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December
6, 2007
Mortgage
Lending
name='1'>Lenders Agree to Freeze Rates on Limited Number of Subprime
Loans
The Bush administration
reached an agreement with the mortgage industry yesterday on a plan to
freeze interest rates for up to five years for a portion of the two
million homeowners who bought houses in the last few years with subprime
loans, the New York
Times reported today. The plan, hammered out
after weeks of talks among Treasury Department officials, mortgage
lenders and Wall Street firms, would allow distressed borrowers who are
current on their payments to keep their low introductory rates and
escape an increase of 30 percent or more in their monthly payments when
the rates expire. The agreement, to be formally announced today by
President Bush, is expected to contain numerous limitations that would
exclude many subprime borrowers. The plan is also expected to exclude
any borrower whose introductory rate expires before Jan. 1. About $57
billion in subprime loans are scheduled to be reset at higher rates in
the final three months of this year, according to estimates by First
American LoanPerformance.
href='http://www.nytimes.com/2007/12/06/washington/06debt.html?ref=business&pagewanted=print'>Read
more.
name='2'>Senate Panel Considers Mortgage Modification
Legislation
The Senate Judiciary
Committee held a hearing yesterday on legislation sponsored by Senate
Majority Whip Richard Durbin (D-Ill.) that looks to make it easier for
bankruptcy judges to modify home mortgages that are on the verge of
foreclosure,
size='3'>CongressDaily reported today. Despite
a pending announcement today by the Bush administration on a proposal to
freeze interest rates on certain subprime loans, Durbin did not think
the White House announcement would slow down the measure, which he hopes
to move early next year. “I support what the administration is
trying to do,” Durbin said, “but I think this is very basic
and fundamental and doesn't [need] a bureaucracy, a new tax or a new
government agency.” Judiciary ranking member Arlen Specter (R-Pa.)
has sponsored a rival version that would not include language, contained
in the Durbin bill that would allow a judge to adjust the principal of a
loan, a provision referred to as a 'cramdown.' The issue was the most
contentious at the hearing yesterday and has proved to be a difficult
provision for the bill sponsors to reach a compromise.
href='http://judiciary.senate.gov/hearing.cfm?id=3046'>Click
here to read the written testimony from yesterday’s
hearing at which ABI Resident Scholar Prof.
w:st='on'>Mark
Scarberry
witnesses.
name='3'>House Financial Services Committee to Hold Hearing on Loan
Modifications and Foreclosure Prevention
The House Financial
Services will hold a hearing today entitled “Accelerating Loan
Modifications, Improving Foreclosure Prevention and Enhancing
Enforcement,” according to a press release.
size='3'>The hearing will examine recent proposals to improve the pace
and volume of mortgage loan modifications that may help troubled
borrowers remain in their homes. The hearing
will also address specific issues arising from House consideration of
H.R. 3915, the Mortgage Reform and Anti-Predatory Lending Act, which was
approved by the House on Nov. 16. In
particular, the hearing will focus on a proposal to provide a safe
harbor from legal liability for mortgage market participants who modify
mortgage loans according to certain criteria as well as a proposal that
would add civil monetary penalties for a “pattern and
practice” of violations of the bill’s basic lending
standards.
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/ht120607.shtml'>Click
here to view the witness list and watch the hearing, scheduled
for 10:00 a.m. ET.
name='4'>Wary of Risk, Bankers Sold Shaky Mortgage
Debt
As the subprime loan
crisis deepens, Wall Street firms are increasingly coming under scrutiny
for their role in selling risky mortgage-related securities to
investors, the New York
Times reported today. Many of the home loans
tied to these investments quickly defaulted, resulting in billions of
dollars of losses for investors. At the same time, many of the companies
that sold these securities, concerned about a looming meltdown in the
housing market, protected themselves from losses.
w:st='on'>
York Attorney General
Andrew M. Cuomo has subpoenaed major Wall Street banks, including
Deutsche Bank, Merrill Lynch and Morgan Stanley, seeking information
about the packaging and selling of subprime mortgages. The Securities
and Exchange Commission is also examining how Wall Street companies
valued their own holdings of these complex investments.
href='http://www.nytimes.com/2007/12/06/business/06hedge.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
name='5'>Bank of America Looks to Sell AHM Construction
Mortgages
Bank of America NA, one
of American Home Mortgage Holdings Inc.’s (AHM) prepetition
secured lenders, filed a motion Tuesday seeking relief from the
automatic stay in order to sell outstanding construction-to-perm
mortgage loans on single family residences,
size='3'>Bankruptcy Law360 reported yesterday.
Construction-to-perm loans are residential loans that support the
construction or improvement of single family homes that convert to
regular mortgage loans when the construction is completed. Bank of
America said that AHM owns 85 of these loans as part of its prepetition
collateral. The bank said that construction on the projects under
AHM’s construction-to-perm loans are in various stages. In its
motion, BofA claimed that the bankruptcy court should lift the stay and
allow it to sell the construction-to-perm mortgage loans because AHM has
no equity in the mortgages and they are not necessary for the effective
reorganization of the lender.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=41608'>Read
more. (Registration required.)
More
Investors Take Aim at Bear Stearns
Just weeks after the
state of
face='Times New Roman'
size='3'>Massachusetts
size='3'>filed a securities suit against Bear
face='Times New Roman'>Stearns, the investment bank has
come under fire by investors for its role in heading up two hedge funds
that collapsed due to subprime mortgage investments,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. The complaint alleged that the investors
lost a total of $62 million because the investment bank kept selling
shares of the funds this spring despite the deterioration of the
subprime market. Bear Stearns had attempted to rescue one of the funds
with $1.6 billion in loans, one of the largest loans of its type since
the bailout of Long Term Capital Management in 1998. The second fund was
not provided with any financial assistance. Both funds are now being
liquidated in the
size='3'>Cayman Islands. Lawyers for
the investors said that Bear Stearns did not properly disclose
related-party transactions and failed to protect the interests of the
funds’ investors.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=41692'>Read
more. (Registration required.).
'Super Fund' for SIVs Scaled
Back
The three banks
assembling a 'super fund' aimed at helping to ease the global credit
crunch are scaling back its size due to a lack of interest from
financial firms that are supposed to benefit from the plan, the
Wall Street Journal
reported today. Originally envisioned as a $100 billion
fund that would buy assets from the struggling investment vehicles, the
fund may now wind up being about half that size. A trio of large
financial firms - Citigroup Inc., Bank of America Corp. and J.P. Morgan
Chase & Co. - have been working since September to find a way to
provide liquidity for off-balance-sheet entities, known as structured
investment vehicles. The SIVS, which issue short-term debt to buy other,
higher-yielding assets, have been hurt by the credit crunch that has
left buyers for the debt on the sidelines due to concerns about exposure
to subprime-mortgage securities. The banks, which have informally been
seeking participation from other financial institutions, expect to start
a formal syndication process within the next several days.
href='http://online.wsj.com/article/SB119690966259515416.html?mod=hpp_us_whats_news'>Read
more. (Registration required.)
Dana
Corp. Receives Approval on $2 Billion Bankruptcy Exit
Loan
Bankruptcy Judge
Burton Lifland
size='3'>yesterday cleared the way for Dana Corp. to borrow up to $2
billion to finance its exit from bankruptcy by the end of January, the
Associated Press reported yesterday. Judge Lifland authorized the auto
parts company to proceed with the deal with Citigroup Global Markets
Inc., Lehman Brothers and Barclays Capital. The financing offer expires
on Feb. 29, but Dana has said that it will emerge from chapter 11 by the
end of January. The deal consists of a $650 million revolving credit
facility and a $1.3 billion loan. In addition to the $2 billion loan,
Dana will finance its reorganization with $790 million in new equity.
Private equity firm Centerbridge Capital Partners will act as lead
investor.
href='http://biz.yahoo.com/ap/071205/dana_bankruptcy.html?.v=1'>Read
more.
name='9'>Interstate Bakeries Reports Larger Loss
Interstate Bakeries
Corp., maker of Hostess Twinkies and Wonder Bread, has reported a much
larger monthly loss, driven by costs tied to the planned closure of four
bakeries in
size='3'>Southern California
Associated Press reported yesterday. In a bankruptcy court filing
Tuesday, the Kansas City-based company said that it lost $18.1 million
on sales of $217 million during the four-week period ending Oct. 20.
During the previous month, the company lost $7.7 million on sales of
$220.8 million. The sales total is the lowest since it reported $204
million in January and the third-lowest since the company filed for
bankruptcy in September 2004. Costs of goods sold and other operating
expenses during the period decreased 3.3 percent from the previous month
href='http://biz.yahoo.com/ap/071205/interstate_bakeries_losses.html?.v=2'>Read
more.
name='10'>Kara Creditors Demand Payment
A group of contractors
who have made both priority and general unsecured, nonpriority claims
against
face='Times New Roman' size='3'>Kara
size='3'>Homes
asked the judge overseeing the bankrupt homebuilder's chapter 11
proceedings to compel initial payments from the estate,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. The creditors on Tuesday requested
Judge Michael B.
Kaplan of the U.S. Bankruptcy Court for the
District of New Jersey to order the liquidating trustee to begin paying
creditors at the anticipated rate of 9 percent. The payments should have
begun by now, the creditors contended, noting that Kaplan gave Kara's
reorganization plan final approval on Sept. 26. The creditors who sent
the letter are contract purchasers whose claims stem from deals they
made with Kara to buy residences. They said that deposits they made with
Kara to make such purchases qualify as priority claims under the plan,
while the balances of those deposits constitute general unsecured
claims.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=41651'>Read
more. (Registration required.)
name='11'>Study: Consultants Face Conflicts of Interest on Executive
Pay Recommendations
A recent congressional
study found that consultants who recommend pay packages for corporate
executives have 'pervasive' conflicts of interest that appear to be
inflating executive compensation, the
size='3'>Wall Street Journal reported today.
The study, prepared by the House Government Oversight Committee, found
that at least 113 of the nation's 250 largest companies rely on
compensation consultants who do other, more lucrative work for them. On
average, the compensation consultants were paid 11 times as much to
administer benefits and other services as for their executive-pay
advice. The study suggests this other work can create incentives to
recommend richer pay deals.
href='http://online.wsj.com/article/SB119688972567414867.html?mod=us_business_whats_news'>Read
more. (Registration required.)
href='http://online.wsj.com/article/SB119688972567414867.html?mod=us_business_whats_news'>