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April 15, 2010
Defaults Rise in Loan Modification Program
The number of homeowners who defaulted on their mortgages even after
securing cheaper terms through the government's modification program
nearly doubled in March, the New York Times reported today. Data
released yesterday by the Treasury Department and the Housing and Urban
Development Department showed that 2,879 modified loans had been ended
since the program's inception in the fall, up from 1,499 in February and
1,005 in January. The Treasury Department said that it could not explain
the growing number of what it called cancellations, almost all of which
were apparently prompted by the borrower's being unable to make the new
payment. About seven million households are behind on their mortgage
payments.
href='http://www.nytimes.com/2010/04/15/business/15mortgages.html?ref=business&pagewanted=print'>Read
more.
In related news, JPMorgan Chase and Wells Fargo issued a rebuff to
the Obama administration on Tuesday by drawing a line in the sand on
cutting the mortgage balances of beleaguered homeowners, saying that the
tool would be applied sparingly, the New York Times reported
yesterday. The idea of reducing loan principals last month became a
centerpiece of the administration's efforts to help seven million
households threatened with foreclosure. But an official at one of the
banks, David Lowman of JPMorgan Chase, said that principal reduction
could reward households for consuming more than they could afford, might
punish future homeowners by raising the cost of borrowing and in any
case was simply unworkable. Lowman's comments were briefly echoed by an
executive from Wells Fargo.
href='http://www.nytimes.com/2010/04/14/business/14mortgage.html?src=me&ref=business'>Read
more.
Bankruptcy Judge Barbara J. Houser on April 9 dismissed
Pro-Health LLC's bankruptcy case after the potato processor raised $20
million to refinance its outstanding debt, the Deal Pipeline
reported yesterday. Pro-Health will use the new financing from Rabo
Agrifinance Inc. to refinance outstanding debt owed to secured lender
Farm Credit Services of America and for working capital. The financing
was contingent on Pro-Health's chapter 11 case being dismissed. Without
offering specific recovery estimates, Pro-Health said that if its case
were dismissed, the Carrollton, Texas-based company would pay all of its
secured creditors 'according to terms that existed prepetition' and pay
down general unsecured claims in full.
href='http://pipeline.thedeal.com/tdd/ViewArticle.dl?id=10005414828'>Read
more. (Subscription required.)
Lehman Examiner Cleared to Release Full
Report
Bankruptcy Judge James Peck yesterday said that the
court-appointed examiner of Lehman Brothers Holdings Inc. could release
his report to the public in full, including all supporting documents,
Retuers reported today. Judge Peck overruled an objection from CME Group
Inc., parent of the Chicago Mercantile Exchange, which sought to keep
some information about bids in an auction of Lehman's futures holdings
secret.CME Group, with the support of the futures industry, had sought
to keep confidential information about buyers of Lehman's former futures
and options positions in a special auction conducted by CME in the midst
of Lehman's 2008 collapse. Following a more than year-long
investigation, Lehman's examiner Anton Valukas released an initial
version of the report on March 11, which revealed that certain
accounting gimmicks may have led to the investment bank's
collapse.
href='http://www.reuters.com/article/idUSN1413857420100414?type=marketsNews'>Read
more.
In related news, Lehman Brothers Holdings Inc. is suing the federal
government to recover $110.3 million in income taxes and penalties that
it says it overpaid, Dow Jones Daily Bankruptcy
Review reported today. In the lawsuit filed on Tuesday, Lehman
said that it is entitled to the refund, plus interest, because it says
the Internal Revenue Service wrongly revoked more than $140 million in
tax credits and imposed more than $18 million in tax penalties for the
1999 and 2000 tax years. The tax credits stem from the operations of
Lehman's U.S. and U.K. broker-dealer units. The U.K. unit often borrowed
stock from the U.S. unit to satisfy the demands of its customers, which
allowed the U.S. unit to receive payments from the U.K. unit when
issuers of the borrowed stock paid dividends to shareholders. The U.S.
unit incurred U.K. taxes with respect to those payments, allowing it to
claim foreign tax credits on the tax returns that Lehman filed for
itself and its subsidiaries, including the U.S. unit. As a result,
Lehman claimed $141.4 million in tax credits - $45.9 million for the
1999 tax year and $95.5 million in 2000.
Obama Calls Together Congressional Leaders
in Push for New Financial Regulation
The battle over reshaping the country's financial regulation
escalated on several fronts yesterday, with President Obama stepping up
his personal efforts to win Senate passage of an ambitious bill while
senators from both parties fought to claim the anti-Wall Street mantle,
the Washington Post reported yesterday. After a White House
meeting between Obama and congressional leaders, Republican leaders
criticized the Democrats' proposal for leaving the door open to future
bailouts of big financial firms. The president, however, said that he
was confident that a bipartisan bill could be worked out to ensure that
the economy is protected from the collapse of large financial companies.
Taking center stage in the fight over the legislation are exotic
financial instruments known as derivatives. Senate Agricultural
Committee Chair Blanche Lincoln (D-Ark.) is advocating new rules that
would force the nation's largest banks to stop trading nearly all kinds
of derivatives -- a move that would dramatically reshape several
critical markets and deprive the firms of a major source of revenue.
Under Lincoln's plan, as described by her aides, the companies would
have to spin off that activity if they wanted to remain banks. Read
more.
Federal Reserve Eyes 'Amend and Pretend'
Loans
The Federal Reserve is taking aim at a banking practice known as
'amend and pretend,' the strategy referred to by bankers of extending or
restructuring failing loans that are likely to eventually fail anyway,
usually to delay the reckoning of hefty losses, the Wall Street
Journal reported today. Of the Fed's public-enforcement actions
against banks this year, more than a third, or 22, include provisions
that strictly limit the banks' ability to change loan terms for troubled
borrowers without first getting approval from the banks' boards of
directors. The regulatory agreements also note the Fed's specific
concerns about restructured loans to bank insiders.
title='Read more.'
href='http://online.wsj.com/article/SB10001424052702303348504575184511530359620.html?mod=WSJ_Markets_LEFTTopNews'>Read
more. (Subscription required.)
Groups Seek to Challenge Spansion with
Rival Chapter 11 Plan
Investors and shareholders of Spansion Inc. are asking a bankruptcy
court for permission to file a rival reorganization proposal they say is
far superior to the 'contentious and inequitable plan' the company saw
denied by a judge earlier this month, Dow Jones Daily Bankruptcy
Review reported today. After succeeding in their quest to block the
confirmation of Spansion's initial chapter 11 plan, two groups of
convertible-noteholders and equityholders are hoping to take the reins
in the computer-chip maker's case and guide the company toward an
'expeditious' exit from bankruptcy. Under their plan, certain
convertible-noteholders would fund a full repayment of the company's
senior notes, effectively stepping into those noteholders' shoes,
according to papers filed with the U.S. Bankruptcy Court in Wilmington,
Del. The approach would avoid 'granting the senior noteholders a
windfall at the expense of the convert holders,' the creditors said.
Orleans Homebuilders Reach Sale
Agreement
Just 45 days into chapter 11, Orleans Homebuilders Inc. said
yesterday that it had executed an agreement valued at $170 million with
NVR Inc. for the purchase of what the company called 'substantially all'
of Orleans' assets, the Philadelphia Inquirer reported today. In
the 60-page motion, Orleans said NVR agreed to pay $17 million, or 10
percent of the purchase price as earnest money - half of which is now in
escrow. In announcing the agreement and the motion, which awaits
approval by Bankruptcy Judge Patrick J. Walsh, Orleans emphasized
that NVR was not the buyer involved in the nonbinding letter of intent
its 17-lender consortium had rejected in February.
title='Read more'
href='http://www.philly.com/inquirer/breaking/business_breaking/90844079.html'>Read
more.
Body Armor Maker Point Blank Files for
Bankruptcy
Point Blank Solutions Inc., a maker of body armor for the U.S. Army,
filed for bankruptcy yesterday due partly to legal costs associated with
a former chief executive who was indicted for fraud, Reuters reported
yesterday. The former CEO, David Brooks, was listed as the company's
largest shareholder, with a 22.6 percent stake. Brooks was indicted for
fraud and related crimes and is currently on trial in New York. The
company has also been investigated by the Securities and Exchange
Commission, is the subject of a shareholder lawsuit, and spends about
$600,000 a month on legal fees, according to court documents. The
Pompano Beach, Fla.-based company supplies more than 80 percent of the
U.S. military's soft body armor vest requirements, according to court
documents. The company said it had $68 million of assets and $72 million
of liabilities, as of Dec. 31.
href='http://www.reuters.com/article/idUSN1417317920100414'>Read
more.
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