Bankrupt subprime lender and servicer Fremont General will settle more than $89m in tax obligations to the Internal Revenue Service (IRS) without actually paying a majority of the back taxes.

Last week, the U.S. Bankruptcy Court for the Central District of California, Santa Ana Division approved a motion that allows Fremont General to claim a net operating loss (NOL) deduction for 2004 that’s attributable for its 2006 tax obligations, according to a regulatory filing with the Securities and Exchange Commission (SEC).

In addition, Fremont General will deduct additional 2004 taxes, thanks to a temporary extension to the period when companies can claim the credit. The extension from two years to five went into effect when President Obama signed the Worker, Homeownership, and Business Assistance Act of 2009, the same legislation that extended and expanded the homebuyer tax credit. The NOL carryback extension is a boon for large publicly traded homebuilders, who’ve recouped billions in taxes paid during profitable years.

While approved by the bankruptcy court judge, the agreement must also meet the approval of the Congressional Joint Committee on Taxation, but according to the SEC filing, both Fremont General and the IRS anticipate that it is more likely than not the committee will approve the agreement “within the next several months.”

All told, Fremont’s nearly $89.4m tax assessment is now reduced to about $2.8m, including interest. In addition, as a result of the IRS agreement, a California Franchise Tax Board tax claim of $13.3m was reduced to $550,000.

Read more here: http://www.housingwire.com/2010/03/29/bankrupt-subprime-mortgage-lender-fremont-settles-89m-tax-dispute/

Michael Burry, the California hedge-fund manager who figured out how to bet against the subprime bubble, prodded seven Wall Street banks in early 2005 to create credit-default swaps for subprime-mortgage bonds, Michael Lewis writes in his book, “The Big Short.”

Five of them “had no idea what he was talking about,” Lewis says. Only Deutsche Bank AG and Goldman Sachs Group Inc. expressed any interest in the concept, he says.

“Inside of three years, credit-default swaps on subprime- mortgage bonds would become a trillion-dollar market and precipitate hundreds of billions of losses inside big Wall Street firms,” Lewis writes in an excerpt from the book on the Web site of Vanity Fair magazine.

“Yet, when Michael Burry pestered the firms in the beginning of 2005, only Deutsche Bank and Goldman Sachs had any real interest in continuing the conversation. No one on Wall Street, as far as he could tell, saw what he was seeing.”

The book is scheduled to be published later this month by W.W. Norton in the U.S. and by Allen Lane in the U.K.

Burry, the head of Cupertino, California-based Scion Capital Group LLC, had concluded that lending standards had hit bottom, Lewis writes. He had studied subprime mortgage bonds in detail, wading through hundreds of prospectuses, Lewis says, and had figured out that the way to bet against them would be with credit-default swaps, which allow investors to insure against — or bet on — the likelihood that the issuer will default.

At the time, there was no such thing for subprime mortgage bonds, writes Lewis, a Bloomberg News columnist. So Burry had to get Wall Street banks to create one.

http://www.bloomberg.com/apps/news?pid=20601088&sid=ahU3.EVqKSH8

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