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November 5, 2008
Obama Aims to Fine-tune Bankruptcy
Law
As Barack Obama gets ready to take over the White House, he plans to
reform the Bankruptcy Code so that homeowners will be able to modify
mortgages in chapter 13 proceedings and offer additional assistance to
disaster victims, members of the military and other groups,
Bankruptcy Law360 reported. “While investors who own
multiple homes and people with vacation homes can renegotiate those
mortgages in bankruptcy, current chapter 13 law requires ordinary
families to stick with the original terms of their home loans-regardless
of whether the loan was predatory or unfair,” according to the
plan laid out on Obama's Web site. “[The new administration] will
repeal this provision so that ordinary families do not suffer this
unfair treatment.” Industry has opposed the repeal, arguing that
allowing bankruptcy judges to modify primary mortgages will increase
interest rates, closing costs and down payments for consumers. By giving
bankruptcy judges the ability to modify mortgages, it will give bankrupt
homeowners some reassurance that they are not stuck with unaffordable
home loans and will provide guidance to lenders in mortgage
negotiations, according to University of Illinois College of Law Prof.
Robert Lawless.
href='http://bankruptcy.law360.com/articles/75181'>Read
more. (Subscription required.)
Commentary: “Underwater”
Mortgages Don't Necessarily Mean Foreclosure
Experts who have studied previous sharp housing downturns in Texas,
California, New York and Massachusetts said that homeowners underwater
on their mortgages, while unpleasant, doesn't lead huge numbers of
homeowners to default on their mortgages and end up in foreclosure, the
Wall Street Journal reported today. Christopher L. Foote,
Kristopher Gerardi and Paul S. Willen of the Boston Federal Reserve Bank
studied more than 100,000 homeowners who were underwater in
Massachusetts in 1991 and found that just 6.4 percent of them lost their
homes to foreclosure over the next three years, according to a paper
published in the September Journal of Urban Economics. The vast majority
of homeowners simply continued paying as usual because they focused on
the affordability of their payments, not on what they owed, and they
believed home values would eventually recover. By some estimates,
between one in six and one in eight homeowners are currently in a
position where they owe more than the homes are worth. Read the
href='http://online.wsj.com/article/SB122583941535198573.html'>full
commentary. (Subscription required.)
GMAC Posts $2.52 Billion Loss Amid
Financial Turmoil
GMAC Financial Services posted a wider third-quarter net loss, weighed
down by its subprime-mortgage lender and woes in the auto market, the
Wall Street Journal reported today. GMAC reported a net loss of
$2.52 billion, compared with a prior-year net loss of $1.6 billion.
GMAC, which is co-owned by General Motors Corp. and private-equity firm
Cerberus Capital Management LP, said 'substantial doubt exists'
regarding the ability of mortgage lender Residential Capital LLC to
continue as a going concern without economic support from GMAC. The
company said that ResCap has had difficulty maintaining adequate capital
and liquidity levels.
href='http://online.wsj.com/article/SB122589243246501455.html'>Read
more. (Subscription required.)
Mervyn's Says Fired Workers May Get
Pay
After refusing to give fired workers their accrued vacation pay,
Mervyn's LLC said that it will reverse its decision as long as
going-out-of-business sales raise enough cash to pay off its debt to
Wachovia, the Wall Street Journal reported today. Mervyn's
withheld accumulated vacation pay from the final checks of people who
lost their jobs in October, citing pressure from creditors and a court
order. The move by the Hayward, Calif.-based retailer touched off a
firestorm of protest from employees, dozens of whom sent letters to the
U.S. Bankruptcy Court in Wilmington, Del. The company operated 149
stores when it filed for chapter 11 protection on July 29, owing
Wachovia $329 million when the case was filed.
href='http://online.wsj.com/article/SB122585939152300545.html'>Read
more. (Subscription required.)
Transit Agencies Seek Aid in Avoiding
AIG Fees
The troubles of the American International Group are causing headaches
for dozens of municipal transit authorities, which want the federal
government to help them avoid multimillion-dollar early-termination fees
for tax shelters linked to the troubled insurance giant, the
New York Times reported today. The authorities are
asking the government to assume AIG's role in scores of tax shelters,
even though the Internal Revenue Service considers the transactions
abusive. They also want the government to help them avoid billions of
dollars in payments caused by the downgrading of AIG's credit
rating.
href='http://www.nytimes.com/2008/11/05/business/05tax.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
Judge Approves $3.2 Million Loan for
Bankrupt Jancor
Bankruptcy Judge Mary F. Walrath granted
construction-product conglomerate Jancor Cos. Inc. permission to borrow
about $3.2 million to pay back wages for laid-off workers and to help
keep the company together until it can find buyers for its business
lines, Bankruptcy Law360 reported yesterday. Judge Walrath on
Monday issued orders approving the use of debtor-in-possession financing
extended by secured creditors PNC Bank and Fifth Third Bank, as well as
other motions intended to aid in the failed company's liquidation
efforts. Jancor, a conglomerate of nearly a dozen businesses related to
the manufacturing of residential construction products, filed for
chapter 11 last week, citing severe deterioration in the housing market
and higher materials costs as the primary reasons for the
collapse.
href='http://bankruptcy.law360.com/articles/75483'>Read more.
(Subscription required.)
Following Italian Bankruptcy, Alitalia
Files Chapter 15
Struggling Italian airline Alitalia SpA has filed on Friday for chapter
15 protection to cover its assets in the United States, Bankruptcy
Law360 reported yesterday. The Friday filing in the U.S. Bankruptcy
Court for the Southern District of New York followed the airline's
bankruptcy declaration in Italy after it was unable to find a buyer.
Italian Prime Minister Silvio Berlusconi approved Alitalia's bankruptcy
on Aug. 29, while two of its subsidiaries were granted bankruptcy
protection in Italy in September. Alitalia asked for professor Augusto
Fantozzi, who is serving as the special administrator for the company as
it fights for survival in Italy, to serve the same role for its American
assets. According to the petition, Alitalia has roughly $1 million in
assets, mostly in bank accounts and furniture and fixtures, spread
around offices in New York, New Jersey, Florida, Illinois and
California.
href='http://bankruptcy.law360.com/articles/75447'>Read
more. (Subscription required.)
Online Sales Are Expected to Slow, But
Retailers Anticipate Gains During Holiday Season
Online retailers expect sales growth to slow this holiday season from
recent years, but more than half of those surveyed by an industry group
anticipate ringing up at least a 15 percent increase from last year, the
Wall Street Journal reported today. The survey of 60 online
retailers was conducted for Shop.org from Oct. 1 through 20. Shop.org
expects online retail sales to rise 17 percent for the whole year to
$204 billion. A majority of the online retailers surveyed in October
said they plan to offer free shipping to attract customers, but 21
percent of them said they would raise the minimum purchase requirement
this year.
href='http://online.wsj.com/article/SB122585705358600395.html'>Read
more. (Subscription required.)
MBIA, Ambac Post Wider
Losses
MBIA Inc. posted a much wider third-quarter loss amid a surge in loss
reserves on second-lien residential mortgage-backed securities and
losses at its asset-liability business, the Wall Street Journal
reported today. MBIA reported a net loss of $806.5 million compared with
a prior-year net loss of $36.6 million. MBIA added $961 million to its
loss reserves for exposures to second-lien mortgage deals. Meanwhile,
Ambac reported a net loss of $2.43 billion compared with a prior-year
net loss of $360.6 million. The latest results included $2.71 billion in
realized and unrealized derivatives losses, up from $723.3 million a
year ago, with most of the latest quarter's total due to increased loss
projections for its portfolio of collateralized debt
obligations.
href='http://online.wsj.com/article/SB122588801035501391.html'>Read
more. (Subscription required.)
Alabama School Districts Feel the
Economic Pinch as Tax Revenues Decline
Schools in Alabama are getting hit hard by falling tax receipts, an
early warning of the vulnerability of poor states during the economic
downturn, the New York Times reported today. Alabama school
districts are borrowing heavily or using savings to meet payrolls, state
officials said, and future cuts are likely. District superintendents are
being warned not to fix leaky roofs or make other repairs, and last week
the top state education official told the districts that they would
receive only 75 percent of their October allotment of state money until
more comes in. The districts depend on the state for about 70 percent of
their financing. The money crisis in Alabama schools represents a
potential picture for school financing across the country as school
districts weather a drop in local sales and property tax receipts, the
drying up of credit and the decline in state revenues.
href='http://www.nytimes.com/2008/11/05/us/05alabama.html?ref=business&pagewanted=print'>Read
more.