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February 5, 2009
Revamp “Hope for Homeowners” Program
The House Financial Services Committee yesterday
approved legislation to jump-start the lagging Hope for Homeowners
program by giving lenders more leeway to modify mortgages guaranteed
under the plan,
size='3'>CongressDaily reported today. The
bill was approved by voice vote after Democrats fended off Republican
efforts to scuttle the $300 billion anti-foreclosure program, which has
resulted in the adjustments of only 25 troubled subprime loans since
going into effect last summer. To boost participation in the program,
the bill would shift from 90 percent to 93 percent the loan amount that
banks have to write down to qualify for the program, which lets the
Federal Housing Administration guarantee up to $300 billion in new
30-year loans for subprime borrowers. The committee also approved a bill
to protect lenders who agree to modify risky subprime loans under the
Hope for Homeowners law by stipulating they would not be liable for the
write-down of loans on owner-occupied homes if default has occurred or
is reasonably foreseeable and if the lender believes the loss from
modification would be less than foreclosure.
Senate Adds Homebuyer Tax
Credit to Stimulus Bill
The Senate yesterday voted to expand the economic
stimulus package with a tax credit for homebuyers of up to $15,000, a
provision championed by Republicans as addressing a root cause of the
recession, the
size='3'>New York Times reported today. The
vote to add the tax credit, at a cost of about $18.5 billion, came as
Senate leaders seemed to be nearing completion of negotiations. The
Senate Majority Leader Harry Reid (D-Nev.) suggested that a final vote
on the stimulus plan could come today.
href='http://www.nytimes.com/2009/02/05/us/politics/05stimulus.html?_r=1&hp=&pagewanted=print'>Read
more.
Mortgage Banks Push for
Federal Support
Small mortgage lenders are pushing for a slice of the
federal support that is propping up giants like Bank of America Corp.
and Citigroup Inc., the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. These lenders say that they are being starved
of the credit they need to make home loans, reducing competition in a
mortgage market increasingly dominated by a few giant banks, led by Bank
of America, Wells Fargo & Co., J.P. Morgan Chase & Co. and
Citigroup. Warehouse Lending Project, a group of mortgage bankers
seeking to revive the market, estimates that overall money
available for warehouse loans has dropped nearly 90 percent since 2006,
to about $25 billion. The Mortgage Bankers Association estimated that a
few hundred mortgage banks have gone out of business in the past few
years and said that the shortage of warehouse credit is hurting many of
the survivors.
href='http://online.wsj.com/article/SB123379365433249877.html'>Read
more. (Subscription required.)
Watchdog Says Consumer Loan
Program at Risk of Fraud
A federal watchdog agency has concluded that a $200
billion government program to encourage consumer lending is at risk of
significant fraud, and the Treasury Department should not participate in
the plan until proper safeguards are put in place, the
face='Times New Roman'>
size='3'>Washington Post reported today. Neil
M. Barofsky, the special inspector general for the financial bailout,
raised alarms about the program in his office's first report. The report
says the consumer lending program, known as the Term Asset-Backed
Securities Loan Facility, is vulnerable to 'fraud, waste, and abuse'
because it gives participants the authority to set a value on the
collateral they post in return for loans. The collateral consists of
pools of consumer debt. Participants could defraud the federal
government by overvaluing this collateral and then walking away with the
href='http://www.washingtonpost.com/wp-dyn/content/story/2008/12/09/ST2008120900087.html'>Read
more.
Auto-Parts Makers Seek
Bailout
Beleaguered auto-parts suppliers are following the
lead of Detroit's Big Three in seeking aid from the federal government,
the
size='3'>Wall Street Journal reported today.
In a request dated Monday to the Treasury Department, an industry group
representing 400 parts makers asks for $25.5 billion in aid and
guarantees. The Motor & Equipment Manufacturers Association says
more than 40 car-industry suppliers filed for chapter 11 bankruptcy
protection in 2008. The suppliers are seeking $7 billion in federal
funds to create a 'quick pay program' to funnel money to auto makers so
they can pay suppliers within 10 days of receiving parts, instead of the
45 days or more they typically take to pay. The group also seeks $10.5
billion to guarantee receivables of suppliers whose customers have taken
federal loans, which means GM and Chrysler. Finally, the suppliers want
$8 billion in direct access to federal loans.
href='http://online.wsj.com/article/SB123379152603649755.html'>Read
more. (Subscription required.)
Analysis: Circuit
City’s Bankruptcy Ripple Effect
When Circuit City closes the last of 567 stores this
year as a part of its bankruptcy filing, 18.71 million square feet of
commercial space will be left vacant and more than 40,000 workers will
be jobless, the Associated Press reported yesterday. Shopping centers
will lose rental income, suppliers will lose display space, and
newspapers, already struggling with falling ad revenues, will have less
inserts in their Sunday editions. Circuit City is bigger by far than any
other retailer that has gone under in the current recession. The job
outlook for its workers is far worse, the prospects for suppliers
finding other customers is grim, and a larger pool of creditors are
likely to go unpaid.
href='http://www.google.com/hostednews/ap/article/ALeqM5hsoEX1ACPJFR7OhoQg4ogq5grQBQD964VBAG3'>Read
more.
Autobacs Strauss Files for
Chapter 11 Protection
Autobacs Strauss Inc, a wholly owned subsidiary of
Japanese auto parts retailer Autobacs Seven, filed for chapter 11
protection yesterday, Reuters reported. The company, which operates 86
retail store locations in New York, New Jersey and Pennsylvania, listed
assets of about $75 million and liabilities of about $72 million,
according to court filings. Autobacs Seven created the Autobacs Strauss
unit after it agreed to acquire Strauss Discount Auto out of bankruptcy
protection for about $55 million in 2007. The case is
face='Times New











Roman'>
face='Times












New






Roman'
size='3'>In re Autobacs Strauss Inc., No
09-10358, U.S. Bankruptcy Court, District of Delaware.
href='http://uk.reuters.com/article/marketsNewsUS/idUKBNG11014420090204'>Read
more.
Wachovia Gets EnCap Golf's
Chapter 11 Case Dismissed
Bankruptcy Judge
face='Times












New






Roman'
size='3'>Novalyn L. Winfield threw out the
chapter 11 cases of EnCap Golf Holdings LLC and affiliate NJM Capital
LLC, granting Wachovia Bank NA's bid to have the cases dismissed based
on EnCap's failure to file a viable reorganization plan,
face='Times












New






Roman'
size='3'>Bankruptcy Law360 reported today.
Debtor counsel Michael Sirota said the cases were dismissed after Encap
withdrew its opposition to the dismissal motion. It became clear that
various stakeholders in the case — including insurer American
International Group Inc. and the state of New Jersey — wouldn't be
able to reach a consensus, so it no longer made sense to remain in
chapter 11, Sirota said. On Nov. 26, Wachovia asked the court to dismiss
EnCap's chapter 11 case or grant the bank relief from the automatic stay
to move forward with the foreclosure action against EnCap.
href='http://bankruptcy.law360.com/articles/86015'>Read more.
(Subscription required.)
Bankrupt Subprime Lender
Fights to Reclaim $1.5 Million
Mortgage Lenders Network USA Inc. has filed an
adversary complaint against Sovereign Bank to recover nearly $1.5
million it claims was illegally transferred after the subprime mortgage
lender filed for chapter 11,
face='Times












New






Roman'
size='3'>Bankruptcy Law360 reported yesterday.
The dispute has its origins in two loan servicing agreements: the first
between Mortgage Lenders and Sovereign Bank's predecessors, the First
National Bank of Boston and BankBoston NA, in July 1997, and the second
between the lender and Sovereign in June 2005, the complaint says. Under
those agreements, Mortgage Lenders serviced mortgage loans issued by the
banks in exchange for a fee, according to the complaint. Pursuant to the
2005 contract, which terminated in April 2007, the lender established
several bank accounts in which all mortgage repayments, late fees,
insurance proceeds and other funds collected on the loans were to be
deposited.
href='http://bankruptcy.law360.com/articles/85944'>Read
more. (Subscription required.)
Lehman Unit Sues Partner
in CDS Deal
Lehman Brothers Special Financing Inc. has accused its
partner in a credit default swap agreement of seeking to avoid paying
the bankrupt company $400 million it allegedly owes under the
arrangement by claiming that the Lehman unit defaulted on the agreement
when its parent company filed bankruptcy proceedings, Bankruptcy
Law360 reported yesterday. The adversary complaint, filed Tuesday
in the U.S. Bankruptcy Court for the Southern District of New York, is
seeking to bar Wells Fargo Bank NA, as trustee to the credit default
swap, from distributing the $137 million remaining proceeds from the
deal to investors in Ballyrock ABS CDO 2007-1 Ltd. Under the credit
default swap, LB Special Financing paid Ballyrock a periodic premium in
exchange for Ballyrock's promise to pay the Lehman unit if it incurred
any losses on the underlying assets, which were mostly now-toxic
mortgage-backed securities, according to the complaint. The adversary
case is Lehman
Brothers Special Financing Inc. v. Ballyrock
size='3'>ABS CDO 2007-1 Ltd. et al., case number 08-13555, in the U.S.
Bankruptcy Court for the Southern District of New York.
href='http://bankruptcy.law360.com/articles/85897'>Read
more. (Subscription required.)
Obama Outlines Limits on
Executive Pay
The Obama administration's announcement yesterday that
it would toughen executive compensation restrictions at some firms
receiving federal aid signaled a broader strategy to remake how Wall
Street's top financiers are paid, the
face='Times












New






Roman'
size='3'>Washington Post reported today. The
administration imposed a $500,000 pay cap on senior officers at
companies that need special government assistance. However, possibly
more significant is a new rule that bans those firms from offering
additional compensation except in the form of company stock that can be
redeemed only after the government investment is repaid. Broader
executive compensation rules could already be on the way. House
Financial Services Chairman Barney Frank (D-Mass.) said a consensus in
Congress is building to give the Federal Reserve the authority to police
threats to the financial system, including by limiting compensation
awarded to corporate executives for excessively risky behavior.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/02/04/AR2009020401464_pf.html'>Read
more.
Lawmakers Critical of SEC
during Madoff Hearing
Securities regulators were under fire by congressional
panel yesterday over their failure to act on tips that might have
exposed the Madoff scandal almost a decade ago, the New York
Times reported today. At a contentious hearing by the House
Financial ServicesSubcommittee on Capital Markets, Insurance, and
Government Sponsored Enterprises, Harry Markopolos, a private fraud
investigator from Boston, detailed his persistent but futile efforts to
spur the Securities and Exchange Commission to investigate Bernard L.
Madoff, going back to 1999. Madoff was arrested in December and charged
with running a giant Ponzi scheme — the very accusation Markopolos
said he made repeatedly to SEC employees in Boston and New York to no
avail. The SEC officials testifying at the hearing repeatedly tried to
explain that they could not discuss the handling of the Madoff case
without jeopardizing that pending investigation.
href='http://www.nytimes.com/2009/02/05/business/05madoff.html?ref=business&pagewanted=print'>Read
more.
One Fewer Credit Score
Accessible to Consumers
Most consumers are about to lose access to one version
of their credit score as Fair Isaac, the company that conceived the
score known as FICO, said that credit bureau Experian will no longer
allow it to sell scores based on Experian’s data, the
face='Times New Roman'>New York
Times reported today. However, Experian itself
will continue to sell FICO scores based on its data to lenders, so some
banks may make credit decisions, at least in part, on a score that
consumers can no longer see.Currently, individuals can visit a Fair
Isaac site, myFICO.com, and purchase one or all of their FICO scores. As
of Feb. 14, however, consumers will be able to see only the scores based
on data provided by TransUnion and Equifax.Experian did not comment on
the decision, and it was not immediately clear what spurred Experian to
cut ties with myFICO.com.
href='http://www.nytimes.com/2009/02/05/your-money/credit-scores/05fico.html?ref=business&pagewanted=print'>Read
more.
More Call for Probe on
Financial Crisis
Demand is growing in both parties in Congress for an
investigation of the causes of the nation's financial crisis, with many
members calling for an independent commission modeled after the one that
investigated the Sept. 11, 2001, terrorist attacks, the
face='Times New Roman'>Wall
Street Journal reported today. Leaders of the
House and Senate had previously shown little interest in studying what
led to reckless mortgage lending and the spread of high-risk investments
throughout the financial system. However, support for an in-depth
examination is gaining traction, with dozens of lawmakers from both
parties signing onto bills that would create a commission. Sen. Richard
Shelby (R-Ala.), the ranking Republican on the Senate Banking Committee,
said Tuesday that such a serious probe is imperative. He called on his
own committee to conduct one as it did during the Great
Depression.
href='http://online.wsj.com/article/SB123379250904649911.html'>Read
more. (Subscription required.)
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