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February 1, 2008
Senate Judiciary Committee Passes Judicial Pay Raise Legislation
The Senate Judiciary Committee on Thursday advanced a pay raise for federal judges, approving a 29 percent boost in what would be the judiciary's first substantial raise since 1991, the Associated Press reported yesterday. The panel voted 10-7 for the salary boosts, which includes an increase in district court judges' pay from $169,300 to about $218,000. Congress has approved cost-of-living pay raises during some, but not all, of the years since the last substantial raise. Supreme Court Chief Justice John Roberts last year devoted his entire annual report on 2006 to arguing for higher salaries for judges. This year, he renewed his call for pay raises, noting that federal trial judges were making about the same as first-year lawyers at firms in major cities. Read more.
name='2'>Senator Raises Possibility of Adjusting 2005 Bankruptcy Law
Senate Majority Whip Richard Durbin (D-Ill.) yesterday raised the specter of making changes to BAPCPA, noting that rising credit card delinquencies will show that the landmark law pushed by the banking industry was too harsh on consumers, CongressDaily reported today. Durbin said that the credit-card default rate is likely to be the next economic crisis facing the economy following the fallout in the subprime housing market. While not predicting any action was imminent, Durbin said the effects of the 2005 law will play out during the year as many credit card customers will not be able to repay their debt. Durbin said he was continuing to work with Judiciary ranking member Arlen Specter (R-Pa.) on a measure to allow a borrower to ask a bankruptcy judge to modify a home mortgage if the foreclosure process has started.
Mortgage Lending
name='3'>Wilbur Ross Warns against Home Mortgage Modification Legislation
Billionaire investor Wilbur Ross yesterday warned Congress not to enact legislation that would allow bankruptcy judges to modify mortgage terms for cash-strapped homeowners, saying that could drive up borrowing costs, Dow Jones Daily Bankruptcy Review reported today. 'I think it is very dangerous for the government to interfere with private contracts,' Ross said. 'You don't want to make it harder for homeowners to get a mortgage.' Echoing the views of the U.S. Chamber of Commerce and the American Bankers Association, Ross said the proposed law would raise costs for borrowers. 'It may be well intentioned to solve a short-term problem, but it may have long-term implications,' Ross said. His private equity firm W.L. Ross & Co. recently entered the mortgage business by buying the loan-servicing business of American Home Mortgage Investment Corp. for nearly $500 million. (Dow Jones Daily Bankruptcy Review articles available through subscription only).
name='4'>Small Law Firm's Big Role in Bundling Mortgages
The small law firm of McKee Nelson helped investment banks and mortgage lenders bundle home loans into securities, the New York Times reported today. Since 2000, McKee has been involved in almost 3,300 deals totaling $2.7 trillion, according to the trade publication Asset Backed Alert. Wall Street banks and lenders hired McKee Nelson, which is based in Washington, D.C., and New York, to write or review prospectuses for the securities. It was a lucrative arrangement, helping to generate $202.5 million for the firm in 2006, the latest year for which figures are available. Now, with losses on bad mortgage investments exceeding $135 billion, questions are growing about whether prospectuses like these adequately disclosed the risks to investors. The Internal Revenue Service recently opened an inquiry into the special trusts that are typically used to issue mortgage securities. New York state prosecutors are also investigating whether Wall Street banks withheld crucial information from investors about the risks posed by subprime loans. McKee Nelson has not been subpoenaed in the investigation or accused of any wrongdoing. Read more.
name='5'>Countrywide Subpoenaed by Florida Attorney General
Countrywide Financial was subpoenaed by Florida Attorney General Bill McCollum, who is investigating the lending practices of the company, the largest U.S. mortgage lender, Bloomberg News reported today. The subpoena, which seeks descriptions of the company's loan underwriting since January 2005 and copies of instructions given to employees for speaking with customers, comes as lenders nationwide are facing scrutiny following the collapse in the value of subprime-mortgage securities. 'The general purpose and scope of this investigation extends to possible unfair and deceptive trade practices,' McCollum said in the subpoena, which was issued Jan. 17. The company has until Feb. 11 to comply with the document request. Read more.
Calpine Emerges from Bankruptcy
Calpine Corp. said yesterday that it emerged from chapter 11 protection, ending a two years of bankruptcy proceedings in which the power producer slashed one-third of its work force and sold off a string of plants to help get its finances back in order, Reuters reported yesterday. Calpine said that it will issue up to 500 million shares of common stock and use $7.3 billion in financing raised from outside sources to repay creditors and other expenses. Old Calpine shares will be canceled, and stockholders will get warrants to buy new shares at an exercise price of $23.88 per sharea price the company's stock hasn't reached since 2001. The warrants will expire on Aug. 25.
In related news, Calpine won bankruptcy court approval to sell an unfinished power plant in Fremont, Ohio, to a unit of FirstEnergy Corp. for $253 million, the Associated Press reported yesterday. Bankruptcy Judge Burton Lifland approved the sale yesterday after FirstEnergy raised an earlier bid for the plant by about $130 million. Calpine has been selling power plants that it considers nonessential to its reorganization. The power company, which aims to exit bankruptcy protection by Feb. 7, is also looking to sell an unfinished power plant in Hillabee, Ala. Read more.
name='7'>TOUSA Wins Court Approval on Bankruptcy Loan
Homebuilder TOUSA Inc., which filed for bankruptcy this week amid a sharp downturn in the U.S. housing market, has won court approval to borrow up to $135 million to fund its chapter 11 reorganization, the Associated Press reported yesterday. Bankruptcy Judge John K. Olson said yesterday that TOUSA can borrow on the bankruptcy loan pending a Feb. 28 final hearing on the financing. He also gave the company permission to continue customer programs, including warranty programs, and to continue selling the homes it builds. TOUSA operates under the Engle Homes, Newmark Homes, Fedrick, Harris Estate Homes and Trophy Homes brands. Read more.
name='8'>Davenport Diocese to File Bankruptcy Plan
The Roman Catholic Diocese of Davenport, Iowa, will take a major step in emerging from bankruptcy as it files its reorganization plan today that will detail its $37 million settlement with abuse victims, the Cedar Rapids (Iowa) Gazette reported today. The reorganization plan will be filed jointly by the diocese and its creditors' committee, made up of seven abuse victims. The plan still must be approved by a judge and by a vote of the 156 alleged abuse victims who filed claims in the case. Ballots will be sent out after a March 5 court hearing. The diocese filed for chapter 11 protection in October 2006 saying that it did not have the money to settle the claims stemming from its clergy sexual abuse scandal. Read more.
name='9'>Merrill Buys Back CDO Securities Sold to Massachusetts City
Merrill Lynch & Co. bought back complex debt securities, which rapidly collapsed in value during the credit crisis, that it had sold to the city of Springfield, Mass., the Wall Street Journal reported today. The securities, known as collateralized debt obligations (CDOs), were repurchased at the same price of $13.9 million that Merrill initially sold them to the city last spring. These CDOs, which are pools of debt that included subprime mortgages, are worth only $1.2 million, according to a recent Merrill account statement for Springfield. Merrill also agreed to pay outside legal fees incurred by the Springfield Finance Control Board, which overseas the city's finances. Read more (registration required).
International
name='10'>European Regulators Warn France about Shielding Bank
As numerous European banks assess whether to make a bid for Soci?t? G?n?rale, regulators in Brussels issued a stark warning to the French government yesterday against any effort to thwart open competition to protect the bank, the New York Times reported today. 'In previous banking cases, we made it quite clear that the government should not interfere by putting their national companies first,' Charlie McCreevy, the European Union's internal markets commissioner, said yesterday. McCreevy was responding after several senior politicians hit the French airwaves yesterday to make clear that Paris would not stand by and watch Soci?t? G?n?rale, weakened by the largest trading scandal in financial history, be wrested from French hands. Read more.