February 8, 2007
Mortgages
Mortgage Broker Practices Questioned by Senate Panel
TheSenate Banking Committee questioned if some mortgage broker practices have contributed to a predatory lending environment that will result in an estimated 2.2 million families losing their houses through foreclosure proceedings in coming years, CongressDaily reported yesterday. Banking Chairman Chris Dodd (D-Conn.) is exploring ways to cut down on abusive lending practices in the subprime market, which has grown in recent years to represent more than 20 percent of the mortgage market with a $650 billion loan value. While noting several questionable practices found within the lending community, Dodd focused much of his questioning on the practices of the mortgage broker industry, specifically noting that brokers do not have a fiduciary duty to the borrower to find the best deal. Sen. Mel Martinez (R-Fla.) added that if regulators did not act to help clean up some of the abuses in the mortgage broker marketplace, Congress should get involved to better regulate yield spread premiums and good-faith estimates for borrowers. Sen. Richard Shelby (R-Ala.) also suggested that Congress should require government-sponsored enterprises such as Fannie Mae and Freddie Mac to be more selective in the subprime mortgage loans they purchase. Click here for congressional member statements and witness testimony from yesterday’s hearing.
HSBC Reports Rise in Troubled Loans
Britain-based bank HSBC Holdings said that its charge for bad debts would be more than $10.5 billion for 2006, some 20 percent above analysts’ average forecasts, because of problems in its mortgage portfolio, Reuters reported yesterday. HSBC said in a trading update late on Wednesday that slowing growth in housing prices was being reflected in accelerated delinquency trends across the subprime mortgage market, particularly in more recent loans. Analysts had expected HSBC’s 2006 loan impairment charge to be $8.8 billion, according to the average of 11 analysts’ forecasts, the bank said. That figure is now expected to be about $1.8 billion higher, or about $10.6 billion.Read more.
House Committee to Examine Recent Performance of SBA
The House Small Business Committee is holding the first of several hearings today to discuss the Small Business Administration (SBA) after the agency came under criticism for its disaster relief program in the wake of Hurricane Katrina, as well as its operating, lending and contracting practices, the New York Times reported today. Committee chairwoman Nydia M. Velásquez (D-N.Y.) said that the hearings would look into other issues, including recent disclosures that federal investigators have accused a lender in an SBA program of falsifying information on 76 loans with a value of nearly $77 million over six years. The administrator, Steven C. Preston, is scheduled to appear at today’s hearing, which will also address budget and staffing issues. Read more.
Airlines
Delta to Begin Bankruptcy Plan Vote
U.S. Bankruptcy Judge Adlai Hardin's approved Delta Air Lines Inc.'s disclosure statement allowing the carrier to begin soliciting votes for its plan to emerge this spring as a stand-alone company worth more than $9.5 billion, the Associated Press reported. Speaking after the hearing, Delta Air Lines Chief Financial Officer Edward Bastian declined to offer details about the search to replace Chief Executive Gerald Grinstein. Grinstein said that he will step down after a transition period with his successor once the company exits chapter 11. Bastian said that the company is expected to announce the make up of its board of directors on March 30 and it will consist of the CEO and 10 outside directors. Read more.
Court Prohibits Comair Pilots Strike
The bankruptcy court overseeing Comair’s chapter 11 case has barred the pilots union of the Delta Air Lines Inc. subsidiary’s from striking, Bankruptcy Law360 reported yesterday. U.S. Bankruptcy Judge Adlai S. Hardin’s Wednesday ruling in Comair’s favor follows the pilots union’s December 2006 vote, in which the pilots voiced overwhelming support for a strike if Comair rejects their contract and demands concessions. Judge Hardin’s ruling prohibits the union, as well as individual pilots, from striking or otherwise disrupting the regional carrier’s operations. If Comair and the ALPA don’t strike a deal by midnight on Friday, the airline said it would move forward with the implementation of changes to the pilot contract. Judge Hardin gave Comair approval to impose pay cuts and other concessions in December 2006. Read more. (Registration required.)
Judge Grants Werner More Time to Resolve Fee Dispute
Bankruptcy Judge Kevin J. Carey gave Werner Co.’s financial advisor, Rothschild Inc., and the unsecured creditors’ committee until Feb. 21 to settle a dispute that has broken out between the two parties over a $1.39 million fee payment, Bankruptcy Law360 reported yesterday. At the heart of the dispute is a request Rothschild filed in September to be paid $1.39 million for the services it provided from June through August in its role as financial adviser. The bulk of the money Rothschild claims to be owed, $990,000, stems from a new indebtedness fee, according to court documents. The creditors’ committee argued that based on its own calculations, the new indebtedness fee is less than $990,000. Read more. (Registration required.)
Bankruptcy Judge M. Bruce McCullough has given Pittsburgh Brewing Co. three more weeks to work out a deal with creditors and file a reorganization plan with the court, the Associate Press reported yesterday. The maker of Iron City, IC Light and Augustiner beers received an extension until Feb. 27 to file its reorganization plan, and creditors will vote on whether to approve the plan on April 27. Pittsburgh Brewing Acquisition LLC, an investment group led by private equity fund manager John Milne of Westport, Conn., plans to take over the brewery and invest about $7 million to modernize it. Read more.
Bondholders Seek Fast Track in Pacific Lumber Case
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Carrier Access Corp., a
Echelon Corp., a
Harley-Davidson Inc., facing a possible strike at its
Huttig Building Products Inc., a St. Louis, Mo. distributor of building materials, reported a fourth quarter net loss of $4.3 million, compared with a year-earlier profit of $3.3 million. Sales declined 13%--to $231 million. The quarter included restructuring charges of $1.7 million, related to closing five distribution centers and getting out of two product lines. For the year, it lost $7.7 million on flat sales of $1.1 billion. The fiscal results included $18.9 million in restructuring charges.
Nortel Networks Corp., the Brampton, Ontario-based maker of telecommunications gear, announced that Peter Currie will step down from his positions as chief financial officer and executive vice president at the end of April. In recent years, Nortel has carried out a number of financial restatements and executive shakeups. Nearly a year ago, the firm had to restate several years of financial results and shift $866 million of revenue that was prematurely booked. Last November, Nortel reported its seventh loss in the last nine quarters. In addition, the company expects to cut 2,900 jobs in an effort to save $400 million annually. This is the fourth round of layoffs in the past four years.
Tweeter Home Entertainment Group Inc., a