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July 25, 2008
Mortgage Crisis
Hearing to Examine Mortgage Serving
Practices
The House Financial Services Committee will hold a hearing today
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.
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr072508.shtml'>Click
here to view the hearing via live Webcast.
Seller-Assisted Loan Program To End Under Housing
Bill
Charities that participate in a seller-financed down payment program for
Federal Housing Administration loans protested today that the program
will be ended under the housing recovery bill, Congress Daily
reported yesterday. Under the bill, the program, which has been used by
more than 1 million borrowers, is slated to end Oct. 1 as a result of
pressure from FHA Commissioner Brian Montgomery, who argued it has a
foreclosure rate three times greater compared to borrowers who make
their own down payments, placing the FHA's mortgage insurance program in
jeopardy. Such seller-assisted loans now account for a third of the
agency's portfolio. The program allows sellers to give money to
charities, which in turn assist the borrower. The nonprofits typically
receive a payment from the seller for the service. The IRS has noted
that the charities may be more interested in closing the sale to
generate fees than ensuring that buyers can afford the property. Rep. Al
Green (D-Texas) said that proponents offered concessions to keep the
program alive, such as requiring a higher credit score for borrowers as
well as a blind appraisal process so the seller and purchaser could not
collude on the purchase price. But the Bush administration would not
budge, and the Senate defended that position. Green said he would try to
push legislation to reverse the ban, but conceded that it would have to
be done under the next administration.
San Diego Sues Bank of America to Block
Foreclosures
San Diego City Attorney Michael Aguirre said on Wednesday he filed a
lawsuit against Bank of America Corp and its Countrywide unit to prevent
the mortgage lenders from foreclosing on homes in his city, which he
aims to make a 'foreclosure sanctuary,' Reuters reported Wednesday.
Aguirre said he plans to file similar lawsuits against Washington Mutual
Inc., Wells Fargo & Co. and Wachovia Corp. in an effort to make the
lenders negotiate with mortgage borrowers facing foreclosure. Housing
markets across Southern California, including the city of San Diego and
the county of the same name, are seeing steep increases in foreclosure
rates because so many homes bought there earlier this decade involved
subprime mortgages and other types of risky loans. So far this year,
20,000 homes in San Diego County have been lost to foreclosure as
borrowers fail to keep up with mortgage payments, and some analysts
forecast the number may rise to 40,000 by the end of the year. Aguirre's
lawsuit names four current and former Countrywide officers, including
former CEO Angelo Mozilo, and alleges they personally profited from
selling shares of the lender's stock while knowing its subprime loans
did not comply with company policies.
href='http://news.yahoo.com/s/nm/20080723/us_nm/bankofamerica_foreclosures_lawsuit_dc_4'>Read
more.
Report Finds First Home Lender Violated Real Estate
Law
A new audit report released by the U.S. Department of Housing and Urban
Development has revealed that home lender First Magnus Financial Corp.
violated federal law by offering incentives to mortgage brokers,
Bankruptcy Law360 reported yesterday. In the report, issued on
July 14, the department said First Magnus violated the Real Estate
Settlement Procedures Act by paying brokers for generating Federal
Housing Administration mortgages. The report claims that First Magnus
paid brokers$58,571 in quality incentives for originating and processing
169 FHA mortgages worth a total of $24 million. First Magnus' contracts
with brokers stipulated that they had to originate and process a certain
number of mortgages in order to lock in a predetermined fee.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=63668'>Read
more. (Subscription required.)
Judge OKs Bankrupt Mortgage Lenders'
Settlement
A bankruptcy judge has approved settlement agreements over mortgage
licenses between subprime lender Mortgage Lenders Network USA Inc. and
banking authorities in five northeastern states, Bankruptcy
Law360 reported yesterday. In an order signed July 22 in the U.S.
Bankruptcy Court for the District of Delaware, Judge Peter J.
Walsh approved Mortgage Lenders' individual agreements to
surrender its mortgage licenses in Maine, Pennsylvania, Rhode Island,
Massachusetts and Vermont and pay Rhode Island a $42,714 penalty in
order to avoid a costly legal battle over the licenses. The court's
decision approves a motion filed June 19 by the bankrupt lender, which
argued that agreements with all but one of the states freed the company
from paying hefty penalties that could diminish the claims of
creditors.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=63623'>Read
more. (Subscription required.)
Private-Equity Firms, Funds Take New Look at Ailing
Banks
Capital-hungry banks are suddenly attracting new interest from
private-equity firms and hedge funds, according to the Wall Street
Journal today. Reportedly, at least two private-equity firms are
considering investments in BankUnited Financial Corp., based in Coral
Gables, Fla., which is saddled with a large portfolio of adjustable-rate
mortgages. MatlinPatterson Global Advisers LLC and Kelso & Co. are
said to be conducting due diligence on BankUnited and consulting with
regulators. MatlinPatterson, which rescued Thornburg Mortgage Inc. from
the brink of bankruptcy earlier this year with an infusion giving the
New York private-equity firm a 40 percent stake in the home-mortgage
finance company, also is weighing pumping money into Downey Financial
Corp., of Newport Beach, Calif. The willingness to tiptoe back into
ailing banks comes despite the fact that private-equity firms, hedge
funds and other investors are far underwater on a slew of bank
investments made in the past several months. While second-quarter
results confirmed that many banks and thrifts will be grappling with bad
loans for years, the financial-stock rally that erupted last week is
causing some firms with plenty of ready capital to give the beleaguered
sector another look.
href='http://online.wsj.com/article/SB121694818227783313-email.html'>Read
more.
Thacher Proffitt Publishes Bankruptcy Bulletin Discussing
Supreme Court Ruling in Florida Department of Revenue v. Piccadilly
Cafeterias Inc.
Thacher Proffitt & Wood LLP announced the publication of 'Florida
Department of Revenue v. Piccadilly Cafeterias Inc.: The Supreme Court
Rules that Asset Sales Made Before the Confirmation of a Bankruptcy Plan
are not Exempt from Stamp Taxes' in a press release yesterday. The
bulletin provides background on the case and a discussion of the 7-2
Supreme Court decision, which was handed down on June 16, 2008. Hugh
McDonald, co-chair of Thacher Proffitt's Distressed Assets Group and a
partner in the bankruptcy group, said, 'This is the first instance in
which the Supreme Court has held that asset sales made before the
confirmation of a chapter 11 bankruptcy plan are not exempt from stamp
taxes, which resolves a circuit split. Going forward, bankruptcy asset
sales that implicate stamp taxes may need to be delayed until
confirmation of a plan. Such delays may impact the strategy and timing
of bankruptcy cases.' The bankruptcy bulletin was authored by Mr.
McDonald, partner Jonathan D. Forstot, and associates Louis A. Curcio
and Craig Rokuson.
Bankruptcies Soar in Santa Clara County
5,941 people filed for bankruptcy in the San Jose, Calif.,
Division of U.S. Bankruptcy Court from July 2007 through June 2008, the
Mercury News reported today. Of the four Bay Area bankruptcy
courts, San Jose's - which oversees Santa Clara, Santa Cruz, San Benito
and Monterey counties - posted the highest increase in bankruptcies -
69.7 percent - over the 12 previous months. In Santa Clara County, the
most dramatic rise was seen in chapter 7 cases. Those filings jumped to
1,046 from January through June this year, up 86 percent compared with
the same time last year. Chapter 13 filings rose to 688, a 44 percent
increase from the same time last year. In Chapter 13, debtors set up a
plan to pay off creditors over three to five years.
href='http://www.mercurynews.com/businessheadlines/ci_9990051'>Read
more.
Vonage in Deal to Beat Bankruptcy
Vonage Holdings has signed a deal with Silver Point Finance, a private
equity firm, that should enable the unprofitable company over Internet
protocol (VoIP) pioneer to refinance maturing debt and stave off
possible bankruptcy, Financial Times reported today. The
agreement covers terms and conditions for up to $215 million in private
debt financing of which Silver Point has committed to provide Holmdel,
N.J.-based Vonage with $125 million. It is subject to a number of
conditions including other lenders agreeing to provide $60 million of
the private debt financing. Shares in Vonage, which have lost more than
90 per cent of their value since Vonage's market debut in March 2006,
closed 2 cents lower yesterday at $1.58 in New York Stock Exchange
composite trading.
Delphi Creditors Sue Appaloosa Management
A group of Delphi Corp. creditors claims that investors led by hedge
fund Appaloosa Management 'defrauded' the bankrupt auto-parts supplier
by promising to invest $2.55 billion in it while 'simultaneously and
covertly' working to undermine its exit from chapter 11 protection from
creditors, the Wall Street Journal reported yesterday.
'Appaloosa's promises to remain committed to the plan and to [Delphi's]
successful emergence from bankruptcy were a sham,' according to a
lawsuit filed Tuesday by the committee representing Delphi's unsecured
creditors in the bankruptcy case. The creditors say the alleged fraud
allowed Appaloosa to extract more than $60 million in fees and costs
from Delphi and also allowed Appaloosa to blame Delphi for the deal's
failure, entitling the hedge fund to more than $80 million in breakup
fees and expenses. The committee asked Judge Robert D.
Drain of the U.S. Bankruptcy Court in Manhattan to revoke his
Jan. 25 order confirming the plan. A group of bondholders owed $2
billion also asked Judge Drain to revoke his confirmation order.
Appaloosa and other plan investors have asked Judge Drain to dismiss
Delphi's lawsuit.
American LaFrance Exits Bankruptcy
American LaFrance LLC, the 175-year-old manufacturer of fire,
rescue and vocational vehicles, emerged successfully from its chapter 11
bankruptcy on Thursday, according to a press release. Concurrent with
its emergence from bankruptcy, American LaFrance announced a significant
restructure of its business and a transformation of organization,
processes and a segregation of facilities to better serve its product
lines in domestic and global markets. In a major effort to improve
profitability, timely delivery and to create room for soon to be
announced new ventures, the fire business will be moved from
Summerville, S.C. to the American LaFrance facilities in Ephrata, Pa.
and Hamburg, N.Y. Summerville will remain the center of excellence for
commercial cab and chassis models including chassis manufactured for the
fire, refuse and construction markets.
L.I.D. Files Ch. 11 Liquidation Plan
After selling off nearly all of its assets earlier this year, bankrupt
diamond wholesaler L.I.D. Ltd. filed a liquidation plan on Wednesday,
Bankruptcy Law360 reported yesterday. L.I.D., which filed for
chapter 11 protection in March 2007, said in a disclosure statement
filed with the plan that it “believes that the plan will provide
all holders of claims against the debtor with greater recoveries than
would be available if the debtor's assets were liquidated in a
proceeding under chapter 7.” The statement notes that all of the
company's physical assets, including its inventory, have been sold off,
and that creditors will receive as much under the plan as they would in
a chapter 7 case.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=63618'>Read
more. (Subscription required.)
Bankruptcy Court Seizes Mich. Resort's Operations
A judge in Grand Rapids has ordered a receiver appointed to run the
Double JJ Resort, which remains open under chapter 11 federal bankruptcy
protection, the Associated Press reported today. Majority owners Bob and
Joan Lipsitz told U.S. Bankruptcy Judge Jeffrey Hughes
in papers filed this week that they hope to sell the 2,000-acre resort
near Rothbury, about 20 miles north of Muskegon. The couple own 56
percent of the Oceana County resort, and Walter Wojack of Canton, Ohio,
is a 44 percent investor. The Double JJ hosted the inaugural Rothbury
music festival this month that attracted about 40,000 people. But the
owners filed for bankruptcy because the resort was facing the default of
a construction loan from Minneapolis-based BankFirst.
SemGroup Gets Court OK for Initial Bankruptcy Motions
SemGroup LP, an Oklahoma-based oil trading services company, on
Wednesday said that it received approval from the bankruptcy court for
its initial motions related to its bankruptcy, Reuters reported
yesterday. It has received permission from the court and its lenders to
use cash generated through its business operations to meet its
obligations connected to trade payables, and wages and benefits.
SemGroup, the 12th-biggest privately-held U.S. company, also is
negotiating with its lenders to secure debtor-in-possession financing, a
facility it expects to get within a week following its bankruptcy filing
which took place on Tuesday.
Montana Woman Pleads Guilty to Bankruptcy Fraud
/>
A Billings, Mont., woman has pleaded guilty to bankruptcy fraud for
failing to report the money she made running an escort service, the
Associate Press reported yesterday. April L. Palmer, 34, pleaded guilty
Wednesday before U.S. District Judge Jack Shanstrom. Palmer faces up to
five years in prison and a $250,000 fine when she is sentenced on Oct.
29. Prosecutors say that Palmer filed for bankruptcy in December 2002,
claiming she had income of $600 a month. Ledgers seized during the
investigation show that the Total Class Escort Service, which Palmer ran
from her house, earned nearly $36,000 in 2002 and nearly $62,000 in
2003. A bankruptcy trustee says that if he had known about her income,
he would not have discharged thousands of dollars in debt and instead
set up a payment plan with Palmer's creditors. Prosecutors say that
Palmer received half of the $160 per hour she charged to dispatch an
escort. Palmer denied running a prostitution ring and her attorney,
Steve Haddon, rejected the government's characterization that Palmer
knew the escorts were engaged in prostitution.
International
U.K. Reacts with Skepticism to Chapter 11
Plans
Introducing chapter 11-style creditor protection procedures in the
United Kingdom would be of little value to the print industry, according
to industry experts, Print Week reported today. The proposals, touted by
Conservative leader David Cameron last week, would see companies given
time and money to restructure, rather than being forced into
liquidation. In a speech to the CBI, Cameron said, “Taking the
best aspects of the American chapter 11 system...will ensure fewer good
companies end up in liquidation - and fewer people lose their jobs
through no fault of their own.” However, chapter 11 interferes
with the efficient market. If a company is not attracting sufficient
customers or is not able to operate profitably, it needs to exit the
industry or there will be over-capacity. One critic said that a company
in chapter 11 can sometimes have an unfair advantage over its
competitors by shedding debt and emerging with a healthier balance sheet
than those that have traded responsibly. Former CEO of Premier Paper
Martyn Eustace added, “For many in the printing industry, I wonder
whether such an arrangement is appropriate given the relative
straightforwardness of the business and, very often, very clear reasons
for a company's failure: a long period of poor profitability or losses
accompanied by a very high level of debt.”
Montreal Advertising Guru Files for Bankruptcy
Post-prison
Following his son's example, former advertising executive Jean Lafleur
has filed for bankruptcy, threatening to leave Ottawa on the hook for
more than $7 million, the Canadian Press reported today. Lafleur was
handed 42-month prison sentence last year and ordered to pay a
$1.5-million fine for his role in the sponsorship scandal. The
67-year-old was recently released from jail, and indicated in court
documents that he was unable to pay the fine. He blamed his financial
woes on his 'criminal conviction.'
href='http://canadianpress.google.com/article/ALeqM5g97GnFNDWD_rxBSnE_gIlbid8gRw'>Read
more.