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March 6, 2009
Mortgage Cramdown Debate
Moves to the Senate
While the House of Representatives approved mortgage
cramdown legislation 234 to 191 yesterday, the bill's fate in the Senate
remains unclear, according to
face='Times New Roman' size='3'>American Banker
size='3'>today. Though House leadership had enough of a majority to pass
the bill over opposition from Republicans and several conservative
Democrats, Senate leaders do not have as much leeway. Senate Majority
Whip Dick Durbin (D-Ill.), sponsor of the Senate measure, said last
week that he was open to a compromise, but one has yet to emerge. After
Durbin said that he would consider having the bill apply solely to
subprime loans — a position he later reversed — House
lawmakers delayed a planned vote last week on their version of the bill
in an attempt to win more support. However, the bill passed by the House
only had a few amendments, including modified language designed to
encourage borrowers to attempt to seek a loan modification from their
lender before bankruptcy. The borrower also would have to wait 30 days
between trying to receive assistance from the servicer and going to
bankruptcy. Additionally, the House-passed version of the bill also
included language that said that rather than reducing principal, the
judge could consider reducing the interest rate to 2 percent if that
would bring the borrower's debt-to-income ratio to 31 percent, but the
judge would not be required to adjust the loan in such a manner.
href='http://www.rules.house.gov/111/RuleRpt/111_hr1106_2rpt.pdf'>Click
here to read the House report containing the amendments to H.R.
1106.
Bill Seeks to Let FDIC
Borrow up to $500 Billion
Senate Banking Committee Chairman Christopher Dodd
(D-Conn.) is moving to allow the Federal Deposit Insurance Corp. (FDIC)
to temporarily borrow as much as $500 billion from the Treasury
Department, the
size='3'>Wall Street Journal reported today.
Dodd’s effort, which comes in response to requests from FDIC
Chairman Sheila Bair, Federal Reserve Chairman Ben Bernanke and Treasury
Secretary Timothy Geithner, would give the FDIC access to more money to
rebuild its fund that insures consumers' deposits, which have been hard
hit by a string of bank failures. Last week, the FDIC proposed raising
fees on banks in order to build up its deposit insurance fund, which had
just $19 billion at the end of 2008. That idea provoked protests from
banks, which said such a burden would worsen their already shaken
condition. Under Dodd’s legislation, the FDIC would be able to
borrow as much as $500 billion until the end of 2010 if the FDIC, Fed,
Treasury secretary and White House agree that such money is warranted.
The bill would allow it to borrow $100 billion absent that approval.
Currently, its line of credit with the Treasury is $30 billion.
href='http://online.wsj.com/article/SB123630125365247061.html'>Read
more. (Registration required.)
House Financial Services
Committee Planning Mortgage Lending, Regulatory Bills
House Financial Services Chairman Barney Frank
(D-Mass.) yesterday said that the committee would move within the next
month on legislation that would tighten mortgage lending rules, restrict
abusive credit card practices and curb some questionable bank overdraft
fees,
size='3'>CongressDaily reported yesterday. The
credit card and mortgage bills will include more consumer protection
measures than versions that passed the House in the 110th Congress.
Frank said he would revive legislation to ban some bank overdraft fees
even though the firms have voluntarily 'cleaned up' some of the more
questionable practices. That bill was strongly opposed by banks and
credit unions and never got a floor vote. His panel will hold a hearing
on mark-to-market accounting rules, which require companies to value
assets at current prices rather than their value when they mature. The
issue is crucial in the real estate market, where many properties have
been drastically devalued but are expected to regain value. Frank does
not want to eliminate the rules but rather look at ways to give
regulators flexibility on how to mark assets that have been temporarily
devalued.
U.S. Unemployment Surges to
8.1 Percent in February
The U.S. unemployment rate jumped in February to 8.1
percent, the highest level in more than a quarter century, Bloomberg
News reported today. Employers eliminated 651,000 jobs, the third
straight month that losses surpassed 600,000 -- the first time
that’s happened since the data began in 1939, Labor Department
figures showed today. The payroll drop in January was revised up to
655,000 from 598,000, and December now shows a 681,000 drop, up from the
577,000 previously estimated. The December decline was the biggest since
October 1949. The U.S. economy has now lost almost 4.4 million jobs
since the recession began in December 2007, the biggest employment slump
of any economic downturn in the postwar period.
href='http://www.bloomberg.com/apps/news?pid=20601087&sid=aesonW0og4.Y&refer=home'>Read
more.
Private Investors Looked to
Assist in Financial Bailout Efforts
The government is seeking to resuscitate the nation's
crippled financial system by forging an alliance with hedge funds and
private-equity firms, the sector that benefited the most prior to the
collapse of the credit markets, the
face='Times New Roman' size='3'>Washington Post
size='3'>reported today. The initiative to revive the consumer lending
business, outlined by officials this week, offers these wealthy
investors a new chance to make sizable profits -- but, thanks to the
government, without the risk of massive losses. The idea is to entice
them to put their money to work to stimulate the financial system. They
would be invited to buy up recently issued, highly rated securities that
finance consumer lending, such as credit cards and student and auto
loans. The program, which could involve the government lending nearly $1
trillion to these investors, exceeds the size of every other federal
effort to address the crisis so far.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/03/05/AR2009030503762_pf.html'>Read
more.
GM Executives More Open to
Bankruptcy Option
Top General Motors Corp. executives are more open to a
speedy bankruptcy reorganization financed by the government, the
size='3'>Wall Street Journal reported today.
While the company still wants to avoid bankruptcy, the new view
represents a reversal from GM's position late last year, when it sought
a federal bailout. The change in thinking, combined with the disclosure
Thursday that GM's auditor has raised 'substantial doubt' about the
carmaker's ability to keep going, appears to move GM closer to the
possibility it will file for reorganization. Both developments come as
President Barack Obama's auto task force is trying to decide how much
more aid to provide GM. They also come as GM is locked in negotiations
with its bondholders to trade debt for equity as a way to cut its cost
of operations.
href='http://online.wsj.com/article/SB123625134434838921.html'>Read
more. (subscription required.)
Files for Chapter 11
Recreational vehicle maker Monaco Coach Corp., which
has seen sales plunge amid the recession, said yesterday that it filed
for chapter 11 protection, according to the Associated Press. The
Coburg, Ore.-based company said that it plans to continue operating as
it prepares to sell off parts or all of its business. The RV maker,
which sent termination notices to nearly all its remaining employees
earlier this week after an unsuccessful 20-month turnaround effort, said
that it owes $100 million to $500 million and has assets in the same
range. It estimated it has 25,000 to 50,000 creditors.
href='http://www.oregonlive.com/business/index.ssf/2009/03/monaco_coach_files_chapter_11.html'>Read
more.
Horse Track Owner Files for
Chapter 11
Magna Entertainment Corp. (MEC), which owns some of
the most prominent horse racing tracks in the United States, filed for
chapter 11 bankruptcy protection in a Delaware court yesterday,
according to the New York Times. The company announced that it
would sell Gulfstream Park in Florida and other racetracks to its parent
company and largest creditor. Magna said that it had arranged a
six-month secured loan of $62.5 million from a subsidiary of M.I.
Developments, its controlling shareholder. It will use that money to
protect certain assets and keep racing going at Gulfstream Park, Santa
Anita and its other tracks. Magna has lost $500 million over the last
five years. The filing was prompted by the fact it has $200 million of
debt coming due over the next few weeks.
href='http://www.nytimes.com/2009/03/06/sports/othersports/06magna.html?_r=1&ref=sports&pagewanted=print'>Read
more.
Tropicana Entertainment
Files Amended Chapter 11 Plan
Tropicana Entertainment LLC has filed amended
reorganization plans and disclosure statements as the company continues
working toward emerging from chapter 11,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. The filings yesterday are the result of
negotiations between creditors and two groups of debtors in the case,
known as the LandCo debtors and the OpCo debtors, according to court
documents. The OpCo lenders and LandCo lenders in the case are
undersecured, and the plans essentially provide for their secured claims
to be converted into all or substantially all of the equity of the
reorganized entities, according to court documents filed in support of
the plans. The significant modifications in the plans include
disclosures that discuss the impact of gaming regulations, the
company’s casinos in Atlantic City, N.J., and Evansville, Ind.,
attempts to secure exit financing for the OpCo plan and details about
objections in the case.
href='http://bankruptcy.law360.com/articles/90193'>Read more.
(Registration required.)
Undisclosed Losses at
Merrill Lynch Lead to a Trading Inquiry
Bank of America, which acquired Merrill Lynch earlier
this year, is investigating how Merrill accounted for wayward trades in
the final months of 2008 and why at least one big loss was slow to
appear on Merrill’s books, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. One Merrill Lynch trader apparently gambled
away more than $120 million in the currency markets and other traders
seemingly lost hundreds of millions on tricky credit derivatives.
Merrill hemorrhaged $13.8 billion during the final three months of 2008
alone.Bank of America’s shareholders did not learn of that gaping
hole until after they approved the merger of the two companies on Dec.
5. Nor was the extent of the loss fully known when Merrill paid out $3.6
billion in bonuses, which were based on estimates of the firm’s
performance as of Dec. 8. When the problems became clear, Bank of
America was forced to seek a second, multibillion-dollar rescue from the
href='http://www.nytimes.com/2009/03/06/business/06wall.html?hp=&pagewanted=print'>Read
more.
Sale
Metals and mining company Vedanta Resources PLC is
close to signing a deal worth around $1.5 billion to acquire the
operating assets of bankrupt U.S. copper miner Asarco LLC, the
size='3'>Wall Street Journal reported today.
London-based Vedanta, which has the majority of its assets in India, is
using its Mumbai-listed Sterlite Industries (India) Ltd. subsidiary as
the acquisition vehicle and a deal could be agreed as soon as today.
Last year Sterlite walked away from a $2.6 billion offer for Asarco's
operating assets, citing weaker copper prices and tighter credit
markets. The new price tag on the deal reflects the slump in the copper
price. Copper has dropped almost 60 percent since the deal was attempted
last year. Asarco, which entered bankruptcy protection in 2005, is an
integrated miner, smelter and refiner of copper.
href='http://online.wsj.com/article/SB123633937414152161.html#mod=testMod'>Read
more. (Subscription required.)
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