A pension fund sued Moody’s Corp. yesterday, alleging that the credit-ratings agency misrepresented or failed to disclose that it had assigned “excessively high ratings to bonds backed by risky subprime mortgages,” Dow Jones Newswires reported yesterday. In a lawsuit filed in federal court in Manhattan, the Teamsters Local 282 Pension Trust Fund alleged that the New York company’s ratings of bonds backed by subprime mortgages - including bonds packaged as collateralized debt obligations - were materially misleading to investors concerning the quality and relative risk of those investments. On July 11, Moody’s announced it was downgrading 399 mortgage-backed securities issued in 2006 and reviewing an additional 32 for downgrades, representing about $5.2 billion of bonds, according to the lawsuit. The company also disclosed it had downgraded 52 bonds issued in 2005, according to the complaint.

House tax-writers are poised to grant bipartisan approval today to a bill that ensures that mortgage debt forgiven by banks will not be subject to tax, CongressDaily reported today. H.R. 3648, estimated to provide tax cuts worth $2 billion over 10 years, is offset by limits on the extent to which gains from the sale of a home that was initially purchased as a second home can be shielded from tax. The provision would reduce the ability of individuals to save on taxes by moving into their vacation home or rental and establishing it as their principal residence by living there for two years. The bill, introduced yesterday by House Ways and Means Chairman Charles Rangel (D-N.Y.), has the backing of the National Association of Realtors and is similar to a proposal President Bush made in August. Rangel’s bill would exclude from income the amount of debt forgiven, provided it was incurred on a principal residence. The bill also extends the current deduction for private mortgage insurance, now scheduled to expire at the end of this year, through 2014, at a cost of $570 million.

The world’s steelmakers could face significantly higher costs next year as raw-materials prices rise, threatening the industry’s string of big profits if it can’t successfully pass on the costs to industries ranging from car makers to construction, the Wall Street Journal reported today. The industry is set to begin talks next month with big producers of iron ore, a crucial ingredient for steelmaking, over next year’s prices. The group is set to demand a 50 percent price increase, compared with the 9.5 percent increase last year. Steelmakers undoubtedly will pass on some of the higher costs to their customers in the auto, appliance and construction industries. The cost pressures also could prompt more consolidation in a still-fragmented industry as steel producers seek more bargaining clout and economies of scale.

As the housing boom turns to bust, hundreds of lawsuits are being filed on behalf of borrowers who legal advocates say were shoehorned into homes beyond their means with creative and onerous mortgages, the New York Times reported today. The culprits, borrowers assert, are brokers, agents, lenders and others who earned lucrative fees from the loans. Immigrants and minority borrowers are particularly dependent upon real estate professionals because they may not speak fluent English or understand the complex loan terms and documents, which can confound native speakers as well. In California, home buyers are not required to have a lawyer present at closing. However, the state affords homeowners some protections not found elsewhere: mortgage brokers here must act in the fiduciary interest of their clients. Advocates for borrowers say a similar requirement is needed nationally because brokers have a financial incentive to steer borrowers toward higher-cost loans. In Washington, some federal lawmakers have proposed requiring brokers and lenders to make suitable loans that benefit borrowers.

The governor of the Bank of England, Mervyn King, offered an unapologetic defense yesterday of the bank’s decision to reverse course and inject cash into the financial system and that politics were responsible for the crisis that led to the near-collapse of a large mortgage bank, Northern Rock, the New York Times reported today. King told a parliamentary committee that the bank had had to walk a fine line between preserving financial stability and taking steps that could encourage reckless behavior in the future. On Wednesday, the central bank made available £10 billion, or $19.9 billion, lent for three months, into a banking system that has been parched for cash since early August, when a spiraling credit crisis emanating from the United States mortgage market led to a drying up of liquidity. It also announced it would accept mortgage collateral from the banks for the loans, raising the prospect that it would effectively absorb potential losses on securities whose value is now highly questionable.

Lawyers involved in the bankruptcy of the Roman Catholic Diocese of Spokane have agreed to cut their legal bills by about 5 percent, producing an extra $400,000 for victims of sexual abuse by priests, the Associated Press reported today. If approved by U.S. Bankruptcy Judge Patricia Williams, the agreement would end a dispute among several law firms and the U.S. Trustee’s Office over how much the lawyers should be paid. The legal fees fight is one of the last remaining issues in the bankruptcy filed in December 2004. Recently, a plan to keep the diocese intact and end the bankruptcy came together after a group of priests and lay members calling itself the Association of Parishes agreed to contribute about $10 million to the final $48 million settlement.

The Council of the District of Columbia passed a proposal to bring Washington, D.C., payday lenders back under the District’s 24 percent annual interest rate cap, according to a Center for Responsible Lending press release. The council members voted 12-1 in favor of the Payday Loan Consumer Protection Act. An exemption granted to DC payday lenders in 1998 allowed them to bypass the 24 percent usury cap. “They deprive people of the opportunity to get a toehold, to get ahead,” said Councilmember Mary Cheh. Councilmember Marion Barry co-sponsored the bill but later withdrew his support, casting the only vote with the payday industry. In opposing the bill, Barry said 60,000 D.C. residents use payday lending, making 700,000 transactions per year. About a dozen states control payday lending by enforcing two-digit interest rate caps, and several states are considering removing exemptions for payday lenders or passing new enforcements of existing caps. Congress passed a law capping annual interest rates at 36 percent for consumer loans to military families. The federal law is set to take effect Oct.1.

A dozen organizations representing the financial services industry wrote to the Senate Judiciary Committee on Tuesday, expressing concern about coming legislation that would permit lienstripping of residential home mortgages in chapter 13. “We are very concerned about legislative proposals intended to respond to problems in the subprime market by making major changes to our bankruptcy system.” The concern of the organization centers on proposals, such as those put forward by the Center for Responsible Lending, to allow bankruptcy judges to modify the terms of a mortgage in a chapter 13 proceeding that could involve reducing the value of the loan, extending the terms of the loan, lowering the interest rate and delaying the effective date of an adjustable rate increase. “If a mortgage loan can be modified or rendered unsecure during bankruptcy, it will be far more difficult to originate or sell mortgages in the secondary market,” the organizations said. “Such changes introduce substantial risks that the terms of loans will be changed in unpredictable ways. The costs of mortgages would have to increase to reflect this additional risk. These proposals would reduce liquidity and make it harder for Americans to obtain a new mortgage or refinance their existing mortgage, the exact opposite of what the mortgage market needs now.”

U.S. Trustee Kelly Beaudin Stapleton objected to subprime lender Aegis Mortgage Corp.’s proposed employee incentive plan, Bankruptcy Law360 reported yesterday. Stapleton specifically objected to the plan as it pertains to Aegis’ officers. In its motion, Aegis revealed that 29 employees would be affected by the incentive plan, and of those, four were called “officers.” However, nine other employees, called “senior eligible employees,” included Aegis’ CEO Dan Gilbert, COO Mike Massella and CFO Ed Robertson. The incentive plan proposed by Aegis would pay the 13 eligible senior employees, most of whom are officers, bonuses ranging from 24-56 percent of their annual salaries, Stapleton said.

The Federal Trade Commission said yesterday that it warned more than 200 companies about “potentially deceptive” mortgage advertisements that give borrowers a false impression of the cost of home loans, the Associated Press reported yesterday. The agency said that ads on the Internet, in newspapers, in magazines, in the mail, in e-mail and in faxes “may violate federal law” by making deceptive claims about their terms. It sent warning letters to advertisers and to news outlets. “Many mortgage advertisers are making potentially deceptive claims about incredibly low rates and payments, without telling consumers the whole story,” Lydia Parnes, director of the Bureau of Consumer Protection of the FTC, said in a statement. The FTC, which has detailed guidelines on how mortgage lenders should advertise their products to comply with federal law, said the ads were identified in June as part of a nationwide review.