April 162008

 

Housing
Crisis

name='1'>House Panel Looks to Mark Up Loan Servicer
Legislation

Despite reluctance from
much of the housing-finance industry, the House Financial Services
Committee is set to mark up legislation being sponsored by Rep. Michael
Castle (R-Del.) that would remove legal liability for loan servicers
that restructure mortgages on their own in an attempt to help at-risk
borrowers,
size='3'>CongressDaily reported today. The
bill is designed to provide incentives for servicers to make
modifications to a mortgage -- such as changing the interest rate,
principal or length of terms -- to avoid foreclosure. Castle and others
argued during a House Financial Services Capital Markets Subcommittee
hearing yesterday that servicers are reluctant to modify such loans
because of the threat of litigation from major investors who own a
portion of the mortgage. The American Securitization Forum, which
represents much of the industry from issuers to investors, opposes the
bill, arguing it is unnecessary because loan servicers already have a
duty in their contracts to engage in loss mitigation with at-risk
borrowers. Rep. Brad Sherman
size='3'>(D-Calif.) questioned how the legislation could discourage
future investment in mortgage-backed securities since it attempts to
clarify the rights of servicers who act to benefit the overall pool of
investors. The House Financial Services Committee is expected to mark up

the bill next Wednesday.

In related news, the House Financial Services
Subcommittee on Housing and Community Opportunity will hold a hearing
today entitled “H.R. 5679, The Foreclosure Prevention and Sound
Mortgage Servicing Act of 2008” at 10 a.m. in room 2128 of the
Rayburn House Office Building.  

href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr041608.shtml'>Click

here to view the prepared witness testimony.

name='2'>Big Tax Breaks for Businesses in Senate Housing
Bill

While the housing stimulus bill

that passed the Senate last week would take modest steps toward the goal

of relieving some strain on homeowners, it would also provide billions
of dollars in tax breaks — for automakers, airlines, alternative
energy producers and other struggling industries, as well as home
builders, the New York Times reported today.
face='Times





















New
















Roman'>

size='3'>The nation’s biggest home builders, some now on the verge

of bankruptcy, won a provision within the legislation that would let
them claim millions in tax refunds by charging their current losses
against the huge profits they made three or four years ago. Other
struggling industries would also benefit from this
provision.  Supporters of the bill, including

Senate Finance Committee Chair Max Baucus (D-Mont.), said that it
represents sound tax policy carefully focused to help stimulate the
lagging economy. However, the White House opposes the Senate bill, and
Democratic leaders in the House have not only promised to provide more
relief for individual homeowners, but have also dropped the corporate
tax provisions from their version. 

href='http://www.nytimes.com/2008/04/16/business/16bailout.html?_r=1&hp=&oref=slogin&pagewanted=print'>Read

more.

name='3'>Report: Foreclosures Push States to Try a Mix of
Solutions

As the federal government

debates responses to the foreclosure crisis, a survey by the Pew
Charitable Trusts showed that states are experimenting with a broad
range of solutions, including emergency loans and agreements to limit
high interest rates, the
size='3'>New York Times reported today. The
result is a rapidly changing patchwork of local approaches, some
far-reaching, others modest, according to the survey. Among other
measures, 20 states have created intervention programs, 13 have set up
counseling hotlines, 14 have assembled task forces and 9 have
established funds for emergency loans or refinance loans, totaling $450
million. Only nine states require mortgage brokers to consider the best
interests of borrowers when making loans, and only seven require lenders

to assess borrowers’ ability to repay. At the same time, state
governments are hamstrung by declining revenues as a result of the
housing meltdown. 

href='http://www.nytimes.com/2008/04/16/us/16foreclose.html?ref=business&pagewanted=print'>Read

more.

name='4'>Offshore Funds Seek Tax Benefit for Purchases of Distressed

Mortgages

Offshore hedge funds
eager to buy up pools of distressed mortgages are lobbying the Bush
administration to ensure they will pay no
w:st='on'>
size='3'>U.S.
size='3'>taxes on any profits, the

size='3'>Wall Street Journal reported today.
If successful, the efforts could provide much-needed liquidity for the
mortgage market, but a favorable regulatory ruling also could make
permanent a tax benefit for these offshore funds that had become
controversial in the past year. Many hedge funds are examining whether
to buy -- at a sharp discount -- the billions of dollars worth of
delinquent loans that banks and other lenders want to offload. The funds

would likely renegotiate the terms of the loans -- possibly with the
assistance of laid-off employees at mortgage companies across the
country -- and then would hope to eventually sell the loans for a
profit. However, many funds are concerned that if they renegotiate the
terms of the distressed loans, that could turn them into active lenders
in the eyes of tax authorities, instead of passive investors. 

href='http://online.wsj.com/article_print/SB120830362329917647.html'>Read

more. (Registration required.)

name='5'>Education Lenders Seek Help in Maintaining Loan
Liquidity

Industry officials from
the student lending industry at a Senate Banking Committee hearing
yesterday called on the Bush administration to use the Federal Financing

Bank (FFB) to pump emergency liquidity into the student loan markets,
CongressDaily reported. John Remondi, chief financial officer
for education lender Sallie Mae, warned that the markets had come under
'unprecedented stress' due to the Wall Street credit crunch and recent
funding cuts in the student loan program, and could start running short
of the resources needed to satisfy demand as early as next month. The
move was also urged by two other industry witnesses, American
Securitization Forum Executive Director Tom Deutsch and Mark Kantrowitz,

publisher of FinAid.org, a clearinghouse for information on student loan

availability. Deutsch said the combined effect of the student loan
funding cuts and soaring cost of credit caused by the crisis in
mortgage-backed securities had made the origination of federally
guaranteed student loans a 'money losing proposition.' Senate Banking
Committee Chairman

size='3'>Christopher Dodd said
that he would ask Treasury Secretary Henry Paulson to consider the
intervention of the FFB.

face='Times New Roman' size='3'>
name='6'>Delphi

size='3'> Chairman Sure Company Will Emerge from Chapter
11

Delphi Corp. Executive
Chairman Steve Miller says the auto parts maker's turnaround plan is
generating $20 billion to $30 billion per year in new business that will

be an engine of growth for the company when it exits bankruptcy
protection, the Associated Press reported yesterday. In the face of
declining
w:st='on'>
size='3'>U.S.
size='3'>auto sales, tight capital markets have made investors wary,
making it difficult for the Troy, Mich.-based company to pull together
the financing it needs to emerge from chapter 11. On April 4, just as
Delphi had arranged $6.1 billion in loans and additional funding from
General Motors Corp. to get out of bankruptcy, an investment group led
by the private equity firm Appaloosa Management LP pulled out of a deal
to provide a $2.55 billion cash injection. Appaloosa accused

size='3'>Delphi of breaching an
agreement with the investor group. 
href='http://www.chron.com/disp/story.mpl/ap/fn/5703038.html'>Read
more.

NYRA
Seeks Sixth Exclusivity Extension

The New York Racing
Association Inc. is seeking yet another extension of its exclusivity
period, saying that it will need additional time to work out the final
details of its franchising agreement with the state of

w:st='on'>New

York,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. The bankrupt racing franchise has been
selected to run thoroughbred racing in New York for a period of 25
years, and related legislation has been passed by both the New York
State Senate and the New York State Assembly and signed into law by the
governor, the filing said. NYRA said that the only remaining step in its

chapter 11 case is to solidify the necessary agreements with respect to
the next franchise and the terms of the state settlement
agreement. 

href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=53089'>Read

more. (Registration required.)

name='8'>MediCor's Unsecured Creditors Object to
size='3'>
w:st='on'>Sale

Ten months after filing
for chapter 11, bankrupt breast-implant maker MediCor Ltd. and its
creditors are still fighting over the sale of the company’s
assets, Bankruptcy
Law360 reported yesterday. MediCor filed its
sale motion on March 24, seeking approval to sell its foreign
subsidiaries — Eurosilicone SAS, Biosol Ltd. and Nagor Ltd.
— and their related assets to Global Consolidated Aesthetics
(U.S.) Corp., Global Consolidated Aesthetics France SAS and Global
Consolidated Aesthetics Holdings Ltd. for $51.5 million. The debtors
will receive about $20 million in proceeds from the sale, the unsecured
creditors said. However, MediCor’s various creditors disagree over

how the proceeds from any sale should be distributed. The parties
entered into mediation on March 25 and 26 over the matter and various
claims in the chapter 11 case, but talks were unsuccessful. 

href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=53064'>Read

more. (Registration required.)

name='9'>Citigroup Wins Dismissal of Most Parmalat
Claims

Citigroup Inc., the
largest U.S. bank by assets, won dismissal of most of a

size='3'>New Jersey
size='3'>lawsuit that sought billions of dollars in damages over the
2003 collapse of Parmalat SpA, Bloomberg News reported yesterday.
Citigroup still faces a May 5 trial on claims by Parmalat CEO Enrico
Bondi that the bank aided and abetted larceny by corrupt insiders at the

Italian dairy company. State Superior Court Judge Jonathan Harris in
Hackensack, N.J., today approved Citigroup's request to dismiss Bondi's
claims of fraud, conspiracy, racketeering and unjust enrichment. Bondi
sought $7 billion in the case, claiming that
w:st='on'>New

York-based Citigroup
turned a blind eye to Parmalat's financial condition. Under

size='3'>New Jersey
size='3'>racketeering law, any recovery might have been tripled, raising

the award to $21 billion. Bondi also sought punitive damages to punish
Citigroup. The

case is Bondi v.
Citigroup, BER-L-10902-04, New Jersey Superior

Court (

size='3'>Hackensack
size='3'>). 

href='http://www.bloomberg.com/apps/news?pid=20601085&sid=abzNQPjdJce4'>Read

more.

name='10'>Linens ’n Things Puts Off $16 Million Interest
Payment

Linens ’n Things,
the troubled home furnishings retailer, said yesterday that it would
defer paying about $16.1 million in interest payments that were due
yesterday as it worked with its creditors, bondholders and vendors to
stave off a bankruptcy filing, the

size='3'>New York Times reported today. The
company, whose majority owner is the private equity firm Apollo Global
Management, is struggling to remain solvent despite continued poor
financial performance, a high level of debt and a harsh environment for
retailers. The payment that was due Tuesday applied to a $650 million
issue of debt, comprising several senior notes due in 2014. However, the

terms of that debt include a 30-day grace period for payment of that
interest. 

href='http://www.nytimes.com/2008/04/16/business/16linens.html?sq=bankruptcy&st=nyt&scp=2&pagewanted=print'>Read

more.

name='11'>Senator Urges SEC to Step Up Policing of Bond Rating
Firms

Sen. Charles Schumer
(D-N.Y.) met with Securities and Exchange Commission Chairman

size='3'>Christopher Cox to press

the agency to increase its efforts policing conflicts of interests that
may have contributed to bond-rating companies' missed calls in the
housing market, the Wall

Street Journal reported today. The meeting was

scheduled by Cox to brief the Schumer on the SEC's progress in
considering new rules to more-tightly regulate the rating companies,
according to a person familiar with the matter. The companies --
McGraw-Hill Cos.' Standard & Poor's, Moody's Corp.'s Moody's
Investors Service and Fimalac SA's Fitch Ratings -- have been forced to
downgrade thousands of mortgage-related investments after their initial
calls about the U.S. housing market proved too optimistic in the last 18

months. Schumer also asked the SEC to investigate whether Moody's on
occasion switched ratings analysts off of specific deals at the request
of Wall Street bond issuers and altered its approach on certain deals
after bond issuers complained. 

href='http://online.wsj.com/article_print/SB120831560779418691.html'>Read

more. (Registration required.)

name='12'>Treasury Department Committees Call for More Oversight of
Hedge Funds

Two committees appointed
by the Treasury Department called yesterday for greater accountability
within the secretive world of hedge funds and pressed fund managers to
detail their investment activities, saying such moves would help the
troubled financial markets, the
size='3'>Washington Post reported today. The
two panels included senior executives of large hedge funds and major
institutional investors such as pension funds. Under their proposals,
hedge funds would set up independent bodies to oversee how fund managers

are pricing hard-to-value financial investments and examine whether they

are facing conflicts of interest. The recommendations, however, did not
seek regulatory oversight for hedge funds. Members of the panels said
that the proposals were voluntary and acknowledged that they did not
know how much it would cost to implement them. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2008/04/15/AR2008041502807_pf.html'>Read

more.

name='13'>Bankers Cast Doubt on Key Rate amid Credit
Crisis

In a development that has

implications for both consumer and corporate borrowers around the world,

bankers and traders are expressing concerns that the
w:st='on'>
size='3'>London inter-bank
offered rate, known as Libor, is becoming unreliable, the
Wall Street Journal
reported today. Calculated every morning in

size='3'>London from
information supplied by banks all over the world, it's a measure of the
average interest rate at which banks make short-term loans to one
another. Libor provides a key indicator of their health, rising when
banks are in trouble. The interest rates on trillions of dollars in
corporate debt, home mortgages and financial contracts reset according
to Libor. In recent months, the financial crisis sparked by subprime
mortgage problems has jolted banks and sent Libor sharply upward. The
growing suspicions about Libor's veracity suggest that banks' troubles
could be worse than they're willing to admit. Some banks don't want to
report the high rates they're paying for short-term loans because they
don't want to tip off the market that they're desperate for cash.
Misstatements by banks could mean that millions of borrowers around the
world are paying artificially low rates on their loans. That's good for
borrowers, but could be bad for the banks and other financial
institutions that lend to them. 

href='http://online.wsj.com/article_print/SB120831164167818299.html'>Read

more. (Registration required)

w:st='on'>
name='14'>Washington
face='Times New Roman' size='3'> Mutual Revises Executive Pay Plan
amid Subprime Downturn

Washington Mutual Inc.,
under pressure from shareholders, will revise an incentive-pay program
that shielded executives' cash bonuses from some costs tied to mortgage
losses and foreclosures, the
size='3'>Wall Street Journal reported today.
The move was announced at the annual meeting of the nation's largest
thrift by market capitalization, where Chairman and Chief Executive
Kerry Killinger said that the director who oversaw the board's finance
committee during WaMu's plunge into subprime and adjustable-rate
mortgages had resigned. Also, shareholders voted to ask Killinger to
give up his role as chairman, as the bank continued to take a financial
hit, with a first-quarter loss of $1.14 billion, or $1.40 a share,
compared with a year-earlier profit of $784 million, or 86 cents a
share. 

href='http://online.wsj.com/article_print/SB120829015769217071.html'>Read

more. (Registration required.)

International

name='15'>Court Extends Bankruptcy Protection for Canadian
Debt

A Canadian court extended

bankruptcy protection on C$32 billion ($31.4 billion) of commercial
paper to give investors time to vote on a debt- restructuring plan,
Bloomberg News reported yesterday. Judge Colin Campbell extended the
protection until May 31 at a hearing in Ontario Superior Court today.
The bankruptcy protection for 20 asset-backed commercial paper trusts
was granted March 17, and was due to expire today. 
size='3'>A group of institutional investors, led by Toronto lawyer Purdy

Crawford, spent seven months on a plan to convert the short-term debt
into notes that mature within nine years. Noteholders are scheduled to
vote on the plan April 25, with majority support required for the
proposal to succeed. 

href='http://www.bloomberg.com/apps/news?pid=20601082&sid=aAjOXlOqM63o'>Read

more.

href='http://www.bloomberg.com/apps/news?pid=20601082&sid=aAjOXlOqM63o'>