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July 23, 2008
Lawmakers Reach Agreement on
Housing-Assistance Package
As the House of Representatives prepares to vote on the measure
today, congressional leaders have hammered out a compromise on the
housing package to permit the government to bolster Fannie Mae and
Freddie Mac in an emergency, overhaul supervision of the housing-finance
giants and allow the government to insure up to $300 billion in
refinanced mortgages, the Wall Street Journal reported today.
Despite repeated White House veto threats, lawmakers plan to include a
$4 billion program that would allow local governments to buy and
rehabilitate foreclosed properties. The bill is expected to easily pass
the House and will likely pass the Senate.
href='http://online.wsj.com/article/SB121672848030473401.html?mod=hps_us_whats_news'>Read
more. (Subscription required.)
Loan Rates Increase as Fannie Mae and
Freddie Mac Struggle
Mortgage rates are rising because of the troubles at loan finance giants
Fannie Mae and Freddie Mac, which threaten to deal another blow to the
struggling housing market, the New York Times reported today.
The average interest rate for 30-year fixed-rate mortgages rose to 6.71
percent yesterday from 6.44 percent on Friday, according to HSH
Associates, a publisher of consumer rates. The average rate for
so-called jumbo loans, which cannot be sold to Fannie Mae and Freddie
Mac, was 7.8 percent, the highest since December 2000. Bond investors,
worried that the companies may not be as big a support to the market as
they have been, are driving up interest rates on securities backed by
home loans. Worries about Fannie Mae and Freddie Mac have led to weaker
demand for these types of securities.
href='http://www.nytimes.com/2008/07/23/business/23rates.html?hp=&pagewanted=print'>Read
more.
Lender Liability Lawsuits
Increase
As lenders rush to curtail their real estate exposure and preserve
sorely needed capital, they are triggering lawsuits from builders that
say the banks have unfairly cut off their construction financing,
stopped their projects midstream and forced their companies to the brink
of bankruptcy, the Wall Street Journal reported today. The
clampdown on construction financing comes as banks face intense pressure
from regulators and shareholders to reduce their real estate exposure.
Regional and small banks have been reeling amid fears that they face
potentially crippling real estate-related losses. KeyCorp, a major
lender to homebuilders, yesterday reported a $1.13 billion loss, saying
its second-quarter results were 'adversely affected' by higher loan
losses related to its efforts to 'aggressively reduce its exposure to
the residential properties segment of its commercial real estate
construction loan portfolio.'
href='http://online.wsj.com/article/SB121675515709274459.html?mod=hpp_us_whats_news'>Read
more. (Subscription required.)
Commentary: The Culture of
Debt
The reactions to a story in Sunday's New York Times about a
consumer's spiral into indebtedness has erupted into a debate over who
is to blame: predatory lenders or the consumer's lack of responsibility
in taking out credit lines and accepting mortgage offers, according to a
commentary in yesterday's New York Times. Some
people blame the predatory lenders who seduced the consumer with
expansive credit lines and mortgage offers with little regard to whether
she could pay off her loans. Others point out that it was the consumer
who took the credit card offers, knowing that debt is a promise that has
to be kept. America once had a culture of thrift, but over the past
decades, that unspoken code has been silently eroded, according to the
commentary. After the Depression, a savings mentality set in to the
American public. After the dot-com bubble, a bit of sobriety hit Silicon
Valley; now it's the borrowers' and lenders' turn.
href='http://www.nytimes.com/2008/07/22/opinion/22brooks.html?scp=7&sq=bankruptcy&st=cse'>Click
here to read the full commentary.
SemGroup Files for Bankruptcy Amid
Margin Calls
SemGroup LP and 24 affiliates filed voluntary chapter 11 petitions
yesterday with plans to liquidate in order to pay back lenders one day
after a nondebtor, limited partnership affiliate of the privately held
energy company was hit with a securities class action over soured oil
investments, Bankruptcy Law360 reported. The debtors filed
their petitions along with first-day motions and a request for joint
administration in the U.S. Bankruptcy Court for the District of
Delaware, estimating both assets and liabilities of over $1 billion.
According to court filings, SemGroup and its affiliates defaulted on
their loans on July 16. Their roughly $3.1 billion in total debt
includes more than $2 billion in secured loans to lenders, including
Bank of America NA and General Electric Capital Corp., as well as almost
$600 million in unsecured senior notes. The company said in court
documents that recent over-the-counter and New York Mercantile Exchange
margin calls on futures and options securities, rising commodity prices
and the credit crunch helped push it and its affiliates into insolvency.
The case is In re Semcrude LP et al., case no.
08-11525, in the U.S. Bankruptcy Court for the District of
Delaware.
href='http://bankruptcy.law360.com/secure/ViewArticle.aspx?Id=63239'>Read
more. (Subscription required.)
Judge Approves Marcal
Settlement
Bankruptcy Judge Morris Stern approved a settlement
under which Marcal Paper Mills Inc.'s purchasers will pay the U.S.
government $1.5 million in a case relating to a Superfund site outside
Newark, N.J., in which the government had asked for $946 million,
Bankruptcy Law360 reported yesterday. The settlement concerns Marcal's
alleged pollution of an eight-mile section of the Passaic River in the
Diamond Alkali Superfund Site. Under the deal, Marcal's purchasers will
pay $1.5 million and also take steps to prevent any future release of,
and limit exposure to, hazardous substances at the facility, which would
change hands if the deal to buy substantially all of Marcal's assets
went through, according to Marcal.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=63372'>Read
more. (Subscription required.)
New York Attorney General Prepares to
File Suit Against UBS
New York State Attorney General Andrew Cuomo is making preparations to
file civil securities-fraud charges against UBS AG, possibly as early as
this week -- the first of several cases that could grow out of New
York's investigations into the auction-rate-securities market, the
Wall Street Journal reported today. State securities regulators
in Massachusetts have already filed charges against UBS. Because UBS's
trading operations for auction-rate securities are based in New York,
the Cuomo lawsuit could seek a broad resolution for UBS auction-rate
clients nationwide. That could entail a settlement that would let
customers cash in at face value securities that for months have been
illiquid. UBS clients hold roughly $25 billion worth of these
instruments.
href='http://online.wsj.com/article/SB121677389287975701.html?mod=us_business_whats_news'>Read
more.
Airlines
FedEx Asks Court to Lift
Litigation Stay in ATA Case
Less than two months after bankrupt ATA Airlines filed a lawsuit
accusing FedEx Inc. of yanking the contract that was keeping the carrier
afloat, FedEx has asked a judge to allow it to file a lawsuit of its
own, Bankruptcy Law360 reported yesterday. In a motion filed on July 18,
FedEx said that it intends to file a suit against ATA as a counterclaim
in a breach-of-contract suit filed earlier this year by ATA. ATA filed
its $180 million suit in June, claiming FedEx's decision to switch
its military passenger business to Northwest Airlines
“killed” ATA. The case is ATA Airlines Inc.,
case number 08-03675 in the U.S. Bankruptcy Court for the Southern
District of Indiana.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=63374'>Read
more. (Subscription required.)
Airlines Plan Steeper Spending
Cuts amid Losses
United Airlines and US Airways said yesterday that they would cut
even more deeply into their flying during the fourth quarter, while
JetBlue Airways said it would defer more aircraft deliveries, steps the
carriers attributed to record prices for jet fuel, the New York
Times reported today. Domestic airlines have been hit hard by
record fuel prices, which are up 93.7 percent in North America compared
with a year ago. The airlines have cut flights, grounded planes, raised
prices and imposed fees for features that used to be free, like checking
bags. United, the second-biggest domestic carrier behind American, said
yesterday that it would cut its capacity by 11 percent in the fourth
quarter, including a 16 percent cut in domestic flying and a 7 percent
reduction in international flights. US Airways said it would reduce
flights by 4 percent this year, up 1 percent from its previous
announcement, and by 6 percent in 2009, up 2 percent.
href='http://www.nytimes.com/2008/07/23/business/23air.html?ref=business&pagewanted=print'>Read
more.
Head of Mortgage Bankers Association
Steps Down
The Mortgage Bankers Association (MBA) yesterday announced that its
president and CEO for the past seven years, Jonathan Kempner, will leave
at the end of the year and be replaced by John Courson, a former MBA
chairman who chairs the California Housing Finance Agency,
CongressDaily reported today. The group has played a major role
in advocating for overhaul of the Federal Housing Administration, which
provides mortgage insurance to borrowers but has lost market share in
recent years to subprime lenders.