Tuesday, December 30, 2008

Veterans of '90s Bailout Hope for Profit in New One

WASHINGTON - A tight-knit group of former senior government officials who were central players in the savings and loan bailout of the 1990s are seeking to capitalize on the latest economic meltdown, enjoying a surge in new business in their work now as private lawyers, investors and lobbyists.
With $700 billion in bailout money up for grabs, and billions of dollars worth of bad debt or failed bank assets most likely headed for sale or auction, these former officials are helping their clients get a piece of the bailout money or the chance to buy, at fire-sale prices, some of the bank assets taken over by the federal government.

"It is a good time to be me," said John L. Douglas, a partner in Atlanta at the law firm Paul Hastings and a former lawyer for bank regulators who helped create the agency that administered the last federal bailout, the Resolution Trust Corporation.

Some of these former federal officials, like L. William Seidman, the first chairman of the R.T.C., are serving as advisers - sharing ideas with Treasury Secretary Henry M. Paulson Jr. and the transition team for President-elect Barack Obama - even while they are separately directing investors or banks on how to best profit from this advice.

"It is an enormous market," said Mr. Seidman, who has already joined two such potential money-making efforts and is evaluating proposals to participate in a third. "I am enjoying this."

David B. Iannarone, a former R.T.C. lawyer who is managing partner at a firm that handles defaulted commercial real estate loans, said, "The people who worked on this back in the early 1990s are back in vogue."
The agency was set up by the government in 1989 to sell off what ultimately grew to $450 billion worth of real estate and other assets assembled from 747 collapsed savings banks.

What is obvious to former R.T.C. officials is that, like the last go around, a great deal of money will be made by a select group of investors and business operators, particularly those with government contacts. The former government officials said in interviews that much of what is motivating them is a desire to help the nation recover from this latest stumble. But they acknowledge they intend to be among the winners who emerge.

"Fortunes will be made here, no doubt about it," said Gary J. Silversmith, one of more than a dozen former R.T.C. officials interviewed who now are involved in enterprises seeking to profit from bank bailouts.

The busiest money-making arena so far for these R.T.C. alumni is in helping distressed banks line up cash infusions from the Treasury, as they seek a piece of the bailout.

Robert L. Clarke, controller of the currency under the first President Bush and a former Resolution Trust board member, has been advising banks throughout the South on how to get their share of the bailout money.

"I have been absolutely inundated," said Mr. Clarke, who now works at Bracewell & Giuliani, the law firm based in Houston affiliated with the former New York mayor and presidential candidate Rudolph W. Giuliani.

Mr. Clarke's labor on behalf of his clients has included calling federal regulators to urge them to reconsider plans to reject applications for federal bailout money. He would not identify the banks, saying it might undermine public confidence in them.

But Mr. Clarke said his intervention, in at least some cases, has been successful.

Eugene Ludwig, the comptroller of the currency under President Bill Clinton during the final stages of the savings-and-loan cleanup, runs Promontory Financial Group, a banking consultant group whose clients include struggling banks.

"I must get an e-mail a day from people who I worked with back then about what to do about the current mess," Mr. Ludwig said. "It is not so much capitalizing on it as really just, how do we contain the flames?"

Many of the former federal officials like Mr. Ludwig have stayed in the field, working as lawyers or contractors who buy up and resell seized bank properties. What is remarkable now is just how busy they are.

"It is a great time to be a banking lawyer," said Thomas P. Vartanian, a partner in the Washington office of Fried Frank, who is the former general counsel to the Federal Savings and Loan Insurance Corporation, which led a bank bailout effort in the 1980s.

The planned sale by the F.D.I.C of the assets of IndyMac, the failed bank, has turned into an alumni event of sorts for veterans of the R.T.C. era, including John J. Oros, who was chairman of a financial industry council that advised bank regulators during the savings and loan crisis. Now he is a partner in J. C. Flowers, one of the private equity firms negotiating to buy part of IndyMac.
In the space of one weekend in September he explored buying out the troubled insurer A.I.G. and worked with Bank of America on an aborted acquisition of Lehman Brothers. Then he advised Bank of America on its last-minute switch to buy Merrill Lynch before Lehman's collapse hammered Wall Street.

Although the financial meltdown is a disaster for the country, Mr. Oros said, "the opportunity going forward is unprecedented. It is fantastic. It is as if I had been training for this for the last 40 years of my career."

The biggest profits will most likely be made, the former federal bank officials agreed, by those who figure out a way to benefit from what could turn into one of the greatest fire sales of bad debt and bank assets in American history.
Through September of this year, 25 banks had failed, compared with three in 2007. An additional 171 are on the Federal Deposit Insurance Corporation's list of troubled banks, more than double the watch list at the end of last year.
As a result of these failures, and other related industry troubles, billions of dollars' worth of real estate or at least mortgage-backed securities and other "illiquid" financial instruments will most likely need to be sold off at discounted prices to investors who stand to profit if they can sell the assets at a higher price once the economy recovers.

The question right now is just how this unloading of bad debt will take place.
So far, the federal government is relying on financial institutions to find a way on their own to sell off bad debts or assets they end up with as a result of foreclosures. But some financial industry players are arguing that a modern-day R.T.C. should be established, to help set prices for this bad debt, and speed the move toward a recovery.

The R.T.C. alumni are prepared to profit through either route.
Mr. Seidman, for example, has been hired as an adviser to SecondMarket, a company based in New York that early next year will start a virtual marketplace that intends to resell some of the trillions of dollars worth of distressed mortgage-backed securities, the financial instruments that helped fuel the surge in housing prices.

Mr. Seidman has already set up meetings between company executives and federal regulators, including at the F.D.I.C., said Barry E. Silbert, the company's founder.

Mr. Silversmith, meanwhile, who during the savings and loan crisis helped arrange the sale of thrift assets, has teamed with Barry Fromm, the chief executive of Value Recovery Holding, one of the big government contractors who handled these sales. The two in recent weeks have held meetings with some of Mr. Silverstein's former colleagues, including James Wigand, the deputy director in charge of the F.D.I.C. division that sells seized assets, to work on a plan to get ahold of some of the new wave of properties the federal government intends to put on the market as a result of recent bank failures.

Many of the investors who built legendary fortunes during the savings and loan crisis - like Sam Zell, the chief executive of the Tribune Company, and Joseph E. Robert Jr., the chief executive of J. E. Robert Companies - are also looking for ways to get back into or expand their distressed assets trade.
Mr. Zell, who has fared less well in his Tribune investment, recalled the instinct for capitalizing on the misfortune of others that earned him the sobriquet "the grave dancer" when he started buying up properties from failed savings and loans.

"When I started the first opportunity fund in 1988, I was the only one bidding - if they didn't sell to me, they didn't sell to anyone," Mr. Zell recalled.
Now, he said, "The best opportunity right now is in the debt area, mortgages. We have been buying all along."

R.T.C. experience is certainly no guarantee of success, the agency veterans acknowledge.

Peter Monroe, who was president of the R.T.C. oversight board from 1990 to 1993, has already bought about 300 distressed properties in Detroit, through a venture capital company he formed called Wilherst Oxford. Figuring out a way to profit from the investment - even though some of the houses cost him only a few hundred dollars - has proven to be a challenge.

"It is like a high-hurdle race: you can get going fast, but you have to jump over one hurdle after the other," Mr. Monroe said. "It has turned out to be more complicated than even I expected."

12292008 By Eric Lipton and David D. Kirkpatrick / New York Times

Sunday, December 28, 2008

Home to Grandfather's House for Christmas

We trekked some 400 miles across country to be with my elderly father on Christmas Day. While to the adults much of the trip is packing, waiting in line and traffic, to a nine (9) year old, it is still magic.

Out of the gifts, the travel arrangements, the packing, the thing I will remember the most about this Christmas (2008) was my son's encounter with Santa Clause. After having met with "Santa," he remembered he had "forgotten" a very significant present. My weak statement that, "Santa probably knows about that game you want," went nowhere.

We went back, stood in line, and "told" "Santa," about the very special game that must come on Christmas Day.

Its so trite, so hackneyed (nice word for a Christmas story), but I watched him tell Santa with all the "importance of being earnest" that Santa must "add" this one game to his list.

Santa dutifully said that he would and that Parker should have known that Santa already knew his Christmas List - responding to my 'wink' 15 feet away.

And, I reminded Santa that we would be at "Grandfather's house" on Christmas Day. Santa, apparently the "hi tech" Santa, shrugged it off and said that his elves now take care of all the GPS and routing details. And, in the world of UPS and USPS online "tracking," it made perfect sense to my 9 year old.

So, we left Santa -- well certain that the "game" would arrive at Grandfather's house on Christmas Day.

And, off to packing, the smell of pine trees, cinnamon sticks, Holiday Muzak®, grapefruit from someplace called "Indian River," a holiday party where last years pants didn't fit quite as well as the year before, a Holiday Card that said they donated your Christmas Gift to the Welcome Wagon®, or some other equally obscure organization and then ...

We were off ...

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Over the river and through the woods
To Grand[father's] house we go.
The horse knows the way
To carry the sleigh
Through the white and drifted snow, Oh!
Over the river and through the woods
Oh, how the wind does blow.
It stings the nose
And bites the toes
As over the ground we go.

Over the river and through the woods
Trot fast my dapple gray.
Spring over the ground
Like a hunting hound
On this Thanksgiving Day, Hey!
Over the river and through the woods
Now Grand[father's] face I spy.
Hurrah for the fun,
Is the pudding done?
Hurrah for the pumpkin pie.

[Mother Goose. Public Domain.]

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When we finally got in eyesight of Grandfather's House (my father, Parker's Grandfather), I was surprised to see Christmas Lights all around.

Apparently, the people who take care of Grandfather put up some Christmas lights.

They were not the biggest; they were not the brightest and they were not the most impressive.

However, out of all the lights this Christmas, they were, in some odd way, the most meaningful and most inviting.

Merry Christmas and Happy Holidays to you all.

Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
Phone: 404-633-4100
Fax: 404-633-0068

Tuesday, December 16, 2008

US Treasury, Desperate to Restart Housing, Offers to Subordinate Tax Liens

In an economic move that can only be put on a par with depression-era creativity to restart the flagging (if not comatose) housing industry, the US Treasury today offered to subordinate IRS Tax Liens to speed the sale of houses.

While we all dislike the IRS (it's the national pastime), its job is to collect unpaid federal taxes. Yet, this subordination offer speaks volumes concerning the depth and length of the present (or coming) housing depression.

Consider: A home seller is nearing foreclosure on his or her ("he") existing home, meaning that he cannot service the debt on the existing home. He cannot pay the full tenor of the current mortgage and he cannot pay the taxes he owes to the federal government. Almost certainly, there are many other unpaid debts.

The feds now, not as a matter of hardship, but as a matter of economic policy associated with the stalled TARP program and its ancillary fallout, offer to subordinate federal tax liens.

Did I read that correctly? As a matter of stated tax policy the feds will now routinely (until the economy recovers and all jobs in Lake Wobegon begin to pay above average wages) subordinate federal tax liens? Say it ain’t so.

So, in a refinance to save a home, a US homeowner borrows more money at more favorable rates to pay off a unaffordable mortgage and subordinates unpaid federal taxes to boot?

Its great for the housing industry, but it is also a stark indicator of the depth of this coming economic trench.

How deep?

Welcome to 1934. Cole Porter's Anything Goes just opened on Broadway.

"Reno Sweeney: [singing] In olden days a glimpse of stocking / Was looked on as something shocking, / Now, Heaven knows, / Anything goes!"

The feds voluntarily offering to subordinate tax liens at the refi table. Pinch me. What will they think of next.

Hugh Wood, Atlanta, GA

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December 16, 2008

WASHINGTON - The Internal Revenue Service today announced an expedited process that will make it easier for financially distressed homeowners to avoid having a federal tax lien block refinancing of mortgages or the sale of a home.

If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options. Taxpayers or their representatives, such as their lenders, may request that the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. Taxpayers or their representatives may request that the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances.

The process to request a discharge or a subordination of a tax lien takes approximately 30 days after the submission of the completed application, but the IRS will work to speed those requests in wake of the economic downturn.

"We don't want the IRS to be a barrier to people saving or selling their homes. We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes," said Doug Shulman, IRS commissioner.

"We realize these are difficult times for many Americans," Shulman said. "We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions."

Filing a Notice of Federal Tax Lien is a formal process by which the government makes a legal claim to property as security or payment for a tax debt. It serves as a public notice to other creditors that the government has a claim on the property.

In some cases, a federal tax lien can be made secondary to another lien, such as a lending institution's, if the IRS determines that taking a secondary position ultimately will help with collection of the tax debt. That process is called subordination. Taxpayers or their representatives may apply for a subordination of a federal tax lien if they are refinancing or restructuring their mortgage. Without lien subordination, taxpayers may be unable to borrow funds or reduce their payments. Lending institutions generally want their lien to have priority on the home being used as collateral.

To apply for a certificate of lien subordination, people must follow directions in Publication 784, How to Prepare an Application for a Certificate of Subordination of a Federal Tax Lien. Again, there is no form but there must be a typed letter of request and certain documentation. The request should be mailed to one of 40 Collection Advisory Groups nationwide. See Publication 4235, Collection Advisory Group Addresses, for address information.

Taxpayers or their representatives may apply for a certificate of discharge of a tax lien if they are giving up ownership of the property, such as selling the property, at an amount less than the mortgage lien if the mortgage lien is senior to the tax lien. The IRS may also issue a certificate of discharge in other circumstances if the taxpayer has sufficient equity in other assets, can substitute other assets, or is able to pay the IRS its equity in the property. Without a tax lien discharge, the taxpayer may be unable to complete the home ownership change and the ownership title will remain clouded.

To apply for a tax lien discharge, applicants must follow directions in Publication 783, Instructions on How to Apply for a Certificate of Discharge of a Federal Tax Lien. There is no form but there must be a typed letter of request and certain documentation. The request should be mailed to one of 40 Collection Advisory Groups nationwide. See Publication 4235 for address information.

The IRS also urges people to contact the agency's Collection Advisory Group early in the home sale or refinancing process so that it can begin work on their requests. People sometimes delay informing lenders of the tax liens, which only serves to delay the transaction.

Currently, there are more than 1 million federal tax liens outstanding tied to both real and personal property. The IRS issues more than 600,000 federal tax lien notices annually.

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Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084

Phone: 404-633-4100
Fax: 404-633-0068

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