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February 11,
2008
Mortgage
Lending
name='1'>Mortgage Brokers Starting to Feel More Heat from
Congress
Mortgage brokers face
their biggest challenge in coming months as the Senate begins work on
legislation to curb predatory lending,
size='3'>CongressDaily reported today. Senate
Banking Chairman
size='3'>Chris Dodd (D-Mass.) and
Sen. Charles Schumer (D-N.Y.) have fingered mortgage brokers as a
primary culprit of the crisis, noting that while the industry was
responsible for originating as much as 70 percent of subprime loans in
recent years, it had little oversight from state regulators and
contributed to a marketplace that allowed as many as 2 million borrowers
to be placed into loans they could not afford to repay. In two separate
hearings in the past year, Dodd and Schumer have both lambasted the
brokers for their policy views. They have also sponsored anti-predatory
lending legislation that would place some major constraints on the
brokers, such as requiring them to have fiduciary responsibility for
their customers and banning YSPs on all loans with limited
exceptions.
name='2'>Commentary: Bankruptcy Reform Needed to Assist Struggling
Homeowners
Though the Bush
administration is asking Congress for more time to show results through
Hope Now, lawmakers should not wait to pass such legislation as amending
the bankruptcy law to allow defaulting borrowers to modify the terms of
their mortgages under court protection, according to an editorial in
today’s New York
Times. In December, with no end to the housing
bust in sight, the administration championed a five-year interest-rate
freeze starting in 2008. It is intended for many subprime borrowers
whose payments would otherwise rise sharply as the plan would
voluntarily implement the freeze and other loan relief. Broad-based loan
modifications are a good idea, but the plan is flawed in its scope as it
is voluntary, and an estimated 3.5 million loan defaults are expected
between now and mid-2010. According to several analyses, only an
estimated 250,000 borrowers are likely to benefit from the plan’s
interest-rate freeze.
href='http://www.nytimes.com/2008/02/11/opinion/11mon1.html?sq=bankruptcy&st=nyt&scp=2&pagewanted=print'>Read
more.
name='3'>Commentary: The Rise of the Mortgage
'Walkers'
Fitch Ratings, while
telling investors recently to expect additional 'widespread and
significant downgrades' on $139 billion worth of subprime loans, has
cited that more borrowers are now willing to walk away from their
mortgage debt as another factor in downgrades on the loans, according to
a commentary in Friday’s
size='3'>Wall Street Journal. 'The apparent
willingness of borrowers to 'walk away' from mortgage debt,' the
analysts noted, 'has contributed to extraordinary high levels of early
default' on loans issued during the 18 months before the mortgage bubble
burst. It expects losses to reach 21 percent of initial loan balances
for subprime mortgages issued in 2006 and 26 percent for those issued in
early 2007. While mortgage fraud has abounded in recent years, voluntary
foreclosures are not by themselves evidence of a newfound
irresponsibility on Americans' part. Until recently, mass-scale
voluntary foreclosures were unthinkable, but markets have changed and
people are changing their behavior in response.
href='http://online.wsj.com/article_print/SB120268395452257363.html'>Read
more. (Registration required.)
name='4'>Potential New SEC Rules to Focus on Bond
Ratings
The Securities and
Exchange Commission may soon propose rules that require credit-ratings
firms to disclose the accuracy of past ratings and
distinguish among various products they rate, the first indication
as to how the industry might be regulated in the wake of the subprime
crisis, the Wall Street
Journal reported on Saturday. SEC
Chairman
size='3'>Chris
that the potential rules 'would require credit-rating agencies to make
disclosures surrounding past ratings in a format that would improve the
comparability of track records and promote competitive assessments of
the accuracy of past ratings.' The SEC is in the midst of a broad review
of policies and procedures used by the biggest credit-rating firms amid
concern about the role they played in buoying the market for residential
mortgage-backed investments. SEC officials said the agency's early
reviews of credit-rating firms and investment banks also reveal that
some firms used poor assumptions about high-risk mortgage debt in
establishing their ratings, while some Wall Street investment banks had
poor risk controls.
href='http://online.wsj.com/article_print/SB120251556279155211.html'>Read
more. (Registration required.)
In related news, the
House Financial Capital Markets Subcommittee will hold a hearing on
Thursday examining the bond insurance industry and its effect on the
marketplace and the fiscal health of municipalities,
face='Times New Roman' size='3'>CongressDaily
size='3'>reported today. Capital Markets Subcommittee Chairman
Paul Kanjorski (D-Pa.) will use the
hearing to explore whether oversight of the sector is
adequate.
Rate Cuts Bring No Relief for Consumers' Credit Card
Bills
The Federal Reserve's
dramatic rate cuts were expected to make it cheaper for consumers to use
credit cards, but credit card interest rates remain high and in many
cases have even climbed, the
size='3'>Washington Post reported today.
Bruised by the rise in foreclosures, banks have been reluctant to lower
rates for cardholders who have missed payments or had their credit
scores slip, analysts and industry watchdogs said. Yet even some
cardholders who pay on time have not benefited from the Federal
Reserve's recent actions, as banks raise rates and fees to make up for
losses in their mortgage departments, analysts said. Rep. Carolyn B.
Maloney (D-N.Y.), chairman of the House financial institutions and
consumer credit subcommittee, introduced on Thursday the Credit
Cardholders' Bill of Rights Act of 2008, which would, among other
things, restrict fees and rate changes that companies could impose. Sen.
Carl M. Levin (D-Mich.), chairman of the Permanent Subcommittee on
Investigations, has proposed a similar bill and said that Congress will
keep an eye on how card issuers react to the changes in the federal
funds rate, which the Fed controls.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/02/10/AR2008021002537_pf.html'>Read
more.
New
Hitches in Markets May Widen Credit Woes
A widening array of
financial-market problems threatens to trigger a new phase in the global
credit crunch, extending it beyond the risky mortgages that have cost
banks and investors more than $100 billion in losses and helped push
the
face='Times New Roman'
size='3'>U.S.
size='3'>economy toward recession, the
size='3'>Wall Street Journal reported today.
In the past few days, low-rated corporate loans -- the kind that fueled
the buyout boom of recent years -- have plummeted in value. As a result,
banks are expected to try to unload some of those loans this week at
fire-sale prices. Over the weekend, the world's top banking authorities
warned that the U.S.-led economic slowdown and continued uncertainty
about securities could lead banks to further reduce their lending, and
choke off economic activity.
href='http://online.wsj.com/article_print/SB120269228578457765.html'>Read
more. (Registration required.)
name='7'>Asarco Receives Extension to File Reorganization
Plan
Asarco LLC won two more
months to file its chapter 11 plan, despite objections from a hedge fund
that has sought to buy the copper-mining company and argues it is
unnecessarily delaying its exit from bankruptcy, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. Judge Richard Schmidt of U.S. Bankruptcy Court
on Friday granted the company until April 11 to file its chapter 11
plan. He rejected a request from Harbinger Capital Partners, the hedge
fund, that the company be denied further extensions.
IRS
Examining Whether Executive Stock Deal Is Tax Abuse
A strategy that corporate
executives routinely use to turn their stockholdings into cash while
delaying payment of taxes is coming under increased scrutiny by the
Internal Revenue Service, the
size='3'>New York Times reported today. The
agency, in a technical paper issued last week, said the strategy, which
has the goal of deferring the payment of federal income tax for many
years, might have some features of a questionable tax
shelter. While the IRS stopped short of
labeling the strategy an abusive tax shelter, it instructed its field
agents, appeals officers, examiners and lawyers to pay close attention
to the returns of wealthy people who use it. It also said that if it
found tax violations, it would consider levying the same hefty penalties
that now apply to buyers of abusive shelters.
href='http://www.nytimes.com/2008/02/11/business/11tax.html?ref=business&pagewanted=print'>Read
more.
name='9'>Chrysler Looks to Cut Number of Vehicle Offerings as Part
of Turnaround Plan
Chrysler LLC is laying
out a turnaround plan based on offering a smaller number of models over
the next three years or so, the
size='3'>Wall Street Journal reported today.
The automaker said that it plans to drop as many as half of the roughly
30 models it now produces, a move likely to cut sales at least for a
while. Along the way, it expects a substantial consolidation in its
network of 3,600 dealers. Chrysler's move marks a shift away from the
American auto industry's efforts to improve through economies of scale.
For almost a century, automakers have been fixated on building greater
economies of scale. The notion that bigger is better has driven each
of
size='3'>Detroit's Big
Three automakers and most of their rivals for decades. However, the new
management team at Chrysler and its advisers at private-equity firm
Cerberus Capital Management LP, its majority owner, are convinced that
the old rules of the industry no longer apply.
href='http://online.wsj.com/article_print/SB120261236034856759.html'>Read
more. (Registration required.)
name='10'>Delta, Northwest Focus on Joint Pilot
Contract
Executives at Delta Air
Lines Inc. and Northwest Airlines Corp. are trying to build a common
labor contract for the 11,000 pilots employed by both airlines
before they complete a merger deal, the Wall Street
Journal reported on Saturday. The
negotiations, considered essential for the smooth integration of those
key labor groups, center on organizing a fair way of forming a unified,
seniority-based roster. Without a prior agreement, talks with those
pilots, represented by the Air Line Pilots Association, are tasks that
could take years of bargaining to accomplish. Delta and Northwest want
to quickly achieve the synergies that would flow from a merger and avoid
a messy, protracted labor wrangle that could arise if they wait to get
pilots' agreements after a merger is announced or
consummated.
href='http://online.wsj.com/article_print/SB120252180027355813.html'>Read
more. (Registration required.)
href='http://online.wsj.com/article_print/SB120252180027355813.html'>
href='http://www.nytimes.com/2008/02/08/business/08ratings.html?_r=1&oref=slogin&ref=business&pagewanted=print'>