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June 27, 2007
Subprime
Mortgages
name='1'>Commentary:
w:st='on'>How Wall
Street
Mortgage Meltdown
Lehman Brothers Holdings
Inc. is a prime example of how Wall Street's money and expertise have
helped transform subprime lending into a major force in the
size='3'>U.S.
size='3'>financial markets, the
size='3'>Wall Street Journal reported today.
Lehman says it is proud of its role in helping provide credit to
consumers who might otherwise have been unable to buy a home, and proud
of the controls it has brought to a volatile business. However, roughly
13 percent of subprime loans stand in or near foreclosure, bringing
turmoil and sometimes eviction to tens of thousands of homeowners.
Dozens of lenders have gone out of business. Bear Stearns Cos. is trying
to bail out a hedge fund it manages that was hurt by subprime mortgage
losses. Critics say Wall Street firms helped create the mess by throwing
so much money at the market that lenders had a growing incentive to push
through shaky loans and mislead borrowers.
href='http://online.wsj.com/article/SB118288752469648903-search.html?KEYWORDS=bankruptcy&COLLECTION=wsjie/6month'>Read
more. (Registration required.)
name='2'>Senator Takes Aim at Mortgage Brokers over Subprime
Crisis
Sen. Charles Schumer
(D-N.Y.) probed an official from the National Association of Mortgage
Brokers (NAMB) yesterday over some of the industry's practices,
providing further evidence that lawmakers intend to put greater reins
over brokers to curb predatory lending practices,
face='Times New Roman' size='3'>CongressDaily
size='3'>reported today. During a hearing of the Senate Banking Housing
Subcommittee, Schumer, who chairs the subcommittee, questioned NAMB
Director Denise Leonard on what steps lawmakers should take in the
aftermath of the fallout in the subprime lending market, in which
lenders and brokers both made loans to less creditworthy borrowers that
they were unable to pay back. Schumer took special aim at a practice
known as yield spread premium, in which mortgage brokers are eligible to
receive fees from lenders for issuing a loan with a higher interest rate
than the minimum rate the borrower could have qualified for. Leonard
said that YSP is not a bonus, but profit for services provided. In many
cases, she said she can use a YSP to place borrowers in a prime loan,
not a subprime loan.
href='http://banking.senate.gov/index.cfm?Fuseaction=Hearings.Detail&HearingID=268'>Click
here to read the witness testimony from the yesterday’s Senate
Banking Housing Subcommittee.
name='3'>Pacific Lumber Tries to Block Fraud Suit
Bankrupt timber company
Pacific Lumber Co. tried on Monday to block a
face='Times New Roman' size='3'>qui tam suit
that accused the company of defrauding the state of
w:st='on'>
size='3'>California
over $300 million in an agreement meant to protect the
environment, Bankruptcy
Law360. The Pacific Lumber Company entered
chapter 11 protection in January. Among their creditors was the state
of
size='3'>California
alleged that the timber companies had defrauded them out of hundreds of
millions of dollars. Two forestry workers had brought a
face='Times New Roman' size='3'>qui tam suit
against the company, as well as Maxxam and its CEO, in a
size='3'>California
court on behalf of the state in December 2006. The plaintiffs in the
suit allege that the timber company used inflated figures in a computer
model used to value the land it sold, defrauding the state by collecting
more money than the land was worth. They also brought a
face='Times New Roman' size='3'>qui tam suit
in federal court, under the federal False Claims Act.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=27915'>Read
more. (Registration required.)
name='4'>Apollo Capital to Help Fund Marcal's
Restructuring
Bankrupt paper company
Marcal Paper Mills Inc. filed its reorganization plan Monday, saying it
has secured a $60 million investment from private-equity firm Apollo
Capital Management LP and that it hopes to emerge from chapter 11 by the
fall, Bankruptcy
Law360 reported yesterday. Under the plan, the
Marcalus family and Apollo Capital will spend over $11.5 million to
acquire 100 percent of the stock of a new holding company, which in turn
will purchase all of Marcal’s outstanding stock after the company
is reorganized. Marcal’s unsecured creditors’ committee
supports the reorganization plan. Under the terms of the plan, the
creditors will receive 52 cents on the dollar for their unsecured
claims. A hearing on the disclosure
statement and reorganization plan has been scheduled for July 27, with
objections due July 20. Marcal hopes to emerge from bankruptcy in
September.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=27860'>Read
more. (Registration required.)
NYRA
Seeks Extension to File Plan
The New York Racing
Association Inc. (NYRA) asked the court overseeing its chapter 11
proceedings for an extension of its exclusive rights to file and seek
support for its reorganization plan, Bankruptcy
Law360 reported yesterday. NYRA cited the fact
that the current franchise under which it operates racetracks is slated
to expire at the end of 2007. The NYRA filed its second extension motion
Monday, requesting that its exclusive filing and solicitation rights be
extended through Jan. 15, 2008 and March 14, 2008. The court granted the
NYRA an extension in March, but it was shorter than requested as its
exclusive filing rights were extended through July 16 and its exclusive
solicitation rights were extended through Sept. 17.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=27874'>Read
more. (Registration required.)
SEC
Probes CDOs and Bear Funds
The Securities and
Exchange Commission (SEC) has opened about a dozen investigations
involving complex bundled financial products, as well as the related
near-collapse of two Bear Stearns Cos. hedge funds that invested in the
subprime-mortgage market, the
size='3'>Wall Street Journal reported today.
Responding to a question at a House Financial Services Committee
hearing, SEC Chairman Christopher Cox said the agency's enforcement
division has 'about 12 investigations' involving collateralized debt
obligations (CDOs) and collateralized loan obligations (CLOs). Such
bundles of debt or loans, which are sold off in smaller segments, have
become very popular in recent years and are core drivers behind the
surge in leveraged buyouts. The SEC's enforcement division also has
opened a preliminary investigation into the issues surrounding the Bear
Stearns hedge funds, which invested in complex financial instruments
backed by subprime mortgages.
href='http://online.wsj.com/article/SB118290219726149262.html?mod=us_business_whats_news'>Read
more . (Registration required.)
name='7'>Bankruptcy Mentioned in
w:st='on'>
Diego
Talks
Proposals over whether to
file for bankruptcy were considered again by the San Diego City Council
as it looked at plans to convert the city's pension system into a group
trust that would protect the assets of two other agencies taking part in
it, the San Diego Union
Tribune reported today. San Diego City
Employees' Retirement System officials began exploring a group trust in
August and asked the council this month to sign off on the agencies'
agreements before the new fiscal year starts Sunday. The San Diego
Unified Port District and the San Diego County Regional Airport
Authority require council approval for the contracts they've negotiated
with pension officials. However, City Attorney Michael Aguirre wants
more time so an outside lawyer can review documents related to the group
trust and his office can hire a bankruptcy expert to offer the city
additional advice. Pension board president Tom Hebrank told the council
that the system's current setup as a multiemployer trust doesn't put the
other agencies' assets “beyond the reach of the city's
creditors” if
w:st='on'>San
Diego
bankrupt.
href='http://www.signonsandiego.com/news/metro/20070627-9999-1m27pension.html'>Read
more.
Seeks to Derail Lionel Plan
A rival of model-train
maker Lionel LLC wants a judge to put the brakes on Lionel's control of
its bankruptcy case so the competitor can file its own reorganization
plan, the Associated Press reported yesterday. Mike's Train House says
Lionel is using its chapter 11 control as a 'bludgeon' to force Mike's
into settling a long-running dispute over stolen trade secrets,
according to court documents filed Monday. Mike's, of
w:st='on'>
size='3'>Columbia
w:st='on'>
size='3'>Md.
bankruptcy judge for permission to file an alternative plan for Lionel
to resolve the dispute and pull out of bankruptcy. Lionel already filed
its reorganization plan in May, but it hasn't sought approval of the
plan from creditors because of missing financial information. The plan
allows for claims filed by Mike's to be paid in full, as long as exit
financing is found. The claims stem from the damages ensued during the
trade-secrets dispute.
href='http://www.chron.com/disp/story.mpl/ap/fn/4922285.html'>Read
more.
name='9'>Federal-Mogul CEO Wants High Wage Costs to Come
Down
Federal-Mogul Corp. CEO
Jose Maria Alapont said yesterday that auto suppliers are headed for a
“challenging and painful” time as wage rates in
Europe,
size='3'>Japan
America
competitive, Automotive
News reported today. “We cannot sustain
a system of high-cost labor and excess capacity,” Alapont said.
Federal-Mogul filed for court protection because it faced an
overwhelming number of claims of illness from asbestos contamination.
The claims came from T&N, a company Federal-Mogul bought in 1998.
Alapont said Federal-Mogul spent $150 million in bankruptcy fees last
year and $500 million in the first four years.
href='http://crainsdetroit.com/apps/pbcs.dll/article?AID=/20070626/REG/70626003/1009/breaking'>Read
more.
name='10'>Bear Stearns Taps Managers to Save Hedge
Fund
Bear Stearns Asset Management
CEO Richard Marin is taking a stronger role in managing its two troubled
hedge funds and tapped mortgage unit head Thomas Marano to save one of
the funds, Reuters reported today. Marin appointed Marano last week to
help with the funds managed by Ralph R. Cioffi, who retains his current
role as portfolio manager for both funds, said one source. Bear Stearns
Cos. Inc. said yesterday it does not plan to bail out the High-Grade
Structured Credit Strategies Enhanced Leverage Fund, the second of two
struggling hedge funds. Instead it will provide $1.6 billion of
financing to save its High-Grade Structured Credit Strategies Fund. Days
earlier the bank had said it would provide up to $3.2 billion in
financing.
href='http://www.washingtonpost.com/wp-dyn/content/article/2007/06/26/AR2007062600879_pf.html'>Read
more.
href='http://www.washingtonpost.com/wp-dyn/content/article/2007/06/26/AR2007062600879_pf.html'>