New federal restrictions on mortgages not exactly CRA-friendly

Of all the provisions of Dodd-Frank conservatives disliked, the Consumer Financial Protection Board may have been the one least liked of all.  Its proponent, Elizabeth Warren, ended up in the US Senate when Republicans refused to support her nomination to run the CFPB, perhaps a bit of karma in the long run.  Now the CFPB has released its first set of mortgage rules, ostensibly to protect consumers — and conservatives may like what they see, at least conceptually if not organizationally:

The government is establishing new rules for mortgages that will make it harder for some borrowers to qualify but that are designed to prevent the kind of risky lending that nearly caused the housing market to collapse during the financial crisis.

The Consumer Financial Protection Bureau on Thursday will roll out the first of several far-reaching changes to the nation’s mortgage market, limiting upfront fees and curtailing practices such as interest-only payments that can leave homeowners stuck with unsustainable loans. The agency also will set standards for how much income a consumer must have to obtain a mortgage.

This marks the first time the government has spelled out what constitutes a “qualified mortgage,” an effort to prevent the widespread toxic loans that hurt millions of Americans during the housing crisis.

Banks that offer qualified mortgages will be protected from lawsuits if they adhere to the criteria. The consumer agency hopes that will drive the entire industry to live by the tighter standards that have taken hold since the crisis, ensuring safer loans but potentially limiting the number of people who can qualify to buy a home.

“Credit is going to be restricted, at least a little,” said Cristian deRitis, a senior director at Moody’s Analytics. “The debt-to-income cap, for instance, is going to affect some folks at the lower end of the income scale.”

In other words, the government is going to force lenders to stick to rules they liked before the government forced them to stop using them.  After all, it was government intervention that created the housing bubble by pressuring lenders into ignoring these criteria — first by force, with the Community Reinvestment Act in the 1990s.  Later, when the CRA didn’t work quickly enough, Congress created incentives for expanding subprime lending by pushing Fannie Mae and Freddie Mac into buying up massive amounts of questionable loans, making lending a risk-free proposition for paper-sellers like Countrywide Mortgage and others, and then securitizing them in the financial markets as low-risk bonds.

More than once, conservatives questioned this strategy.  Even George W. Bush, who liked to take credit for expanded home ownership himself, warned Congress about the risks in 2003 to no avail. The bubble continued to expand until suddenly, the economy slowed — and the false equity in the housing market started to disappear.

Now the government is intervening once again, in order to prevent lenders from doing what the government pressured them to do over a ten-year period, in order to avoid another collapse.  This isn’t a bad idea, conceptually, but I have a better proposal.  Why not just get government out of the lending business and let the people whose capital is at risk decide how to invest it and lend it?  Had we done that from the beginning, we never would have have the bubble in the first place.

Caesars Entertainment Corp (NASDAQ:CZR) Plans to Reduce Debt

Caesars Entertainment Corp (NASDAQ:CZR) said Friday it is prepared to start formal discussions with some of its bank lenders as it works to reduce its debt and stave off what some see as near certain bankruptcy.

In a filing to the Securities and Exchange Commission, the casino company announced that it has reached out to some of its creditors — namely bank lenders — to find ways to ease pressure on its $24.2 billion debt.

That came a day after the company promised its creditors who are first in line a claim on cash held by its debt-strapped subsidiary Caesars Entertainment Operating Co. in case it defaulted. It’s been in formal talks with that group of creditors, too, for about a month.

In recent years the company has spun off multiple divisions in an attempt to shape up its finances, including Caesars Entertainment Resort Properties and Caesars Growth Properties, dividing its casinos, properties and businesses among the subsidiaries. The operating company has the largest debt load.

Caesars Entertainment Equity Analysis

Caesars Entertainment Corp (NASDAQ:CZR) opened trading today as $10.23 and is trading in the range of 10.00-11.75 today. Caesars’ current market cap stands at $1.69 billion.

Compared to other peers in the Resorts amp; Casinos sector, Caesars hasn’t performed in terms of quarterly revenue growth year over year at 0.03 vs. the industry average of 0.09. Caesars’ earnings per share is currently at -24.75, which is below the sector average of 0.27.

The mean target price is $12.00 according to First Call. This presents a small upside to the current price of the equity. The Mean Recommendation sits at 3.6.

The most recent analyst actions consisted of Imperial Capital downgrading the stock on March 13th and Imperial Capital initiating coverage with a downgrade rating back in April.

The current quarter EPS consensus estimate is -1.46 with revenue estimates of 2.25B. Sales are expected to grow at a 3.30% rate. Caesars reported actual earnings last quarter of -3.24 which fails to beat the -1.19 consensus estimate, a -172.30% surprise.

Corporate Profile

Caesars Entertainment Corporation owns, operates, or manages casino entertainment facilities. Its casino entertainment facilities include land-based casinos, riverboat or dockside casinos, and managed casinos, as well as casinos combined with a thoroughbred racetrack and a harness racetrack. The company operates its casinos primarily under the Caesars, Harrah’s, and Horseshoe names. It also operates hotel and convention space, restaurants, and non-gaming entertainment facilities. In addition, the company owns and operates an online gaming business that provides various real money games in Nevada, New Jersey, and the United Kingdom; offers ‘play for fun’ offerings to customers internationally; and provides social games on Facebook and other social media Websites, and mobile application platforms.

Delaware high court says GM loan documents valid despite error

n>(Reuters) – The Delaware Supreme Court said on Friday that creditors are entitled to rely on formal loan documents authorized by secured lenders, even if there is a mistake in the documents.

The court was responding to a question from a New York federal appeals court relating to a dispute between creditors of General Motors (GM.N) before its 2009 bankruptcy and its former lender, JPMorgan Chase Co (JPM.N).

The issue relates to GMs insolvency, in which its healthy assets were sold to the new General Motors Co, while the rest were liquidated for the benefit of unsecured creditors.

GMs unsecured creditors committee claimed JPMorgan and other holders of a syndicated $1.5 billion term loan extinguished their lien on GMs assets, freeing up the assets to unsecured creditors. JPMorgan said neither it nor GM intended to nix the lien.

Parties in commerce are entitled to rely upon a filing authorized by a secured lender and assume that the secured lender intends the plain consequences of its filing, the court said in it opinion.

JPMorgan and GM could not immediately be reached for comment.

In 2013 unsecured creditors lost when a bankruptcy court ruled in favor of JPMorgan, saying its error did not rise to the express authorization required under Delawares Uniform Commercial Code.

The case was then appealed to the 2nd Circuit US Court of Appeals, which referred it to the Delaware Supreme Court for its opinion on what constitutes authorization under UCC.

According to court papers, freeing up the JPMorgan collateral could boost unsecured creditors recoveries by 2 to 3 percent.

However, it is still unclear whether the creditor group would be entitled to any money as the US Treasury, which bailed out GM, has asserted a lien over litigation proceeds.

The case is In re: Motors Liquidation Co, in the Delaware Supreme Court, No. 325, 2014.

The underlying case is In re: Motors Liquidation Co, US Bankruptcy Court, Southern District of New York, No. 09-50026.

(Reporting By Kanika Sikka in Bangalore; Editing by Alan Crosby)

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Special pact with World Bank to keep loan tap open

As India graduates to a middle-income country and becomes ineligible for soft loans from World Bank, the government is working out a transitional arrangement with the multilateral institution till 2021. The World Bank would provide loans to India at higher than its existing concessional rates but lower than the market rate.

The funds would come as a shot in the arm at a time when the government is battling with a problem of high current account deficit and dwindling capital flows and slow economic growth lead to lack of funding for its social and infrastructure projects.

The multilateral institution lends to countries under its two arms the International Development Association (IDA) and International Bank for Reconstruction and Development (IBRD). The former, which provides concessional or interest-free loans, is primarily meant for low income economies, while the latter provides longer maturity loans at a higher rate for middle-income economies.

Loans to some countries are a blend of both IDA and IBRD, and India is one of these. With Indias per capita gross domestic product taking it into the lower middle-income category, the World Bank wanted to stop lending through IDA and switch over to IBRD. IDA funds are used largely in social sector projects, while IBRD is primarily for infrastructure projects. These work out to be cheaper than external commercial borrowings.

We are entering into a transitional arrangement with the World Bank for providing concessional loans for another seven years. The new rate would be somewhere between the IDA and IBRD, a government official, who did not wish to be identified, told Business Standard.

Making a case for continuing the loan pipeline at lower rates, the Indian government has told the World Bank that India is still a country of poor people, with 23 per cent of its population or 269.7 million people below the poverty line. According to World Bank estimates, nearly a third of the worlds poor live in India. At a time when interest rates are hardening, India might lose over $2 billion of low-cost funds if the IDA pulls out.

The World Bank provides IDA funding to 64 countries and IBRD to 62 countries. As many as 18 countries get loans under the blend category (both IDA and IBRD), including Armenia, Georgia, Grenada, Mongolia, Pakistan, Papua New Guinea, Sri Lanka Uzbekistan, Vietnam, Zimbabwe and Bosnia amp; Herzegovina.

A total of 80 countries are currently eligible to receive IDA resources. Together, these countries are home to 2.5 billion people, half of the population of the developing world. An estimated 1.8 billion people there survive on incomes of $2 or less a day, according to the World Bank.

Economies with a per capita income of $1,035 are defined as lower income by the World Bank. Those between $1,035 and $4,085 are in the lower-middle-income category. Indias per capital income was $1,265.77 in 2012-13 (Rs stood at 54.33 against a dollar on an average that year).

Since 1949, when India took the first assistance from the World Bank, the bank#39;s cumulative commitment to India stands at $ 91.91 billion ($48.28 billion under IBRD and $43.63 billion under IDA up to July 2012).

India has been borrowing from the World Bank for various development projects in areas of poverty alleviation, infrastructure, rural development, and human resource development.

LOAN BOOK
Current terms and conditions of World Bank lending to India

IBRD loans (flexible loans): With variable spread option
IBRD IFL allows borrowers to customise the repayment terms (ie grace period, repayment period and amortisation profile)

* Repayment period: Maximum final maturity of 30 years, including initial grace period of 5 years (maximum). Maximum average maturity of 18 years
* Interest: Libor (6-month) + variable spread (variable spread over Libor is recalculated every January 1 and July 1 and also depends on the average maturity of the loan)
* Commitment charges on undisbursed amount: 0% a year
* Front-end fee: 0.25%

IDA Credits: From July 1, 2011

* Repayment period: 25 years, including a grace period of five years
* Interest: 1.25%
* Commitment charges on undisbursed amount: 0% per annum for FY12 (July 2011-June 2012)
* Service charges: 0.75% per annum

Source: Ministry of Finance

Budget 2013 could not cheer realty: Sources

With the Budget 2013 over, it is time now to find out how different sectors are reacting and if their respective Budget wishlists have been addressed. The real estate sector, for one, is mostly disappointed. CNBC-TV18s Priyanka Ghosh reports.

From the first impressions after Budget, it seemed like P Chidambaram had an ace up his sleeve for prospective home buyers. As a fillip to affordable housing, an additional interest benefit of Rs 1 lakh on first time home loans upto Rs 25 lakhs was announced. However, on closer inspection, this provision is only valid for the first year with a carry-forward benefit of the unutilized deduction to the second year; this has dampened much of the initial exuberance.

Also Read: Budget focus on realty, investment amp; tax positive: KPMG

Arun nanda, non-exec chairman, Mahindra Lifespaces says, I was hoping for some more incentive for the affordable segment. Incentives like reducing the taxation of that segment. I also hope for introduction of an investment fund like Real Estate Investment Trust (REIT). The abatement on houses of more than Rs 1 crore in metro cities will be a dampener in the short term.

It is a dampener as the rate of abatement on 2000 square feet plus apartments or houses costing Rs 1 crore and above has been reduced by 5 percent to 70 percent. This translates into an increase in service tax outflow, making luxury homes more expensive. Market analysts are pegging this increase to be between 0.5-0.8 percent.

Moreover, for homes costing above Rs 50 lakh, tax deducted at source (TDS) of 1 percent will be charged on the transfer of immovable properties. While some industry experts feel the TDS charge will improve accountability of transactions, others say it will add one more cumbersome paper work to be complied with, making procedures more cumbersome.

Apart from these specific proposals, the focus on job creation, education and building back investor appetite in the market are being read as positive signals; measures like setting up of the urban housing fund by National Housing bank (NHB) with an allocation of Rs 2000 crores are also being welcomed as a step in the right direction. Apart from these, the consensus in the real estate industry is that Budget 2013 has been lackluster and overall, a disappointment.

Newell’s celebra sin consagrarse (algo que podrá ‘sellar’ el miércoles)

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Williams v. FDIC (In re Positive Health Management) lender forced to return …

On October 16, 2014, the United States Court of Appeals for the Fifth Circuit entered an order requiring a real estate lender, First National Bank (the Lender), to refund certain mortgage payments it received from Protective Health Management (the Debtor), an affiliate of its borrower.1 Because the mortgage payments constituted actual fraudulent transfers, the Fifth Circuit held that the Lender could retain the payments only to the extent of the value of the Debtors continued use of the property.2 Like the Eleventh Circuits controversial ruling in the TOUSA bankruptcy, this case serves as an important reminder that lenders should monitor the source of debt payments.

Background

In 2006 the Lender made a loan to Zeigler Enterprises III, LLC (the Borrower) (an entity owned by Robert Zeigler). The loan was secured by a first lien mortgage on an office building owned by the Borrower. The Debtor (a pain management clinic also owned by Mr. Zeigler) occupied the office building, but was neither a borrower nor a guarantor under the Lenders loan. From February 2007 through March 2008, the Debtor made direct payments to the Lender on account of the loan totaling approximately$365,000; the Debtors tax returns described these payments as rent. Although the Borrower was in default, the Lender did not pursue collectionefforts or a foreclosure while the Debtor made the payments.

Beginning in 2006, the Debtor stopped paying employment tax liabilities; instead, Mr. Zeigler used the funds to maintain his own lavish lifestyle.3 Facing significant unfunded tax liabilities, the Debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code in March 2008. The case was subsequently converted to a case under Chapter 7, and a trustee was appointed.4 The trustee brought an adversary proceeding against the Lender asserting that the payments made by the Debtor to the Lender constituted fraudulent transfers under Section 548 of the Bankruptcy Code.

Bankruptcy Court Opinion

The Bankruptcy Court found that the Debtor made the transfers with the actual intent to hinder, delay, or defraud its creditors.5 Notwithstanding the Debtors actual fraudulent intent, the Lender argued that it was entitled to the affirmative defense set forth in Section 548(c) of the Bankruptcy Code, which allows a transferee that takes in good faith to retain the property transferred by the Debtor to the extent that such transferee . . . gave value to the debtor in exchange for such transfer.6

In evaluating the Lenders defense under Section 548(c), the Bankruptcy Court applied a two-pronged analysis: (a) did the Lender act in good faith; and (b) did the Lender give value in exchange for the payments? With respect to the good faith prong, the Bankruptcy Court concluded that the Lender acted in good faith because it neither knew, nor should have known, that the Debtor was making questionable transfers.7 As for value given, the Bankruptcy Court concluded that the Lender provided reasonably equivalent value in the form of the Debtors continued use of the property. The Borrower was in default, and had the Lender foreclosed, the Debtor would have been evicted. Based on testimony and evidence presented at trial, the Bankruptcy Court concluded that the value related to the Debtors continued use of the property equaled approximately $250,000, which was reasonably equivalent to the $365,000 in payments made to the Lender. Because the Lender acted in good faith and gave reasonably equivalent value, the Bankruptcy Court held that the Lender was entitled to retain the full amount of the payments.8

The Fifth Circuit Court of Appeals Opinion

On appeal, the Chapter 7 trustee argued that Section 548(c) affords an affirmative defense for good faith only to the extent that such transferee . . . gave value to the debtor in exchange for such transfer9 and that as a result, the Bankruptcy Court should have offset the value received by the Debtor ($250,000) against the payments made to the Lender ($365,000) and required the Lender to return any excess.

The Fifth Circuit observed that courts have reached different conclusions on this pointsome, like the Bankruptcy Court in this case, have held that a transferee acting in good faith escapes all liability so long as it gave reasonably equivalent value, but other courts have applied a netting approach allowing a transferee to retain payments only up to the value given to the debtor. The Fifth Circuit adopted the netting approach, concluding that [t]he last clause of the statute, beginning with lsquo;to the extent, makes clear that a transferee is entitled to keep only the amount of a fraudulent transfer that equals the amount it gave up in exchange.10 Accordingly, the Fifth Circuit held that the Chapter 7 trustee was entitled to recover approximately $115,000 (ie, the difference between the payments made to the Lender and the value related to the Debtors continued use of the property).

Lessons Learned

The Protective Health Management decision serves as a reminder to secured lenders that it is increasingly necessary to monitor the source of payments. A red flag should be raised anytime payment comes from a party other than the borrower. If the Debtors rent payments had gone first to the Borrower and then the Borrower used the funds to pay its obligations to the Lender, the Lender would not have faced liability for a fraudulent transfer. Understandably, most lenders are content to receive timely payments regardless of the source. However, as illustrated by this case, that approach can lead to potential fraudulent transfer liability and costly litigation.

Arcil puts Jhagdia Copper Ltd on the block

Asset Reconstruction Company of India Limited (Arcil) has invited bids for Jhagdia Copper Ltd (JCL), the largest secondary copper smelting unit in the country, located in Gujarat.

It is estimated that at current market prices, JCL may cost over Rs 1,000 crore with an implementation period lasting two years, according to Arcil sources.

Secured creditors of JCL led by Arcil have offered the unit for sale.

Arcil acquired more than 75 per cent of the secured debt of the company from various lenders. After a recent Gujarat high court order authorising Arcil to find buyers, it initiated the strategy of exploring interest to revive the unit by credible investors.

Arcil has initiated the process by inviting bids and the last date for submission of bids is December 17.

JCL has a smelting unit in Jhagadia, which falls under Bharuch district of Gujarat, with a capacity of around 50,000 tonne per annum of London Metal Exchange grade A copper cathode with proven Swedish technology.

The plant which was commissioned in 2004 produced high quality copper cathode commanding a premium in the market.

However, due to then prevailing market conditions, it could not service its loan which was eventually classified as a non-performing asset.

Located on 75 acres of land at Jhagadia in Gujarat, the unit could directly employ around 400 people if revived, and lead to indirect employment for others, besides also generate revenue for the exchequer.

In association with the Gujarat Industrial Investment Corporation (GIIC), Arcil has initiated a process on behalf of all secured lenders to find a suitable buyer for the plant.

Several players including some globally renowned players are reported to have shown interest in acquiring JCLs assets.

JCL is the largest e-waste processing unit of its type in the country and could serve as a major solution to dispose off electronic waste and produce copper cathodes as well as precious metals.