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December
18, 2007
Mortgage
Lending
name='1'>GSE Language Jettisoned from Spending
Bill
In last-minute wrangling
over the omnibus spending bill, Sen. Charles Schumer (D-N.Y.) was denied
in his bid to raise portfolio caps on Fannie Mae and Freddie Mac to
bring more liquidity to the turbulent housing market,
face='Times New Roman' size='3'>CongressDaily
size='3'>reported yesterday. Schumer wanted to attach a rider to the
bill that would have allowed the two government-sponsored enterprises,
which hold or guarantee 40 percent of the home mortgage market, to raise
their caps by 10 percent for the next six months. Under an agreement
with House Financial Services Chairman Frank, the language would have
required 85 percent of the proceeds from such an increase to be devoted
to refinancing loans for subprime customers who are eligible for prime
loans. Schumer noted that the GSE language would have helped more
homeowners than Senate-passed legislation that would overhaul the
Federal Housing Administration's mortgage insurance program and the
White House voluntary programs to encourage lenders to rework their
subprime loans with at-risk borrowers - two efforts he said would only
reach about 10 percent of troubled homeowners. 'The administration and
several other senators objected,' Schumer said. 'We are going to try to
put our GSE proposal somewhere else.”
name='2'>Commentary: Government Took Little Action before Subprime
Crisis Spread
A number of government
officials forewarned of the current subprime mortgage crisis, but little
action was taken by the Federal Reserve to halt malicious lending
practices, the New York
Times reported today. Edward M. Gramlich, a
Federal Reserve governor who died in September, warned nearly seven
years ago that a fast-growing new breed of lenders was luring many
people into risky mortgages they could not afford, but was rebuffed by
former Fed chairman Alan Greenspan when he privately urged Fed examiners
to investigate mortgage lenders affiliated with national banks. In 2001,
Senior Treasury Official Sheila C. Bair tried to persuade subprime
lenders to adopt a code of “best practices” and to let
outside monitors verify their compliance. None of the lenders would
agree to the monitors, and many rejected the code itself. Leaders of a
housing advocacy group in
w:st='on'>
size='3'>California
meeting with Greenspan in 2004, warned that deception was increasing and
unscrupulous practices were spreading. An examination of regulatory
decisions shows that the Federal Reserve and other agencies waited until
it was too late before trying to tame the industry’s
excesses.
href='http://www.nytimes.com/2007/12/18/business/18subprime.html?_r=1&hp=&oref=slogin&pagewanted=print'>Read
more.
name='3'>Delta Financial Files for Bankruptcy
Delta Financial Corp.
filed its expected chapter 11 bankruptcy yesterday in
w:st='on'>
size='3'>Delaware
a group of failed mortgage lenders winding up their affairs under court
protection, the Associated Press reported yesterday. The Woodbury,
N.Y.-based lender had hoped for a rescue from hedge fund Angelo Gordon
& Co., but was unable to meet a condition of the deal that required
it to sell or refinance $500 million worth of loans. Turmoil in the
secondary mortgage market that buys packaged home loans produced by
companies such as Delta has made buyers scarce. As of Nov. 30, Delta
held about $550 million worth of mortgage loans.
href='http://biz.yahoo.com/ap/071217/delta_financial_bankruptcy.html?.v=1'>Read
more.
name='4'>Commentary: The
w:st='on'>Clinton
size='3'>Housing Bubble
While the current housing
bubble was being fueled by housing purchases and repackaged loans, each
with inadequate equity, the Clinton Administration’s 1997 decision
to exempt real estate from the capital gains tax up to $500,000 of
profit was also another catalyst, according to a commentary in
today’s Wall
Street Journal. The consumption binge is now
over and there is more than enough blame and souring loans to spread
around. The Federal Reserve, with a default-risk tiger by the tail,
feels handcuffed by its accountability and responsibility for avoiding a
cascade of defaults in the highest quality obligations, as well as the
bad investments seeking an asymmetric tax-free profit. Shades of Long
Term Capital, the Savings and Loan crisis, and the myth of Portfolio
Insurance - historical cases of borrowing short to lend for what may
turn out to be longer than expected. They are all conditioned on the
existence of liquidity for sellers that can dry up quickly.
href='http://online.wsj.com/article/SB119794091743935595.html?mod=opinion_main_commentaries'>Read
more. (Registration required.)
name='5'>Mortgage Lenders
w:st='on'>
size='3'>USA
size='3'>Defends Deals Against Travelers
Bankrupt subprime lender
Mortgage Lenders USA Inc. defended deals it had struck with four state
banking departments against an objection from Travelers Companies Inc.,
saying that Travelers had misinterpreted the settlement and relied on
speculative arguments,
size='3'>Bankruptcy Law360 reported yesterday.
In a series of settlements Mortgage Lenders submitted to the U.S.
Bankruptcy Court in
w:st='on'>
size='3'>Delaware
November, the lender had said it would pay $845,000 to the Connecticut
Department of Banking and $10,000 to the New Hampshire Banking
Department. The debtor had also agreed to surrender its mortgage lender
licenses to the Michigan Office of Financial Insurance Services and
cease its mortgage broker operations at the Ohio Department of Commerce,
Division of Financial Institutions' request. Travelers, which issued
Mortgage Lenders certain surety bonds in the four states, had claimed
that the settlements could affect its claims on Mortgage Lenders' estate
by allowing claimants against those bonds to override Travelers' claims
on grounds of collateral estoppel.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=42634'>Read
more. (Registration required.)
name='6'>Calpine Reduces Exit Financing by $400
Million
Calpine will lower its
bankruptcy-exit financing package by $400 million to $7.6 billion under
a deal with its lenders that gives the power company an extra week to
emerge from chapter 11 and loosens some of the loan's financial
covenants, Dow Jones Newswires reported yesterday. Calpine said that it
agreed to amend the financing after its lenders, Goldman Sachs Credit
Partners, Credit Suisse, Deutsche Bank and Morgan Stanley Senior
Funding, Inc., raised concerns that it wouldn't be able to meet all the
conditions to access the financing 'including, most significant, as to
financial covenants.' The changes, approved by the U.S. Bankruptcy Court
in
size='3'>Manhattan
size='3'>yesterday, give Calpine 'additional room' to meet certain
financial conditions and extend the closing deadline on the financing
pact to Feb. 7 from Jan. 31.
href='http://www.mercurynews.com/ci_7743771?source=rss&nclick_check=1'>Read
more.
name='7'>California Medical Services District Files for
Bankruptcy
Valley Health System, a public health care district that owns hospitals
in
size='3'>Hemet
size='3'>Moreno Valley
size='3'>Calif.
chapter 9 bankruptcy on Thursday as the district had been losing about
$3 million a month, according to the
size='3'>North County Times today. Off the
table, at least for now, are cuts in services and layoffs beyond the 41
jobs cut last month. West Contra Costa Healthcare District, which has
been in bankruptcy protection since October 2006, closed down the
obstetrics unit at its hospital in San Pablo and laid off 300 of its
workers after filing under chapter 9.
href='http://www.nctimes.com/articles/2007/12/18/news/californian/5_04_9812_17_07.txt'>Read
more.
Bear
Stearns Manager's Actions Are Subject of Inquiry
Federal criminal
prosecutors investigating the collapse of two internal hedge funds at
Wall Street firm Bear Stearns Cos. are examining whether a Bear
executive improperly withdrew money he had invested in one of the funds
while making optimistic forecasts about the portfolio's prospects,
the Wall Street
Journal reported today. Weeks before the two
funds began imploding in April, fund manager Ralph Cioffi moved about $2
million of his own money from the riskier of the two hedge funds into
another internal fund with a separate investment strategy. Cioffi's move
effectively lowered his exposure to the riskier of the two failed funds
when it was on the brink of significant declines. No other senior Bear
executive invested in the funds.
href='http://online.wsj.com/article/SB119795135465136175.html?mod=us_business_whats_news'>Read
more. (Registration required.)
International
name='9'>Palestinian Conference Seen as 'Last Hope' against
Bankruptcy
U.S. Secretary of State
Condoleezza Rice pledged Monday $555 million dollars (€385
million) in immediate aid for the Palestinian government which she said
was facing its last chance before bankruptcy, Agence France Presse
reported yesterday. 'The Palestinian Authority is experiencing a serious
budgetary crisis. This conference is literally the government's last
hope to avoid bankruptcy,' Rice told around 90 delegations at the
meeting in
face='Times New Roman' size='3'>Paris
size='3'>. Palestinian president Mahmud Abbas is seeking $5.6 billion
dollars (€3.85 billion) spread over 2008 to 2010 for an ambitious
development plan to underwrite a promised state and tackle economic
hardship in the Palestinian territories. Rice said that the $555 million
would be for the year 2008 alone, and some $150 million of it would go
on budgetary support.
href='http://news.yahoo.com/s/afp/20071217/pl_afp/mideastdiplomacyaidusrice_071217155241'>Read
more.
name='10'>Diamond Wholesaler Files Disclosure Statement and
Reorganization Plan
Diamond wholesaler LID
Ltd. filed its disclosure statement and reorganization plan on Friday, a
day before its exclusive filing period was set to expire,
Bankruptcy Law360
reported yesterday. Under the plan, banks would be repaid
in full but unsecured creditors would get less than a quarter of what
they are owed. With assets of about $157 million and liabilities of
about $143 million, LID set out three different ways it could
potentially pay back its four lending banks, which it owes about $41
million total in principal, interests, fees and costs. Finally, equity
would be kept unimpaired, and shareholders keeping their stock would
eventually be rewarded with an infusion of $3 million into the company
upon confirmation of the plan. Along with that new value, LID said that
a third party would pump $10 million into the company so it could buy
the liens of lenders at 50 percent of their allowed claims, less any
principal payments they had thus far received.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=42568'>Read
more. (Registration required.)