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February 16, 2010
U.S. Looks to Reluctant Foreign Investors
to Help Fund Housing Market
The Federal Reserve is scheduled at the end of March to halt its
purchases of mortgage-backed securities, and U.S. officials are counting
in part on foreign investments to keep the housing market funded, the
Washington Post reported today. The Fed is gambling that private
investors will step in to buy the securities, helping to keep rates from
spiking. However, financial analysts and advisers familiar with foreign
government funds predicted that the United States will get limited
relief from abroad. If funding evaporates in the absence of federal
support, that would mean higher interest rates -- making purchases more
difficult for buyers and payments more expensive for those with
adjustable-rate loans. Some financial analysts said that U.S. officials
consider a healthy housing market so vital to an economic recovery that
they would roll out new policies to keep mortgage rates low if sovereign
wealth funds and other private investors fail to step in with enough
funding.
href='http://www.washingtonpost.com/wp-dyn/content/article/2010/02/15/AR2010021503143_pf.html'>Read
more.
In related news, the
refinancing wave that swept the nation when mortgage rates hit historic
lows last year is petering out, leaving behind millions of homeowners
who could not qualify for the best rates, the Washington
Post reported on Sunday. Half of the nation's borrowers have
mortgages with rates above 6 percent even though the average rate on
30-year, fixed-rate mortgages has been about 5 percent for most of the
past year, according to research firm First American CoreLogic. Many
borrowers who tried to refinance have found they're stuck because the
value of their homes has tumbled and their equity has melted away.
Others have been shut out because lenders tightened their requirements,
demanding stellar credit and low debt. Refinancing activity took off
after the Federal Reserve committed to buying a huge chunk of
mortgage-backed securities in late 2008 to help loosen consumer lending.
Mortgage rates immediately dropped below 6 percent and stayed there
through 2009. They dipped below 5 percent last spring, and then hit an
all-time low of 4.71 percent in early December, Freddie Mac
reported.
href='http://www.washingtonpost.com/wp-dyn/content/article/2010/02/13/AR2010021303745_pf.html'>Read
more.
Asset Resolution Appeals
Conversion to Chapter 7
Real estate owner and loan servicing company Asset
Resolution has appealed Bankruptcy Judge Robert C. Jones' order
the converting the company's chapter 11 case to chapter 7 after certain
direct lenders questioned the New York debtor's ability to continue as a
going concern, the Deal Pipeline reported on Friday. An order was
entered Jan. 29. The Asset Resolution lenders made their case for the
conversion in a Dec. 10 motion, asserting that Asset Resolution and its
affiliates had 'no reasonable expectation of rehabilitation' and that
Asset was a shell company with no employees that existed solely to hold
loan-servicing rights, which were expected to be terminated through
pending court actions. Asset Resolution was formed in September 2008 by
Silar Advisors LP to hold certain assets on which the latter had
foreclosed. Silar made a $67 million loan to Compass USA SPE LLC to
finance Compass' purchase of assets in a Section 363 sale for USA
Commercial Mortgage Co. Those assets included fractionalized direct
lender interests in various real estate properties, the right to collect
USA Commercial's servicing fees and servicing rights under a loan
servicing agreement between USA Commercial and its direct lenders. When
Compass eventually defaulted on its repayment obligations to Silar, the
lender foreclosed on the assets Compass had purchased, forming Asset
Resolution in September 2008 to take title to the property.
href='http://pipeline.thedeal.com/tdd/ViewArticle.dl?id=10005390110'>Read
more. (Subscription required.)
Home Loan Bank Sues Wall
Street Firms
The Federal Home Loan Bank of Seattle has launched a
series of lawsuits against Wall Street banks, seeking to force them to
buy back souring mortgage-backed securities, the Wall Street
Journal reported today. In 11 separate lawsuits filed in late
December in King County (Wash.) Superior Court, the Seattle bank alleges
that it was misled by underwriters about the quality of $4 billion of
securities it purchased as investments at the height of the housing
boom. The Seattle bank is seeking to force the firms to repurchase the
securities, plus interest. The $4 billion in securities represents the
majority of private-label mortgage securities held by the bank, based on
the most recent quarterly earnings filings from the Seattle bank. Many
of the mortgage securities at issue were made up of subprime and Alt-A
mortgages—those that
deteriorated the most rapidly during the housing meltdown.
href='http://online.wsj.com/article/SB10001424052748703562404575067852515737866.html?mod=WSJ_hps_sections_business'>Read
more. (Subscription required.)
Chapter 9
Harrisburg Excludes Debt Payments from
2010 Budget
Harrisburg, Pa., moved a step closer to defaulting on a bond payment
when its city council passed a 2010 budget that does not include $68
million in debt repayments on an incinerator, Reuters reported
yesterday. Without the debt provision in the $65 million budget, the
state capital may miss a March 1 payment of $2.072 million, a rarity for
a municipal bond issuer. The city council also defeated a plan to sell
city assets to help pay down the debt, which is guaranteed by the city
on behalf of the Harrisburg Authority, a separate municipal entity that
owns the incinerator. Council members also rejected Mayor Linda
Thompson's plan to raise property taxes and water rates. Debt payments
on the incinerator total $68 million in 2010, or more than the city's
general fund budget of about $60 million, said City Controller Dan
Miller. Asked whether the city may file chapter 9 bankruptcy as a way to
get its debts under control, Miller said that was a
'possibility.'
href='http://www.reuters.com/article/idUSTRE61D27C20100214'>Read
more.
Vallejo Pays High Price for
Bankruptcy
Vallejo, Calif., filed for bankruptcy in May 2008, and in 2008 the
city had a higher violent crime rate than any other comparable city in
California as its ranks of police officers began to thin, the San
Francisco Chronicle reported on Sunday. At risk are not just both
basic and essential services - Vallejo has slashed library hours,
eliminated bus routes and closed fire stations - but public safety
itself. City council members are calling for additional surveillance
cameras and encouraging residents to organize neighborhood watches.
Vallejo Mayor Osby Davis said that he plans to deploy sheriff's deputies
to Vallejo, and the Vallejo Police Department is requesting help from
the California Highway Patrol for the upcoming summer months.
href='http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/02/14/INIE1BUUQ0.DTL&type=printable'>Read
more.
Lehman Sues Fontainebleau,
Soffer to Recover $300 Million
Lehman Brothers Holdings Inc. is suing Fontainebleau Resorts LLC
and its owner, Jeffrey Soffer, to recover about $300 million that Lehman
loaned to the Fontainebleau's bankrupt Las Vegas Strip resort project,
Dow Jones Daily Bankruptcy Review reported today. Lehman said in
a pair of lawsuits that it's seeking to enforce guaranty agreements
against Fontainebleau and Soffer that allow the failed investment bank
to recover outstanding principal and interest on two loans amounting to
$297.5 million. Lehman led a group of lenders that extended $400 million
in loans to the retail portion of Fontainebleau Las Vegas LLC, a stalled
casino-hotel project that filed for chapter 11 protection last June
after a group of lenders cut off access to $800 in financing.
Web Video Service Veoh to
File for Chapter 7
Online video sharing service Veoh Networks Inc plans
to file for chapter 7 and liquidate the business, according to the
company's founder, Reuters reported on Friday. Veoh founder Dmitry
Shapiro said that the company would file for chapter 7 protection,
citing the difficult economy and costly legal battles with Vivendi's
Universal Music Group over claims of copyright infringement. Veoh, which
Shapiro formally launched in September 2005, competes with Google Inc.'s
YouTube in allowing Internet users to broadcast video content. Since the
launch, its audience has grown to 28 million users per month, Shapiro
said.
href='https://webmail.abiworld.org/owa/?ae=Item&t=IPM.Note&id=RgAAAACm9Ng1Z%2fVOR6U56WBmdAVkBwCL1HakkWy5R4hL43mpOfTzAAAAOMT8AABMwq3YxGKiRJz0xf%2bGXtjkACLX6SxXAAAJ'>Read
more.
Capmark Financial Seeks to Pay
'Insiders' $8.8 Million in Bonuses
Capmark Financial Group Inc. is seeking to pay $8.8 million in bonuses
to company 'insiders' tied to the completion of sales of the commercial
property lenders' assets and confirming a chapter 11 plan, Dow Jones
Daily Bankruptcy Review reported today. The bonus program is
necessary to 'align' those employees' interests with those of the
company's stakeholders, Capmark said in papers filed Feb. 11 with the
U.S. Bankruptcy Court for the District of Delaware. Capmark, which is
attempting to sell off its assets in an effort to repay creditors, said
that the payments 'incentivize the insider employees to continue working
tirelessly' to maximize the value of the company's remaining assets and
to quickly complete a bankruptcy-exit plan. The company did not publicly
specify which employees were eligible for the bonuses or the size of
individual payments. Those details were filed with the court under seal
and a hearing on the incentive program is scheduled for Mar. 4.
Congress Struggling Over a
Rule for Brokers
While most of the debate about financial overhaul
legislation has focused on the impact on how big banks do business, one
piece that would affect consumers directly has received little public
notice: a requirement that stock and insurance brokers act in their
customers’ best
interest, the New York Times reported today. The insurance
industry, in particular, has been fighting the requirement. In addition,
Senator Tim Johnson (D-S.D.) is considering whether to recommend a study
of the brokerage and adviser industries, a move that consumer advocates
say would wipe out the proposed requirement. At issue is whether brokers
should be required to put their clients
lang='EN'>’ interest first. Investment
advisers already hold to that standard. However, brokers at firms like
Merrill Lynch and Morgan Stanley Smith Barney, or those who sell
variable annuities, are often held to a lesser standard, one that
requires them only to steer their clients to investments that are
considered “
size='2'>suitable.”
Those investments may be lucrative for the broker at the
clients’
lang='RU'>expense.
href='http://www.nytimes.com/2010/02/16/business/16adviser.html?ref=business&pagewanted=print'>Read
more.
Magna Seeks Court Approval to Sell
Pimlico, Other Assets
Bankrupt racetrack operator Magna Entertainment Corp. plans to move
ahead with an auction for the storied Pimlico Race Course, home of the
Preakness, even though it was unable to reach agreement for an initial
bidder, Reuters reported on Friday. Magna has been trying for months to
sell its Maryland Jockey Club, which includes the Laurel Park track and
the Bowie Training Center as well as Pimlico. The company has postponed
the auction several times while it continues negotiating with its six
qualified bidders to reach a stalking-horse agreement. The auction for
the assets is scheduled for Feb. 23 and a hearing on the sale is set for
March 3. The case is In re Magna Entertainment Corp., U.S.
Bankruptcy Court, District of Delaware, No. 09-10720.
href='http://www.reuters.com/article/idUSSGE61B0AX20100212'>Read
more.
Tribune's Creditors Warn of Legal
Battle
Tribune Co's senior creditors warned that allowing bondholders to sue
over the legitimacy of $10 billion of the bankrupt company's debt would
touch off legal war and upend settlement talks, Reuters reported on
Friday. A group of hedge funds that holds $4.6 billion in senior secured
claims on the bankrupt media company also said in court papers that if
claims about the legitimacy of the debt exist, they should be pursued by
Tribune and not unsecured creditors. The dispute stems from a request by
the company's unsecured creditors' committee to begin pursuing claims
relating to the debt that financed the 2007 leveraged buyout of Tribune.
Real estate developer Sam Zell took control of Tribune in 2007 through
the leveraged buyout and the company, which owns the Chicago
Tribune and Los Angeles Times, filed for bankruptcy in
2008. The committee said there is evidence that $10 billion of LBO
debt was fraudulently incurred, and therefore holders of the debt
should have their claims disallowed or subordinated below the claims of
bondholders. The committee also wants to recover fees and interest paid
on the debt.
href='http://www.reuters.com/article/idUSN1216183020100212'>Read
more.
Analysis: The $555,000 Student Loan
Burden
When family practitioner Michelle Bisutti finished medical school in
2003, her student-loan debt amounted to roughly $250,000, but since then
it has ballooned to $555,000, the Wall Street Journal reported
yesterday. It is the result of her deferring loan payments while she
completed her residency, default charges and relentlessly compounding
interest rates. Among the charges: a single $53,870 fee for when her
loan was turned over to a collection agency. As tuitions rise, many
people are borrowing heavily to pay their bills. There is an estimated
$730 billion in outstanding federal and private student-loan debt, says
Mark Kantrowitz of FinAid.org, a Web site that tracks financial-aid
issues—and only 40 percent
of that debt is actively being repaid. The rest is in default, or in
deferment, which means that payments and interest are halted, or in
'forbearance,' which means payments are halted while interest
accrues.
href='http://online.wsj.com/article/SB10001424052748703389004575033063806327030.html?mod=WSJ_hp_mostpop_read'>Read
more. (Subscription required.)
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