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July 1, 2008
Mortgages
Resets Peaking on Subprime
Loans
The number of homeowners facing an increase in their subprime
adjustable-rate mortgage payments will peak this summer, testing the
efforts of lenders and others to keep those people out of foreclosure
and stabilize the housing market, the Washington Post reported
today. Nationally, the number of subprime adjustable-rate loans
resetting peaked at 7.61 percent of the loans outstanding last month,
according to data from CoreLogic. While more than 300,000 such loans
will adjust this summer, the number of subprime adjustable-rate loans
facing resets drops off significantly early next year, according to
CoreLogic's figures. By January, only 4.8 percent of subprime loans will
face resets, compared with 7.61 percent this month.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/06/30/AR2008063001848_pf.html'>Read
more.
Commentary: Foreclosures Escalate
as Legislative Delays Hamper Housing Assistance Package
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By the time the Senate returns next Monday from its July 4 recess
without having passed its version of a housing assistance package,
nearly 55,000 more homes will have entered foreclosure, according to a
New York Times editorial today. More than three million
homeowners are currently at risk of default, and millions more are
expected to join them in the coming year as home prices drop, the
economy falters and delinquencies rise. While the housing assistance
bill was expected to pass, the vote was derailed by political wrangling.
Senator John Ensign (R-Nev.), for example, demanded that the Senate add
a multibillion dollar package of tax breaks for renewable energy.
Democrats balked - not out of opposition to the tax breaks, which
rightly enjoy bipartisan support, but because Ensign wanted to tack them
on to the foreclosure bill without paying for them. That would threaten
passage of the bill in the House, which is more committed than the
Senate to pay-as-you-go governing.
href='http://www.nytimes.com/2008/07/01/opinion/01tue1.html?ref=opinion&pagewanted=print'>Read
more.
State of Florida Sues Countrywide
Financial
Florida sued Countrywide Financial and its CEO, Angelo R. Mozilo,
yesterday, accusing it of engaging in unfair and deceptive trade
practices in mortgage lending, Reuters reported. The Florida attorney
general's office filed the lawsuit in state court in Broward County,
Fla. Last Wednesday, officials in Illinois and in Countrywide's home
state California also filed suits against the lender.
href='http://www.nytimes.com/2008/07/01/business/01lend.html?ref=business&pagewanted=print'>Read
more.
CIT Sells Units for $1.8 Billion to
Exit Home Lending
CIT Group Inc., the business lender that's lost money for four straight
quarters, agreed to sell its manufactured housing and home-loan
businesses for $1.8 billion as it exits consumer lending, Bloomberg News
reported today. Lone Star Funds, the Dallas-based buyout firm, will
purchase CIT's Home Lending unit for $1.5 billion in cash and take on
$4.4 billion of debt and other liabilities, New York-based CIT said
today. Vanderbilt Mortgage and Finance Inc. agreed to buy CIT's
manufactured housing portfolio for $300 million. CIT today said that it
probably had a pretax loss of $2.5 billion from Home Lending in the
second quarter. The unit employs about 300 people in servicing units in
Oklahoma City and Marlton, N.J.
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=aKLl70abVXk8'>Read
more.
Judge in Aloha Airlines Case Approves
Sale of Litigation Claim
Bankruptcy Judge Lloyd King approved a request for
bankrupt Aloha Airline to sell its potential recovery in an antitrust
lawsuit against Mesa Air Group Inc. to Yucaipa Corporate Initiative Fund
I for more than $10 million, Bankruptcy Law360 reported
yesterday. Judge King had previously taken issue with the deal, saying
the transaction would be unfair because other potential buyers were
excluded from bidding. Earlier this month, U.S. Trustee Dane S.
Field requested court approval for the sale of Aloha's legal
claim against Mesa to Yucaipa, which he said holds the second priority
interest in the recovery. Under the asset purchase agreement, Yucaipa
would pay $10 million and turn over 5 percent of whatever is ultimately
recovered from Mesa to the debtors' administration fund. Field said the
purchase agreement provided for an auction and allowed overbids in $1
million increments.
href='http://bankruptcy.law360.com/Secure/printview.aspx?id=60781'>Read
more. (Registration required.)
MBIA Has Sufficient Assets to Meet
Collateral Call
MBIA Inc., whose credit rating was reduced five levels by Moody's
Investors Service, said it has enough assets to come up with $7.4
billion of collateral and payments triggered by the downgrade, Bloomberg
News reported yesterday. MBIA's asset-management unit sold $4 billion of
investments in the second quarter, and the company has sufficient
eligible collateral and cash to satisfy any additional requirements, the
Armonk, N.Y.-based company said. MBIA hasn't sold municipal bonds to
generate money, the company said. Moody's reduced MBIA's insurance
rating to A2 from Aaa on June 19, triggering clauses in some contracts
that require the insurer to post collateral or repay investors. The
company said yesterday that it will record a pretax loss of $300 million
href='http://www.bloomberg.com/apps/news?pid=20601087&sid=a.S_qUxe5Nb4&refer=home'>Read
more.
Bankruptcy Judge Approves Jeweler's
Incentive Plan
Bankruptcy Judge Christopher S. Sontchi approved an
employee retention and incentive plan for bankrupt jewelry retailer
Friedman's Inc. on Wednesday, according to Bankruptcy Law360
yesterday. The management incentive plan includes C. Steven Moore, the
company's chief restructuring officer and general counsel, and Robin
Urban, the vice-president and controller. Neither will receive anything
if the company's net cash balance is below $11 million as of Aug. 29.
The other part of the incentive plan, valued at nearly $625,000, would
benefit 38 employees working in various aspects of the business.
href='http://bankruptcy.law360.com/Secure/printview.aspx?id=60686'>Read
more. (Registration required.)
Judge Continues Congoleum's Stay
in Chapter 11
Bankruptcy Judge Kathryn Ferguson on Thursday gave
Congoleum more time to devise a feasible reorganization plan after
rejecting the company's twelfth reorganization proposal earlier in June,
Bankruptcy Law360 reported yesterday. Much to the relief of the
sheet and tile flooring maker's creditors, Judge Ferguson vacated an
order to show cause as to why the longstanding case should not be
converted to chapter 7 or tossed out altogether. Congoleum's plan, first
filed on Feb. 5, enjoyed the support of the committee representing the
company's bondholders and the committee representing claimants allegedly
made ill by exposure to asbestos in Congoleum products. Judge Ferguson
granted objections filed by a number of Congoleum's insurers and by the
chapter 11 trustee overseeing the case, ruling that the plan could not
be confirmed. The order enforced an opinion the judge issued on June 5,
following oral arguments on the objections.
href='http://bankruptcy.law360.com/Secure/printview.aspx?id=60755'>Read
more. (Registration required.)
Chrysler Plans to Close a Minivan
Plant and Reduce Output of a Truck
Chrysler said yesterday that it would close one of its two minivan
plants and reduce output of a long-awaited new pickup truck in response
to a steep slump in demand for large vehicles, the New York
Times reported today. Both plants affected by the announcement are
in Fenton, Mo., 20 miles southwest of St. Louis. About 2,400 of the
company's 3,500 hourly jobs in Fenton will be eliminated within four
months, Chrysler said. At the same time, Chrysler is operating some
plants on overtime to build more of the fuel-efficient small cars whose
popularity has soared after rising gasoline prices. It is shortening
summer shutdowns at some car plants to one week from two, and extending
the annual shutdowns at some truck plants to keep inventories from
building further.
href='http://www.nytimes.com/2008/07/01/business/01chrysler.html?_r=1&adxnnl=1&oref=slogin&ref=business&adxnnlx=1214914250-9jVV/QVaaHX658j2bixlwg&pagewanted=print'>Read
more.
Feds Press Swiss Bank to Name U.S.
Clients in Tax Investigation
The Justice Department, in an unprecedented move against a
foreign bank, is seeking to force UBS AG to turn over the names of
wealthy U.S. clients who allegedly used the giant Swiss bank to avoid
taxes, the Wall Street Journal reported today. In seeking a
federal court order Monday, the Justice Department ratchets up the
pressure in its high-profile case, which has spawned federal criminal
and civil probes into the alleged tax evasion. The matter places UBS in
a bind between U.S. tax authorities and a Swiss law that prevents banks
from disclosing confidential information without client approval. The
U.S. is seeking information on taxpayers who held so-called 'undeclared'
accounts with UBS between 2002 and 2007, according to papers filed with
the U.S. District Court in Miami. The Justice and Internal Revenue
Service investigation is aided by information from a former UBS banker,
Bradley Birkenfeld, who pleaded guilty June 19 to helping his U.S.
clients evade taxes. Birkenfeld told U.S. prosecutors that UBS holds an
estimated $20 billion in assets for U.S. clients in undeclared accounts.
These accounts generated $200 million a year in revenues for the bank,
prosecutors said.
href='http://online.wsj.com/article_print/SB121486342353917387.html'>Read
more. (Registration required.)
Clothing Retailer Anticipates
Shutting Stores
With cash running short for retailer Steve & Barry's LLC, the
company is readying plans to close more than 100 of its stores and is
contemplating a full liquidation should it not find emergency financing,
the Wall Street Journal reported today. The Port Washington,
N.Y.-based chain is seeking a tentative plan for about $40 million in
debtor-in-possession financing if it must file for bankruptcy
protection. One scenario would have the private-investment firm Angelo,
Gordon & Co. contributing $20 million, but the remaining $20 million
still needs to be raised elsewhere. The money would likely be enough to
get the company through the Christmas selling season.
href='http://online.wsj.com/article_print/SB121486920976317689.html'>Read
more. (Registration required.)