As the subprime mortgage crisis has spread, the volume of business for law firms and default servicing companies representing represent mortgage lenders has soared, and firms that handle loan defaults have been the primary beneficiaries, the New York Times reported yesterday. Some of the firms, paid by the number of motions filed in foreclosure cases, have sometimes issued a flurry of claims without regard for the requirements of bankruptcy law, several judges say. The U.S. Trustees Program is bringing cases against lenders that it says are abusing the bankruptcy system. Bankruptcy JudgeJoel B. Rosenthal wrote in a case last year involving Wells Fargo Bank that rising foreclosures were resulting in greater numbers of lenders that “in their rush to foreclose, haphazardly fail to comply with even the most basic legal requirements of the bankruptcy system.”

The Federal Reserve said yesterday that it would hold public meetings next month on the offer by Bank of America to acquire Countrywide Financial, Dow Jones Newswires reported. The Fed scheduled the meetings, two in Los Angeles and one in Chicago, to collect information related to factors it is required to consider under the Bank Holding Company Act. Last month, Bank of America requested approval under the law to acquire Countrywide. The Fed said it would consider whether the acquisition could reasonably be expected to produce benefits like greater convenience and more competition that outweighed adverse effects, including conflicts of interests and unsound banking practices.

See Also:  Bankruptcy Lawyers New York

Senate Banking Committee Chairman Christopher Dodd (D-Conn.) said yesterday that JPMorgan Chase & Co.’s bid to acquire Bear Stearns Cos. Inc.  raises regulatory and American taxpayer concerns and that the committee would be holding a hearing to investigate the deal, Reuters reported. Dodd said that he invited Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox to testify at an April 3 hearing to examine their roles in the transaction. He also invited JPMorgan Chase Chief Executive Jamie Dimon and Bear Stearns CEO Alan Schwartz to testify to explain the transaction, which kept Bear Stearns from entering bankruptcy. Dodd also wanted a “thorough accounting” of the securities assets the Fed is guaranteeing with public funds, including a chronology and rationale behind selecting those assets.

See Also:  Bankruptcy New York

Thornburg Mortgage Inc., a struggling “jumbo” home loan provider, said yesterday that it would try to quickly raise nearly $1 billion of capital to keep five lenders at bay and avert a possible bankruptcy filing, Reuters reported yesterday. Shares in the lender plunged because the plan to sell $1 billion of convertible debt and give lenders a 27 percent stake in the company would significantly dilute existing shareholders’ stakes. The Santa Fe, N.M.-based company had previously said its survival was in question after being unable to meet lender demands for more than $600 million of cash or collateral. Thornburg said the new, 364-day agreement with affiliates of Bear Stearns Cos., Citigroup Inc., Credit Suisse Group, Royal Bank of Scotland Group Plc and UBS AG would reduce margin requirements and free it from further margin calls and other obligations. Thornburg said that the lenders were providing about $5.8 billion of financing and that it must raise a net $948 million within seven business days as a condition of the funding agreement.

The Securities and Exchange Commission issued a written statement suggesting it has expanded an inquiry into Bear Stearns Cos. to include what was or wasn’t said in the two months leading up to the brokerage firm’s unraveling, the Wall Street Journal reported today. The SEC said that its enforcement division wrote a letter as JPMorgan Chase & Co. was negotiating to take over Bear Stearns. The letter addressed to JPMorgan concerned “investigations and potential future inquiries into conduct and statements by Bear Stearns before the public announcement of the transaction with JPMorgan.” Bear Stearns is already the focus of several civil and criminal probes. The SEC and Justice Department are investigating Bear for the circumstances surrounding the collapse of its hedge fund last spring. The New York attorney general is also investigating Bear Stearns in connection with its packaging and selling of mortgage-backed securities.

The Bush administration, in an effort to stabilize the housing market, is preparing two new initiatives aimed at creating more funding for mortgages by relaxing constraints on Fannie Mae, Freddie Mac and the Federal Housing Administration, the Wall Street Journal reported today. The Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and Freddie Mac, is close to reducing — but not eliminating — an excess-capital requirement for the government-sponsored entities. This would give the companies more flexibility to buy and securitize loans. Fannie Mae and Freddie Mac would both be expected to raise more capital, providing more of a shock absorber against potential losses. Separately, officials at the Department of Housing and Urban Development have talked recently with the White House’s Office of Management and Budget about a proposal to allow more people to qualify for mortgages insured by the FHA. HUD’s efforts to date to insure more mortgages have had a limited impact, mainly because it is hard for financially distressed homeowners to qualify. Homeowners who have missed a payment in the past six months aren’t eligible for FHA insurance.

General Motors Corp. will temporarily forgo a roughly $2 billion payment from Delphi Corp., at a time when the Detroit auto maker is undertaking an expensive overhaul, the Wall Street Journal reported today. The financing pact with GM could help Delphi move a step closer to emerging from bankruptcy court protection. GM had expected to be paid at least $2.25 billion in cash from the $6.1 billion in financing its former parts unit needs to exit chapter 11, but Delphi has struggled to line up creditors due to the tightening in debt markets. To reduce the amount of cash Delphi needs to raise, GM has agreed to take $2 billion from Delphi in the form of a note that can be paid back over time, Delphi said in a statement. GM has also agreed to finance all or part of an $825 million, second-term loan included in the $6.1 billion package, Delphi said. The plan requires court approval.