September 202007

 

Mortgage

Lending

name='1'>House

Hearing to Exmaine Steps to Minimize Subprime
Crisis

The House Financial Services
committee will hold a

hearing today titled “'Legislative and Regulatory Options for
Minimizing and

Mitigating Mortgage Foreclosures.' The hearing will examine the
President’s recently

announced plan to expand FHA programs and review other options for
assisting homeowners at

risk of foreclosure. Treasury Secretary Henry Paulson, HUD
Secretary Alphonso Jackson

and Federal Reserve Chairman Ben Bernanke will discuss the
President’s plan announced

on Aug. 31 and other initiatives.   In addition, the committee

will also hear from

consumer advocates and industry representatives who will discuss other
options aimed at

helping homeowners avoid foreclosure during the current mortgage market
issues. 

href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/ht092007.shtml'>Click

here to watch the hearing scheduled for 10 a.m. ET.

name='2'>Financial Services

Industry Concerned with Chapter 13 Lien-Stripping
Proposals

A dozen organizations
representing the financial

services industry wrote to the Senate Judiciary Committee on Tuesday,
expressing concern

about coming legislation that would permit lienstripping of residential
home mortgages in

chapter 13. 'We are very concerned about legislative proposals intended
to respond to

problems in the subprime market by making major changes to our
bankruptcy system.” The

concern of the organization centers on proposals, such as those put
forward by the Center

for Responsible Lending, to allow bankruptcy judges to modify the terms
of a mortgage in a

chapter 13 proceeding that could involve reducing the value of the loan,

extending the terms

of the loan, lowering the interest rate and delaying the effective date
of an adjustable

rate increase. “If a mortgage loan can be modified or rendered
unsecure during

bankruptcy, it will be far more difficult to originate or sell mortgages

in the secondary

market,” the organizations said. “Such changes introduce
substantial risks that

the terms of loans will be changed in unpredictable ways. The costs of
mortgages would have

to increase to reflect this additional risk. These proposals would
reduce liquidity and make

it harder for Americans to obtain a new mortgage or refinance their
existing mortgage, the

exact opposite of what the mortgage market needs now.”

name='3'>Economists Say

Foreclosures Could Lead to Recession

Panelists testifying
before the Joint

Economic Committee said that the first waves from the crisis in the
subprime mortgage market

have been felt and the economy is in for a surge in home foreclosures
next year that could

usher in a period of slower growth and perhaps even a recession,
CongressDaily reported
yesterday. Martin

Eakes, CEO of the Center for Responsible Lending, made a host of
recommendations to help

solve the current problems, including modifying §1223 of the
Bankruptcy Code to allow

modifications to a homeowner’s primary residence in chapter 13
cases. Alex Pollock, a

resident fellow at the American Enterprise Institute, said that in
addition to monetary

policy -- the Federal Reserve Tuesday cut short-term interest rates by a

half percent --

there is room for 'temporary programs to bridge and partially offset the

impact of the bust

and to reduce the risk of a housing sector debt deflation.' The
Congressional Budget

Office's Peter Orszag stopped short of predicting a recession, other
than to say that it is

not out of the realm of possibility, but said that economic growth could

slow significantly

and persist until mortgage markets correct and recover. 

href='http://www.jec.senate.gov/hearings.htm#091907'>Click
here to read the written

testimony.

name='4'>Senate Banking Panel

Overwhelmingly Approves FHA Bill

The Senate Banking
Committee today approved

legislation that would revamp the Federal Housing Administration's
mortgage insurance

program in a more limited fashion than the bill passed by the House on
Tuesday,

CongressDaily
size='3'>reported

yesterday. The panel voted 20-1 to send the bill to the Senate floor
with only Sen.

Elizabeth Dole (R-N.C.) dissenting. The measure would increase FHA loan
limits, currently at

$362,000, to levels similar to government-sponsored enterprises Fannie
Mae and Freddie Mac,

which currently are at $417,000. The House bill would raise them even
more to 125 percent of

an area's median home price and give the HUD secretary the discretion to

bump up that level

by $100,000 during periods of crisis in the home-mortgage market. The
Senate measure also

would lower the down payment requirement to 1.5 percent from the current

3 percent. The

House bill would allow no down payment in some cases. Both bills would
lift the cap on FHA

reverse mortgages for elderly homeowners, though the House bill would
siphon the profits

from the change to finance a new affordable housing trust
fund.

name='5'>Regulator Eases Loan

Limits on Fannie Mae, Freddie Mac

The Office of Federal
Housing Enterprise

Oversight (OFHEO) agreed to relax restrictions on the investment
holdings of

mortgage-finance companies' Fannie Mae and Freddie Mac, the
Wall Street Journal reported
today. OFHEO’s

new policy allows Fannie Mae to increase its portfolio by 2 percent a
year, a level

comparable with an existing limit on rival Freddie Mac. The move could
allow the companies

to add a combined $40 billion in mortgages to their portfolios by the
end of March. In

making the changes, the agency cited recent progress by both companies
in repairing internal

controls, though it pointed out that neither company had returned to
timely filing of

financial statements from past accounting scandals. 

href='http://online.wsj.com/article/SB119021077354432327.html?mod=hpp_us_pageone'>Read

more. (Registration required.)

name='6'>American Home Reaches

Deal with Freddie Mac

Bankrupt American Home
Mortgage Investment

Corp. has agreed to let Bank of America Corp. temporarily service 4,547
Freddie Mac

mortgages, resolving a quarrel that the government-chartered lender said

put thousands of

owners at 'imminent risk' of losing their homes, the
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Roman' size='3'>Wall Street
Journal

size='3'>reported today. American Home asked Bankruptcy Judge
Christopher
Sontchi

to approve the settlement after a court hearing set for
today. The company

said that with Judge Sontchi's approval it will immediately begin
transferring

loan-servicing records to Bank of America. Days before American Home
collapsed into

bankruptcy protection on Aug. 6, Freddie Mac seized $7 million that
homeowners had sent

American Home to cover principal and interest payments, property taxes
and insurance.

American Home quit making those payments to tax authorities and
insurance companies Aug. 24.

In court papers, Freddie Mac said that 4,547 loans valued at nearly $797

million were at

stake. 
href='http://online.wsj.com/article/SB119021983147732528.html'>Read

more. (Registration required.)

name='7'>Bankruptcy Judge

Criticizes First Magnus Request for Employee Wages

Bnkruptcy Judge
James Marlar issued a
rebuke yesterday to

Tucson, Ariz.-based First Magnus Financial Corp. for filing an initial
request to pay its

roughly 5,500 laid-off employees, the

size='3'>Arizona Daily Star reported
yesterday. In the interest of

protecting secured creditors, Judge Marlar said that he was forced to
deny the company's

request to pay former employees when funds became available through
financing or the sale of

assets, which postponed the wage payments until the company's
finances are sorted out

through court proceedings. First Magnus representatives responded that
the company was

unable to pay its employees because it lost access to the lines of
credit it used to fund

its loans. 
href='http://www.azstarnet.com/sn/business/202067.php'>Read

more.

name='8'>Aegis Says Lawsuit

against Former CEO Will Hurt Chapter 11 Case

Bankrupt lender Aegis
Mortgage Corp. wants to

halt a pending employment lawsuit filed against the company and its
hedge fund owner by

Aegis’ founder and former chief executive, claiming the suit could

hurt its chapter 11

case, Bankruptcy
Law360

size='3'>reported yesterday. In an adversary case complaint filed Monday

in the U.S.

Bankruptcy Court for the District of Delaware, Aegis asked for an
injunction against D.

Richard Thompson, who filed suit in
w:st='on'>

face='Times New Roman' size='3'>Texas
state

court in May. In the alternative, the bankrupt lender has asked that the

automatic stay be

extended to 'affiliated defendants' named in Thompson's suit. The case
has already been

stayed as it applies to Aegis, but Thompson also named hedge fund
Cerberus Capital

Management LP and its parent company Madeleine LLC as defendants, along
with several

officers and managers of Cerberus and Aegis. Cerberus is a unit of
Madeleine, Aegis' largest

equityholder. 

href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=35276'>Read

more. (Registration required.)

Deal
to Buy Sallie Mae in

Jeopardy

The consortium that had
agreed to buy Sallie

Mae for $25 billion plans to return to the negotiating table and seek a
lower price and, if

it doesn’t, it may move to scuttle the deal, the
face='Times New

Roman' size='3'>New York Times reported today.

While the buyers

— the private equity firms J. C. Flowers & Company and
Friedman Fleischer &

Lowe, as well as two banks, JPMorgan Chase and Bank of America —
are hoping to

renegotiate the price of Sallie Mae, they may also be willing to walk
away and pay the $900

million breakup fee. If that happened, the deal would become the biggest

casualty of the

tighter credit market, which persists despite the Federal
Reserve’s decision on

Tuesday to cut interest rates. The buyers also appear to be reacting to
legislation that

Congress passed over the summer that would reduce subsidies to student
lenders. 

href='http://www.nytimes.com/2007/09/20/business/20deal.html?_r=1&oref=slogin&ref=bu

siness&pagewanted=print'>Read more.

Autos

name='10'>UAW, for Now, Ends

Talks on Trust Fund

UAW President Ron
Gettelfinger has ended

discussions with General Motors Corp. about creating a
multibillion-dollar trust fund to

manage retiree health care obligations for hundreds of thousands
on

w:st='on'>

size='3'>Detroit auto
workers, the

Wall Street Journal

size='3'>reported today. Citing a

several billion-dollar funding dispute with GM, Gettelfinger on Tuesday
told the auto maker

that he wanted to begin discussions on a new four-year contract that
didn't involve this

fund, which has been a dominant goal for GM in these talks. The gap was
said to be in excess

of several billion dollars. The union could bring it back for discussion

at a later time.

All of

size='3'>Detroit's auto
makers are pushing to

close what they estimate is a $25-$30 hourly labor cost gap with Asian
automakers, and the

creation of a union-run trust, called a Voluntary Employees Beneficiary
Association, or

VEBA, is seen by the companies as a way to close much of that
gap. 

href='http://online.wsj.com/article/SB119021458006732458.html?mod=us_business_whats_news'>Re

ad more. (Registration required.)

name='11'>Judge Schedules

Hearing on Dana Cleanup Costs

Bankruptcy Judge
Burton R. Lifland
size='3'>scheduled a hearing for Jan.

14 to determine how much Dana Corp. owes for the environmental
cleanup of six sites,

though the government hopes a district court will ultimately decide the
final tally,

Bankruptcy Law360 reported yesterday. Dana had requested a

December hearing,

while federal attorneys sought one for March, over more than $300
million in government

claims — the largest disputed claims left in Dana's case. Judge
Lifland has yet to

rule on a government motion to stay the estimation procedures because
federal attorneys want

to move the determination of the claims to a district court. A hearing
in the bankruptcy

court on the motion is scheduled for Oct. 3. 

href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=35412'>Read

more.

(Registration required.)

name='12'>SEC Rebuts Collins

& Aikman Execs' Dismissal Bid

The U.S. Securities and
Exchange Commission

defended a civil lawsuit on Tuesday against bankrupt Collins &
Aikman and a number of

its officers against the officers' motions to dismiss allegations that
they misrepresented

Collins & Aikman's income to defraud investors,
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size='3'>Bankruptcy

Law360 reported yesterday. The commission's
response targeted

motions by former Collins & Aikman CEO David Stockman, former CFO
Michael Stepp, former

vice president of finance David Cosgrove, former director of financial
analysis Paul

Barnaba, and Elkin McCallum, a supplier for the company who also served
on its board of

directors and allegedly participated in the company's securities fraud.
The SEC said that

its claims — which allege that Collins & Aikman officials had
kept false record

books and made willfully misleading statements to investors, violating
anti-fraud provisions

of the Securities Act — were particular enough to withstand a
motion to

dismiss. 

href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=35348'>Read

more. (Registration required.)

name='13'>District of Columbia

Passes Payday Loan Protections

The Council of the

w:st='on'>District of
Columbia

passed a proposal to bring
w:st='on'>

w:st='on'>
size='3'>Washington

size='3'>, D.C., payday lenders back
under the District's

24 percent annual interest rate cap, according to a Center for
Responsible Lending press

release. The council members voted 12-1 in favor of the Payday Loan
Consumer Protection Act.

An exemption granted to DC payday lenders in 1998 allowed them to bypass

the 24 percent

usury cap. 'They deprive people of the opportunity to get a toehold, to
get ahead,”

said Councilmember Mary Cheh. Councilmember Marion Barry co-sponsored
the bill but later

withdrew his support, casting the only vote with the payday
industry. In opposing the

bill, Barry said 60,000 D.C. residents use payday lending, making
700,000 transactions per

year. About a dozen states control payday lending by enforcing two-digit

interest rate caps,

and several states are considering removing exemptions for payday
lenders or passing new

enforcements of existing caps. Congress passed a law capping annual
interest rates at 36

percent for consumer loans to military families. The federal law is set
to take effect

Oct.1.

name='14'>Asarco Asks Court

to Toss $68 Million
w:st='on'>Texas
size='3'>Cleanup

Claim

Bankrupt copper mining company
Asarco LLC urged a

bankruptcy court to quash a $68
million claim

by
size='3'>Texas

size='3'>officials for environmental damage to the state's coast, a
claim it argues was

filed too late,
size='3'>Bankruptcy

Law360 reported yesterday. The claim, just one

of many against the

bankrupt copper producer for environmental damage, relates to the
company's

size='3'>Corpus

Christi facility, which
processed mineral ore

in the production of zinc. The Tucson, Ariz.-based company, which no
longer operates the

facility, argues that the state was aware of the release of toxins from
the site more than

three years before making a claim to the court. The state's knowledge
was outlined in the

attorney general's own proof of claim and expert report, Asarco told the

court, both of

which contained surveys, notices, memoranda and orders from the state
warning the site was

releasing dangerous metals into the
w:st='on'>

face='Times New Roman' size='3'>Corpus
Christi

size='3'>harbor and bay. 

href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=35406'>Read

more. (Registration required.)

name='15'>Bankruptcy Trustee

Files Motion against Former Pearlman Lawyer

Bankruptcy trustee
Soneet

Kapila asked that Lou Pearlman's former lawyer be jailed if she

doesn't provide

documents and information sought by the bankruptcy estate, the
Orlando Sentinel reported
today. Kapila filed

a motion Tuesday asking the bankruptcy court to hold Reca Rene
Chamberlain in contempt.

Kapila alleges that Chamberlain 'has engaged in a pattern of outrageous
and contemptuous

conduct that is and has been designed to obstruct, frustrate, impede,
delay and prevent' the

court-appointed trustee from doing his job and locating assets. Kapila
is trying to recover

more than $100 million that banks claim they are owed by Pearlman, as
well as more than $300

million in claims by individual investors. 

href='http://www.orlandosentinel.com/news/local/orange/orl-bk-pearlman091907,0,1926111,print

.story?coll=orl_tab01_layout'>Read more.

name='16'>TROUBLED COMPANIES IN

THE NEWS
 
The business news
articles below are taken

from the U.S. Business Journal’s Daily Summary of Troubled &
Fast Growing U.S.

Companies which is published by Bastien Financial Publications.
 
 
ABI Members receive a 50% discount off of our regular subscription rate

of $500 when

subscribing to the complete Daily Summary.  

To subscribe email steve@creditnews.com
title='mailto:steve@creditnews.com'

href='mailto:steve@creditnews.com'>
color='#0000ff'

size='3'><mailto:steve@creditnews.com&gt;
face='Times New Roman'

size='3'>or call 800-407-9044—use ABI Code 37

Countrywide Financial
Corp.

face='Times New Roman'>, Calabasas, Ca., wants to double
its number of branch

offices that offer certificates of deposit and money-market accounts.
 Now with about

112 such branches, Countrywide is trying to drum up more deposits to
help finance mortgage

lending as one way of trying to increase confidence among investors.
Reportedly, one

outsider has estimated that Countrywide has sufficient cash and cash
flow to continue

operating and meeting its financial obligations through 2008, although
the same analyst

added that Countrywide could lose $2.4 billion in its third quarter.

/>

Furniture Brands
International

Inc., a
w:st='on'>

face='Times New Roman' size='3'>St. Louis
size='3'>,

size='3'>Mo.
size='3'>maker of

furniture, warned that its net sales in the current quarter could drop
as much as 12% as a

result of weakness in the residential furniture market. The firm also
anticipates a net loss

in the quarter of as much as 23 cents per share.

Impac Mortgage Holdings
Inc.

size='3'>, an
face='Times New Roman'

size='3'>Irvine, Ca. home lender, will

not issue any

common-stock dividends for the rest of the year because of ongoing
losses related to

mortgage and securities stemming from increasing defaults.  The
company added that it

will cut 144 more jobs from its payroll as it ends warehouse lending,
commercial lending and

nearly all of its mortgage lending.

Kopin
Corp.,

a

size='3'>Taunton, Ma. maker of
electronic microdisplays,

was told by Nasdaq that it can keep its common stock listed on the stock

exchange, pending

future considerations by Nasdaq.  Kopin recently said it’s
trying to file overdue

financial reports and any necessary restatements concerning past
stock-options grants.

Movie Gallery
Inc.

size='3'>’s Keith Cousins resigned from his position of executive
vice president after

he received a warning that his position was slated to be eliminated as
part of the

company’s efforts to reduce costs.  Movie Gallery, the

w:st='on'>
size='3'>Dothan,

Al.-based video-rental chain with 4,500 stores in the

w:st='on'>
size='3'>U.S.

size='3'>and
w:st='on'>

size='3'>Canada
face='Times New

Roman'>, is sinking under $1 billion in debt and is
currently trying to

arrange a large financial restructuring.

NovaStar Financial
Inc.

size='3'>, a
face='Times New Roman'

size='3'>Kansas City,

w:st='on'>

face='Times New Roman'
size='3'>Mo.
size='3'>subprime

lender, said that it will suspend dividend payments following its
announcement that it will

revoke its real-estate investment trust status retroactive to January 1,

2006, explaining

that it can’t afford the dividends that would be required as an
REIT.  

SinoFresh HealthCare
Inc.

size='3'>, an Englewood, Co. developer and marketer of therapies, sold
80% of its

outstanding senior secured debt to an investment group as the first step

in a debt-reduction

and restructuring plan. SinoFresh has lost money for three years,
including a $5 million

loss last year.