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February 24,
2009
Democrats Tweaking Mortgage
Relief Bill Ahead of Vote
In anticipation of a Thursday floor vote, House
Democrats have revised legislation to allow bankruptcy judges to modify
home mortgages, including reducing the principal to the current market
value,
size='3'>CongressDaily reported yesterday.
Judiciary Chairman John Conyers has included a provision that would
allow the Treasury Department to pay servicers of Veterans Affairs and
Federal Housing Administration loans the amount that they would lose
through a bankruptcy proceeding when the mortgage principal has been
reduced. The change was included to pick up the support of some regional
banks that focus on VA and FHA loans, which are fully insured against
losses from foreclosure. Some banks argue that they need such protection
so that the VA and FHA market does not dry up if servicers become
reluctant to assume such risk. However, top
Democrats are faced with a budget problem because the measure would
boost the FDIC's borrowing authority from $30 billion to $100 billion
and the National Credit Union Association's borrowing ability from $100
million to $6 billion. The goal is to cushion the agencies from bank
failures and increase their role in foreclosure relief, but the bill
would violate pay/go budget rules for the first five years.
In related news, the House Financial Services
Subcommittee on Housing and Community Opportunity will hold a hearing
today titled “Loan Modifications: Are Mortgage Servicers Assisting
Borrowers with Unaffordable Mortgages.” The hearing will take
place at 2:30 p.m. ET in room 2128 of the Rayburn House Office
Building.
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/hhr022409.shtml'>Click
here to view the witness list and find a link to the live
Webcast of the hearing.
as the Recession Deepens
A list of loans guaranteed by the U.S. Small Business
Administration at 500 franchises shows that the number of defaults by
franchisees increased 52 percent in the fiscal year ended Sept. 30,
2008, from fiscal 2007, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. Loan losses totaled $93.3 million, a 167
percent jump from $35 million just 12 months earlier. SBA-guaranteed
loans are made through commercial banks and other lenders and can total
as much as $2 million for up to 10 years. The SBA essentially insures a
significant portion of the loan to encourage lending and small-business
entrepreneurship. The recently passed stimulus package raises that
guarantee amount to 90 percent from the previous guarantee of 75 percent
of the loan. The franchise brands where at least 11 franchisees
defaulted on loans during the 2008 fiscal year were: Aamco
Transmissions, Carvel Ice Cream, CiCi's Pizza, Cold Stone Creamery,
Curves for Women, Domino's Pizza, Dream Dinners, Planet Beach tanning
salons, Quiznos, Subway and Taco Del Mar.
href='http://online.wsj.com/article/SB123544165161055467.html'>Read
more. (Subscription required.)
Financial Services
Administration Weighs
Nationalization of Banks
The Obama administration yesterday revamped the terms
of its emergency aid to troubled financial firms, setting a course that
could culminate with the government nationalizing some of the country's
largest banks by taking a controlling ownership stake, the
face='Times New Roman'>
size='3'>Washington Post reported today.
Administration officials said that the change, which allows banks to
repay the government with common stock rather than cash, is intended to
give banks more capital to withstand a continued deterioration of the
economy, and not to nationalize the banking system. While Treasury
Secretary Timothy F. Geithner and his team want to avoid an explicit
takeover that would put the government in charge of running banks, some
senior officials have said that, as a last resort, they would consider
taking temporary control of large banks. The government also could take
a majority ownership stake in a company without attempting to manage its
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/02/23/AR2009022300958_pf.html'>Read
more.
U.S. Government Is
Pressed to Add Billions to Bailouts
The government faced mounting pressure on Monday to
put billions more in some of the nation’s biggest banks, two of
the biggest automakers and the biggest insurance company, despite the
billions it has already committed to rescuing them, the
face='Times New Roman'>New York
Times reported today. The government’s
boldest rescue to date, its $150 billion commitment for the insurance
giant American International Group, is foundering. AIG indicated
yesterday that it was now negotiating for tens of billions of dollars in
additional assistance as losses have mounted. Separately, the Obama
administration confirmed that it was in discussions to aid Citigroup,
the recipient of $45 billion so far, that could raise the
government’s stake in the banking company to as much as 40
percent. The Treasury Department named Steven Rattner, co-founder of a
private equity firm the Quadrangle Group, as a special adviser to work
with General Motors and Chrysler, two of Detroit’s biggest
automakers, which are seeking $22 billion on top of the $17 billion
already granted to them.
href='http://www.nytimes.com/2009/02/24/business/24bailout.html?_r=1&hp=&pagewanted=print'>Read
more.
New York AG Has More
Questions on Merrill Lynch’s Bonuses
A New York state judge ruled yesterday that former
Merrill Lynch CEO John Thain must return to the New York Attorney
General’s office to provide more details about the bonuses that
were given out on the eve of Merrill’s merger with Bank of
America, the New York Times reported today.
The second session with Thain will take place today, according to the
attorney general’s office. The judge’s order followed a
motion by the New York Attorney General Andrew M. Cuomo filed in the
Supreme Court of New York earlier in the day. Later this week, the Bank
of America CEO Kenneth D. Lewis, will answer questions along with the
bank’s chief administrative officer, J. Steele Alphin.
href='http://www.nytimes.com/2009/02/24/business/24cuomo.html?ref=business&pagewanted=print'>Read
more.
Ford
The United Automobile Workers union has agreed to
concessions with the Ford Motor Company on its retiree health care fund,
the
size='3'>New York Times reported today. The
agreement, announced yesterday, would allow Ford to substitute its stock
for as much as half of the $13.6 billion it owes the fund. Ford, the
only Detroit automaker not borrowing billions of dollars from the
government, said the deal would let the company be “competitive
with foreign automakers’ U.S. manufacturing operations” and
weather the economic recession without federal aid.
href='http://www.nytimes.com/2009/02/24/business/24auto.html?ref=business&pagewanted=print'>Read
more.
Lehman to Spin Off
Venture-Capital Arm
Lehman Brothers Holdings Inc.'s venture-capital arm
will spin out into an independent firm, the latest move in the bankrupt
New York securities firm's plan to shed assets and raise cash to pay
back creditors, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The new firm will change its name from Lehman
Brothers Venture Partners to Tenaya Capital and will have $750 million
under management. The unit holds stakes in 47 technology companies, from
shoe Web site Zappos.com to online billing system Zuora Inc. Investors
include the Pennsylvania Public Schools Employees' Retirement System and
the North Carolina Department of State Treasurer. Tenaya will be owned
by its five existing partners led by Thomas Banahan, Lehman's former
global head of venture capital.
href='http://online.wsj.com/article/SB123544348517255889.html'>Read
more. (Subscription required.)
Mall Owner Posts Gains,
Warns About Debt
General Growth Properties said yesterday that its
fourth-quarter funds from operations rose on a series of one-time gains,
but the shopping mall owner reiterated warnings that it may be forced to
seek bankruptcy protection if it cannot rework the terms of billions of
dollars in loans coming due this year, the
face='Times New Roman' size='3'>Washington Post
size='3'>reported today. The Chicago-based company said that funds from
operations increased 17 percent to $222.2 million from $190.4 million in
the fourth quarter a year earlier. General Growth now has about $27
billion in debt and has struggled over the last few months to get loan
extensions. The company said last night that it has $1.18 billion in
past-due debt and $4.09 billion in loans that could be called in by
creditors. Last week, it said that it was in default on two Las Vegas
properties.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/02/23/AR2009022303223_pf.html'>Read
more.
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