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July 13, 2009
size='3'>Mortgages
Congressmen Ask
Regulators to Address Second Mortgage Valuation Problems that Discourage
Loan Modifications
Senate Banking Committee Chairman Chris Dodd (D-Conn.)
and House Financial Services Chairman Barney Frank (D-Mass.) sent a
letter on Friday to the heads of the bank regulatory agencies asking
them to address whether banks are inflating the value of second
mortgages on their balance sheets, thereby discouraging efforts to
modify and restructure mortgage loans and crippling programs designed to
prevent foreclosures, according to a press release. The HOPE for
Homeowners program was designed to help Americans stay in their homes by
adjusting their mortgages to 90 percent of the assessed value of their
property while helping mortgage companies prevent larger losses they
would face if the homes simply went into foreclosure. In areas where
housing prices have dropped dramatically, second mortgages may be
virtually worthless, according to the letter. Regrettably, many banks
are still unwilling to update their balance sheets to show these assets
have dropped in value, and inflated values have made it virtually
impossible for HOPE for Homeowners to work as intended.
href='http://www.house.gov/apps/list/press/financialsvcs_dem/press_071009.shtml'>Click
here to read the full press release and letter.
Tight Mortgage Rules
Exclude Even Good Risks
While the readiness of banks to sell foreclosed
properties has led to rising home sales in some areas, the traditional
housing market is still flat-lining, with transactions lower than they
have been for decades, the
face='Times New Roman' size='3'>New York Times
size='3'>reported on Saturday. The recession is the major reason sales
are dragging, of course, but it is not the only one as buyers once
viewed as perfectly qualified are being denied mortgages. The denials
are occurring for a wide array of reasons: the buyers’ incomes are
adequate but irregular; they are self-employed and take many deductions,
reducing the taxable income on which lenders focus; their credit scores
are below the cut-off point, which has been raised drastically; their
down payments are less than 20 percent. No one is advocating a return to
the lax lending standards of 2006, when buyers with no income or
documentation could get loans. However, many people say that they
believe lenders and the government, in correcting the excesses of that
era, have gone too far in the other direction.
href='http://www.nytimes.com/2009/07/11/business/11housing.html?_r=1&em=&pagewanted=print'>Read
more.
Commentary: Borrowers Bled
Dry
State legislatures should protect consumers and
re-enact caps for payday lending after they legalized loan sharking when
they exempted short-term, payday lenders from usury laws, according to
an editorial in today’s
face='Times
New
Roman' size='3'>New York Times. The lenders,
which now charge interest of 400 percent or more, got the exemption by
arguing that small loans that were paid off quickly would help families
through emergencies and keep them out of long-term debt. According to a
study by the Center for Responsible Lending, three-quarters of the
industry’s loans are generated from borrowers caught in this
endless cycle of borrowing again before the next paycheck. There were
about 500 payday loan locations in 1990 and there are about 22,000
today. Congress can help by passing a bill introduced by Sen. Richard
Durbin (D-Ill.) that would limit interest charges on all kinds of
consumer credit. In the meantime, legislators in 29 of the 35 states
that permit payday lending should emulate the states that have enacted
rate caps to drive out payday lenders.
href='http://www.nytimes.com/2009/07/13/opinion/13mon3.html?ref=opinion&pagewanted=print'>Click
here to read the full editorial.
Autos
GM, Chrysler Dealer Closings
Congress is moving to reverse the closings or planned
closings of nearly 3,200 dealerships by General Motors Co. and Chrysler
Group LLC, setting up a clash with President Barack Obama’s
administration, Dow Jones
face='Times New Roman' size='3'>Daily Bankruptcy Review
size='3'>reported today. The U.S. House Appropriations Committee
approved legislation seeking to restore dealer franchise agreements that
were wiped out during the recent bankruptcy reorganizations of GM and
Chrysler. A full House vote could come as early as this week. The
legislation could effectively force the automakers to increase severance
payments to rejected dealers, significantly raising the costs of their
restructurings. The initiative has widespread support among House
lawmakers, including Majority Leader Steny Hoyer (D-Md.) A similar bill
has been introduced in the Senate.
Chrysler Wants Continued
Stay of $55 Million Appeal
Chrysler LLC has asked a judge to maintain the
automatic stay and keep its own appeal of a $55.2 million verdict in a
negligence suit against DaimlerChrysler Corp. from moving
forward,
size='3'>Bankruptcy Law360 reported on Friday.
In an objection filed Thursday in the U.S. Bankruptcy Court for the
Southern District of New York, Chrysler asked the court not to lift the
stay with regard to the suit filed by Adriana Mraz and others in the
Superior Court of California for the County of Los Angeles. An appeal of
the judgment is currently pending before the Second District Court of
Appeal for the State of California, the objection said. The plaintiffs
filed suit alleging DaimlerChrysler's negligent design, engineering,
manufacture and distribution of a 1992 Dodge Dakota truck caused the
death of Richard Mraz. In May 2007, a jury awarded $55.2 million to the
plaintiffs. The plaintiffs argued to the bankruptcy court in June that
the stay should be lifted because Chrysler filed a bond to secure
payment of any final judgment at the conclusion of the appeal, and
further delay of the appeal would result in hardship.
href='http://bankruptcy.law360.com/articles/110686'>Read
more. (Subscription required.)
J.L. French Files for
Chapter 11
J.L. French Automotive Castings Inc., a U.S. maker of
aluminum die-cast auto parts, filed for chapter 11 protection on today,
saying that it was 'over-leveraged with an unmanageable debt
load,” Reuters reported. In a filing with the U.S. District Court
for the District of Delaware, the company listed both estimated assets
and liabilities in the range of $100 million to $500 million. The
Sheboygan, Wis.-based company said in an affidavit that about 95 percent
of its 2008 sales revenue came from General Motors, Chrysler, Ford Motor
Co. and Magna International Inc. J.L. French, which had previously filed
for bankruptcy in 2006, said that it received commitments of up to $15
million in debtor-in-possession financing.
href='http://www.reuters.com/article/bankruptcyNews/idUSBNG50660820090713'>Read
more.
Delphi Receives No New
Cash Bids for Assets
Delphi Corp. said that no companies offered to top the
auto-parts supplier's government-orchestrated deal with buyout firm
Platinum Equity LLC by Friday's deadline, though lender JPMorgan Chase
may make a credit bid by next week, the
face='Times
New
Roman' size='3'>Wall Street Journal reported
on Saturday. The deadline for credit bidding by JPMorgan or another
lender is July 17. Friday was the deadline for cash bids. Bankruptcy
Judge
face='Times New Roman' size='3'>Robert Drain,
who has been overseeing Delphi's chapter 11 case for nearly four years,
told Delphi last month that it needed to hold an auction for its assets
in response to concerns from its bankruptcy lenders. They contended that
the plan to sell Delphi's assets to Platinum and former parent General
Motors Corp. was a sweetheart deal that unfairly benefited the buyout
firm and automaker. Delphi said that if JPMorgan makes a credit bid, it
will hold an auction for its assets July 17 and likely announce the
outcome July 20.
href='http://online.wsj.com/article/SB124726194557825223.html'>Read
more. (Subscription required.)
CIT Group Scrambles to
Survive
CIT Group Inc. officials spent the weekend trying to
work out a plan that would help calm markets and convince customers and
investors that it can work its way out of a deepening liquidity crunch,
the
size='3'>Wall Street Journal reported today.
CIT is a lender to nearly a million mostly small and midsize businesses
and companies, and while its failure may not jolt financial markets in a
large way, it could hurt the flow of credit to many businesses to whom
banks traditionally won't lend. The government gave the bank-holding
company $2.3 billion under the Troubled Asset Relief Program last year
but so far hasn't included CIT in a separate program that would allow it
to issue debt at low interest rates. Over the weekend, CIT
representatives held discussions with members of Congress, government
officials and regulators as they became increasingly nervous hundreds of
small and midsize business customers may rush to withdraw funds or try
to draw down credit lines. The options being discussed include solutions
that don't involve access to the FDIC's Temporary Liquidity Guarantee
Program, even though CIT's application to that program is still pending.
The company said that it is trying to transfer more assets, such as its
trade finance and vendor finance businesses, to its bank. If those
near-term transfers are approved by regulators, they would help improve
its liquidity position, CIT added.
href='http://online.wsj.com/article/SB124744080839729811.html#mod=testMod'>Read
more. (Subscription required.)
U.S. Airlines Fly into
Credit Squeeze
The recession, plunging travel demand and a tough
lending environment, are battering U.S. airlines, raising the prospect
of a liquidity squeeze that could lead to bankruptcy filings by winter
if conditions don't improve, the
face='Times
New
Roman' size='3'>Wall Street Journal reported
today. The five largest carriers are expected to report second-quarter
losses, starting with AMR Corp.'s American Airlines on Wednesday and
followed by Delta Air Lines Inc., UAL Corp.'s United Airlines,
Continental Airlines Inc. and US Airways Group Inc. next week. 'Just as
the airline industry was not built for $130 [per barrel] oil, neither
was it built for an environment of negative global economic growth and
nonfunctioning capital markets,' Gerard Arpey, AMR's chief executive,
said last month at an investor conference. The recession continues to
discourage high-yield business traffic, forcing carriers to discount
heavily to fill planes with leisure travelers. May passenger revenue was
down 26 percent on 9.5 percent fewer passengers paying nearly 18 percent
less per ticket than a year earlier, according to the Air Transport
Association trade group.
href='http://online.wsj.com/article/SB124744197344730013.html#mod=testMod'>Read
more. (Subscription required.)
White House Eyes Bailout
Funds to Aid Small Firms
The Obama administration is developing an initiative
to take money from the $700 billion rescue program for the banking
system and make it available to millions of small businesses, the
size='3'>Washington Post reported on Saturday.
The effort would represent a striking shift from the rescue program's
original mandate, since it would direct billions of bailout dollars
toward a plan that aims more at saving jobs than at righting the
financial system. A proposal being floated by senior Treasury Department
officials calls for using the bailout funds to expand a government
program that helps small companies borrow from banks at low rates to
keep their businesses going. These 'working-capital' loans would come
with few restrictions and could be used to buy inventory, hold on to
employees and pay off short-term debt. The initiative would bulk up the
Small Business Administration's most popular lending program, called
7(a). If a firm failed despite receiving this help, the government would
cover most of the losses on the federal loan, perhaps as much as 90
percent.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/07/10/AR2009071003206_pf.html'>Read
more.
Owner's Bid for NHL Documents
U.S. Trustee Larry L. Watson filed a motion supporting
Phoenix Coyotes hockey team owner Jerry Moyes' request to examine
documents related to the proposed sale of the bankrupt team,
size='3'>Bankruptcy Law360 reported on Friday.
Moyes' discovery motion refers to a term sheet submitted by a group of
investors led by Jerry Reinsdorf — who currently owns the Chicago
Bulls and the Chicago White Sox — to buy the team and related
arena lease rights for $148 million. Reinsdorf is in the process of
preparing a purchase proposal, which is due July 24. His bid is seen as
a favorite because it keeps the team in Glendale, Ariz. A hearing on the
discovery motion is set for today.
href='http://bankruptcy.law360.com/articles/110645'>Read
more. (Subscription required.)
New Orleans Public
Defenders Office on the Brink of Bankruptcy
The New Orleans Public Defenders office - still
struggling to recover from Hurricane Katrina - is teetering on the brink
of bankruptcy, the Associated Press reported on Saturday. 'We're hoping
some of the money we are expecting will come through,' said Derwyn
Bunton, who heads up the office. 'We're chasing different grants, I'm
staying in touch with the Legislature, talking to people. Doing
everything I can to find money.' The public defenders had an annual
budget of $2.2 million before Hurricane Katrina hit in 2005, receiving
75 percent of its funding from traffic court and fines and parking
tickets, which were nonexistent for months after the hurricane. The
situation became so dire that Criminal Court Judges Arthur Hunter and
Calvin Johnson temporarily suspended prosecution of indigent defendants
in their courtrooms in February 2006, saying they were not receiving
adequate representation. Investigations by the Louisiana State Bar
Association, the National Legal Aid and Defender Association, and the
U.S. Department of Justice led to changes, such as hiring full-time
attorneys instead of part-timers.
href='http://www.abc26.com/news/local/wgno-news-pubdefender071109-story,0,2932184.story?track=rss'>Read
more.
Ritz Camera Landlords
Object to Bidding Procedures
Several landlords for bankrupt Ritz Camera Centers
Inc.'s retail locations have objected to its motion to approve bidding
procedures for substantially all of its assets, saying that the
procedures' pace is unreasonable and the sale guidelines lack
appropriate restrictions,Bankruptcy
Law360reported on Friday. Cambridgeside
Galleria Associates Trust, the Macerich Co., RREEF Management Co., the
Forbes Co., Cousins Properties Inc., Passco Real Estate Enterprises
Inc., Black Equities Group Ltd., The Prudential Insurance Co. of
America, Ardmore Partners LP, and Inland US Management LLC and several
of its subsidiaries all filed objections Thursday in the U.S. Bankruptcy
Court for the District of Delaware. According to Ritz's July 3 motion to
approve bidding procedures, potential buyers have until July 16 to
submit bids. An auction will be conducted on July 20, with a deadline to
object to the motion on July 21 and a hearing to approve the sale on
July 23. Judge Mary Walrath later changed the deadline to object to 4
p.m. on July 20.
href='http://bankruptcy.law360.com/print_article/110618'>Read
more. (Subscription required.)
Bonuses
American International Group's recent discussions with
President Obama's compensation czar have centered on whether the company
should pay about $250 million in promised bonuses that come due during
the next nine months, the
face='Times New Roman' size='3'>Washington Post
size='3'>reported today. AIG has asked the government to rule on several
categories of bonuses, including millions of dollars in payments owed to
top corporate executives in coming days, and the troubled insurer has
been seeking senior Treasury official Kenneth R. Feinberg's consent in
an effort to provide the company with political cover. But of greater
concern to both sides is what to do about the vastly larger sum that
comes due in March 2010, when AIG is scheduled to pay more than $200
million in bonuses aimed at retaining executives at AIG Financial
Products, the unit whose complex derivative contracts nearly wrecked the
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/07/11/AR2009071100419_pf.html'>Read
more.
Commentary: FDIC's
Challenge with Busted Banks
As bank failures mount, hitting 53 this year by
Friday, the Federal Deposit Insurance Corp. (FDIC) needs solid financial
institutions to assume the assets and liabilities of collapsed lenders,
according to a commentary in today’s
face='Times
New
Roman' size='3'>Wall Street Journal. However,
there is no queue of pristine banks right now waiting to buy bust banks,
according to the commentary, and the FDIC can't hang on to failed
institutions forever. That said, loans and deposits should ideally end
up controlled by bankers with proven track records. That sort of
Darwinian restructuring benefits the wider economy. But if banks that
have made poor choices grab the carcasses, stagnation also becomes a
danger.
href='http://online.wsj.com/article/SB124744606526030587.html'>Click
here to read the full commentary. (Subscription
required.)
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