Wilbur Ross, a specialist in buying distressed assets, is bidding roughly $500 million for the loan-servicing business of bankrupt mortgage company American Home Investment Corp., MarketWatch.com reported yesterday. The U.S. Bankruptcy Court for the District of Delaware approved an entity sponsored by WL Ross & Company LLC as the stalking-horse bidder for American Home’s mortgage-servicing platform and its mortgage-servicing rights, the company said.  The purchase price is based on a formula, tied mainly to the principal amount of unpaid loan balances under servicing contracts and outstanding servicing advances as of the closing date, which could be roughly $500 million, American Home estimated. American Home said it’s now soliciting competing bids for its mortgage servicing business by Oct. 2.

The liquidators of two Bear Stearns hedge funds in the Cayman Islands said that they don’t intend to seek bankruptcy protection in the United States because the resulting legal costs would shrink likely reimbursements to the funds’ creditors, the Associated Press reported yesterday. Under a decision by Bankruptcy Judge Burton Lifland, the funds have until Sept. 29 to file for chapter 11 or chapter 7 protection. Once that deadline expires, creditors would be able to seize the funds’ U.S. assets. But in court papers filed Friday, the funds said those choices are “not viable options” and asked Judge Lifland to extend the deadline. The liquidators have appealed Lifland’s decision to deny protection to the funds under chapter 15 of the Bankruptcy Code, which would shield U.S. assets from creditors while the liquidation proceeded in the Caymans.

Fitch Ratings reported that mortgage real estate investment trusts that haven’t yet succumbed to the credit storm are struggling to secure funding and are facing growing liquidity problems, Dow Jones Newswires reported yesterday. “Recent declines in market values of unsecuritized assets and the reduction of advance rates of short-term debt employed to finance these assets have also triggered margin calls and consequently reduced liquidity,” said Fitch in its special report on U.S. mortgage REITs. Fitch said that over the past year, it has downgraded the issuer default ratings of several mortgage REITs, with most of the action centered on the residential side rather than commercial. The companies are dealing with impeded financial flexibility, difficulties in the origination and sale of residential mortgages, asset markdowns that have triggered margin calls and reduced liquidity, and limited access to capital, Fitch said.

The purchasing chief of Chrysler LLC said Thursday that a “tough” year for U.S. auto sales in 2008 would lead to more chapter 11 filings from automotive-parts suppliers, Dow Jones Newswires reported yesterday. Simon Boag, Chrysler’s executive vice president of procurement and supply, said that a 10 percent drop in U.S. auto sales would create a tough year for everyone, especially suppliers. “If it’s going to be a tough year next year, with the number of people that are on the edge of chapter 11, that’s going to push them over the edge, no question,” Boag said. Auto suppliers have been stung by production cuts from U.S. auto makers and high raw material prices.

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.

A Wachovia Corp. unit has been sued over the collapse of Le Nature’s into bankruptcy in 2006 on allegations that it was aware of the beverage maker’s financial problems prior to its public disclosure, the Associated Press reported yesterday. The lawsuit, filed late Monday in federal court in Manhattan, alleges that Wachovia Capital Markets LLC and others knew about alleged improper accounting practices and financial issues prior to the completion of a September 2006 credit facility for the company, in which Le Nature’s borrowed $285 million. The loan, which was administered by Wachovia Bank N.A., was later syndicated, according to the lawsuit. The complaint also names Le Nature’s outside auditor, BDO Seidman LLP, and Gregory J. Podlucky, Le Nature’s chairman and chief executive, as defendants.

Credia Co., the Japanese consumer lender partly owned by the nation’s biggest credit card firm, filed for bankruptcy protection today with 75.8 billion yen ($658 million) of liabilities, Bloomberg News reported today. Shizuoka Prefecture-based Credia had 34.5 billion yen of short-term bank debt, including 21 billion yen from regional banks, according to its financial statements. Long-term bank debt was 22 billion yen, including 15 billion yen from regional banks. Japan’s four largest consumer lenders by assets, led by Acom Co., lost a combined $14 billion last year as they cut jobs, closed outlets and squeezed assets to reduce costs. Lawmakers and regulators took aim at the industry after courts invalidated its highest interest charges. Credia ranks 16th among Japan’s consumer lenders, with 102 billion yen of loans, according to data from the Liaison Group of Consumer Finance Companies.
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U.S. Treasury Secretary Henry Paulson on Tuesday voiced doubt about lifting the portfolio caps on Fannie Mae and Freddie Mac, calling such demands a “red herring” that would do nothing to ease the turmoil in the credit markets or help borrowers at risk of losing their homes, The Hill reported today.  He urged the Senate to start moving on legislation to reform Fannie and Freddie, known collectively as government-sponsored enterprises (GSEs), and said that he favored allowing them to take on more risk, but only in the context of reform. Sen. Chris Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.), the heads of the Senate and House banking panels, have repeatedly called on the Bush administration to lift the temporary caps on the GSEs’ portfolios to inject liquidity into the troubled mortgage market.

Struggling mortgage lender Countrywide Financial Corp. said that it will cut as many as 12,000 jobs in a bid to slash costs and cope with soaring foreclosures and defaults, the Associated Press reported on Friday. Countrywide said that the cuts, amounting to as much as 20 percent of its work force, are needed because the company expects new mortgages to fall about 25 percent in 2008 from this year’s levels. The job cuts planned during the next three months are expected to center primarily on the company’s production divisions and its general and administrative support areas. The Calabasas, Calif.-based company employed more than 61,000 people as of July 31, with about 34,000 working in loan production. The latest cuts followed the elimination of about 900 positions earlier this week and 500 others last month.

The Securities and Exchange Commission is looking at whether unwinding financing vehicles like conduits could strain the balance sheets of major investment banks, Reuters reported yesterday. Commercial and investment banks globally have packaged billions of dollars of debt into vehicles that sell short-term bonds to investors. But if investors stop buying the short-term debt, banks may have to step in, essentially to buy back assets from the vehicles. Erik R. Sirri, market regulation director for the SEC, said that the commission was monitoring situations that might put a strain on the balance sheets of broker-dealers. “We take a look at the parent level, make sure that there are no liquidity issues, and at this juncture we are satisfied that that’s the case,” said SEC chairman Christopher Cox.