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June 10, 2008
FHA
Faces $4.6 Billion in Losses
The Federal Housing Administration (FHA) said yesterday that it expects
to lose $4.6 billion because of unexpectedly high default rates on home
loans, the New York Times reported. FHA Commissioner Brian D.
Montgomery attributed the unanticipated losses primarily to the agency's
seller-financed down payment mortgage program, which has suffered from
high delinquency and foreclosure rates in recent years. Housing
officials said the agency was also hurt by poor performance in its
traditional mortgage portfolio. Deteriorating economic conditions led
some of its core clients - first-time buyers, minorities and
lower-income owners - to default, they said. The projected loss is the
highest in the home loan program since 2004, and officials said the FHA
had to withdraw $4.6 billion from its $21 billion capital reserve fund
in May to cover the costs. They said the agency, which is
self-sustaining, would not need appropriations from Congress to remain
solvent.
href='http://www.nytimes.com/2008/06/10/business/10housing.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
In related news, Federal Housing Administration Commissioner Brian
Montgomery also said that the loan limit for his agency's mortgage
insurance program should be reduced to $550,000 from nearly $730,000
because the current maximum level serves very few borrowers across the
country, CongressDaily reported today. Montgomery called the
$730,000 level -- which was established under the economic-stimulus
package Congress passed this year -- an 'awfully big number' that only
serves 75 counties out of 3,300 nationwide. The FHA level began the year
at $362,000.
name='2'>Commentary: How HUD's Mortgage Policy Helped Feed the
Mortgage Crisis
Eager to put more low-income and minority families into their own homes
during the housing boom, the U.S. Department of Housing and Urban
Development (HUD) required that two government-chartered mortgage
finance firms purchase far more 'affordable' loans made to subprime
borrowers, according to a Washington Post report
today. HUD stuck with an outdated policy that allowed Freddie Mac and
Fannie Mae to count billions of dollars they invested in subprime loans
as a public good that would foster affordable housing. The agency
neglected to examine whether borrowers could make the payments on the
loans that Freddie and Fannie classified as affordable. From 2004-06,
the two purchased $434 billion in securities backed by subprime loans,
creating a market for more such lending. Lower-income and minority home
buyers -- those who were supposed to benefit from HUD's actions - are
now falling into default at a rate at least three times that of other
borrowers.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626_pf.html'>Read
more.
American Home Looks to Toss Executive
Contracts
American Home Mortgage Corp. (AHM) has asked the court overseeing its
chapter 11 case to allow the company to reject employment agreements
made with five of AHM's top executives, Bankruptcy Law360
reported yesterday. In a motion filed Friday with the U.S. Bankruptcy
Court for the District of Delaware, AHM sought approval to reject the
employment contracts of its chief financial officer, general counsel,
controller, treasurer and executive vice president of capital markets as
part of its plan to liquidate the company's assets. A hearing on the
matter is scheduled for June 25.
href='http://bankruptcy.law360.com/secure/ViewArticle.aspx?Id=58670'>Read
more. (Registration required.)
Union Car Haulers Protest Pay Cuts in Walk
Off
About 1,250 Teamsters-represented employees of car hauler Performance
Transportation Services Inc. walked off their jobs yesterday --
driving automakers to find other carriers to move vehicles from plants
to dealer showrooms, the Associated Press reported yesterday. The
walkout at 24 plant sites, ports and rail heads in 15 states began at 9
a.m. EDT yesterday. The International Brotherhood of Teamsters says it's
protesting an emergency 15 percent pay cut granted by a bankruptcy court
judge as well as unfair labor practices. PTS CEO Jeff Cornish
said the cuts are necessary to compete as the Allen Park, Mich.-based
company reorganizes under chapter 11 protection. He said the company is
seeking a court injunction to bring the workers back.
href='http://biz.yahoo.com/ap/080609/car_hauler_teamsters_strike.html?.v=1'>Read
more.
Goody's
Clothing Files for Chapter 11
href='http://online.wsj.com/article/SB121304824642258693.html?mod=us_business_whats_news'>
Retail woes claimed another victim yesterday as the prominent regional
brand-name clothing chain Goody's Family Clothing Inc. filed for chapter
11 protection, having already closed numbers of its most unprofitable
stores, Bankruptcy Law360 reported yesterday. The filing in the
U.S. Bankruptcy Court in Delaware said that the tightening credit
markets, strained merchandise flow and underperforming stores have left
the company with as many as 50,000 creditors, and estimated assets and
debts in the range of $100 million to $500 million. Goody's Holdings,
Inc., a nondebtor entity, is the parent of the clothing chain and the 19
other Goody affiliates party to the chapter 11 filing, including the
Good Family Clothing Aircraft Holdings and Goody's Giftco. The
Knoxville, Tenn.-based company operates 355 stores in 20 states
throughout the Southeast and Midwest and employs 9,868 full- and
part-time employees.
href='http://bankruptcy.law360.com/Secure/printview.aspx?id=58700'>Read
more. (Registration required.)
Fed Looks to Improve Derivatives
Market
Regulators at the New York Federal Reserve bank on Monday summoned
senior executives of 17 dealers to a two-hour meeting to discuss ways to
quickly address weaknesses in the infrastructure of the derivatives
market, the Wall Street Journal reported today. The attendees,
which included Wall Street banks such as Morgan Stanley and J.P. Morgan
Chase, and also hedge funds such as Citadel Investment Group and
BlueMountain Capital Management, are parties to more than 90 percent of
credit-derivatives trades that take place directly between individual
firms. It was the first time hedge funds were part of the Fed's meetings
on credit derivatives, underscoring the growing influence of hedge funds
href='http://online.wsj.com/article/SB121304824642258693.html?mod=us_business_whats_news'>Read
more. (Registration required.)
Regulators Expected to Hit CompuCredit with Large
Fines over Deceptive Practices
Federal regulators are expected to seek more than $100 million in fines
and restitution today against CompuCredit Corp. and affiliate banks
related to credit-card-marketing and debt-collection practices, the
Wall Street Journal reported today. Although the Federal Trade
Commission and the Federal Deposit Insurance Corp. did not name
CompuCredit in their news release, the Atlanta company acknowledged in a
May regulatory filing that it was in discussions with both agencies to
reach a possible settlement on similar issues. CompuCredit specializes
in providing credit to people with poor credit histories. The FTC plans
to announce a federal lawsuit charging credit card marketing and
debt-collection companies with using deceptive practices aimed at
borrowers with poor credit. The FDIC plans to file administrative
charges against the credit card marketer and two banks that issued cards
the company marketed. The FDIC also is expected to announce a settlement
href='http://online.wsj.com/article_print/SB121305590923359229.html'>Read
more. (Registration required.)
Lehman Loss Deepens Fears on Credit
Market
Lehman Brothers stunned analysts yesterday by reporting that it expects
a quarterly loss of $2.8 billion and would raise $6 billion in capital
to shore up its balance sheet, signaling that turmoil in the credit
market is far from over, the Washington Post reported today.
The firm has been plagued in recent months by questions from investors
about its financial health. Some were concerned it might be headed for
the same fate as investment bank Bear Stearns, which nearly went
bankrupt in March and was sold for a bargain-basement price to J.P.
Morgan Chase in a deal hastily arranged by federal regulators. Last
week, Lehman issued a statement to deny a rumor that it had turned to
the Federal Reserve's discount window for emergency funds.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060901187_pf.html'>Read
more.