December 132007

December 13, 2007

Mortgage Lending

Countrywide Subpoenaed by Illinois

The Illinois attorney general is investigating the home loan unit of Countrywide Financial as part of the state’s expanding inquiry into dubious lending practices that have trapped borrowers in high-cost mortgages they can no longer afford, the New York Times reported today. Lisa Madigan, the attorney general, has subpoenaed documents from Countrywide relating to its loan origination practices, a person briefed on the matter said. Rick Simon, a Countrywide spokesman, said the company was cooperating with the investigation but declined to comment further. The inquiry follows an investigation by Ms. Madigan’s office into One Source Mortgage, a Chicago mortgage broker that recently closed its doors. Ms. Madigan sued One Source on Nov. 27, contending that the company misled borrowers by promising low rates on mortgages without advising them that their payments would jump sharply shortly after the loans were made. Countrywide was One Source’s primary lender, according to the lawsuit. Read more.

Senate Committee Hearing to Examine Decline in Housing Market

The Senate Finance Committee will hold a hearing today titled 'The Housing Decline: The Extent of the Problem and Potential Remedies.' Witnesses include former Congressman Jack Kemp, Prof. Morris A. Davis of the University of Wisconsin-Madison,Prof. Deborah A. Geier, of Cleveland State University and Michael Decker of the Securities Industry and Financial Markets Association. Click here to read the prepared testimony.

Commentary: Home Mortgage Modification Bill Faces Challenges in Passing House

Sixteen House Democrats wrote to House Judiciary Chairman John Conyers (D-Mich.) in October urging him not to rewrite the bankruptcy code for primary home mortgages and that controversy forced him to hold the bill back until the bill passed the committee yesterday in amended form, according to a Wall Street Journal editorial. The bill that passed yesterday will make it difficult for future home buyers as the markets could respond by setting mortgage interest rates closer to those on credit-card debt. While some borrowers were coaxed to sign loans they didn't understand, the larger problem with this and many of the other subprime bailout plans is that they conceive of every troubled borrower as a victim. A Treasury report due out next month suggests that the fraud often works the other way around. One indisputable fact is that mortgage fraud skyrocketed during the Federal Reserve's easy-credit era. When financial institutions see potentially criminal activity in customer transactions, they are required to send a Suspicious Activity Report (SAR) to the Treasury's Financial Crimes Enforcement Network (FinCEN). From 2000 to 2006, SARs related to mortgage fraud increased by almost 700 percent. Taxpayers, investors and future home buyers asked to sacrifice on behalf of today's subprime 'victims' might reasonably ask for a more thorough accounting. Read more.

Freddie Mac to Offer $4 Billion in New Notes

Mortgage finance company Freddie Mac said that it plans to issue a new five-year, $3 billion reference notes security due Dec. 21, 2012, according to the Washington Post. Freddie Mac also announced plans to launch a $1 billion reopening of its 4.125 percent, two-year reference notes security that matures on Nov. 30, 2009. Both issues will be priced tomorrow and will settle Dec. 17. The new notes security will be offered through a syndicate of dealers headed by Merrill Lynch, Morgan Stanley and UBS Investment Bank.

Monitor Oil Defends Decision to File for Bankruptcy in the U.S.

London-based Monitor Oil PLC defended its choice to file for chapter 11 protection in the United States after a group of its bondholders asked the bankruptcy court to throw out the case so insolvency proceedings abroad can move forward, the Associated Press reported yesterday. In court documents filed Tuesday with the U.S. Bankruptcy Court in Manhattan, Monitor Oil's chief executive said that the company wanted to keep control of its restructuring and sought protection through a ban on lawsuits awarded to companies undergoing chapter 11 proceedings. The company’s bondholders’ committee, owed $50 million from Monitor, has said that the company has no reason to file in the U.S. because it's not registered or headquartered here, and its oil-drilling business is focused in the North Sea. Separately, the bondholders criticized Monitor Oil's request to pay $325,000 in salaries to four members of the oil company's board of directors, claiming in court documents filed Tuesday that the payments were meant to induce the directors to stay with the company. Read more.

Court Approves Dana's Bankruptcy Exit Plan

Bankruptcy Judge Burton Lifland confirmed Dana Corp.'s chapter 11 reorganization plan, paving the way for the auto-parts supplier to emerge from bankruptcy by the end of January, the Associated Press reported today. The plan looks repay Dana's unsecured creditors between 72 cents and 86 cents for every dollar of the $3 billion they're owed. Dana said that its bankruptcy reorganization has resulted in annual savings of between $440 million and $475 million. Dana plans to borrow $2 billion from Citigroup Global Markets Inc., Lehman Brothers and Barclays Capital to supplement $790 million in new equity to fund its exit from bankruptcy protection. The company plans to sell as much as $540 million of new preferred stock to qualified unsecured creditors through a rights offering. Private-equity firm Centerbridge Capital Partners, which has agreed to purchase $250 million in new Series A preferred shares, will backstop $250 million of the $540 million rights offering. A group of Dana bondholders will backstop the sale of the remaining $290 million in Series B preferred shares. Read more.

Single Consumer Hotline Eyed For Bank Regulators

Consumers having problems with a financial institution could call a toll-free number and be directed to the appropriate state or federal regulatory agency for help under legislation considered yesterday by a House Financial Services subcommittee, CongressDaily reported today. The bill proposing a universal help line was endorsed by five oversight agencies, including the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision. The Federal Reserve's Board of Governors believes the plan is unnecessary. Federal financial regulators are working on a plan to increase coordination among the agencies and a law might limit their options, said Sandra Brunstein, the Fed's director of consumer and community affairs.  

Airline Trade Group Predicts a Further Drop in Profit Next Year

Soaring fuel prices and slowing economic growth are likely to wipe out much of the airline industry’s profits next year, despite steady increases in global demand for air travel, the International Air Transport Association, a leading trade group said yesterday according to the New York Times. Analysts said that the expected slowdown could increase pressure on less-profitable carriers, particularly in the United States, to merge. North American carriers were likely to see the biggest drop in profit, down nearly 19 percent in 2008, to $2.2 billion, from a forecast of $2.7 billion in 2007. Read more. http://www.nytimes.com/2007/12/13/business/13air.html

International

Rexel Deal Threatened by Damages Payment

Dutch electrical-parts distributor Hagemeyer NV, which agreed to be bought by French peer Rexel SA, was ordered to pay an initial €50 million ($73.5 million) of bankruptcy-related damages, threatening the proposed deal, the Wall Street Journal reported today. Shares in Hagemeyer fell 7% as some traders said the payment may lead Rexel to revise or pull its €3.1 billion offer. A Rexel spokeswoman said the company plans to have 'further discussions with Hagemeyer's management on the matter.' Hagemeyer, which hasn't made a provision for the claim, said it will appeal.