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July 21, 2008
Americans Dig Deeper Into
Debt
Years of spending more than they earn have left a record number of
Americans standing at the edge of financial distress as the debt they
have amassed continues to grow because of high interest rates and fees,
according to a feature in yesterday's New York Times. While the
circumstances surrounding each individual's financial downfall vary, one
element is identical: the lucrative lending practices of America's
merchants of debt have led millions of Americans - young and old, native
and immigrant, affluent and poor - to the brink. While the increased
availability of credit has contributed mightily to the American economy
and has allowed consumers to make big-ticket purchases like homes, cars
and college educations, the increase in consumer debt is a major shift
in the way lenders approach their business. In earlier years, actually
being repaid by borrowers was crucial to lenders. Now, because so much
consumer debt is packaged into securities and sold to investors,
repayment of the loans takes on less importance to those lenders than
the fees and charges generated.
href='http://www.nytimes.com/2008/07/20/business/20debt.html?sq=bankruptcy&st=cse&scp=2&pagewanted=print'>Read
more. (Note: This is the first in a series of feature articles in
the New York Times looking at the issue of consumer debt).
New Regulator in Housing-Rescue Plan
Spurs Debate
Some experts are concerned that provisions in the current
housing-assistance legislation creating a new regulatory agency to
oversee the activities of Fannie Mae and Freddie Mac do not go far
enough to ensure that the new regulator would limit the risk the two
companies pose to the country's financial system, the New York
Times reported today. Under the measure, Congress would lose some
of its authority to oversee Fannie Mae and Freddie Mac, including the
right to determine how much capital they must keep as a cushion against
losses. That role would shift to the new regulator, which would be
called the Federal Housing Finance Agency; the director of the agency
would be appointed by the president and confirmed by the Senate. Critics
say that the measure tilts in favor of the companies, even as it tries
to strike a balance between promoting affordable housing - a primary
mission of the government-sponsored mortgage giants - and setting limits
on them to diminish the risks they pose to the world financial system. A
new regulator, they say, would have significant new powers, but still
less than bank regulators currently have.
href='http://www.nytimes.com/2008/07/21/washington/21fannie.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
Paulson Reassures on Banks, Warns of
More Tough Times
Treasury Secretary Henry M. Paulson Jr. yesterday sought to reassure an
anxious public that the banking system is sound, while also bracing
people for more troubled times ahead, the Associated Press reported.
Paulson said that the number of troubled banks will increase as they
struggle to cope with big losses on bad mortgages. The government this
month took over IndyMac Bancorp after a run led it to become the largest
regulated thrift to fail. 'Of course the list is going to grow longer
given the stresses we have in the marketplace, given the housing
correction,” Paulson said. “But again, it's a safe banking
system, a sound banking system. Our regulators are on top of it.'
Paulson said that he hoped Congress would quickly approve his plan to
help shore up Fannie Mae and Freddie Mac, the government-sponsored
mortgage companies. The House plans to vote Wednesday on a housing bill
that is expected to include a rescue for Fannie Mae and Freddie Mac,
whose shares have plummeted. The two companies hold or guarantee more
than $5 trillion in home loans -- almost half of the nation's
total.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/07/20/AR2008072001603_pf.html'>Read
more.
Businesses Feel Pinch of Tighter
Lending
With the credit crunch on Wall Street entering its second year, a
widening array of businesses are finding it tough to get credit, the
Wall Street Journal reported today. One company feeling the
strain is Chrysler Financial, the financing arm of the Big Three auto
maker that was carved out of the former DaimlerChrysler AG last year.
The Chrysler LLC unit has $30 billion of short-term debt due to mature
in early August, and bankers, led by J.P. Morgan Chase & Co., are
pushing hard to get that debt renewed. Banks are also pulling back on
the amount of rainy-day money they have been giving out to corporate
clients in the form of revolving-credit facilities. Retailers such as
Sears Holdings Corp. and Talbots Inc. have struggled to renew
revolving-credit facilities with their bankers in recent months. Other
companies, including Wal-Mart Stores Inc., AT&T Inc. and American
International Group Inc., have had to agree to tougher terms on such
credit.
href='http://online.wsj.com/article/SB121661033011869601.html?mod=hpp_us_whats_news'>Read
more. (Subscription required.)
Democrats Discussing Second Economic
Stimulus Package Worth $50 Billion
Democrats, who have been calling for a second stimulus plan for weeks,
are now floating a sum of $50 billion as a figure for the potential
package, CongressDaily reported on Friday. Sen. Barack Obama
(D-Ill.) underscored his support for such a plan, as well as an
expansion of low-interest loans to struggling U.S. automakers. Ideas for
the package include funding for infrastructure, more tax rebates for the
middle class, increased food stamp benefits, low-income assistance for
the purchase of home heating oil, another extension of unemployment
benefits and increased aid to states for Medicaid. House Speaker Nancy
Pelosi (D-Calif.) did not provide any details about the timing of House
consideration.
Mortgages
House Committee Hearing to Focus
on Mortgage Servicing Practices and Foreclosure
Mitigation
The House Financial Services Committee scheduled a hearing on Friday,
July 25, entitled “A Review of Mortgage Servicing Practices and
Foreclosure Mitigation.” The hearing will take place at 10 a.m. ET
in room 2128 of the Rayburn House Office Building. Witnesses to be
announced.
North Carolina Passes Bill to Help
Troubled Mortgages Avert Foreclosure
North Carolina lawmakers have approved a bill that would give the state
commissioner of banks the power to step in when homes with subprime
mortgages are facing foreclosure, the Business Journal of the
Greater Triad Area (N.C.) reported on Friday. The bill requires
mortgage servicers to give at least 45 days notice before they start
foreclosure proceedings on subprime loans. Notice also must be filed
with the state commissioner of banks, who will review individual loans
to determine whether they can somehow avoid foreclosure. The
commissioner will have the right to extend by 30 days the date on which
lenders can start foreclosure proceedings. The state banking office then
will work with borrowers and servicers to work out a deal.
href='http://www.bizjournals.com/triad/stories/2008/07/14/daily54.html'>Read
more.
Discovery Order Issued in HomeBanc
Chapter 11 Case
Bankruptcy Judge Kevin J. Carey ruled on July 16
that HomeBanc Mortgage Corp. must turn over e-mails as part of discovery
in a dispute with participants in its deferred compensation plan,
Bankruptcy Law360 reported on Friday. Judge Carey granted
participants of the deferred compensation plan permission to conduct
e-mail discovery of HomeBanc in their objection to the bankrupt mortgage
company's motion to transfer assets of the compensation plan from a
trust to the estates of HomeBanc and its subsidiaries. The order grants
the committee's motion to compel discovery of e-mails of specific
individuals who allegedly possess knowledge and information about the
debtors' deferred compensation plan or relate to eligibility to
participate in the plan.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=62918'>Read
more. (Subscription required.)
FDIC Faces Questions on Mortgage
Originations after Running Failed Bank in 2001
After the Federal Deposit Insurance Corp. (FDIC) seized failing national
subprime lender Superior Bank FSB in 2001, the government agency
continued to run the bank's subprime-mortgage business for months rather
than immediately shuttering or selling Superior, the Wall Street
Journal reported today. With FDIC personnel supervising day-to-day
operations, Superior funded more than 6,700 new subprime loans worth
more than $550 million, according to federal mortgage data. The FDIC
then sold a big chunk of the loans to another bank that included a loan
pool afflicted by the same problems for which regulators have faulted
the industry: lending to unqualified borrowers, inflated appraisals and
poor verification of borrowers' incomes. While the problems in the
subprime lending industry hadn't yet emerged as a national crisis
at the time the FDIC was running Superior, some lending experts at the
time were already faulting industry practices and warning about rising
delinquencies. This month, the FDIC took control of IndyMac Bank, a
major lender that specialized in higher risk loans, after it failed. The
FDIC intends to keep IndyMac open, as it did with Superior, but it
doesn't plan to originate any new mortgages.
href='http://online.wsj.com/article/SB121641296022866029.html?mod=hpp_us_whats_news'>Read
more. (Subscription required.)
LandSource Strikes New Deal for $1.2
Billion DIP Financing
LandSource Communities Development LLC reached an agreement Friday with
its creditors on a debtor-in-possession (DIP) financing deal worth over
$1 billion, Bankruptcy Law360 reported. The company requested
court approval of a new facility that will allow it to borrow as much as
$1.185 billion from a group of lenders headed by Barclays Bank Plc and
Marathon Special Opportunity Fund LP. While the previous DIP financing
was secured by all of LandSource's assets, unsecured creditors will now
have the right to recover against certain assets that were unencumbered
before the bankruptcy. The new deal also contains carve-out provisions
meant to protect trade creditors against potential defaults.
href='http://bankruptcy.law360.com/Secure/printview.aspx?id=62886'>Read
more. (Subscription required.)
Chapter 7 Trustee Objects to Fees in
Pope & Talbot Case
The chapter 7 trustee for Pope & Talbot Inc. objected to
final fee requests of more than $11 million by professionals who worked
on the bankruptcy case for the lumber and pulp maker while it was in
chapter 11, Bankruptcy Law360 reported on Friday. Chapter 7
Trustee George L. Miller's motion and omnibus
objection, filed Thursday in the U.S. Bankruptcy Court for the District
of Delaware, asks the court to establish a deadline for filing and
objecting to final fee applications, as well as to set a hearing date to
consider such fee requests. The chapter 11 cases for Pope & Talbot
and its affiliates were converted to chapter 7 in May after the debtors'
post-petition lenders were unwilling to extend post-petition secured
financing, according to court papers.
href='http://bankruptcy.law360.com/Secure/printview.aspx?id=62968'>Read
more. (Subscription required.)
Waivers Limiting Workers' Time to
Sue Draws Fire
A growing number of employers are adding an item to their job
applications that is stirring workplace controversy and litigation: a
waiver that says employees can sue the company only within six months of
a particular incident, the National Law Journal reported today.
The provision waives employees' rights to any contrary statute of
limitations provided under state and federal laws. While management-side
lawyers see the waivers as a good tool to help employers better manage
lawsuits in a more predictable fashion and ward off more claims by
giving people less time to sue, the tactic has employee-rights attorneys
href='http://www.law.com/jsp/law/LawArticleFriendly.jsp?id=1202423120865'>Read
more.
Jet Fuel Costs Push Midwest Air to
End Flights to 11 Cities
The Midwest Air Group will cut daily flights to 11 U.S.
cities including Baltimore, San Diego, St. Louis and two Florida
destinations as the carrier grounds a third of its fleet to counter
soaring fuel costs, Bloomberg News reported today. Midwest will stop
flying on Sept. 8 to Fort Lauderdale and Fort Myers in Florida, as well
as to San Diego. The airline will keep its service to Los Angeles and
Seattle, though passengers will travel through Kansas City, Mo., as they
do on its San Francisco route. Eight more cities, including Baltimore,
Hartford, St. Louis, San Antonio and Louisville, Ky., would be dropped
from its Midwest Connect regional jet service after Sept. 8, Midwest
said.
href='http://www.nytimes.com/2008/07/21/business/21air.html?ref=business&pagewanted=print'>Read
more.