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May 28, 2008
Investors Press Lenders on Bad
Loans
Investors of subprime mortgages, home-equity loans and other real estate
loans are trying to force banks and mortgage companies to repurchase a
growing pile of troubled loans, the Ireported today. The pressure is the
result of provisions in many loan sales that require lenders to take
back loans that default unusually fast or contained mistakes or fraud.
The potential liability from the growing number of disputed loans could
reach billions of dollars, says Paul J. Miller Jr., an analyst with
Friedman, Billings, Ramsey & Co. Some major lenders are setting
aside large reserves to cover potential repurchases. Countrywide
Financial Corp., the largest mortgage lender in the United States, said
in a securities filing this month that its estimated liability for such
claims climbed to $935 million as of March 31 from $365 million a year
earlier. Countrywide also took a first-quarter charge of $133 million
for claims that already have been paid.
href='http://online.wsj.com/article_print/SB121193306681924605.html'>Read
more. (Registration required.)
Commentary: More Americans Seek Bankruptcy
Relief
Despite the 2005 passage of a law that placed strict requirements and
made it more expensive to file for personal bankruptcy, more Americans
are choosing bankruptcy over destitution, the Washington Post reported
today. Bankruptcy filings across the United States totaled 822,590 last
year, up 38 percent from 2006. 'The rise in bankruptcies is not about
something that happened last week or last month,' and a bankruptcy
expert. 'It's about declining wages, rising costs, inadequate health
insurance and job instability,” said Harvard Law School professor
Elizabeth Warren. “More hardworking middle-class
families simply can't make it in this economy, and it's only getting
worse.' Declining home values are exacerbating the problem as people can
no longer rely on the equity in their homes to pay down more expensive
debt.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/05/27/AR2008052703330_pf.html'>Read
more.
Mesa Air Warns of Bankruptcy if Delta Ends
Contract
Mesa said that it will file for bankruptcy protection by July
20 and cut 700 jobs - 14 percent of its work force - if Delta's
termination of a regional flying contract sticks and Mesa can't redeploy
unused aircraft, the Associated Press reported yesterday. Mesa Air Group
Inc. president and COO Michael Lotz told U.S. District Judge Clarence
Cooper that Mesa won't be able to make mandatory payments to bondholders
and would run the risk of defaulting on aircraft leases without the
contract in place. The comments came as Mesa sought an injunction to
block Delta's decision to end a contract with Mesa subsidiary Freedom
Airlines. Mesa said the contract amounts to $20 million in monthly
revenue for the parent company, or about 20 percent of its total sales
for 2007. Mesa has 5,000 employees overall.
href='http://news.yahoo.com/s/ap/20080527/ap_on_bi_ge/mesa_air_group_delta_4'>Read
more.
Former Duke Players Can Sue Former
Prosecutor Outside of Bankruptcy Case
Bankruptcy Judge William Stocks ruled that three former Duke
University lacrosse players cleared of rape charges brought by former
North Carolina district attorney Michael Nifong can proceed with their
lawsuit against him outside of bankruptcy court, Bloomberg News reported
yestereday. The former North Carolina district attorney, who lost his
law license for mishandling the criminal case against the players,
sought bankruptcy protection Jan. 15 in federal court in Durham, North
Carolina. Nifong filed for chapter 11 protection in hopes of ending the
players' legal claims against him. The case is In re Michael B.
Nifong, 08-80034, U.S. Bankruptcy Court for the Middle District of
North Carolina (Durham).
href='http://www.bloomberg.com/apps/news?pid=20601079&sid=aVyEnzrqdCo4&refer=home'>Read
more.
Regulator Criticizes Appraisal
Agreement
U.S. Comptroller of the Currency John C. Dugan is protesting an
agreement by mortgage buyers Fannie Mae and Freddie Mac to stop buying
loans involving lenders' in-house appraisers, a deal intended to protect
buyers from fraudulently inflated home prices, the Associated Press
reported today. Dugan is asking for withdrawal of the agreement that the
two mortgage finance companies negotiated with New York Attorney General
Andrew M. Cuomo and the Office of Federal Housing Enterprise Oversight
(OFHEO) on the grounds that it violates federal law and could have an
unintended negative impact on the mortgage industry. Dugan joined
another federal regulator, the Office of Thrift Supervision, and
mortgage industry interests who previously criticized the agreement that
is scheduled to take effect next year, which would ban lenders from
using in-house appraisers and block mortgage brokers from ordering
appraisals. Fannie Mae and Freddie Mac, Cuomo and OFHEO reached the
accord in early March, ending an investigation by Cuomo into billions of
dollars of loans Fannie and Freddie had bought from lenders. The two
government-sponsored companies agreed to buy only mortgages for which
appraisals were made by companies independent from lenders.
href='http://www.nytimes.com/2008/05/28/business/28lend.html?ref=business&pagewanted=print'>Read
more.
Bankruptcy Judge Approves Ceres Capital's Chapter
11 Liquidation Plan
Bankruptcy Judge Allan L. Gropper allowed
Ceres Capital Partners to sell its remaining assets and use the proceeds
to repay creditors, part of the financial manager's plan to emerge from
chapter 11 protection, the Associated Press reported yesterday.
Ceres Capital's chapter 11 liquidation plan calls for the company to
sell its remaining assets to Ivy Square Ltd. for at least $50,000. Judge
Gropper signed off on the plan after Ceres Capital settled the
objections of its unsecured creditors, 40 percent of whom had originally
voted against the plan.
href='http://www.forbes.com/feeds/ap/2008/05/27/ap5051604.html'>Read
more.
Teamsters Agree to Frontier Airlines'
Proposed Pay Cuts
All the unions representing airline workers at Frontier Airlines
Holdings Inc. now stand behind the company's restructuring efforts after
the Teamsters union accepted wage and benefit cuts in order to help the
bankrupt carrier negotiate chapter 11, Bankruptcy Law360
reported yesterday. Representing the final bloc of Frontier employees,
the Teamsters Union has agreed to accept a temporary 10 percent pay cut
for all employees making $12 or more an hour, with lower rates for
workers who earn less. The Teamsters represent about 430 people at
Frontier - including mechanics, tool room employees and aircraft
appearance agents - who are expected to ratify the concessions in a
vote. Frontier asked all its employees, executives included, to
sacrifice a portion of their pay as a way to help the company obtain
debtor-in-possession financing. The airline will re-examine the
concessions in September in light of economic conditions and the
company's progress, Frontier said.
href='http://bankruptcy.law360.com/secure/printview.aspx?id=57436'>Read
more. (Registration required.)
SEC to Examine Bear Stearns' Trading
Data
Bear Stearns Cos. plans to turn over documents to securities regulators
showing that several financial giants, including Goldman Sachs Group
Inc., Citadel Investment Group and Paulson & Co., slashed their
exposure to the securities firm in the weeks before its collapse, the
Wall Street Journal reported today. The Securities and Exchange
Commission (SEC), as part of an ongoing inquiry into the events
surrounding Bear Stearns's implosion in March, has sought and will
examine these trading records. The SEC is expected to use the data to
determine whether any trading activity was improperly coordinated in any
way, constituted manipulation or otherwise contributed to Bear Stearns's
href='http://online.wsj.com/article_print/SB121193543321324769.html'>Read
more. (Registration required.)
Court Approves Fedders' Last Major Asset
Sale
Bankruptcy Judge Brendan L. Shannon approved Fedders
Corp.'s plan to sell their indoor air quality (IAQ) assets for a $25
million, Bankruptcy Law360 reported yesterday. Thursday's
approval by Judge Shannon marks the last major asset sale Fedders needed
to consummate in its chapter 11 proceeding. A limited objection was
filed by Public Service of North Carolina, but that objection was
resolved, Judge Shannon's order notes. The IAQ assets will be purchased
by Tomkins Industries Inc., Tomkins Finance plc, Air System Components
Investments China Ltd. and Ruskin Air Management Ltd.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=57312'>Read
more. (Registration required.)
After Failed Deal, Impasse for United
and US Airways
Talks between United Airlines and US Airways appear to have fallen
apart, marking the second time in a month that United failed to reach a
deal with a rival airline and putting the future of industry
consolidation in question, the New York Times reported today. There has
been little to no contact between United Airlines and US Airways in
recent days and the internal teams of senior executives at both
companies, as well as external bankers and lawyers assigned to the
project, have put it on hold. The talks between United, the
second-largest traditional carrier behind American Airlines, and US
Airways, the sixth-largest carrier, did not make enough progress for the
two sides to reach an agreement in time for a deal to win approval from
the Bush administration.
href='http://www.nytimes.com/2008/05/28/business/28air.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
With Bold Steps, Fed Chief Quiets
Some Criticism
Federal Reserve Chairman Ben S. Bernanke has quieted some critics on
Wall Street as he took bold steps to avert a widespread financial crisis
over the past three months, the New York Times reported today.
To lessen the chances of a financial collapse, Bernanke engineered the
takeover of one investment bank, Bear Stearns, and tossed credit
lifelines to others with exotic new lending facilities - the Fed now has
seven such lending windows, some of them for investment banks as well as
commercial banks. He also allowed the Fed to accept assets of debatable
value - mortgage-backed securities, car loans and credit card debt - as
collateral for some Fed loans. For the first time ever, Bernanke
installed Fed regulators inside investment banks to inspect their books.
However, new criticisms have surfaced that Bernanke has fanned inflation
and contributed to the decline of the dollar by aggressively cutting
interest rates. Some say he has put at risk billions in public funds by
accepting devalued assets like mortgages and auto loans as collateral
for loans to financial institutions. By thrusting the Fed into new
realms of intervention and regulation, he has also raised questions from
academics and politicians about whether he is threatening the Fed's
independence.
href='http://www.nytimes.com/2008/05/28/business/28bernanke.html?ref=business&pagewanted=print'>Read
more.