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November 14, 2008

FDIC Details Plan to Alter
Mortgages
Officials at the Federal Deposit Insurance Corp. yesterday detailed a
plan to prevent 1.5 million foreclosures in the next year by offering
financial incentives to companies that agree to sharply reduce monthly
payments on mortgage loans, the Washington Post reported today.

Borrowers who have missed at least two monthly payments would be
eligible for a reduction in their payment. The new payment would require

that they spend no more than 31 percent of their monthly income, a
relatively conservative standard. By comparison, lenders historically
calculated that borrowers could afford to spend up to 28 percent of
monthly income before taxes on housing. In exchange, mortgage companies
would receive a basic guarantee: If the borrower falls behind on the new

monthly payments and the company ends up losing money on the loan, the
federal government will cover half the loss in most cases.
Agency officials estimated the cost to the government at $24.4
billion. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2008/11/13/AR2008111304490_pf.html'>Read

more.

Chances Dwindle on Bailout Plan for
Automakers
The prospects of a government rescue for the foundering American
automakers dwindled yesterday as Democratic congressional leaders
conceded that they would face potentially insurmountable Republican
opposition during a lame-duck session next week, the New York
Times reported today. Senate Banking Chairman Christopher J.
Dodd (D-Conn.) said that he did not believe there would be enough
Republican support to get the 60 votes needed to move a bill forward. At

the same time, hope among many Democrats on Capitol Hill for an
aggressive economic stimulus measure all but evaporated. Democratic
leaders have been calling for a package that would include help for the
auto companies as well as new spending on public works projects, an
extension of jobless benefits, increased food stamps and aid to states
for rising Medicaid expenses. While Democrats said the stimulus measure
would wait until President-elect Barack Obama takes office in January,
some industry experts fear that one of the Big Three automakers will
collapse before then. 

href='http://www.nytimes.com/2008/11/14/business/14auto.html?hp=&pagewanted=print'>Read

more.

Top advisers to President-elect Barack Obama are helping to draft an
auto industry rescue plan that would bring new government oversight,
including the possibility of an auto czar who could ensure the money was

being used wisely, the Washington Post reported today. Aides
said that Obama is also open to an oversight board that would perform
the same function as one individual. The proposals come as the estimates

of the cost to fix Detroit's three largest automakers continue to
mount. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2008/11/13/AR2008111303804.html'>Read

more.

In related news, investor Wilbur Ross said that a chapter 11 filing
by General Motors Corp. or another U.S. automaker wouldn't work and
might devastate the economy, Bloomberg News reported yesterday. Ross
said that a restructuring bid by one of the three top U.S. automakers
would topple its peers and drive weakened suppliers out of business
because the credit crunch dried up financing. Failures by automakers and

related businesses would lead to a drain on government spending for
unemployment benefits, health care and pension recoveries, Ross
said. 

href='http://www.bloomberg.com/apps/news?pid=20601087&sid=a4fkXMgMVIxM&refer=home'>Read

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Freddie Mac's Loss Balloons in the
Third Quarter
Freddie Mac posted a $25.3 billion net loss in the third quarter on
surging investment and credit losses as the company announced plans to
seek an initial $13.8 billion from the Treasury Department to cover the
hole in its shareholder equity, the Wall Street Journal
reported today. Included in the latest quarter was a $14.3 billion
write-down of deferred tax assets, which can be used for a certain time
to offset future profits. The company posted negative revenue of $9.44
billion amid $9.1 billion in write-downs on available-for-sale
securities and $2.7 billion in mark-to-market losses amid falling
long-term interest rates. Treasury pledged up to $100 billion each for
Freddie and Fannie Mae when they were put under conservatorship in
September to prevent their potential bankruptcy. The government will
receive preferred stock for any money given to the firm, and Freddie
expects to receive its $13.8 billion request by Nov. 29. 
href='http://online.wsj.com/article/SB122666771652828163.html'>Read
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Treasury Draws Fire from Lawmakers for

Shift in Rescue
Lawmakers sharply criticized the Treasury Department yesterday for
saying in recent weeks that it intended to buy distressed assets despite

having already decided to move away from the concept, the Wall
Street Journal reported today. The complaints from Capitol Hill
came a day after Treasury announced it was abandoning the plan to buy
illiquid assets to unfreeze credit markets. Instead, Treasury Secretary
Henry Paulson said that he intends to focus on investing Treasury funds
directly into banks and other financial institutions, and on unclogging
markets that fund consumer debt. Sen. Robert Casey Jr. (D-Pa.) said that

lawmakers were frustrated 'on a number of levels' because Treasury
wasn't clear about its intent and hasn't used its authority to help slow

record numbers of foreclosures. Three Senate Republicans -- Sens. Tom
Coburn (Okla.), Richard Burr (N.C.) and David Vitter (La.) -- said in a
letter to Paulson yesterday that such a 'rapid reversal' raised
questions about the department's future plans for the rescue
funds. 
href='http://online.wsj.com/article/SB122662361011226767.html'>Read
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Analyst Warns of Potential Nortel

Bankruptcy
An analyst warned yesterday that Nortel Networks Corp., North America's
biggest maker of telephone equipment, will have to rely on asset sales
to fund its battered operations, and risks running out of money and
collapsing under its debt load before 2011, Reuters reported. The
Toronto-based company is trying to sell its Metro Ethernet Networks
unit, which includes its optical and carrier ethernet technology, but
has thus far been unable to find a buyer. 'Assets sales couldn't have
come at a worse time, and due to Nortel's distressed situation,
potential bidders for the company's Metro Ethernet assets may offer
subsequently distressed prices,' RBC Capital Markets analyst Mark Sue
said. He also estimated that Nortel could face a pension deficit of as
much as $2.8 billion because of the downturn in global stock markets.
'Our cash-flow analysis points to an increasingly challenging outlook,'
Sue said. 'Without government intervention or major financial sponsors,
Nortel may run of out cash before its $1 billion 2011 bonds mature.'

href='http://www.nytimes.com/reuters/business/business-us-nortel.html?_r=1&oref=slogin&pagewanted=print'>Read

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Mall Owner Faces ERISA Probe amid
Credit Strife
As the country's second-largest shopping mall owner, General Growth
Properties Inc., ponders filing for bankruptcy protection, a plaintiffs'

firm has announced it is investigating whether the company violated the
Employee Retirement Income Security Act (ERISA), Bankruptcy
Law360 reported yesterday. Keller Rohrback LLP it is looking
into whether the company and other plan administrators may have breached

their ERISA-mandated fiduciary duties to participants and beneficiaries.

In its third-quarter financial report, filed Monday with the U.S.
Securities and Exchange Commission, General Growth warned investors that

it might have to file for chapter 11 protection. The real estate
investment trust has $900 million worth of property debt and $58 million

worth of corporate debt scheduled to be repaid by Dec. 1. It also has
more than $3 billion in property and corporate debt coming due next
year. Read
more. (Subscription required.)

Washington Mutual Seeks $7.4 Million
Transfer to Prop Up Subsidiary
Washington Mutual Inc. is asking a federal bankruptcy judge to
allow the bankrupt holding company to immediately transfer $7.4 million
to subsidiary WM Mortgage Reinsurance Co. Inc. to shore up a capital
deficiency in one of its trusts and preserve close to $400 million in
value for creditors, Bankruptcy Law360 reported yesterday. In a

motion filed Monday, WaMu told the U.S. Bankruptcy Court for the
District of Delaware that the funds must be paid by today to cover
expected claims on delinquent loans insured by Genworth Mortgage
Insurance Corp. The court is scheduled to hear the motion this
morning. Read

more. (Registration required.)

Mortgages Ltd. Sues Developer over $36

Million in Loans
Bankrupt lender Mortgages Ltd. has filed two lawsuits against
Southwestern shopping mall development company PDG America, alleging
that the developer defaulted on about $36 million in construction loans,

Bankruptcy Law360 reported yesterday. In complaints filed
Wednesday in the U.S. Bankruptcy Court for the District of Arizona,
Mortgages Ltd. alleged that it provided a loan of $26 million to PDG Los

Arcos LLC and a loan of more than $10 million to National Retail
Development Partners I LLC in 2007. Both entities are co-managed by PDG
America executive director Richard J. Sodja, according to Arizona
corporate records. Sodja was also a guarantor on both loans and was
named as a defendant in both suits, the complaints said.
href='http://bankruptcy.law360.com/articles/76688'>Read more.
(Registration required.)

Bush Speaks in Defense of
Markets
President Bush delivered a defense of free-market capitalism yesterday
on the eve of an international summit meeting where he is expected to
face harsh criticism from foreign leaders who view the United States and

his administration as responsible for the worldwide financial downturn,
the New York Times reported today. Bush traveled to Wall Street

to declare that the American system is still “the engine of social

mobility” and deliver an apparent warning to the world's leaders,
and the incoming Obama administration, not to draw the wrong lessons.
“The crisis was not a failure of the free-market system, and the
answer is not to try to reinvent that system,” Bush said.
“We must recognize that government intervention is not a cure-all.

History has shown that the greater threat to economic prosperity is not
too little government involvement in the market, but too
much.” 

href='http://www.nytimes.com/2008/11/14/business/economy/14bush.html?ref=business&pagewanted=print'>Read

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Banks Wage Rate War for Deposits

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Banks across the United States are engaged in a heated
competition for deposits as the battered industry tries to shore up its
funding sources, the Wall Street Journal reported today. From
giant Citigroup Inc. to Indiana, Pa.-based S&T Bancorp Inc., banks
are responding to uncertain times by sharply increasing the interest
rates paid on deposits. The desire to lure depositors is triggering a
'national price war,' says Michael Poulos, a partner at
financial-services consulting firm Oliver Wyman. However, the scramble
for deposits also poses a dilemma for lenders given the current economic

condition of the country. Banks that don't boost interest rates to keep
up with rival institutions will find it harder to attract money that can

be funneled into loans. Banks that do jump into the fray are likely to
see profit margins erode at a time when many already are struggling with

rising loan losses and the weakening U.S. economy. 
href='http://online.wsj.com/article/SB122663018704227327.html'>Read
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