A large California land partnership involving one of the largest U.S. pension funds has received a notice of default on a $1 billion loan after failing to meet certain terms of its lenders, the Wall Street Journal reported on Saturday. LandSource Communities Development LLC, a partnership that involves the California Public Employees’ Retirement System, received the default notice Tuesday, amid talks to restructure $1.24 billion of debt. The partnership, which owns 15,000 acres in Southern California, had received an extension to meet its current loan terms, including a required payment, but the deadline expired on April 16. The default notice applies to about $1 billlion of the total debt.

The mortgage industry, facing the prospect of tougher regulations for its central role in the housing crisis, has begun an intensive campaign to fight back, the New York Times reported today. As the Federal Reserve completes work on rules to root out abuses by lenders, its plan has run into criticism from bankers, mortgage brokers and other parts of the housing industry. One common industry criticism is that at a time of tight credit, tighter rules could make many mortgages more expensive by creating more paperwork and potentially exposing lenders to more lawsuits. Four months ago, the Fed proposed the new standards on exotic mortgages and high-cost loans for people with weak credit. The Fed’s proposals came after it was criticized sharply as a captive of the mortgage lending industry that had failed over many years to supervise it adequately. Proposals are pending in Congress on mortgage standards, but it is not clear whether they will be adopted this year. The Fed has its own authority under housing and lending laws to adopt mortgage standards.

Frontier Airlines Holdings Inc. is asking for bankruptcy court permission to sell off four airplanes for $106 million, noting in court papers that the company’s budget for the coming months relies on the infusion of cash the sale would generate, Bankruptcy Law360 reported yesterday. Denver-based Frontier filed a motion on Friday seeking authorization to enter into a letter of intent and to sell two Airbus A319-111 aircraft and two Airbus A318-111 aircraft to Verulamium Finance Ltd. Verulamium would pay $106 million for the four planes, $68.5 million of which would go to pay for the mortgages on each of the aircraft, leaving Frontier with $37.5 million.

The Bush administration is proposing that Congress authorize purchasing billions of dollars in federal student loans to make sure the nation’s credit crunch does not block borrowing for higher education, the New York Times reported today. The proposal, outlined in a letter to be sent today to members of Congress from the Education and Treasury Departments and the Office of Management and Budget, endorses a provision in a bill passed by the House this month. The legislation authorizes the Education Department to buy federally guaranteed loans through July 2009. The Senate has not yet taken up its version of the bill, introduced by Senate Education Committee Chairman Edward M. Kennedy (D-Mass.).The Education Department is also working out the details of a “lender of last resort” program under which students could borrow from guarantee agencies — the nonprofit companies and state agencies that guarantee federal loans on behalf of the federal government. Education Secretary Margaret Spellings said that because that program had never been used on a wide scale, the department’s ability to buy federal student loans could help head off problems.

The House of Representatives, looking to avert a looming shortage in available student loans, approved a measure yesterday allowing the Department of Education to buy federally guaranteed loans that lenders are unable to sell to private investors, Bloomberg News reported today. The action is intended to address a crisis in the market that has forced Reston, Va.-based Sallie Mae, Citigroup’s Student Loan subsidiary and about 50 other lenders to stop writing some forms of student loans. Companies are citing increased borrowing costs, cuts in government subsidies for education loans and a lack of investor interest in securities backed by loans. Congress is considering other measures, and lawmakers have urged the Treasury Department and the Federal Reserve to take action to provide liquidity for federally backed loans. Read more.

In related news, Bank of America said yesterday that it plans to stop issuing private student loans because the turmoil in the bond market has made the debt hard to sell to investors, the Associated Press reported. Bank of America plans to shut down that line of business as less than 15 percent of the company’s $6 billion in student loans are privately issued. The Charlotte, N.C.-based bank plans to continue issuing government-backed student loans. First Marblehead Corp., a Boston-based company that helps banks package their private student loans into bonds and sell them to investors, said Bank of America claimed it is closing its private student loan business because of the “ongoing disruption in the capital markets.” About 15 percent of First Marblehead’s annual revenue comes from pooling and selling Bank of America’s private student loans.

Three congressional committees will hold hearings today to address the topics of student lending, mortgage lending and financial literacy. The Senate Banking Committee will hold a hearing titled “Turmoil in U.S. Credit Markets Impact on the Cost and Availability of Student Loans” at 10 a.m. ET in room 538 of the Dirksen Senate Office Building. The House Financial Services Committee will also hold a hearing at 10 a.m. ET titled “Financial Literacy and Education: The Effectiveness of Governmental and Private Sector Initiatives” in room 2128 of the Rayburn House Office Building. Finally, the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises will hold a hearing on H.R. 5579, “the Emergency Mortgage Loan Modification Act of 2008″ at 2 p.m. ET in room 2128 of the Rayburn House Office Building. All hearings will be viewable via Webcasts by clicking on the links below.

The Federal Home Loan Banks of Dallas and Chicago called off their merger talks amid uncertainty over the value of the Chicago bank’s holdings of mortgage securities, the Wall Street Journal reported today. The failure of the merger talks, which started in August, is the latest sign of the strains on financial institutions resulting from turmoil in the mortgage market, where rising defaults and falling home prices have slashed the market value of home loans. The nation’s 12 regional home-loan banks have stepped up their lending to commercial banks and thrifts as other sources of funding have dried up. However, the Chicago home-loan bank faces losses that may call into question the adequacy of its capital base, which stood at 4.9 percent of assets at the end of 2007. Unlike its Dallas counterpart, the Chicago bank aggressively expanded its purchases of home mortgages in the first half of this decade. Regulators criticized the Chicago bank’s risk controls in 2004 and since then have imposed tighter restrictions on the bank.

Defaults, delinquencies and shrinking revenue have forced Education Resources Institute Inc., a Boston nonprofit that insures more than $17 billion in privately issued student loans, to file for chapter 11 protection, the Wall Street Journal reported today. The organization, known as TERI, is linked to First Marblehead Corp., a Boston bank that had been a leading player in packaging student loans into complex asset-backed securities. First Marblehead had purchased loans from Bank of America Corp., JPMorgan Chase & Co. and others, and arranged for TERI to insure them in exchange for fees. The loans were then packaged into trusts that issued notes to investors. However, that market dried up this past fall amid the broader credit crisis and doubts about complicated asset-backed securities in subprime mortgages and other kinds of debt.

The proof of claim is the document indicating what a particular creditor is claiming that it is owed by a debtor. It is the starting point for receiving a share of any funds distributed by the bankruptcy trustee. The same proof of claim for applies to both Chapter 7 and Chapter 13 bankruptcy cases. In the case of a Chapter 7 bankruptcy case, creditors will only be advised to file proof of claims when indicated by the clerk of court that there may be assets to administer.

The proof of claim will list the debtor’s name, case number and name of the creditor filing the proof of claim. The creditor’s address and telephone number will also be provided.

Importantly, the creditor will list the amount of the claim as of the date of filing. It will also include the basis of the claim: for example, money loaned, services provided, etc. It is important for the creditor to be as detailed as possible to avoid having the claim stricken or objected to as being vague.

If the claim is secured by property, the type of property will be indicated (real estate, motor vehicle, other). The value of the property as well as the interest rate will be itemized along with any amount of arrearage.

Certain claims are entitled to a priority under the bankruptcy code. These include domestic support obligations, wages, salaries or commissions earned within 180 days of filing, contributions to an employee benefit plan, up to $2,425.00 of deposits toward purchase, lease or rental property or services for personal, family or household ust, taxes or penalties owed to governmental units and others.

Documentation for the claim must be provided. For example, the creditor will attach redacted copies of statements or documents which support the claim. Additionally, a summary may be provided. If documentation is not provided, the creditor is advised to explain.

Lastly, the claim must be signed by the person filing the claim.

In certain cases, there will be a duplicate claim filed by a creditor. When this happens, either the trustee or the debtor’s attorney can and should bring a motion striking one of the claims as duplicative. This happens because creditors often have outside collection arms handling certain debtor’s cases. Of course, filing a duplicate claim is never purposeful as that would be a considerable violation of bankruptcy laws and ethics.

If an individual is a creditor, that person should consider hiring legal counsel to handle the filing of the claim and the general administration of the case.

Every day more than 4,500 people call Hope Now, the White House-backed group formed to help struggling homeowners, but few of them appear to be getting the relief they are hoping for, the New York Times reported today. A big reason is that the financial powers behind Hope Now — mortgage lenders, loan servicers and big investors — are reluctant to change loan terms substantially if doing so hurts them. Almost six months after Hope Now was created, the group is largely resisting calls for broad relief for homeowners. The group itself employs just three people as most of its work is done through committees staffed by senior bank and mortgage executives who are part of the Financial Services Roundtable. Hope Now’s executive director, Faith Schwartz, is an executive at the subprime lender Option One Mortgage. People who dial Hope Now’s toll-free number, 1-888-995-HOPE, typically are routed to call centers in Phoenix and Spokane, Wash. Three out of four eventually are connected to credit counselors for a free, informal consultation. However, only a fraction of all callers — about 4 percent — end up talking in person with a housing counselor, according to the Homeownership Preservation Foundation, a nonprofit group at the center of Hope Now that also has ties to the mortgage industry.
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