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August 11, 2009
Commentary: FHA Mortgage
Insurance Program Needs Improvement
As the Government National Mortgage Association
(Ginnie Mae) announced last week that it issued a monthly record of $43
billion in mortgage-backed securities in June, nearly nine of every 10
new mortgages in America now carry a federal taxpayer guarantee through
the Federal Housing Administration, Ginnie Mae, Fannie Mae and Freddie
Mac, according to a
face='Times New Roman' size='3'>Wall Street Journal
size='3'>editorial today. However, the FHA’s standard insurance
program today is notoriously lax, according to the editorial, as it
backs low downpayment loans, to buyers who often have below-average to
poor credit ratings, and with almost no oversight to protect against
fraud. On June 18, HUD’s Inspector General found that the
FHA’s default rate has grown to 7 percent, which is about double
the level considered safe and sound for lenders, and that 13 percent of
these loans are delinquent by more than 30 days. The FHA’s reserve
fund was found to have fallen in half, to 3 percent from 6.4 percent in
2007—meaning it now has a 33 to 1 leverage ratio. If housing
values continue to slide and 10 percent of FHA loans end up in default,
taxpayers will be on the hook for another $50 to $60 billion of mortgage
losses. The editorial advocates Congress eliminating the 100 percent
guarantee on FHA loans, so that lenders have a greater financial
incentive to ensure the soundness of the loan; adopt the private-sector
convention of a 10 percent down payment, which would reduce
foreclosures; and stop putting subprime loans on the federal balance
sheet that should have never been made in the first place.
href='http://online.wsj.com/article/SB10001424052970204908604574334662183078806.html'>Click
here to read the full editorial.
Maguire to Surrender
Buildings, Not Considering Bankruptcy
Maguire Properties Inc., the largest office landlord
in downtown Los Angeles, may relinquish control of seven Southern
California buildings with $1.06 billion of debt and said it’s not
planning on filing for bankruptcy, Bloomberg News reported yesterday.
The company told lenders “it will no longer continue to fund the
cash shortfall” on the mortgages for six properties. Two
properties are in default, and Maguire said that it already surrendered
one building to a lender. Maguire’s decision is a sign that
landlords in Southern California’s overleveraged office market can
no longer make payments and may be forced to abandon properties. Maguire
has been trying to sell buildings to pay debt incurred in 2007 when it
purchased properties from Blackstone Group LP. Loans against six
properties were split up into commercial mortgage-backed securities and
resold to investors.
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=ao8sd0ZascRo'>Read
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=ao8sd0ZascRo'>
CIT Says Bondholders
Don’t Intend to Push for Bankruptcy Filing
CIT Group Inc., the 101-year-old commercial lender
trying to avoid collapse, said that bondholders don’t plan to push
for a bankruptcy filing, Bloomberg News reported today. “The
company and a steering committee of the bondholder lending group do not
intend for the company to seek relief under the U.S. Bankruptcy Code,
but rather will pursue restructuring efforts as part of the
comprehensive restructuring plan to enhance the company’s
liquidity and capital position,” the New York-based lender said
today. CIT, which turned to bondholders for $3 billion in rescue
financing after failing to get a second government bailout, said last
month that it doesn’t have the money to repay securities maturing
Aug. 17 and may file for bankruptcy if it fails to get 90 percent
participation in its tender offer.
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=awFbHfrDB.Y8'>Read
more.
Southwest Ups Bid for
Frontier to $170 Million
Southwest Airlines Co. has submitted a binding cash
offer of more than $170 million for bankrupt Frontier Airlines Holdings
Inc., a nearly $60 million boost over its preliminary bid,
face='Times New Roman'>
size='3'>Bankruptcy Law360 reported yesterday.
Southwest intends to purchase about 80 percent of Frontier's existing
Airbus fleet — 40 aircraft — and all of feeder airline Lynx,
Southwest said yesterday. The bid vaults over Southwest's previous,
nonbinding $113.6 million offer, submitted in late July, and is well
above a binding $108.75 million bid from Republic Airways Holdings Inc.
Under the announced plan, Southwest would retire Frontier's Airbus fleet
and transition to Boeing 737s over a period of 24 months.
href='http://bankruptcy.law360.com/articles/115857'>Read
more. (Subscription required.)
U.S. Trustee Objects to
Thornburg Asset Sale Termination
U.S. Trustee
face='Times
New
Roman' size='3'>W. Clarkson McDow Jr.
size='3'>yesterday objected to Thornburg Mortgage
Inc.'s motion
to halt the sale process of mortgage auditor Adfitech Inc.,
face='Times New Roman'>
size='3'>Bankruptcy Law360 reported yesterday.
McDow protested the payment of almost $300,000 to HoulihanLokey, as well
as the release from liability sought by the debtors from
“potentially unidentified causes of action by unidentified
potential plaintiffs” related to the proposed termination of the
Adfitech sale process. Thornburg Mortgage filed its motion to terminate
the Adfitech sale process in July, saying that the Adfitech sale process
was “well under way” as of the filing of the chapter 11
petition, and that since the petition date, HoulihanLokey has continued
to actively market Adfitech for sale.
href='http://bankruptcy.law360.com/articles/115870'>Read
more. (Subscription required.)
IRS Wins Remand in Excise
Tax Fight with WorldCom
Modems used by bankrupt WorldCom Inc. in certain of
its telecommunications systems were two-way communications devices, a
district court judge has ruled, remanding to bankruptcy court a fight
over $38 million in tax payments for such systems,
face='Times New Roman'>
size='3'>Bankruptcy Law360 reported yesterday.
U.S. District Court Judge Barbara S. Jones issued the decision on
Friday, turning aside WorldCom's argument that the phone lines in
question were for incoming calls only and thus were not taxable under
the relevant federal statute. The ruling came almost two years after a
claim for excise tax proceeds made by the Internal Revenue Service in
connection with the systems was rejected in the U.S. Bankruptcy Court
for the Southern District of New York.
href='http://bankruptcy.law360.com/print_article/115731'>Read more.
(Subscription required.)
Judge Seeks More Data on
Bank of America-SEC Bonus Deal
A federal judge delayed a decision on whether to
approve a $33 million settlement of allegations that Bank of America
Corp. failed to disclose to investors that Merrill Lynch & Co.
agreed to pay billions of dollars in bonuses on the eve of their merger,
the
size='3'>Wall Street Journal reported today.
U.S. District Judge Jed S. Rakoff said yesterday he had 'continued
misgivings' about the settlement and wants more information about who
was responsible for the alleged wrongdoing, the basis for the settlement
itself and whether an evidentiary hearing should be held to weigh the
facts of the case. Lawyers for the bank and the SEC will simultaneously
file papers in response to the judge's request by Aug. 24 and then have
a chance to file response papers by Sept. 9.
href='http://online.wsj.com/article/SB124991998333919823.html'>Read
more. (Subscription required.)
PBGC Takes over Delphi
Pension Plans
Delphi Corp. signed over its pension plans to the
Pension Benefit Guaranty Corp., clearing the way for an immediate
takeover of the plans by the government's insurer, the
face='Times New Roman'>Detroit
News reported yesterday. The move
short-circuits an effort by many of Delphi's salaried retirees to fight
the takeover. On July 22, the PBGC filed six lawsuits Wednesday in U.S.
district courts across the country, seeking court permission to take
over the pension plans covering 70,000 retirees and employees of the
Troy, Mich.-based auto supplier. The PBGC withdrew its lawsuits and took
over the plans effective yesterday, and the agency said that it will be
at least six months before pension recipients find out how much less
they will receive.
href='http://www.detnews.com/article/20090810/AUTO01/908100393/1361/Govt.-insurer-PBGC-takes-over-Delphi-pension-plans'>Read
more.
Schools Get Active in
Student Loan Debate
Colleges and universities are stepping up opposition
to a House-backed plan to end a massive federal student loan program and
replace it with direct federal lending,
face='Times
New
Roman' size='3'>CongressDaily reported
yesterday. While advocates say the switch to direct lending from the
Federal Family Education Loan (FFEL) Program will be easy, 'nothing
could be further from the truth,' Sarah Bauder, financial aid director
at the University of Maryland at College Park, wrote in a letter to
lawmakers in July. A group of financial aid representatives from a
variety of universities issued a framework for maintaining FFEL. The
group warns about 'unintended consequences that come from basing reform
on current political pressures without sufficient consideration of what
best serves the interests of all stakeholders -- students, parents,
schools, and taxpayers.' Signing the letter were financial aid
administrators from 14 schools, including the University of Notre Dame
and the University of California at Los Angeles.
Tropicana Lenders Object
to Trademark Action
A fight has erupted between Tropicana Las Vegas Inc.
and a group of lenders regarding the casino's bid to file suit over the
rights to a trademark used to secure loans during Tropicana Las Vegas'
bankruptcy case,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. The LandCo debtors, which include Tropicana
Entertainment LLC's Las Vegas property, and the OpCo debtors —
which include all of Tropicana's property elsewhere in the U.S.,
including Atlantic City, N.J. — have moved to register the
trademark “The Trop Las Vegas | Est. 1957.” The bid drew an
objection from Tropicana Las Vegas, which argues that it should not have
to pay royalties to continue using the name that it has used for
decades. According to the casino, the debtors operated no casinos or
hotels in Las Vegas and their property was not established in 1957, and
it asked that the court grant it relief from the stay to pursue its
action.
href='http://bankruptcy.law360.com/print_article/115752'>Read
more. (Subscription required.)
Autos
Dealers Scramble to
Find Fuel-Efficient Cars
With the 'cash for clunkers' program generating more
than 245,000 vehicle sales in two weeks, car dealers intensified
pressure on automakers yesterday to ramp up production, the
face='Times New Roman'>Wall
Street Journal reported today. Dealers around
the country scrambled to find fuel-efficient vehicles that qualify for
the program to fill their lots. They also voiced concerns that the extra
$2 billion Congress approved for the plan last week won't last through
September.Chrysler Group LLC has added shifts and overtime at some of
its plants. General Motors Co. said that it is likely to increase
production, but hasn't made any decisions. Ford Motor Co. said that it
won't make any announcement until early September.More than $1.03
billion has already been paid out to cover the 245,384 vehicles
traded-in under the program designed to replace gas guzzlers with more
fuel-efficient vehicles, according to the U.S. Department of
Transportation. Another $2 billion is now being funneled into the
program, which is slated to run through November.
href='http://online.wsj.com/article/SB124994366663220753.html'>Read
more. (Subscription required.)
General Motors will begin selling new cars and trucks
on the auction Web site eBay in an attempt to regain some of its lost
market share in the United States, the
face='Times
New
Roman' size='3'>New York Times reported today.
The program is one way for consumers to receive discounts on cars
without dealing with the haggling often associated with buying cars
through dealerships. The partnership with eBay is also a crucial part of
GM’s effort to return to profitability after five years of heavy
losses and to remain the new-vehicle sales leader in the United States.
Unlike a typical eBay sale, vehicles will not be auctioned to the
highest bidder but rather listed at a “buy it now” price
equal to GM’s supplier price. Shoppers also can submit a lower
offer that the dealer can accept or reject.
href='http://www.nytimes.com/2009/08/11/business/11auto.html?ref=business&pagewanted=print'>Read
more.
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