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May 26, 2009
Mortgages
Report: Mortgage
Modifications Fail to Halt Defaults
A Fitch Ratings report to be released this week is
expected to show that mortgage-servicing companies are struggling to
find the best way to modify mortgages so that borrowers can stay in
their homes, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The Fitch report analyzed mortgages bundled
into securities between 2005 and 2007, a peak time when the U.S. housing
industry benefited from investors' demand for mortgages. The Fitch
report studied pools of mortgages that are managed by more than 30
servicing firms charged with collecting and modifying loans on behalf of
investors in residential mortgage-backed securities. A key finding from
the Fitch report was that subprime, pooled loans that have been modified
are souring at high rates despite a change in the loan terms. Fitch said
a conservative projection was that between 65 and 75 percent of modified
subprime loans will fall 60 or more days delinquent within 12 months of
the loan change. That finding echoes prior U.S.-bank-regulatory agency
reports of high redefault rates for modified loans.
href='http://online.wsj.com/article/SB124330158365953109.html'>Read
more. (Subscription required.)
Jobless Rate Increase
Expected to Precipitate Next Foreclosure Wave
In related news, growing numbers of American
homeowners with once solid credit are falling behind on their mortgages,
amplifying a wave of foreclosures, the
face='Times









New
Roman'
size='3'>New York Times reported on Sunday.
With many economists anticipating that the unemployment rate will rise
into the double digits from its current 8.9 percent, foreclosures are
expected to accelerate. Economists refer to the current surge of
foreclosures as the third wave, distinct from the initial spike when
speculators gave up property because of plunging real estate prices, and
the secondary shock, when borrowers’ introductory interest rates
expired and were reset higher. “We’re right in the middle of
this third wave, and it’s intensifying,” said Mark Zandi,
chief economist at Moody’s Economy.com. “That loss of jobs
and loss of overtime hours and being forced from a full-time to
part-time job is resulting in defaults. They’re coast to
coast.” Economy.com expects that 60 percent of the mortgage
defaults this year will be set off primarily by unemployment, up from 29
href='http://www.nytimes.com/2009/05/25/business/economy/25foreclose.html?em=&pagewanted=print'>Read
more.
Federal Program for Loan
Workouts Draws New Allies
The Obama administration is attempting to revive a
stalled government foreclosure prevention program that could restore
equity to hundreds of thousands of borrowers whose home values have
plummeted, the
size='3'>Washington Post reported today. After
eight months, the program, known as Hope for Homeowners, has helped just
one borrower secure a more affordable loan. President Obama signed
legislation last week simplifying and lowering the cost of the program
for lenders and borrowers. Lenders that participate also are eligible
for incentive payments from government bailout funds. Most striking is
that Hope for Homeowners has attracted unexpected backers: Investors who
had refused to consider the program's requirement that they forgive some
of a borrower's mortgage balance if the home is worth less than is owed,
known as being underwater, are now trumpeting that provision.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/05/25/AR2009052502272_pf.html'>Read
more.
Autos
Analysis: Bankruptcy for
GM Would Tax the Experts
The decline of General Motors may be putting thousands
of autoworkers and managers out of work, but it will be putting a lot of
lawyers to work, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. How many lawyers will end up working on
GM’s expected bankruptcy case still is not clear, but in legal
circles, some wonder if there will be enough experienced bankruptcy
lawyers available to handle the filing. In part, that is because so many
top lawyers are already running up lots of billable hours working on the
Chrysler bankruptcy case, while others have been hired by the
government, which is financing the way through bankruptcy for Chrysler
and, presumably, GM. Because of its size and scope, a GM bankruptcy
would be the most complicated that any American company has gone through
— more complex than those of Chrysler and Lehman Brothers.
href='http://www.nytimes.com/2009/05/26/business/26auto.html?_r=1&ref=business&pagewanted=print'>Read
more.
Was Shut Down for Not Buying Cars
Chrysler LLC pressured dealers to buy cars in the
months before filing for bankruptcy, and a Florida dealer claims it is
losing its franchise because it refused, Bloomberg News reported today.
Jim Boast Dodge Inc. of Bradenton asked a New York judge in a May 23
filing to block Chrysler’s attempt to terminate its franchise
agreement with the dealership, saying that the automaker is breaking
Florida law and doesn’t have a reasonable business case for the
decision. Between January and March, Chrysler urged U.S. dealers to buy
extra cars to convince the U.S. government of the company’s
viability and avoid bankruptcy, Boast said in the filing. On May 14,
Chrysler asked the judge to cancel 789 car dealership agreements,
including Jim Boast’s, who said the dealership bought four
vehicles instead of the 60 it was expected to order. A group of 300
Chrysler dealers has also sought to delay the sale of the
automaker’s assets, saying they need more time to fight the
cancellation of their franchise agreements. A hearing is scheduled June
3 in New York.
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=aymkIFXR1NXg&refer=news'>Read
more.
International Jurisdiction
Issues Arise in Lehman Proceedings
As administrators for Lehman's U.S. estate plan to ask
a federal judge today to approve an international framework for
coordinating the bankruptcy proceedings, administrators
representing Lehman's main European arm in the U.K. are balking at the
agreement, saying they are governed by local rules and the interests of
their own creditors, the
face='Times






New
Roman'
size='3'>Wall Street Journal reported today.
The stalemate is significant because Lehman's U.K. estate held about a
third of the firm's roughly $630 billion in assets before it filed for
bankruptcy. The London-based estate also holds data essential to
insolvency proceedings among other smaller European subsidiaries. Since
the U.S.'s fourth-largest investment bank filed for chapter 11 in
September, nearly 80 Lehman subsidiaries worldwide have folded in more
than a dozen countries and legal jurisdictions.
href='http://online.wsj.com/article/SB124329868153552955.html#mod=testMod'>Read
more. (Subscription required.)
Localities Want U.S.
Government to Support Muni Bonds
More states and municipalities are looking to the
federal government for financial relief in the form of Troubled Asset
Relief Program funds to assist with short-term borrowing, the
size='3'>New York Times reported today.
California is asking that money from the Treasury’s TARP be used
to help back more than $13 billion in short-term borrowings. Members of
Congress and several municipalities also want bailout money to be used
to cover more than $1 billion in losses from investments by
municipalities in debt issued by bankrupt Lehman Brothers. House
Financial Services Committee Chairman Barney Frank (D-Mass.) is drafting
legislation that would have the Federal Reserve, and potentially the
Treasury’s bailout money as well, stand behind floating-rate
municipal bonds — a $400 billion market that provides short-term
financing to municipalities, but which has been largely frozen in the
current credit crisis. Another measure drafted by Frank would create a
public finance office within the Treasury Department to reinsure $50
billion in municipal bonds.
href='http://www.nytimes.com/2009/05/26/business/26muni.html?ref=business&pagewanted=print'>Read
more.
Justice Department Cracks
Down on Corporate Bribes
The Justice Department is increasing its prosecutions
of alleged acts of foreign bribery by U.S. corporations, forcing them to
take costly steps to defend against scrutiny, the
face='Times New Roman'>Wall
Street Journal reported today. The crackdown
under the Foreign Corrupt Practices Act (FCPA), a post-Watergate law
largely dormant for decades, now extends across five continents and
penetrates entire industries, including energy and medical devices.
Among the companies currently under Justice Department review: Sun
Microsystems Inc. and Royal Dutch Shell PLC, according to the companies'
disclosures. At least 120 companies are under investigation, up from 100
at the end of last year, according to Mark Mendelsohn, a deputy chief in
the Justice Department division overseeing the prosecutions. The effort
began in the wake of a series of business scandals earlier this decade,
including the collapse of Enron, that stirred up a new corporate-reform
movement.
href='http://online.wsj.com/article/SB124329477230952689.html#mod=testMod'>Read
more. (Subscription required.)
Suit Maker Pushes for Asset
Sale
Bankrupt clothier Hartmarx Corp. has asked a judge to
approve the $85.5 million sale of substantially all of its assets to
private investment firm Emerisque Brands UK Ltd., on the heels of an
adversary suit brought by former licensing partner Perry Ellis
International Inc. alleging trademark infringement and unfair business
practices,
size='3'>Bankruptcy Law360 reported on Friday.
The buyers would also take on at least $33.5 million in liabilities, the
motion said. Hartmarx and 50 subsidiaries voluntarily filed for chapter
11 protection in January, citing the decline in discretionary apparel
purchases and the global credit crunch. The case is
face='Times



New
Roman'>
size='3'>In re Hartmarx Corp. et al., case
number 09-02046, in the U.S. Bankruptcy Court for the Northern District
of Illinois.
href='http://bankruptcy.law360.com/articles/102955'>Read
more. (Subscription required.)
Bankruptcy to Halt Nugget Lawsuit
Wendy’s International Inc. is hoping that
Pilgrim’s Pride Corp.’s bankruptcy case will halt a lawsuit
brought by a Pennsylvania woman who lacerated her mouth with a piece of
chicken cartilage while munching on Wendy’s chicken nuggets, Dow
Jones
size='3'>Daily Bankruptcy Review reported on
Friday. Attorneys for Wendy’s, a unit of
Wendy’s/Arby’s Group Inc., want a bankruptcy judge to halt
the lawsuit - even though the fast-food company is not in bankruptcy -
because Pilgrim’s Pride indemnified Wendy’s against
liabilities. The woman had filed suit last year against the restaurant
chain and Pilgrim’s Pride, the supplier of Wendy’s
all-white-meat Crispy Chicken Nuggets. “Because of the
indemnification claim by Wendy’s against (Pilgrim’s Pride)
and the role played by (Pilgrim’s Pride) in the underlying
incident,” the chicken processor would be required to participate
in legal actions and a possible trial if the suit goes forward,
Wendy’s attorneys said in court papers.
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