USDA program helps rural homeowners refinance


The USDA Rural Development is accepting applications to refinance home loans in eligible rural areas through its Direct Home Loan Program.

The USDA Rural Development’s Direct Home Loan Program helps low-income households in rural Iowa make home purchases with no down payments, and a temporary program change will allow eligible households experiencing an increase in interest rate or change in repayment terms to refinance.

This temporary change applies to adjustable rate loans, interest only loans, short-term rate locks, or other forms of specialty lending.

To be eligible for the program, homes must be located in rural areas which are typically defined as communities of less than 20,000 residents.

The USDA Rural Development Direct Home Loan Program offers 33 or 38 year terms with a fixed interest rate currently at 3.625 percent (subject to change prior to closing).

Potential applicants are strongly encouraged to contact USDA Rural Development staff no later than September 1 to allow for adequate processing time prior to the end of the federal government’s current fiscal year on September 30, 2014.

Questions regarding USDA Rural Development’s Direct Home Loan Program can be directed by email to:; phone (515) 284-4444; fax (855) 415-3562; or USDA Rural Development, 210 Walnut Street, Room 873, Des Moines, Iowa 50309.

Window maker files Chapter 7 bankruptcy

Waterville Window Co. Inc., in Winslow, Maine, filed for Chapter 7 bankruptcy after 61 years in business, citing liabilities of $813,870 to about 30 creditors, including a couple of PVC extruders.

The window fabricator will cease operations and liquidate assets of $54,500 a truck, van and office equipment to pay down debt owed to four creditors, two of which are banks. Secured claims total $389,000.

Window profile extruder Veka Inc. of Fombell, Penn., has the largest unsecured claim of $111,000 after essentially repossessing $1,780 of product in February, according to the July 14 filing in US Bankruptcy Court in Bangor, Maine.

BRT Extrusions, Inc., of Niles, Ohio, has a $2,800 non-priority claim against the window company.

In 2013, gross receipts for Waterville Window totaled $2.1 million, the filing says.

Last December, eight of the 21 employees were laid off. Owner Donald J. Shirley said window sales had dropped more than $1.5 million over a three-year period and he planned to focus on vinyl rails and fences, according to a report published last December by the Morning Sentinel.

Shirley announced the creation of a fencing company called Maine Innovations Inc. on the Waterville Window Facebook page on Jan. 10. He is listed as president on its website and the businesses have the same address.

Maine Innovations has a $73,500 unsecured claim against Waterville Window, according to the bankruptcy filing.

Waterville Window Company files for bankruptcy

Waterville Window Company Inc., a Winslow-based company founded in 1953, has filed for Chapter 7 bankruptcy, just seven months after the owner predicted a business expansion.

In a July 14 filing with US Bankruptcy Court in Bangor, the company listed $54,539.37 in personal property assets and $813,869.93 in debt owed to over 30 creditors, including Bangor Savings Bank, Kennebec Valley Counsel of Governments, TD Bank and numerous vendors. A court date for the bankruptcy filing was not listed.

Chapter 7 bankruptcy involves the sale and liquidation of the companys assets to pay off debt.

The largest creditor listed is TD Bank, which is owed $279,656 for miscellaneous equipment. In addition, the company owes $424,700 to 29 vendors, including Westbrook-based Sigco Inc. and Waterville-based Maine Innovations, which was founded by the companys co-owners this year.

Personal property listed includes $492 in a checking account, two vehicles valued at a total of $23,000 and miscellaneous equipment valued at a total of $30,547. No real property was listed.

The companys president, Donald Shirley, was not available for comment through a phone number listed for Maine Innovations, where he is also listed as president. The phone number listed for Waterville Window was disconnected.

According to a December 2013 story in the Morning Sentinel, Waterville Window laid off eight of its 21 employees at the time because of declining window sales. The company said it lost more than $1.5 million in window sales over the last three-year period.

Shirley told the newspaper at the time he was planning to expand the companys services and potentially add as many as 14 jobs by spring of this year. I plan on expanding the business to be three times bigger than what it was. Its a positive thing, he said.

General Electric Company (NYSE:GE) Hopes To Rebound With Clearer Goals …

Tomahawk, WI 07/21/2014 (Basicsmedia) – General Electric Company (NYSE:GE) has been through thick and thin of late, as its share price has tumbled significantly!

The CEO’s Point Of View

The CEO Jeffrey R. Immelt has corroborated with proficiency that it is duly reshaping the company. The second quarter results declared demonstrates that the company is returning steadily to its deep industrial roots; the organization is pondering an acceleration, and thereby a shift!

GE’s Objectives

General Electric Company (NYSE:GE) is the largest known industrial company operating in the US, that acquires revenues from a myriad of industrial businesses. The products comprise oil field machineries, medical imaging equipment, power generators, jet engines,etc; its net sales increased by a significant margin of 7%. However, net revenues garnered declined by a margin of 6 percent.

GE also made its underlying desires vocal, as the company has opted to duly spin out the North American finance business, dubbed Synchrony Financial, by the virtue of an IPO that has been offered lately, in July.

GE’s Exit Plan

GE has plans to forge an exodus from its finance business venture under Synchrony Fiancial; the spinoff is set off with an IPO, that is expected to yield sumptuous tax savings, forging a quicker path for shedding its consumer finance unit to another company, in sale.

Case Against Chase for Flawed Credit Reporting Heads for Trial

WH Ireland says legal settlement could help Cambria Africa accelerate growth

A successful outcome in Cambria Africas (LON:CMB) legal case against former associate Lonrho would lead to an increase in the companys value, according to broker WH Ireland.

Whilst legal cases can at times be unpredictable, it appears to us that Cambria has a strong case, Ian Berry, WH Ireland analyst said in a note.

Our expectation is that the main issues will not relate to liability but instead to the scale and timing of any award and satisfactory enforcement of payment.

Berry also added: It is noteworthy Cambria is alleging fraud in two of the claims, which has a high burden of proof in the English courts before it can be pleaded.

The WH Ireland analyst highlights that a possible settlement of the aircraft dispute ($10m claim) and a possible sale of Leopard Rock Hotel ($11m book value) would both deliver potentially large sums in the context of Cambrias pound;5.5m market cap, and that could drive cash in-flow.

This could help eliminate debt and provide funds to accelerate growth in the core businesses, Berry claimed.

Cambria yesterday announced it had launched legal proceedings in the High Court in London against Lonrho, the Africa-based conglomerate acquired by Swiss entrepreneurs Rainer-Marc Frey and Thomas Schmidheiny in 2013.

The two companies agreed a US$2.7mln settlement relating to outstanding legal claims and various loans last year, but Zimbabwe-based Cambria has now taken legal action to rescind that agreement due to what it claims were fraudulent misrepresentations during the process.

In addition, Cambria, which was formerly known as LonZim, alleges money was unlawfully transferred by Lonrho in 2008 and is claiming a further US$8.8mln related to three aircraft leased to then subsidiaries of Lonrho.

Cambria and its advisors are continuing to make further investigations into other possible instances of Lonrhos mismanagement of the company, the company said.

In a separate note today research house GECR repeated a lsquo;buy recommendation with a 14.63p price target.

We keep our valuation unchanged on the back of the news as we prefer to remain cautious. Any income from the legal proceedings is not currently factored into our forecasts, so any successful outcome will increase our target price, GECR analyst Emanuil Manos Halicioglu said.

Cambria, under its previous guise as LonZim, was effectively spun-out of Lonrho in early 2008 against the backdrop of Zimbabwes economic crisis and hyper-inflation. The companies continued to have a strong association for a number of years, until the LonZim business was restructured, re-branded and re-launched in 2012.

A. Naomi Jackson & Tiphanie Yanique: Two Contemporary Caribbean Writers …

Earlier this year, I finally met Jamaica Kincaid, my all-time favorite writer from Antigua, when New York Arts’ hosted “The Year of James Baldwin” a 15-month celebration of the author’s essays, plays, and activism.

After her panel discussion, I ran up to Ms. Kincaid, hugged her and asked her why she never responded to an email that I sent her years ago detailing the similarities of her life to my mother’s and my strong ambivalence of being at once Antiguan and American, and quite frankly, not feeling like either most of the time.

One of the fast friends that I made at the event snapped a pic of Ms. Kincaid and me and emailed it to me. It would be a few days before I opened it up and become deeply saddened by Ms. Kincaid ‘s resemblance to my aunt, who, like my mom, had done her time in America as a nurse and had returned to Antigua to go “rest sheself.” Mama Kincaid’s beautiful brown skin had no cracks, but did exhibit visible folds and creases.

I worried.

I worried about what would become of Caribbean literature when Kincaid put her pen down for good. I mean, who would write about hating their mothers, colonization, white supremacy, isolation, the wretched effects of unattended loneliness, and human suffering in such a hypnotic and uncomfortable way that overwhelms, comforts, and transforms?

Last week, Columbia University School of the Arts, hosted the panel “Coming from Far: Caribbean Writers on Home and Otherness as another leg of “The Year of James Baldwin” and The Harlem Book Fair. On it were two women with answers to this question: A. Naomi Jackson, author of the forthcoming novel Who Don’t Hear Will Feel and Tiphanie Yanique, author of the recently released Land of Love and Drowning.

Jackson, a Brooklyn native born to Antiguan and Bajan parents, and Yanique, a US Virgin Islander, in their respective bodies of work, pick up where the previous generation of Caribbean writers left off.  This new crop of Caribbean writers, while still speaking to the legacy of colonization and how the intersection of race, class, and color act on the Caribbean existence, take several steps back from this lens in order to zoom on other ways of being Caribbean. Jackson and Yanique do deep dives into incest, mental illness, family dysfunction, sexuality, homophobia, economics, and immigration in their work.

You can connect with Jackson on Twitter and learn more about Yanique at And please share your author suggestions in the comments.

Connect with Kara @frugalfeminista. Learn more about The Frugal Feminista at Download her free ebook The 5-Day Financial Reset Plan: Eliminate Debt, Know Your Worth, and Heal Your Relationship with Money in Just 5 Days.

House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust …

Federal Information News Dispatch, Inc.

Thank you for inviting me to testify today. I am

Thomas Jackson, Distinguished University Professor and President Emeritus at the University of Rochester. Prior to moving to the University of Rochester, I was a professor of law, specializing in bankruptcy, at schools of law at Stanford, Harvard, and the University of Virginia. I am the author of a

Harvard Press book, The Logic and Limits of Bankruptcy Law, a bankruptcy casebook, and numerous articles on bankruptcy law. Recently, my work in the field of bankruptcy has focused on the use of bankruptcy in resolving systemically important financial institutions (SIFIs). In that capacity, I was co-chair of a Bipartisan Policy Center working group that produced, in May of 2013, Too Big to Fail: The Path to a Solution. I have also been, since 2008, a member of the Hoover Institutions Resolution Project, which has produced two books discussing how bankruptcy can be made more effective in terms of the resolution of SIFIs and has just posted a comprehensive proposal for a new chapter to the Bankruptcy Code (Chapter 14) to handle the resolution of SIFIs (at ). And, since December 2013, I have been a member of the Federal Deposit Insurance Corporations (FDIC) Systemic Resolution Advisory Committee. I am here today in my individual capacity, and the views I express are my own, not those of any organization with which I am affiliated.

I. Introduction: The Need for a Bill to Amend the Bankruptcy Code with Respect to Large Financial Institutions

I previously had the honor of testifying before this Subcommittee on March 26, 2014, at a hearing on Exploring Chapter 11 Reform: Corporate and Financial Institution Insolvencies; Treatment of Derivatives. At that time, my written statement (and oral testimony) focused on ways in which bankruptcy law could and should be modified so as to make it an important player in the resolution of SIFIs and that both bankruptcy law and the Dodd-Frank Act could be made more effective as a result. Attached to that written statement was an appendix that contained a draft bill under the heading Proposed Amendments to Facilitate the Resolution of Financial Institutions Under the Bankruptcy Code: Focused on a New Subchapter V to Chapter 11. n1 The draft bill in that appendix has many features in common with the bill under consideration today, entitled the Financial Institution Bankruptcy Act of 2014 (the Bill), and thus it is no surprise that I am here today as an enthusiastic supporter of the Bill.

To see the importance of enacting amendments to the Bankruptcy Code along the lines of the Bill, it is worth dropping back to the context created by the Dodd-Frank Act and by the work done by the FDIC with respect to its single point of entry proposal for use in the orderly liquidation authority (OLA) under Title II of the Dodd-Frank Act. Together they show, in my view, the importance of enacting the Bill.

It starts by focusing on the provisions in the Dodd-Frank Act itself. In two key places, the Dodd-Frank Act envisions bankruptcy as the preferred mechanism for the resolution of SIFIs. The first occurs in Title I, with the provision for resolution plans under Section 165(d). Covered financial institutions are required to prepare, for review by the Board of Governors of the Federal Reserve System (Federal Reserve Board), the Financial Stability Oversight Council, and the FDIC, the plan of such company for rapid and orderly resolution in the event of material financial distress or failure . . . . n2 If the Federal Reserve Board and the FDIC jointly determine that a submitted resolution plan is not credible or would not facilitate an orderly resolution of the company under title 11, United States Code, the company needs to resubmit a plan with revisions demonstrating that the plan is credible, and would result in an orderly resolution under title 11, United States Code . . . . n3 The failure to submit a plan that meets these tests can lead to restrictions, and divestiture, in order to facilitate an orderly resolution of such company under title 11, United States Code . . . . n4 For present purposes, the important point is that effective resolution plans are tested against bankruptcy law, not OLA under Title II of the Dodd-Frank Act. Indeed, a credible plan that would not result in the orderly resolution of the company under the Bankruptcy Code would, according to the literal language of Section 165(d)(4) of the Dodd-Frank Act, be rejected. It therefore goes without saying–but is worth saying nonetheless–that the effectiveness of bankruptcy law in being able to resolve SIFIs in ways that do not unnecessarily destroy value (such as by liquidating a viable going concern) is critically important to the development of approvable resolution plans under Title I.

The second occurs in the context of the ability to initiate the OLA process under Title II of the Dodd-Frank Act. Invocation of Title II itself can only occur if the government regulators find that bankruptcy is wanting. n5 That is, by its own terms, bankruptcy is designed by the Dodd-Frank Act to be the preferred resolution mechanism. n6 The FDIC has announced that it supports the idea that bankruptcy, not OLA under Title II of the Dodd-Frank Act, should be the presumptive resolution procedure. n7 The ability of bankruptcy law to fulfill its intended role as the presumptive procedure for resolution, of course, turns on the effectiveness of bankruptcy law in rising to the challenge of accomplishing a resolution that meets three important goals: One that (a) both minimizes losses and places them on appropriate, pre-identified, parties, (b) minimizes systemic consequences; and (c) does not result in a government bail-out.

In addition, much thinking and work has occurred since the enactment of the Dodd-Frank Act. n8 Increasingly, attention has turned, in Europe as well as in the United States, on a rapid recapitalization. Europe has focused on a one-entity recapitalization via bail-in n9 while the FDIC has focused, in its SPOE proposal, on a two-entity recapitalization rather than a formal bail-in. n10 Under the FDICs approach, n11 a SIFI holding company (the single point of entry) is effectively recapitalized over a matter of days, if not hours, by the transfer of virtually all its assets and liabilities, except for certain long-term unsecured liabilities, to a new bridge institution whose capital structure, because of the absence of those long-term unsecured liabilities, is both different and presumptively fiscally sound. The bridge institution then forgives intercompany liabilities or contributes assets to recapitalize its operating subsidiaries. Because of the splitting off of the long-term unsecured debt, the bridge institution, in the FDICs model, looks very much like a SIFI following a European-like bail in; the major difference is that in the bail in, the entity is directly recapitalized (hence the one-entity), whereas in the FDICs SPOE proposal the recapitalized bridge institution, a different legal entity, is formed first and effectively receives a new capital structure by virtue of having long-term unsecured debt left behind in the transfer to the bridge institution. n12

Thus, the important question for bankruptcy law is the effectiveness of the current Bankruptcy Code as a credible resolution mechanism for a SIFI in financial difficulty, measured today against the FDICs SPOE proposal for how it would use Title II of the Dodd-Frank Act. While a focus on an effective recapitalization of the holding company removes some of the concerns about the current Bankruptcy Code–such as its exclusion of various operating entities a SIFI might own or control n13–and while the current Bankruptcy Code contains many of the bones of a successful way to recapitalize a SIFI in accordance with the rule of law, there are several obstacles that effectively eliminate the current Bankruptcy Code as a viable alternative to the FDICs SPOE proposal.

The essence of any rapid recapitalization–and this is true under the FDICs SPOE proposal as well as under any bankruptcy alternative–is pre-identified long-term debt that is both (a) required and (b) subordinated to regular unsecured obligations. It is this debt that, consistent with known priorities, will be left behind (or converted to equity) in any recapitalization, whether that of a single-entity or that of two-entities. The relevant government agencies, in imposing capital requirements on SIFIs, need to ensure that some of the capital requirements are in the form of debt, not exclusively equity. n14 (Mandatory equity requirements are important because equity is the first cushion. But any recapitalization requires the elimination of debt–and to eliminate debt consistent with established creditor priorities, it needs to be pre-identified as distinct from (and effectively subordinated to) other unsecured obligations. That is the only way, consistent with the rule of law embedded in the Bankruptcy Code, to leave that debt behind, and it is the only way the FDIC can accomplish its SPOE procedure consistent with pre-established creditor priorities.)

Thus–on the crucial assumption that such long-term debt will be both identified and required–the structural essence of a recapitalization is already in the Bankruptcy Code. While it is probably the case that the original intent of Section 363 of the Bankruptcy Code–a provision providing for the use, sale, and lease of property of the estate–at the time of its enactment in 1978 was to permit piecemeal sales of unwanted property, Chapter 11 practice began, over time, to move in the direction of both (a) pre-packaged plans of reorganization and (b) procedures whose essential device was a going-concern sale of some or all of the business (whether prior to or in connection with a plan of reorganization), leaving the original equity and much of the debt behind and with the proceeds of the sale forming the basis of the distribution to them according to the plan of reorganization and bankruptcys priority rules. n15 Such sales have been used, repeatedly, as a way of continuing a business outside of bankruptcy while the claimants and equity interests, left behind, wind up as the owners of whatever was received by the bankruptcy estate in connection with the sale. And it, at least in rough contours, has structural features in common with the two-entity recapitalization that is envisioned under the FDICs SPOE procedure.

That said, a Section 363 sale under the current Bankruptcy Code is a wholly inadequate competitor to a SPOE process under Title II of the Dodd-Frank Act as proposed by the FDIC. While both will require identification of long-term debt (or capital structure debt) that will be left behind–and presumably that may emerge from the current Federal Reserve Board consideration of this issue–a successful two-entity recapitalization essentially requires the bridge company to be able to acquire all of the remaining assets, contracts, permits, rights, and liabilities of the SIFI holding company, while preserving the businesses of the transferred, non-bankrupt, operating subsidiaries whose equity is transferred from the SIFI holding company to the bridge company.

This is virtually impossible to accomplish under the current Bankruptcy Code. First, because of a series of amendments designed to insulate qualified financial contracts–swaps, derivatives, and repos–from many of bankruptcys provisions, most notably the automatic stay and the unenforceability of ipso facto clauses–there is no effective mechanism in the current Bankruptcy Code to preclude counterparties on qualified financial contracts from running upon the commencement of a bankruptcy case. n16 Importantly, even if most such contracts reside (as is usually the case) in non- bankrupt operating subsidiaries of the bridge company, such creditors may have cross-default or change-of-control provisions triggered by the Chapter 11 filing of their former holding company that current bankruptcy law does nothing to mitigate. Nor would it be clear under existing bankruptcy law that operating licenses, permits, and the like could be transferred to the bridge company, either because it legally is a new company or because there has been a change of control of the holding company and its operating subsidiaries in derogation of change-of-control provisions or requirements applicable to individual entities. In my view, these problems are, essentially, fatal to any effort to use the current Bankruptcy Code to recapitalize a SIFI–and thus will inexorably lead, contrary to the clearly-identified preference for the primacy of bankruptcy law expressed by the Dodd-Frank Act and by the FDIC itself, to the routine invocation of Title II of the Dodd-Frank Act, so as to gain access to the SPOE procedures. The Bill, as I will point out, effectively solves each of these problems.

Moreover, while the Bankruptcy Code clearly contemplates an ability to move with necessary speed, including when a provision calls for a notice and hearing before any decision (such as under Section 363(b)), n17 the lack of clear statutory authority for a very rapid transfer to a bridge company may leave too much–for the comfort of a SIFI or a regulatory body–up to the discretion of a particular judge who first gets a SIFI holding company requesting such a transfer. Nor is there a clear necessity for notice to, or hearing by, a government regulator–whether the FDIC or Federal Reserve Board, in the case of the holding company, or a foreign regulator, in the case of a foreign subsidiary that is proposed to be transferred to a bridge company. These uncertainties, even with a robust resolution plan, may inspire enough lack of confidence by the FDIC and the Federal Reserve Board so as to view the commencement of an OLA proceeding under Title II of the Dodd-Frank Act to be the preferable course–or, alternatively, lack of sufficient confidence by foreign regulators so as to acquiesce in allowing the bankruptcy process to unfold without the regulator intervening at the foreign subsidiary level. Again, the Bill effectively addresses, insofar as possible, n18 each of these concerns.

II. The Essential Changes to the Bankruptcy Code–and How the Bill Effectively Would Implement Them

From this recitation, it is clear that the Bankruptcy Code needs tweaking–sometimes subtle, detailed, and complicated, but tweaking nonetheless–to permit it to be, in the vast majority of cases, a viable resolution mechanism of a SIFI, fully competitive with–and in some respects, superior to–the FDICs SPOE proposal for Title II of the Dodd Frank Act. n19

What are these changes? Given the necessarily intricate details of the Bill itself, let me discuss what I think, at a conceptual level, the needed changes are, and along the way provide references to provisions in the Bill that would accomplish these conceptual changes in a concrete and effective way. n20 The heart-and-soul of necessary changes center on a provision–Section 1185 of the new subsection V of Chapter 11 of the Bankruptcy Code proposed by the Bill–that substantially sharpens the nature and focus of a sale of assets under Section 363 of the Bankruptcy Code. This provision contemplates n21 a rapid transfer to and, in effect, recapitalization of, a bridge company n22 (effectively within 48 hours after the commencement of the case) n23 by a SIFI holding company (the debtor–the covered financial corporation), after which the bridge company can recapitalize, where necessary, its operating subsidiaries. n24 If the court approves the transfer, then the SIFI holding companys operations (and ownership of subsidiaries) shift to a new bridge company that is not in bankruptcy–and hopefully will be perceived as solvent by market-participants, including liquidity providers, n25 because it will be (effectively) recapitalized, as compared to the original SIFI, by leaving behind in the bankruptcy proceeding previously-identified long-term unsecured debt of the original SIFI. After the transfer, the debtor (ie, the SIFI holding company) remains in bankruptcy but is effectively a shell, whose assets usually will consist only of an interest in a trust n26 that would hold the equity interests in the bridge company until they are sold or distributed pursuant to a Chapter 11 plan, and whose claimants consist of the holders of the long-term debt that is not transferred to the bridge company and the old equity interests of the SIFI holding company. This debtor in Chapter 11 has no real business to conduct, and essentially waits for an event (such as the sale or public distribution of equity securities of the bridge company by the trust) that will value or generate proceeds from its assets (all equity interests in the new, recapitalized entity) and permit a distribution of those equity interests or proceeds, pursuant to bankruptcys normal distribution rules, to the holders of the long-term debt and original equity interests of the debtor (the original SIFI holding company).

Many of the remaining provisions that would need to be adopted as well–and are all contained in the Bill–are designed to permit the successful transfer of assets, contracts, liabilities, rights, licenses, and permits–of both the holding company and of the subsidiaries–to the bridge company.

First, there are provisions applicable to debts, executory contracts, and unexpired leases, including qualified financial contracts. n27 Conceptually, the goal of these provisions is to keep operating assets and liabilities in place so that they can be transferred to the bridge company (within a 48-hour window) and, thereafter, remain in place so that business as usual can be picked up the bridge company and its affiliates (such as operating subsidiaries) once it assumes the assets and liabilities. This requires overriding ipso facto clauses (of the type that would otherwise permit termination or modification based on the commencement of a bankruptcy case or similar circumstance, including credit-rating agency ratings, whether in the holding company or in its affiliates), n28 and it requires overriding similar provisions allowing for termination or modification based on a change of control, again whether in the holding company or in its affiliates, since the ownership of the bridge company will be different than the ownership of the debtor (the SIFI holding company) prior to the bankruptcy filing. n29 These provisions need to be broader than Section 365 of the Bankruptcy Code, for at least two reasons. First, perhaps because of the limited scope of the original purpose of Section 363, bankruptcy law currently doesnt have a provision expressly allowing for the transfer of debt (although many debts are in fact transferred as a matter of existing practice under Chapter 11 going concern sales). Unlike executory contracts, which might be viewed as net assets (and thus something to assume) or as net liabilities (and thus something to reject), debt is generally considered breached and accelerated (think rejected) upon the filing of a petition in bankruptcy. n30 But, if there is going to be a two-entity recapitalization, the bridge company needs to take the liabilities it would assume as if nothing happened. Thus, provisions designed to accomplish that need to be included–and the Bill does. n31 Second, Section 365 doesnt deal with change-of-control provisions; amendments need to add that and extend it to debt agreements as well–and, again, the Bill has provisions that accomplish that. n32

With respect to qualified financial contracts, there should be provisions in addition to those just mentioned. Thus, the Bill provides that the stay on termination, offset, and net out rights should apply for the period from the filing until the transfer occurs, it is clear it wont occur, or 48 hours have passed. n33 Because of this interregnum, when there is a likelihood that the transfer will be approved, and all of these qualified financial contracts (and related guarantees, if any) go over in their original form to the bridge company, the Bill appropriately has a requirement that the debtor (the covered financial corporation) and its affiliates shall continue to perform payment and delivery obligations. n34 Conversely, because the counterparty may not know for sure what the outcome will be during this interregnum, the Bill also has a provision that the counterparty may promptly cure any unperformed payment or delivery obligations after the transfer. n35

Just as the principle of having the bridge company have the same rights, assets, and liabilities drive the provisions regarding debts, executory contracts, and unexpired leases just discussed (including qualified financial contracts), a similar provision is necessary to keep licenses, permits, and registrations in place, and does not allow a government to terminate or modify them based on an ipso facto clause or a transfer to a bridge company–and the Bill includes such a provision. n36

III. Conclusion

The Bill–as noted by the references to its provisions above–effectively accomplishes all of the changes necessary to make the Bankruptcy Code a viable alternative to the proposed SPOE procedure under Title II of the Dodd-Frank Act. It might be enough to note that the Bill would thus accomplish the original desire of the Dodd-Frank Act to have bankruptcy be the preferred mechanism (and the focus of effective resolution plans), and deserves enactment for that reason alone.

But there are reasons why, for the vast majority of cases, the Bill provides not just a parallel mechanism to accomplish a SPOE-like procedure outside of Title II, but a superior mechanism. First, the new company formed in the Section 1185 transfer of the Bill is neither (a) subject to the jurisdiction of a bankruptcy court n37 nor (b) subject to control by a government agency, such as the FDIC, whereas the bridge company created in the SPOE process is effectively run, for a while at least, by the FDIC. n38 In this bankruptcy process, the bridge company, appropriately, faces market-discipline first and foremost; in Title II, there inevitably is a heavier layer of regulatory overlay and control. Second, and related, a bankruptcy process envisions at least the possibility that the market can determine the equity value of the new company (and thus the amount to be distributed to the creditors and old equity interests left behind), whereas the FDICs SPOE proposal relies on expert valuations for those distributions. n39 Third, because of language in the Dodd-Frank Act, n40 the FDIC may push on its own initiative for the replacement of management (ie, not permit management of the former SIFI holding company take similar positions in the bridge company). n41 In the bankruptcy process, the Board of Directors, and management, of the newly-created bridge-company would be identified with the input both of the SIFIs primary regulators as well as the beneficiaries of the transfer and, importantly, would be subject to the approval of the district court in an open and transparent process at the time of the transfer of the holding companys assets and liabilities to the bridge company. n42 Fourth, at various points, the FDIC has discretion that can amount to ex post priority determinations (such as whether liabilities other than pre-defined long-term unsecured debt gets transferred to the bridge company)–discretion that may be useful in extraordinary cases, but that is potentially a cause for undermining market confidence in the rule of law in other circumstances. n43 Fifth, Title II treats the bridge company created in an OLA under Title II as a government entity, exempt from taxes; n44 I think that provision is a serious mistake, preferring the bridge company to its non-protected competitors, and should not be replicated in any bankruptcy amendments, whose goal is to have the bridge company treated just as the holding company was before the two-step recapitalization. The Bill does not make this mistake. Sixth, I am concerned–as I suspect the FDIC is as well–that the actual use of SPOE under Title II of the Dodd-Frank Act will be subject to ex post criticism and investigation. Bankruptcy, with appropriate amendments as provided by the Bill, is in a more robust position to do the right thing in terms of fairly addressing the consequences of financial failure without having it necessarily lead to economic failure.

I want to thank the Subcommittee for allowing me this opportunity to present my views. As I hope I have made clear, I view this Bill to be an important substantive contribution to the process of effective resolution of troubled SIFIs that began with the financial turmoil of 2008 that led to the enactment of the Dodd-Frank Act in 2010. It is an honor to appear before you today as you begin consideration of this welcome Bill. I would of course be delighted to answer any questions you may have about my testimony.

n1 See

n2 Dodd-Frank Act [Sec.] 165(d)(1).

n3 Dodd-Frank Act, [Sec.] 165(d)(4)

n4 Dodd-Frank Act, [Sec.] 165(d)(5)(A) amp; (B).

n5 Dodd-Frank Act, [Sec.] 203(a)(1)(F) amp; (a)(2)(F); [Sec.] 203(b)(2) amp; (3).

n6 Federal Deposit Insurance Corporation, The Resolution of Systemically Important Financial Institutions: The Single Point of Entry Strategy, 78 Fed. Reg. 76614 (Dec. 18, 2013) (hereafter FDIC SPOE), at 76615 (the statute makes clear that bankruptcy is the preferred resolution framework in the event of the failure of a SIFI); see Statement of

Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation on Implementation of the Dodd-Frank Act before the Committee on Banking, Housing and Urban Affairs, United States Senate (December 6, 2011), available at (If the firms are successful in their resolution planning, then the OLA would only be used in the rare instance where resolution under the Bankruptcy Code would have serious adverse effects on US financial stability.).

n7 See Remarks by

Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation, in Implementation of the Dodd-Frank Act before the Volker Alliance Program (October 13, 2013), available at http://www.fdic/gov/news/news/speeches/spoet1313.html.

n8 A useful discussion of whether and how well Title II of the Dodd Frank Act responded to the 2008 crisis–prior to the development of the SPOE proposal–is contained in David Skeel, Single Point of Entry and the Bankruptcy Alternative (forthcoming, Brookings 2014).

n9 Financial Stability Board, Progress and Next Steps Towards Ending Too-Big-to-Fail, Report of the Financial Stability Board to the G-20, available at (Sept. 2013);

Thomas Huertas, Vice Chairman, Comm. Of European Banking Supervisors and Dir., Banking Sector,

UK Fin. Services Auth., The Road to Better Resolution: From Bail-out to Bail-in, speech at The Euro and the Financial Crisis Conference (Sept. 6, 2010), available at;

Clifford Chance, Legal Aspects of Bank Bail-Ins (2011).

n10 FDIC SPOE, supra note 6. See Federal Deposit Insurance Corporation amp; Bank of England, Joint Paper, Resolving Globally Active, Systemically Important, Financial Institutions (Dec. 10, 2012), available at (jointly proposing the single-point-of-entry approach).

n11 Early signs of which were foreshadowed in

Randall Guynn, Are Bailouts Inevitable? , 29 YALE J. ON REGULATION 121 (2012).

n12 In part, this difference is driven by different organizational structures common to US SIFIs versus European SIFIs–our SIFIs are much more likely to use a holding company structure; in part this difference is driven by Title IIs liquidation mandate. Section 214(a) of the Dodd-Frank Act explicitly states: All financial companies put into receivership under this subchapter shall be liquidated. As a bankruptcy scholar, I view this latter mandate, at least in the abstract, as unfortunate. A first-day lesson in a corporate reorganization course is that understanding that financial and economic distress are conceptually distinct from each other is fundamental to understanding Chapter 11 of the Bankruptcy Code,

Barry Adler,

Douglas Baird amp;

Thomas Jackson, BANKRUPTCY: CASES, PROBLEMS AND MATERIALS 28 (Foundation Press 4th ed. 2007). Avoiding a bailout requires that losses be borne by appropriate parties, identified in advance, not necessarily by liquidation of the underlying business, which may cause an unnecessary destruction of value. The FDICs SPOE strategy formally complies with the statutory requirement, by liquidating the SIFI holding company after its assets have been liquidated via the transfer to the bridge company.

n13 Bankruptcy Code [Sec.] 109(b)(2) amp; (3). To deal with the bankruptcy of an operating entity only, different provisions–such as those that are suggested in the July 9, 2014 proposal just posted by the Hoover Institutions Resolution Project,–tom-jackson.pdf–might be considered. (In general, these provisions are ancillary to those in the Bill. Over areas that both cover, the Hoover proposal and the Bill are rarely out of sync.)

n14 The Board of Governors of the Federal Reserve System has stated that it will issue a proposed rule that would establish a minimum amount of long-term unsecured debt and other loss-absorbing resources.

Daniel K. Tarullo, Toward Building a More Effective Resolution Regime: Progress and Challenges, at 11, Remarks at the Federal Reserve Board and Federal Reserve Bank of Richmond Conference, Planning for the Orderly Resolution of a Globally Systemically Important Bank, Washington, DC (Oct 18, 2013); Statement of

Daniel K. Tarullo before the Committee on Banking, Housing and Urban Affairs, at 11-12 (Feb. 6, 2014).

n15 David Skeel, Debts Dominion: A History of Bankruptcy Law in America 227 (Princeton 2001);

Barry Adler,

Douglas Baird amp;

Thomas Jackson, supra note 12, at 466-467 (between [1983 and 2003] a sea change occurred through which an auction of the debtors assets has become a commonplace alternative to a traditional corporate reorganization).

n16 Bankruptcy Code [Subsec.] 362(b)(6), (7), (17), (27), 546(e), (f), (g), (j), 555, 556, 559, 560, 561. (The FDIC SPOE proposal, consistent with statutory authorization, Dodd-Frank Act [Sec.] 210(c)(8), (9), (10), (16), will override any such provisions in counterparty contracts (and subsidiary cross-default provisions); bankruptcy, being a judicial proceeding, cannot (and should not) do that without comparable statutory authorization which currently not only is missing but is expressly contradicted by provisions that exist.) While my statement today focuses on changes that are necessary in these existing protective provisions for counterparties on qualified financial contracts in the Bankruptcy Code in order to permit an effective two-step recapitalization of a SIFI holding company, I believe these existing Bankruptcy Code provisions, and their relationship to bankruptcy law more generally, need to be rethought. See David Skeel amp;

Thomas Jackson, Transaction Consistency and the New Finance in Bankruptcy, 112 COLUM. L. REV. 152 (2012).

n17 Bankruptcy Code [Sec.] 102(1) provides that after notice and a hearing includes (B) authoriz[ing] an act without an actual hearing if such notice is given properly and if . . . (ii) there is insufficient time for a hearing to be commenced before such act must be done, and the court authorizes such act . . . .

n18 Cross-border issues are complex, and require agreements among countries that are outside the jurisdiction of either the FDIC or the Bill. Fortunately, there are solid signs that such international cooperation may be feasible.

n19 Reducing the size, and not just the complexity, of large financial institutions may be independently desirable, but that goal–if indeed it is one–should not be conflated with designing an appropriate mechanism for the effective resolution of a financial institution in distress. The Bill appropriately addresses issues of effective resolution, rather than using ineffective resolution mechanisms as a means to force smaller financial institutions. The latter should be addressed on its own merits, not as a behind-the-scenes objection to continue ineffective bankruptcy resolution procedures.

n20 I have found a few places where I think cross-references may need to be changed in the Bill I have been referencing in preparing this statement and a few places where I think consideration of modestly-changed or different provisions would be useful. To the extent other statements submitted for this hearing do not make relevant suggestions along those lines, I will be happy to supply modest thoughts in this direction. For present purposes, however, I want to focus on why I believe this Bill is a major advance in addressing the issues Ive already flagged.

n21 A bankruptcy case is commenced under subchapter V of Chapter 11 either under Section 301 of the Bankruptcy Code (by the debtor) or by the Federal Reserve Board under Section 303, upon the Federal Reserve Boards certification that (a) the institution is under defined financial stress and (b) the commencement of a bankruptcy case and a transfer to a bridge company is necessary to prevent imminent substantial harm to financial stability in the United States. Bill, Sec. 3, [Sec.] 1183.

n22 Bill, Sec. 3, [Sec.] 1185.

n23 Bill, Sec. 3, [Sec.] 1185 doesnt specify when a transfer can occur (after the first 24 hours), but other provisions provide essential stays only for the first 48 hours, unless a transfer is approved. Bill, Sec. 3, [Subsec.] 1187(a)(3), 1188(a).

n24 The institutions that can use these new bankruptcy procedures are effectively those that can be placed into OLA under Title II of the Dodd-Frank Act.

See Bill, Sec. 2(a).

n25 Recognizing that this liquidity is not a part of bankruptcy law, and thus not within the jurisdiction of this Subcommittee, I will not here enter into the debate over whether market-based liquidity to the bridge company, backed by existing Board lender-of-last-resort access under Federal Reserve Act [Sec.] 13(3)s program or facility with broad-based eligibility, in the event of a broader liquidity freeze, are sufficient. Without greater access to government liquidity–under the stringent standards set forth in

John Bovenzi,

Randall Guynn amp;

Thomas Jackson, Too Big to Fail: The Path to a Solution (Bipartisan Policy Center, Failure Resolution Task Force May 2013)–however, I can envision cases where the government may commence an OLA proceeding under Title II of the Dodd-Frank Act, in preference to bankruptcy, for the primary purpose of gaining liquidity access via the Orderly Liquidation Fund, Dodd-Frank Act [Sec.] 210(n).

n26 Bill, Sec. 3, [Sec.] 1186.

n27 Bill, Sec. 3, [Sec.] 1187 (debts, executory contracts, and unexpired leases); [Sec.] 1188 (qualified financial contracts and affiliate contracts).

n28 Bill, Sec. 3, [Sec.] 1187(a)(1)(B), 1188(e) amp; (f). While [Sec.] 1188(f) affects the contracts, permits, liabilities, and the like of entities (eg, affiliates such as operating subsidiaries) not themselves in bankruptcy, I believe they are fully authorized (at least for domestic subsidiaries), if not by Congress Article I bankruptcy power, then by application either of the commerce clause or the independent (albeit related) Congressional power pursuant to the necessary and proper clause of Article I, as interpreted since McCulloch v. Maryland, 4 Wheat. 316 (1819), see also United States v. Comstock, 560 US ___ (2010), since the bankruptcy of the SIFI cannot successfully be concluded without these provisions that permit the unimpeded transfer of the operating subsidiarys ownership to the bridge company. (The question of foreign subsidiaries, while complex, is being actively discussion by US and foreign regulators, and legislation is being discussed in Europe and elsewhere that is designed to help assure these results extend to non-US operations in the case involving the resolution of a US-based SIFI holding company.)

n29 Bill, Sec. 3, [Subsec.] 1187(b)(2) amp; (c)(1), 1188(e) amp; (f). This includes offsets and netting out under qualified financial contracts, [Sec.] 1188(a)(2).

n30 See David Skeel amp;

Thomas Jackson, supra note 16.

n31 Bill, Sec. 3, [Sec.] 1187.

n32 Bill, Sec. 3, [Sec.] 1187(b)(2) amp; (c)(1).

n33 Bill, Sec. 3, [Sec.] 1188(a).

n34 Bill, Sec. 3, [Sec.] 1188(b)(1).

n35 Bill, Sec. 3, [Sec.] 1188(b)(2).

n36 Bill, Sec. 3, [Sec.] 1189.


See Bill, Sec. 3, [Sec.] 1186(d).

n38 See, eg, FDIC SPOE, supra note 6, p. 76617 (The FDIC would retain control over certain high-level key matters of the bridge financial companys governance, including approval rights for . . . capital transactions in excess of established thresholds; asset transfers or sales in excess of established thresholds; merger, consolidation or reorganization of the bridge financial company; any changes in directors of the bridge financial company (with the FDIC retaining the right to remove, at its discretion, any or all directors); any distribution of dividends; any equity based compensation plans . . . . Additional controls may be imposed by the FDIC as appropriate.). Compare this with comparable provisions in the Bill, Sec. 3, [Sec.] 1185(b)(3), where the trustee provides notice to the bankruptcy court in connection with similar actions.

n39 FDIC SPOE, supra note 6, p. 76618 (the SPOE strategy provides for the payment of creditors claims in the receivership through the issuance of securities in a securities-for-claims exchange. This exchange involves the issuance and distribution of new debt, equity and, possibly, contingent securities . . . to the receiver. The receiver would then exchange the new debt and equity for the creditors claims. . . . Prior to the exchange of securities for claims, the FDIC would approve the value of the bridge financial company. The valuation would be performed by independent experts . . . selected by the board of directors of the bridge financial company. Selection of the bridge financial companys independent experts would require the approval of the FDIC, and the FDIC would engage its own experts to review the work of these firms and to provide a fairness opinion.).

n40 Dodd-Frank Act [Sec.] 206(4) (the FDIC shall ensure that management responsible for the failed condition of the covered financial company is removed); see also Dodd-Frank Act [Sec.] 206(5) (similar provision for members of a board of directors).

n41 See FDIC SPOE, supra note 6, p. 76617 (As required by the statute, the FDIC would identify and remove management of the covered financial company who were responsible for its failed condition).

n42 Bill, Sec. 3, [Sec.] 1185(d)(3).

n43 See, eg, FDIC SPOE, supra note 6, p. 76618 (in addition to identified categories, the FDIC retains a limited ability to treat similarly situated creditors differently.).

n44 Dodd-Frank Act [Sec.] 210(h)(10) (Notwithstanding any other provision of Federal or State law, a bridge financial company, its franchise, property, and income shall be exempt from all taxation now or hereafter imposed by the United States, by any territory, dependency, or possession thereof, or by any State, county, municipality, or local taxing authority.).

Read this original document at:;File_id=95129263-7F56-4AE1-9F7D-3352944F610C

Bankruptcy trustee proposes Myrtle Beach-based Beach First bank settlement …

Beach First National Bancshares long-running bankruptcy case could be drawing to a close with a proposed settlement between the trustee and the bank holding companys former directors, but Beach Firsts former shareholders likely wont have much to cheer about.

Michelle Vieira, the trustee for Beach Firsts bankruptcy estate, has asked the court to approve a settlement in which the holding companys directors will pay a combined $50,000 to the estate to settle all claims.

Its a far cry from the money Vieira hoped to collect when she filed a lawsuit against the directors in September 2010, accusing them of negligence and breach of duty that led to the failure of the holding companys Beach First National Bank.

It means little will be available for the banks shareholders, who saw their stock devalue as the bank skidded toward failure. Creditors, many of them shareholders, have filed 173 claims totaling $14.3 million against the bank holding company.

So far, the only money paid out by the estate has been to lawyers and accountants working for the trustee. The Nexsen Pruet law firm has been paid $173,398 to represent Vieira in court proceedings and accounting firm Faulkner and Thompson has been paid $67,752.

Vieira also made $20,000 from the sale of Beach Firsts interest in its headquarters building at 38th Avenue North and Grissom Parkway.

David Parrish, a lawyer for Vieira, said in court documents last month that the settlement with the directors is about the best that can be expected because of uncertainty about application of the legal and factual issues involved in the case.

The banks directors and Walt Standish, its president and chief executive, admit no wrongdoing in the proposed settlement, which will be considered by a judge next month in Charleston.

Standish, now a vice president with The Citizens Bank, declined to comment on the proposed settlement. Vieira has said she does not comment on pending cases.

The proposed settlement follows a pair of setbacks Vieira suffered in trying to get the holding companys directors to pay for what she termed in her 2010 complaint serious deficiencies related to the operation and management of Beach First, including unsafe and unsound lending.

A district court judge ruled in June 2011 that Vieira didnt have the right to sue the directors because only the Federal Deposit Insurance Corp. could pursue such claims. A federal appeals court agreed in December 2012, but gave Vieira the right to pursue claims only against a subsidiary corporation the holding company had formed to build its Myrtle Beach headquarters.

The FDIC has examined the banks financial records and has declined to bring any legal action against the directors.

Vieira, in court documents, said the proposed settlement will avoid the costs of further litigation.

At least one shareholder is objecting to the proposal. Mary Smith of Surfside Beach said in a letter to the bankruptcy court that she invested $2,000 and [I] intend to have my investment back.

It is not appropriate that I will see nothing, Smith wrote in her letter, adding that she feels the case has been improperly handled.

Beach Firsts financial track record was solid until the national real estate crisis wiped out property values nationwide.

For example, the banks net income grew from $1 million in 2003 to nearly $6.2 million in 2006, and its stock price increased by more than 50 percent during that period.

Beach First was founded in 1996 by a group of local business leaders — many in the tourism and real estate industries — interested in having a bank that could help small — to medium-size businesses. Its success — and ultimate failure — was based on the loans it made in the local real estate market.

The FDIC shut down the bank in April 2010, and Bank of North Carolina assumed its deposits and office space. Beach First filed for a Chapter 7 bankruptcy liquidation in May 2010 and that case continues today.

In addition to Standish, the directors who have tentatively approved the settlement with Vieira are: Bert Anderson; Bart Buie; Ray Cleary; Thomas Fulmer; Michael Harrington; Joe Jarrett Jr.; Richard Lester; Leigh Meese; Rick Seagroves; Don Smith; Samuel Spann Jr.; Larkin Spivey Jr.; and James Yahnis.

Contact DAVID WREN at 626-0281 or via twitter at @David_Wren_

Cerberus, Blackstone loosen credit to landlords

lsquo;lsquo;Now they have a choice of who to borrow from, he said. lsquo;lsquo;Its like night and day.

The Wall Street firms offer loans with interest rates of 6.5 to 7 percent, compared with 12 to 15 percent for nonbank hard-money loans, the most common source of debt for landlords who cant get a bank mortgage, Hicks said. The deals can come with strings, such as such as requiring an analysis of the cash flow from rents.

Rental demand is climbing as tight credit, slow wage growth, and the lingering effects of the foreclosure crisis limit purchases.

The US homeownership rate dropped to a 19-year low of 64.8 percent in the first quarter, down from a high of 69.2 percent in 2004, according to the Census Bureau.

Stagnating wages and an increase in student debt are keeping younger people from qualifying or even wanting to buy, said Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute in Washington. lsquo;lsquo;They dont see it as a store of value, she said.

For lenders, thats an opportunity to expand credit to rental property owners, including those who wouldnt qualify for government-backed loans or have outgrown the parameters.

Shifting the focus to property owners with fewer houses is lsquo;lsquo;just an expansion of our efforts to service the entire scope of the single-family market, Reiff said.

While Fannie Mae limits landlords to loans on a maximum of 10 properties, and Freddie Mac will lend on four, FirstKey will finance as many as 25 under its latest debt product, Investors Property Express. The company will offer 30-year fixed-rate mortgages to borrowers with minimum credit scores of 620 on loans starting at $100,000 for houses worth a maximum 75 percent of the property value if they are already leased, according to documents obtained by Bloomberg News.

Loans are underwritten based on the value and cash flow of the property being financed and borrowers are required to show only one year of tax returns. Fannie and Freddie require information including one to two years of tax returns, pay stubs, W-2 wage forms, and Social Security award letters, according to FirstKey documents.

B2R has made about 100 loans that have been completed or are in the closing process, all of which are to investors with at least five properties, Beacham said. He declined to disclose the dollar amount.

There are not a lot of those large investors, Beacham said. We started out with a minimum of $500,000 loan balance and we expect to continue to press that down. Thats the part of the market that most needs more efficient lending.

Colony, which like Blackstone has its own rental properties, is lending as much as $60 million a month to other landlords, a pace that probably will increase, said Beth OBrien, president of the Colony American Finance unit. The Santa Monica, Calif., company isnt offering single- property loans to investors, she said. Instead its buying already originated loans on single assets, she said.

All three finance companies said they expect to sell their first bonds this year, which would free up funds and give them the opportunity to increase yields if they hold some of the riskier portions of the debt.

lsquo;lsquo;Theres still a lot of wood to chop, said Nitin Bhasin, a managing director at Kroll Bond Rating Agency. lsquo;lsquo;The firms are still originating loans and when they get to a critical mass and can iron out issues, well see them. My guess is late this year well see the first securitizations.

Securities backed by single-family rental homes with multiple borrowers have different risks than securities with a single borrower, according to Moodys Investors Service.

lsquo;lsquo;Loans in multiborrower SFRs will be more likely to default than loans in single-borrower transactions because of the larger number of borrowers represented in the pool, Kruti Muni, Todd Swanson, and Sang Shin wrote in a May 14 note. lsquo;lsquo;But the rate of default will not be 100 percent, as is the case when the lone borrower in a single-borrower transaction defaults.

The market for bonds backed by rental houses could lsquo;lsquo;reach or exceed $30 billion a year, according to a January report by a Keefe, Bruyette amp; Woods Inc. analyst, Jade Rahmani.

The size of the market could be limited to $20 billion total, Urban Institutes Goodman estimates, because it still costs more for many small landlords to borrow from Wall Street than from banks, the main source of funding before the real estate collapse.

If banks increase lending again, companies like Cerberus and Blackstone will be forced to reduce the spread between what they charge borrowers and the cost of the debt in their securitizations, she said.

Sam Khater, deputy chief economist for CoreLogic Inc., expects more Americans to become renters as many younger people who deferred forming households and lived with their parents start leasing homes in a recovering economy.

Rents are holding up fairly well, he said. lsquo;lsquo;The demand is there, and its still rising.