July 302009

 

Mortgages

Cramdown Proposal May Be
Revived to Boost Mortgage Relief

House Financial Services Committee Chairman Barney
Frank (D-Mass.) yesterday threatened to revive the mortgage cramdown
bill that stalled in Congress this year, saying that lenders
aren’t being aggressive enough in modifying troubled home loans,
Bloomberg News reported yesterday. “People in the servicing
industry and in the broader financial industry must understand that if
this last effort to produce significant modifications fails, the
argument for reviving the bankruptcy option will be extremely strong,
and I think there is a substantial chance that the outcome will be
different,” he said. Frank managed to get a cramdown bill through
the House of Representatives in March, only to see the legislation stall

in the Senate as lawmakers there argued over whether to limit the
provisions to certain loans or a specific timeframe. Frank said he will
re-attach the provisions to any new legislation requested by the
industry “unless we see a significant increase in mortgage
modifications and foreclosure-avoidance.” 

href='http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ahyJ3X92DO8s'>Read

more.

href='http://www.house.gov/apps/list/press/financialsvcs_dem/pressfore_072909.shtml'>Click

here to read Frank’s full statement.

Analysis: Lucrative Fees
May Deter Efforts to Alter Loans

Industry insiders and legal experts say that the
limited capacity of mortgage companies is not the primary factor
impeding the government’s $75 billion program to prevent
foreclosures, but rather that many mortgage companies are reluctant to
give strapped homeowners a break because the companies collect lucrative

fees on delinquent loans, the

face='Times










New

Roman' size='3'>New York Times reported today.

Even when borrowers stop paying, mortgage companies that service the
loans collect fees out of the proceeds when homes are ultimately sold in

foreclosure. The longer borrowers remain delinquent, the greater the
opportunities for these mortgage companies to extract revenue —
fees for insurance, appraisals, title searches and legal services. Legal

experts say the opportunities for additional revenue in delinquency are
considerable, confronting mortgage companies with a conflict between
their own financial interest in collecting fees and their responsibility

to recoup money for investors who own most mortgages. From June 2008 to
June 2009, the number of American mortgages that were 90 days or more
delinquent soared from 1.8 million to nearly 3 million, according to the

realty research company First American Core Logic. 

href='http://www.nytimes.com/2009/07/30/business/30services.html?_r=1&ref=business&pagewanted=print'>Read

more.

Congressman Near Deal on
Derivatives Bill

House Financial Services Chairman Barney Frank
(D-Mass.) and House Agriculture Chairman Collin Peterson (D-Minn.) are
close to releasing the details of a bill that would establish regulation

of over-the-counter derivatives, which were considered a culprit in the
financial crisis,
face='Times New Roman' size='3'>CongressDaily
size='3'>reported yesterday. Peterson saidthat he and Frank still need
to reach agreement on dividing jurisdiction over specific financial
products between the Commodity Futures Trading Commission and the SEC.
Frank said that the bill would be stronger than principles outlined by
the Treasury Department, which would still allow for an OTC market but
mandate higher capital and margin requirements for trades that are
between parties and are not part of an exchange or
clearinghouse.

Autos

U.S. Senate Defeats Move
to Distribute GM, Chrysler Stakes 

The U.S. Senate yesterday defeated a measure that
would have compelled the federal government to distribute its ownership
stakes in General Motors Co. and Chrysler LLC to taxpayers as common
stock within a year of the companies emerging from bankruptcy
protection, Dow Jones
face='Times New Roman' size='3'>Daily Bankruptcy Review

size='3'>reported today. The vote was 59-38 against the amendment,
sponsored by Senate Republicans who are trying to devise a way to
expedite the federal government's ownership of auto companies.
Republicans attempted to attach the auto equity measure to a spending
bill funding the Department of Energy in fiscal 2010. Normally, the auto

provision would have been deemed irrelevant to such legislation and
would be unlikely to be voted on. However, because House lawmakers
inserted a “Buy America' provision affecting the U.S. auto
industry in companion legislation last week, the Senate allowed a vote
on the measure, sponsored by Sen. Lamar Alexander (R-Tenn.). His
amendment would have required the Treasury to evenly distribute its 60
percent stake in General Motors and the 8 percent stake it will control
in Chrysler to all American taxpayers within a year of the companies
coming out of bankruptcy protection.

New Plan Would Sell
Delphi to Lenders

Delphi, the troubled auto parts supplier, edged closer

to emerging from nearly four years in bankruptcy at a court hearing
yesterday on a plan to sell the bulk of its assets to its lenders,
the
size='3'>New York Times reported today. The
plan, which has the support of the company’s onetime parent,
General Motors, was approved by Delphi’s board late Monday. The
new bankruptcy plan would involve Delphi’s debtor-in-possession
lenders — whose loans totaling $3.4 billion have kept the company
operating in bankruptcy — taking over most of the supplier’s

assets. The lenders, led by hedge funds like Elliott Management and
Silver Point Capital, plan to forgive their loans in exchange for taking

control of the company, a process known as credit bidding. GM, which
spun off Delphi in 1999 and remains one of its biggest customers, would
provide more than $3 billion in financing to take back four factories
and the supplier’s steering business. The lenders and GM would
share distributions from asset sales or a public offering of stock, with

the lenders expected to reinvest most of the money they would receive in

Delphi. GM will share some of its proceeds with the Pension Benefit
Guaranty Corp., the agency that is taking over Delphi’s pension
plans at a cost of $6.2 billion. 

href='http://www.nytimes.com/2009/07/30/business/30delphi.html?ref=business&pagewanted=print'>Read

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Senate Governance Bill
Expected to Be Attached to Financial Regulatory Restructuring
Legislation

Congress will likely attach corporate governance
standards being pushed in a bill by Sen. Charles Schumer (D-N.Y.) to its

revamp of the regulatory system,

face='Times










New

Roman' size='3'>CongressDaily reported today.
Business lobbyists are working to scuttle Schumer's bill because it
represents the farthest reach for the shareholder democracy movement,
which has grown under Democratic control of Congress and the White House

and amid populist anger over government bailouts. Schumer pushed John
Castellani, president of the Business Roundtable, during a Senate
Banking Securities Subcommittee hearing yesterday to support his
legislation to increase transparency and accountability by also
requiring board directors to receive at least 50 percent of the vote in
uncontested elections and mandating boards create a risk committee.
Castellani said those decisions are best left for each public company,
noting that the separation of CEO and chairman duties could make sense
when the company is undergoing a transition of top executives. The
debate took place as the House prepares to vote Friday on legislation to

require annual nonbinding advisory votes on executive compensation and
golden parachute packages for top personnel -- similar to language in
Schumer's bill. 

href='http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=c754606c-0b95-4139-a38a-63e63b4b3fa9'>Click

here to read the prepared witness testimony from
yesterday’s hearing.

Settlement Approved in
Dispute over WaMu Savings Plan

Bankrupt holding company Washington Mutual Inc. (WaMu)

and the buyer of its banking operations, JPMorgan Chase Bank NA, have
won approval for a settlement in a dispute over a Washington Mutual Bank

employee retirement savings plan,

face='Times










New

Roman' size='3'>Bankruptcy Law360 reported
yesterday. Bankruptcy Judge Mary F. Walrath on Tuesday
approved an agreement transferring sponsorship of the WaMu employees'
401(a) plan to JPMorgan, resolving a dispute between the parties over
the rightful owner. Under the agreement, JPMorgan will indemnify the
debtors for certain claims arising after it purchased the banking
assets, but will not assume previous litigation over the plan, including

Employee Retirement Income Security Act suits pending in the U.S.
District Court for the Western District of Washington. 
href='http://bankruptcy.law360.com/articles/113738'>Read more.
(Subscription required.)

CIT Draws Fire over Rescue
Deal

As the clock ticks down to CIT Group Inc.'s
bond-tender deadline, some investors are complaining that their offer of

alternative financing was 'largely ignored' by the company, even though
it could have provided the lender with up to $6 billion in funds,
the
size='3'>Wall Street Journal reported today.
In a July 24 letter to CIT's board and Chief Executive Jeffrey Peek, a
lawyer representing a group of CIT investors expressed frustration over
the company's decision last week to accept a $3 billion rescue package
from six large bondholders when other, potentially cheaper, options were

on the table. When CIT released terms of its loan agreement on July 21,
some investors were surprised to learn the firm was paying at least $100

million in upfront fees and had pledged substantially all its
'unencumbered assets' as collateral for a $3 billion loan from investors

including Allianz SE's Pacific Investment Management Co., Oaktree
Capital and Centerbridge Partners. CIT said it had received $2 billion
of that amount and expected the remaining $1 billion by the end of July.

The $3 billion rescue package also hinged largely on CIT's ability to
get enough debtholders to tender bonds maturing next month for 82.5
cents on the dollar. If CIT can't get holders with 90 percent of the $1
billion bond issue to agree, the company is likely to have to file for
bankruptcy protection. The group of six bondholders that agreed to lend
CIT $3 billion owns less than half of the August floating-rate
notes. 
href='http://online.wsj.com/article/SB124882489538688483.html'>Read
more. (Subscription required.)

Fed Survey, Economic Data
Signal Recession Is Easing

The pace of decline in economic activity has
'moderated' or 'begun to stabilize,' the Federal Reserve's latest survey

of regional economic conditions found, and a Commerce Department report
showed that the steep drop in U.S. business-investment spending appears
to be bottoming out, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The Fed's 'Beige Book,' a roundup of conditions

across its 12 districts, suggested that economic activity remains weak
in many regions, but the slowing pace of decline is a marked improvement

from previous reports. While the report noted that households 'continued

to be price-conscious,' signs of scattered improvement were seen in
manufacturing, housing and even the labor market. Several regions
reported hiring activity in health care, technology and manufacturing.
However, commercial real estate was described as weak in all 12
districts. Banks in most regions continued tightening lending standards,

particularly on commercial real estate, 'due to concern over declining
loan quality.' 
href='http://online.wsj.com/article/SB124887015293690029.html'>Read
more. (Subscription required.)

Trustee Sues Ruth Madoff
for $45 Million

Trustee
face='Times New Roman' size='3'>Irving Picard,
size='3'>in charge of liquidating defunct broker-dealer Bernard L.
Madoff Investment Securities LLC, slapped Ruth Madoff, with a $44.8
million lawsuit claiming that she lived lavishly for decades off BLMIS'
customers' money,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. Whether or not Ruth Madoff knew of her
husband's fraud, she ended up receiving tens of millions of dollars from

BLMIS over the past six years, which funded 'a life of splendor,' Picard

alleges. The complaint details 111 transactions that the trustee says
are fraudulent transfers or conveyances. When Bernard Madoff was
sentenced to a 150-year jail term on June 26, the Madoffs agreed to
forfeit assets including homes and financial holdings, and the
government agreed not to contest Ruth Madoff's claim to $2.5 million,
but that agreement does not preclude Picard from seeking a recovery from

her. 
href='http://bankruptcy.law360.com/print_article/113957'>Read
more. (Subscription required.)

NHL Denies
Balsillie’s Application to Buy the Phoenix Coyotes

The National Hockey League yesterday rejected Canadian

billionaire Jim Balsillie's application for ownership of the Phoenix
Coyotes hockey team but gave its approval to two groups vying to buy the

bankrupt club, Reuters reported yesterday. The league said that owners
unanimously approved the application of sports tycoon Jerry Reinsdorf
and ruled incomplete the filing by a group of investors under the name
Ice Edge Holdings. However, the league said Ice Edge could continue its
efforts to buy the team. The NHL, which does not want Basillie moving
the Coyotes to Canada, said in a terse statement said that owners voted
unanimously not to approve the application from the co-CEO of BlackBerry

maker Research in Motion Ltd. An auction for bidders who want to keep
the Coyotes in Arizona is scheduled for Aug. 5. If the judge deems the
bids inadequate, a second auction open to bidders who could move the
team is set for Sept. 10. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2009/07/29/AR2009072903261_pf.html'>Read

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International

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