be paid back and the country is often forced to sell its Utilities, natural resources or inexpensive labor to foreign interests. The foreign Interests maximize their profits and leave the country in even worse shape than before. Iceland should consider itself lucky because an IMF loan would only exacerbate their situation. Other European countries with financial difficulties are taking on austerity measures that punish the working class but do not effect the banking conglomerates that torpedoed the countries' finances in the first place. These Austerity measures will ostracize the working class/middle class even further and lead to large scale protests and work stoppages. Countries like Spain, Greece and Portugal are demonstrating that they care about their relationships with the banking conglomerates more than the relationship with their own citizens. This is why I applaud Iceland for giving the IMF and their cronies the cold shoulder.

Tuesday, April 12, 2011

State Officials and Federal Regulators at odds about Foreclosure Reform

The rift continues to widen between state and federal officials over foreclosure reform.

Since the 50 state attorneys general first issued their proposal to aggressively overhaul the foreclosure process and penalize servicers, the two sides have clashed over the specifics, with states reportedly advocating for stricter measures than federal regulators.

Disagreements have now become pronounced enough to leave open the prospect that the states could eventually issue their own orders for reform, independent of the Comptroller of the Currency and Federal Reserve -- two government agencies charged with reforming the foreclosure process, according to the Wall Street Journal.

In a letter sent on Monday to the Federal Reserve, the WSJ reports, 22 current and former board members of the Fed's Consumer Advisory Council said federal regulators' potential proposal appears to be "profoundly disappointing," leaving "too much discretion" to mortgage companies without imposing strict enough penalties for foreclosure abuses.

America's five largest mortgage firms have saved over $20 billion since the start of the housing crisis by shortcutting the home loan process of struggling borrowers.

In a report last month that drew the ire of housing and consumer advocates, the Fed found no evidence of wrongful foreclosures.

Still, other regulators have advocated hitting the 14 largest mortgage firms with upwards of $30 billion in penalties for past abusive practices.

Amid the debate, a new paper entitled "The Economics of the Proposed Mortgage Servicer Settlement," funded in part by the financial services industry, disputes the notion that the state attorneys generals' proposal will protect homeowners, arguing that it would instead "generate significant unintended negative consequences" by raising "the number of defaults and servicing costs." Most consumer advocates agree that this is a ridiculous notion and that the federal agencies involved are only working to protect the Mortgage Industry.

The federal debate over the foreclosure process has heated up in recent weeks, with the Obama administration backtracking on an earlier, more dramatic proposition more in line with that of the states attorneys general. The president's earlier proposal would have required mortgage lenders to reduce monthly payments for millions of U.S. homeowners.

This is another case where the federal Government is placating to large financial institutions while state regulators are trying to impose tougher standards. A scenario similar to this has already played out in the financial sector, where state and community banks who were held to stricter regulatory standards than national banks. This allowed National Banks to participate in risky financial dealings like credit-default swaps, hedge-fund operations and other shady financial practices. State Regulators and the FDIC tend to be tougher on banks than the Office of the Comptroller of the Currency and Bank Holding companies which is a part of the Federal Reserve, which tends to be more favorable to the banks because the Federal Reserve is actually a privatively held company whose board members are members of the international banking community.

The decision here is clear, Individual states should be put in charge of overseeing foreclosure reform because for the most part their findings make sense, because if the banks did not do anything unlawful, why are we seeing a record number of foreclosures?

Secondly, the federal reserve is a privately owned bank based in Delaware, the board members are prominent bankers from all over the world, this is a conflict of interest in my opinion because the Federal Reserve which comprised of Bankers is not going to be critical of other bankers. State regulators are more likely to take a more objective approach when investigating such matters.

Tuesday, March 8, 2011

Mortgage Industry to undergo drastic changes but is it too little too late?

Federal regulators and the top law enforcement officers in all fifty states are eyeing big changes to the dysfunctional home loan industry. If these officials have their way, borrowers who take out home loans and the investors who buy them will work closer together and find common ground to minimize foreclosures, while the middle men who are supposed to be performing that job will see their power diminished.

That's the takeaway from a 27-page proposed settlement agreement a coalition of all 50 state attorneys general and five federal agencies sent last week to the nation's five largest home loan firms. The document details how mortgage companies should treat borrowers who fall behind on their payments.

It's the opening salvo in what will be a months-long negotiation between the nation's largest banks and the officials who oversee them to settle state and federal claims that they abused borrowers and illegally foreclosed on homes.

"Laws were not being followed by the servicers," Illinois Attorney General Lisa Madigan said Monday. "That absolutely has to change."

Regulators, investors and consumer advocates have long complained of a crooked system in which the firms that are supposed to collect payments from borrowers and distribute the proceeds to investors, known as mortgage servicers, have worked to their own advantage rather than working for those they're supposed to represent -- investors.

The proposed checklist of changes, the result of federal and state probes into big banks' foreclosure practices, tries to fix that. The Departments of Justice, Treasury, and Housing and Urban Development support the proposal. So do the Federal Trade Commission and the nascent Bureau of Consumer Financial Protection.

Currently, servicers have wide discretion in how they process payments and treat distressed borrowers and the investors who own those mortgages. If the state attorneys general had their way, that discretion would be narrowed, incentives would be altered, and a new system would emerge in which deserving homeowners would see their payments reduced and investors would experience decreased losses as a result of avoiding foreclosure.

But state and federal officials face an uphill climb. The banking industry and its allies in Congress howl that costs will skyrocket and the housing market will slide again as necessary foreclosures are delayed, threatening the recovery. The uncertainty of the final shape of a settlement also weighs on the market, undercutting efforts to fully investigate banks' loan files and possible wrongful foreclosures. Regulators don't want a dragged-out process. Iowa Attorney General Tom Miller, who's leading the 50-state effort, said Monday that he hopes the negotiations will only take a couple of months.

"We don't want uncertainty to linger too long," said North Carolina Attorney General Roy Cooper.

The preliminary term sheet is just one part of a comprehensive settlement. Fines will be levied, banks have said, and regulators are pushing for additional loan modifications. Those details were not disclosed Monday.

Some regulators are looking to levy up to $30 billion in penalties on the nation's 14 largest mortgage firms for their abusive practices. The penalties would come in the form of civil fines and losses from modifying home mortgages, according to people familiar with the matter. But the national bank overseer, the Office of the Comptroller of the Currency, is fighting that approach. The OCC wants a settlement that would cost the industry just a few billion dollars, sources said.

The state attorneys general want to penalize the industry for past misdeeds, and levy fines and change industry practices to minimize the chances that such transgressions will pop up again.

"We want to remedy losses that have occurred as a result of those problems," John Suthers, Colorado's attorney general, said of restitution due to bank errors.

The changes they're pursuing appear basic to those outside the industry: homeowners shall be afforded basic rights, investors will no longer have to jump through hoops to get the most basic information, mortgage servicers will be required to prove they have the necessary documentation to repossess a home, and banks shall subject themselves to regular audits to ensure compliance.

To those who work inside the industry, or help troubled homeowners navigate through it, the changes regulators seek appear to be the equivalent of a whole new mortgage system. That's how dysfunctional the industry has become.

Instead of an industry geared towards maximizing the value of a mortgage -- like modifying a home loan so investors lose $0.20 on the dollar rather than the $0.50 they'd lose if it was repossessed -- servicers are instead forcing through foreclosures, racking up fees through prolonged foreclosure proceedings, and effectively disregarding the rights of investors and borrowers in pursuit of their own profit.

By bringing investors and homeowners closer together, regulators are trying to minimize the power wielded by servicers.

The nation's five largest mortgage servicers -- Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial -- handle about three out of every five home loans, according to newsletter and data provider Inside Mortgage Finance.

The document was posted online Monday by American Banker. Its authenticity was confirmed by regulators involved in the process who asked not to be named.

Among regulators' proposals:

-Mortgage servicers shall not use incentives that encourage their employees to take shortcuts, like the robo-signing debacle that forced firms to halt home repossessions once evidence emerged that banks were at times breaking the law in their rush to foreclose on distressed borrowers;

-Foreclosure documents will require hand signatures, rather than simple stamps or electronic signatures;

-Mortgage servicers will have to prove they have the original loan files in order to repossess a home (a recent study of foreclosures in bankruptcy by Katherine M. Porter, a visiting professor at Harvard, found that in 40 percent of cases creditors foreclosing on borrowers did not show proper documentation);

-Servicers will have to create divisions separate from their foreclosure units to mediate complaints from aggrieved homeowners, and those units will be subject to audits from other companies, which will then produce reports for regulators detailing servicers' efforts;

-Servicers will be required to create and pay for websites that will allow borrowers to track their individual cases when trying to get their loans modified, as well as websites that will allow borrowers to easily get in touch with housing counselors;

-New incentive structures within servicers will be mandated that encourage loan modifications over foreclosure;

-Servicers will have to operate under strict timelines when processing loans, requests for loan modifications, and pursuing foreclosures;

-Servicers will have to disclose specific reasons why homeowners weren't offered loan modifications;

-Conditional forgiveness of mortgage principal will be required in situations in which balloon payments are due at the end of a modified loan's term;

-Equivalent forgiveness of second mortgages will be required when part of the first mortgage is written off;

-Servicers should consider homeowners' total debt obligations, rather than just their first mortgage, when restructuring their home loans (this would have the effect of lowering borrowers' total debt payments);

-Homeowners should have only one person to deal with at their servicer when trying to modify their loan, a significant change from the present situation in which homeowners are subject to endless phone calls and letters from a variety of bank employees;

-And investors will have access to more information, loan files, and will have a more powerful voice to call for individual loan modifications, rather than being forced to trust that servicers are acting in their best interests. This could be one of the more powerful changes as investors have long called for more loan modifications of troubled borrowers' debt, only to be rebuffed by mortgage servicers. If investors can see individual loan files -- and borrowers can see who the investors are -- this could lead to a significant increase in mortgage modifications.

Banks, though, are already bristling at the proposals, according to people familiar with the matter. Asked about whether the industry would agree to adopt the changes, Miller wondered: "Will enlightened self-interest prevail?"

Thursday, February 17, 2011

Mortgage Delinquencies in Decline but a Tough Road Ahead Remains

Fewer Americans are falling behind on their mortgage payments; in fact, the fewest in two years. Mortgages just one payment past due fell to their lowest level since just before the recession began. Is it delays in paperwork from insufficient paperwork and the foreclosure servicing scandal? No. It's actual fundamentals in the economy and the mortgage market. This may seem like a surprise to many how work in the industry.

It is interesting to note that as we got toward the end of 2010 we began to see another drop in weekly claims for unemployment insurance. I think that's a key driver of the short term delinquencies but many of those figure scan be shewed due to the way unemployment figures are reported. They are based on claims and if an individual doesn't make a claim, it may mean that he or she found employment or it can also mean that they simply ran out of unemployment benefits.

But even more significant is the improved underwriting that began after the mortgage market crashed. We're now past the delinquency peak on loans that were underwritten during the worst phase of the housing boom in 2006 and 2007.

The national delinquency rate fell 10 percent in the fourth quarter of last year to 8.22 percent, according to the Mortgage Bankers Association's latest survey. That's still high by historical standards, but it's a huge improvement. It's also good to see that the FHA delinquency rate improved slightly, from 12.62 percent to 12.26 percent, which is still high based on past years but a step in the right direction.

Wednesday, January 5, 2011

Beware of Mortgage Modification Scams

Mortgage Modifications have gained popularity in recent years, but many Mortgage Modifications Company are in legal turmoil due to unfair business practices. Often they will promise to lower Mortgage payments but cannot deliver on those promises and leave Homeowners in a worse situation than before. Currently there are several Attorney Generals in various states who are pursuing Legal actions against these companies.

Advance fees and demands that a homeowner stop making payments are key hallmarks of a scam. A Federal Trade Commission rule that took effect last week makes it illegal for companies to tell consumers to stop paying their mortgage, unless they also tell them that they could lose their home and damage their credit rating by doing so. A federal ban on collecting advance fees under the same rule will take effect at the end of this month.

It is already illegal in Florida for a loan modification company to charge a fee up front, and the state attorney general's office confirmed to HuffPost that it is currently investigating NHR, partially based in Florida, for "unfair and deceptive practices with regard to collecting fees and utilizing a client contract."

FTC spokesman Frank Dorman said the volume of loan modification scams has significantly increased with the uptick in foreclosures in the past few years.

"While the scams have existed in some form for awhile, as delinquencies and foreclosure filings have risen the opportunity for loan modification and foreclosure rescue scams has increased," he said. "We advise people to avoid any company or individual that requires a fee in advance, guarantees to stop a foreclosure or modify a loan, or advises the homeowner to stop paying the mortgage company. Many of the complaints received by the FTC include not being able to contact the company after paying for mortgage refinance services, not being able to get their money back and not receiving proper help from the company after paying for services."

It is always recommended to that you get legal advise from an Attorney prior to entering into any Loan Modification agreement. Many Bankruptcy and financial services Law firm offer modification options as well. It is often better to hire an attorney's office to do your Modification because they have the backing of a real Lawyer. Many Loan Modification Companies are only loosely affiliated with an Attorney and many have no legal expertise or backing whatsoever.

The Carbone Law Firm has a Loan Modification Expert on staff and they have a better than average results when it comes to Modifying loans. Most Importantly we have been in business for over 17 years and are based locally in Wall, New Jersey, so you know who you are dealing with and where your money is going. For a free Consultation call us at 732-681-6800 or visit us on the web at for more information.

Tuesday, November 16, 2010

The Complexities of Mortgage Ownership: Can You to Complete the Puzzle?

We all know the mortgage securitization process is complicated.

But just how complicated? This chart from Zero Hedge shows the convoluted journey a mortgage takes as it morphs into a security. Dan Edstrom, of DTC Systems, who performs securitization audits, and who is giving a seminar in California next month, spent a year putting together a diagram that traces the path of his own house's mortgage. "Just When You Thought You Knew Something About Mortgage Securitizations," says Zero Hedge, you are presented with this almost hilariously complicated chart.

A controversy of allegedly shoddy paperwork has raised doubts about the legitimacy of foreclosures nationwide, eliciting complaints from homeowners and investors alike. The Congressional Oversight Panel, a bailout watchdog, released a statement Tuesday that says the scandal over alleged "robo-signers," foreclosure processors who approve documents without reading them, "may have concealed much deeper problems" in the mortgage industry,

Regulators will have their hands full.