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November 12, 2008
Fannie Mae and Freddie Mac Step Up
Help for Homeowners
Fannie Mae and Freddie Mac, which are under government control, said
that they would help streamline the modification of loans for
potentially hundreds of thousands of homeowners who are 90 days or more
behind on their mortgage payments, the Wall Street Journal reported
today. The voluntary plan, which officials hope will be adapted by other
mortgage holders, would enable certain borrowers to receive more
affordable loans that would make their mortgage payments at most 38
percent of their monthly income. The Bush administration said that it
would use the mortgage giants to extend aid to struggling homeowners, a
move met with criticism from a top federal regulator, lawmakers and
others, who charged it doesn't do enough to stem home foreclosures. FDIC
Chairman Sheila Bair questioned the plan's effectiveness, saying it
'falls short of what is needed to achieve widescale modifications of
distressed mortgages.' Bair said that the government should use some
portion of the financial-market bailout package to reduce
foreclosures.
href='http://online.wsj.com/article/SB122641622440217445.html'>Read
more. (Subscription required.)
In related news, Citigroup on Monday joined a growing list of financial
institutions offering to modify the terms of mortgages for distressed
borrowers, unveiling a program to help thousands meet their monthly
payments while reducing the bank's potential for larger losses, the
New York Times reported. About 130,000 mortgage customers are
expected to qualify for the program, resulting in the workouts of over
$20 billion of loans.
href='http://www.nytimes.com/2008/11/11/business/11bank.html?ref=business&pagewanted=print'>Read
more.
Additionally, the House Financial Services Committee will be holding
a hearing today titled “Private Sector Cooperation with Mortgage
Modifications-Ensuring That Investors, Servicers and Lenders Provide
Real Help for Troubled Homeowners.” The hearing will be held in
Room 2128 Rayburn House Office Building at 10 a.m. ET.
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr111208.shtml'>Click
here to read the prepared witness testimony and to watch the live
Webcast.
California Town Drowns in Debt as Home
Values Plunge
Because of plunging home values, almost 90 percent of homeowners in
Mountain House, Calif., owe more on their mortgages than their houses
are worth, the New York Times reported. The average homeowner
in Mountain House is “underwater” on their mortgage by
$122,000. First American CoreLogic, a real estate data company, has
calculated that 7.6 million properties in the country were underwater as
of Sept. 30, while another 2.1 million were in striking distance. That
is nearly a quarter of all homes with mortgages. The 20
hardest-hit zip codes are all in California, Florida, Nevada and
Arizona.
href='http://www.nytimes.com/2008/11/11/business/11home.html?ref=business&pagewanted=print'>Read
more.
Commentary: Government Must Act Now on
Troubled Mortgages
If the Bush administration's $700 billion bailout has any hope of
working, it will have to address the foreclosure problem now, according
to a New York Times editorial yesterday. Since Federal Deposit
Insurance Corp. Chair Sheila Bair told Congress nearly three weeks ago
that the agency would work closely with the Treasury Department's
Paulson to develop a robust anti-foreclosure plan, the Treasury
Department has balked while the White House has argued that it is
already doing plenty to help homeowners. The FDIC has developed a plan
that is being used, with promising early results, to rework defaulting
mortgages at IndyMac, the failed Southern California bank. Under the
plan, the banks restructure troubled mortgages - lowering the interest
rate, extending the loan term or deferring payment on a portion of
principal - so that they're affordable. Expanding this program
nationwide would cost about $40 billion, but it could be done without
new legislation since the money could come from the bank bailout
fund.
href='http://www.nytimes.com/2008/11/11/opinion/11tue1.html?ref=opinion&pagewanted=print'>Read
more.
Business Groups Pushing for Relief
from Pension Law
With pension funds facing billions of dollars in shortfalls as markets
plunge, a range of companies from Ford to Verizon are pushing Congress
to suspend portions of a two-year-old law they say could force them to
cut jobs as they shift scarce money into ailing retirement pools, the
Associated Press reported today. The lobbying effort aims to change a
2006 pension revision law as part of any economic stimulus plan in a
lame-duck session of Congress that begins next week. Companies warn that
the current law could force them to tie up large sums of cash they
desperately need in the face of a global recession. Roughly 300
companies and business groups plan to make the request in a letter
tomorrow to congressional committees. The authors include some of the
nation's biggest corporate names from a variety of sectors, including
Ford Motor, IBM, Pfizer and Verizon Communications.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/11/11/AR2008111102640.html?hpid=topnews'>Read
more.
Autos
Democrats Seek Help for
Automakers
Democratic congressional leaders said yesterday that they were ready to
push emergency legislation to aid the imperiled auto industry when
lawmakers return to Washington next week, setting the stage for one last
showdown with President Bush, the New York Times reported
today. “Next week, during the lame-duck session of Congress, we
are determined to pass legislation that will save the jobs of millions
of workers whose livelihoods are on the line,” said Senate
Majority Leader Harry Reid (D-Nev.) His call for the session, the first
since the election, came shortly after House Speaker Nancy Pelosi
(D-Calif.) said that Congress and the administration “must take
immediate action” to stave off a possible collapse of the American
auto industry. Pelosi stopped short of saying that Congress would adopt
legislation to provide emergency financial aid to the automakers, giving
the Treasury Department the option of using money from the $700 billion
bailout program instead. At a meeting on Monday at the White House,
President-elect Barack Obama also urged Bush to help the automobile
companies.
href='http://www.nytimes.com/2008/11/12/washington/12cong.html?_r=1&hp=&oref=slogin&pagewanted=print'>Read
more.
Delphi Seeks $300 Million More
from GM
Struggling to avoid liquidation, bankrupt auto parts maker Delphi Corp.
has asked a court for permission to extend debtor borrowing agreements
and obtain an additional $300 million from beleaguered automaker General
Motors Corp., Bankruptcy Law360 reported yesterday. Delphi
sought the extension for its debtor-in-possession financing facilities
and additional funds from GM in hopes of providing the company with
needed liquidity through June 30, 2009, the motions said. Under a
previous agreement, Delphi would receive $300 million from a GM
financing facility, according to court documents. The company requested
Friday to increase that facility to $600 million.
href='http://bankruptcy.law360.com/articles/76206'>Read
more. (Subscription required.)
Treasury Considers Private Role in
Relief Program
The Treasury Department is considering requiring that firms seeking
future government money raise private capital in order to qualify for
public assistance, the Wall Street Journal reported today. The
move is not expected to apply to the existing $250 billion
capital-purchase program, which is already injecting money into banks.
However, the Treasury Department is considering attaching such
conditions to any of its future capital investments. At the same time,
Treasury is unlikely to conduct any auctions to purchase bad loans and
other troubled assets -- the original intention of the $700 billion
rescue plan. Instead, Treasury is expected to continue focusing its
firepower on injecting capital directly into the financial sector.
Treasury Secretary Henry Paulson will be providing an update today on
Treasury's Troubled Asset Relief Program. Treasury has just $60 billion
left in its rescue fund, and either the current or next administration
will have to turn to Congress to request the second half of the promised
$700 billion.
href='http://online.wsj.com/article/SB122646068478519997.html'>Read
more. (Registration required.)
Illinois Governor Predicts $800
Million in Lost Revenue
Gov. Rod Blagojevich (D) warned Monday that a declining economy is
eating away at Illinois' state revenue, creating what could be a budget
shortfall of $800 million or more, according to the Associated Press.
Combined, income and sales taxes are down $247 million, or 4.3 percent,
from what the administration predicted last spring, according to the
Illinois Revenue Department. At that pace, the department predicted
that income from those sources could be down $821 million for the
year or more if the economy worsens. The Revenue Department says tax
revenue from riverboat casinos could fall $100 million below projections
too. The shaky fiscal picture is the reason that Blagojevich has not
acted on legislation to restore $230 million in budget cuts he was
forced to make last summer.
href='http://www.forbes.com/feeds/ap/2008/11/10/ap5674279.html'>Read
more.
Retail Losses Sap a Jobs Safety
Net
Circuit City Stores Inc.'s bankruptcy court filing Monday underscores
how the U.S. retail sector is losing its place as the employer of last
resort for the unemployed, the Wall Street Journal reported
today. Circuit City, the country's second-largest electronics chain, had
already announced it would cut 6,800 people as it conducts
going-out-of-business sales at one-fifth of its outlets. On Monday, the
company filed for chapter 11 protection and said that the number of job
losses was likely to rise to 8,000. Circuit City is the latest of at
least 14 major retail chains, including Linens 'n Things and Mervyn's
LLC, to file for bankruptcy protection in the past 12 months. Many, such
as Linens, are discovering that they can't find financing and are
liquidating, slashing tens of thousands of jobs. Fashion retailer Steve
& Barry's entered chapter 11 protection this summer with a plan to
trim about 100 of its 276 stores, but is now likely to liquidate the
entire chain.
href='http://online.wsj.com/article/SB122636403853215803.html'>Read
more. (Registration required.)
Judge Approves $20 Million Loan for
Tweeter Liquidation
Bankruptcy Judge Mary F. Walrath on Friday granted interim approval for
consumer electronics retailer Tweeter Opco LLC to borrow up to $20
million in chapter 11 financing to help the company conduct an orderly
liquidation of its roughly 90 stores, Bankruptcy Law360 reported
yesterday. Judge Walrath also granted requests for the company to
continue using its cash-management system and uphold prepetition
obligations to vendors and customers. Tweeter also has requested that
the court allow the company to hire a consultant to help in the
bankruptcy and to approve Tweeter's store liquidation
guidelines.
href='http://bankruptcy.law360.com/print_article/76139'>Read
more. (Subscription required.)
Real Estate Company DBSI Files for
Bankruptcy
Real estate investment company DBSI Inc. and many of its affiliates
filed for chapter 11 protection on Monday, citing factors including a
deteriorating real estate market and an inability to raise capital
from investors or obtain new lending to continue operations,
Bankruptcy Law360 reported yesterday. Meridian, Idaho-based
DBSI Inc. and more than 100 affiliates filed petitions Monday in the
U.S. Bankruptcy Court for the District of Delaware, and asked that the
cases be jointly administered. DBSI Inc.'s petition listed liabilities
and assets both in the $100 to $500 million range. The case is In re
DBSI Inc., case number 08-12687, in the U.S. bankruptcy court for
the District of Delaware.
href='http://bankruptcy.law360.com/articles/76132'>Read
more. (Subscription required.)
Montana Resort Files for
Bankruptcy
Yellowstone Club, a private ski resort in Montana, has filed for
bankruptcy protection citing a slump in real estate prices, Bloomberg
News reported yesterday. Credit Suisse plans to arrange a $4.5 million
loan to fund operations at the club in coming weeks, according to court
papers. The club, which has an 18-hole golf course, had an appraised
value of $778 million on June 28, excluding unsold memberships at the
club, which are worth another $336 million, according to court papers.
The club owes $307 million on the Credit Suisse loan, according to the
filing. Vendors have demanded another $340,342 in late payments for
construction projects, and it owes another $20.2 million to other
lenders, the club said.
href='http://www.bloomberg.com/apps/news?pid=20601127&sid=a9VhNOm8y7qY'>Read
more.
National Wholesale Liquidators Files
for Bankruptcy
National Wholesale Liquidators Inc., a family-owned discount
retailer, sought bankruptcy protection from creditors listing assets and
debt of $100 million to $500 million each, Bloomberg News reported.
Sixty-two affiliates of the company also filed, according to court
documents. The company, founded in 1984, carries more than 120,000 items
including brand-name closeouts. Its more than 50 stores are located in
suburban shopping plazas in 10 states including New York, New Jersey and
Pennsylvania. The 20 largest creditors without collateral backing
their claims are owed a total of $12.9 million, court papers show. The
case is In re National Wholesale Liquidators Inc., 08-12868,
U.S. Bankruptcy Court, District of Delaware (Wilmington).
href='http://www.bloomberg.com/apps/news?pid=20601087&sid=aw5RJ.tfRek8'>Read
more.
Mall Operator Warns of
Bankruptcy
General Growth Properties Inc., the No. 2 mall operator in the United
States, has warned that an ongoing slump in retail sales, combined with
the credit market lockdown, has pushed the company to the brink of
bankruptcy, CNNMoney.com reported yesterday. Chicago-based General
Growth Properties said in an SEC filing late Monday that it has $900
million of property secured debt and $58 million of corporate debt
coming up for renewal by Dec. 1. It also faces another $3.07 billion in
debt that matures in 2009.
href='http://money.cnn.com/2008/11/11/news/companies/general_growth/index.htm?section=money_latest'>Read
more.
Accentia Seeks Chapter 11
Protection
Citing a funding squeeze caused by the current global financial crisis,
Accentia Biopharmaceuticals Inc. and several of its subsidiaries have
filed petitions for chapter 11 protection, Bankruptcy Law360
reported yeserday. The Tampa, Fla.-based company said that it intended
to significantly decrease operating expenses and financing costs and
refocus resources on drug development programs and other initiatives
that would attract investors. The biopharmaceuticals maker said that it
has several late-stage products in its pipeline that are expected to
provide multibillion-dollar market opportunities. Accentia, a portfolio
company of the Hopkins Capital Group LLC, said it expected to continue
operations without interruption during reorganization.
href='http://bankruptcy.law360.com/articles/76276'>Read
more. (Registration required.)
Energy Company Files for
Bankruptcy
The U.S. subsidiaries of Storm Cat Energy Corp. have filed for chapter
11, but the company says it is in negotiations with its lenders to win
financing and hopes to continue operating without interruption,
Bankruptcy Law360 reported yesterday. The subsidiaries listed
between $100 million and $500 million in assets and $50 million to $100
million in liabilities. Storm Cat is an independent oil and gas company
focused on the exploration, production and development of large
unconventional gas reserves from fractured shales, coal beds and tight
sand formations and, secondarily, from conventional formations. Storm
Cat said that outstanding debt obligations include about $40 million in
outstanding principal of a term loan facility and approximately $25
million in outstanding principal amount of a revolving credit facility
issued by Wells Fargo Foothill LLC.
href='http://bankruptcy.law360.com/articles/76413'>Read
more. (Registration required.)
American Express to Be Bank Holding
Company
American Express, the nation's last big independent credit card company,
said on Monday that it would transform into a bank holding company to
strengthen its position in the market turmoil, the New York
Times reported. Federal Reserve banking regulators said they
approved its application because of the “unusual and exigent
circumstances” roiling financial markets and the company's
interest in tapping up to $3.8 billion in government money. As a
full-fledged bank, American Express would gain greater access to the
Treasury Department's bailout plan for banks, a move that might allow it
to lend more freely and perhaps acquire a larger deposit-taking
institution.
href='http://www.nytimes.com/2008/11/11/business/11amex.html?ref=business&pagewanted=print'>Read
more.
Indictments Said to Be Possible in
UBS Inquiry
A federal investigation into UBS concerning its sale of offshore private
banking services to wealthy Americans is concentrating on senior and
midlevel executives and bankers, and could result in one or more
indictments, the New York Times reported. Investigators are
sifting through more than 70 names and related account details of
American clients provided by UBS over the last few months to the Justice
Department, which has passed the details to the Internal Revenue Service
for further scrutiny. The Justice Department and the IRS plan to build
both civil and criminal tax-evasion cases against some of the
clients.
href='http://www.nytimes.com/2008/11/11/business/11ubs.html?ref=business&pagewanted=print'>Read
more.
HSBC Hurt by Delinquent U.S.
Borrowers
HSBC Holdings PLC said more U.S. consumers fell behind on their credit
card, home-equity and other loans in the third quarter leading to
write-downs totaling $4.3 billion, the Wall Street Journal
reported. The third quarter write-downs were up by $700 million since
the second quarter. HSBC said on Monday that mortgage delinquencies were
leveling off, but the bank painted a gloomy picture for the consumer
portfolio of credit cards and unsecured personal loan. The bank
estimated in a U.S. securities filing that the slowdown in the housing
market will continue to affect housing prices into 2010.
href='http://online.wsj.com/article/SB122630785726913333.html'>Read
more. (Registration required.)