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Inside Washington (10/08/2009)
* WASHINGTON (10/9/09)--The Federal Housing Administration (FHA)--which insures mortgages with low down payments--may need a government bailout, Bloomberg.com reported Thursday. FHA has $54 billion more in losses than it can handle, said a former Fannie Mae executive. The agency may need a bailout in two to three years, said consultant Edward Pinto. FHA’s volumes have quadrupled in the last three years as private insurers and lenders scale back in a struggling housing market. However, FHA Commissioner David H. Stevens said the agency doesn’t need a bailout. FHA’s reserves exceed more than its insurance--$30 billion, he said. About 14.4% of FHA’s loans were delinquent as of June 30, and 2.98% were in foreclosure, according to the Mortgage Bankers Association ... * WASHINGTON (10/9/09)--Fannie Mae and Freddie Mac will likely incur steeper funding costs if the Federal Reserve Board stops purchasing debt and mortgage-backed securities from the enterprises and the Federal Home Loan Banks March 31, financial observers say. The Senate Banking Committee was scheduled to meet Thursday to discuss the enterprises’ future and what role they would take in the mortgage markets after the economic crisis passes. If the Fed stops buying debt and securities in the first quarter, it will be a mistake because the change could drive up interest rates, said Joe Murin, managing director of the Collingwood Group. The Fed has said it would buy $1.25 trillion of mortgage-backed securities and $200 billion of debt from Fannie and Freddie. So far, the central bank has bought $882.6 billion in mortgage-backed securities and $131.2 billion in debt (American Banker Oct. 8) ... * WASHINGTON (10/9/09)--The delay on enacting regulatory reform of the financial services sector may not be a bad thing, according to Sheila Bair, Federal Deposit Insurance Corp. (FDIC) chairman (American Banker Oct. 8). It could give the nation extra time to find the roots of the crisis, Bair said during a speech Tuesday. She supports an Obama administration plan to create a consumer protection agency, although she has said it should not have oversight over banks. Rather, it should focus on nonbanks that made subprime loans--which triggered the financial crisis. Also on Tuesday, Bair said bank failures would probably continue through 2010. Banks are still working through loans they shouldn’t have made. Regulators want lending to continue, but only prudent lending, she said ... * WASHINGTON (10/9/09)--A plan to regulate over-the-counter derivatives has divided regulators and House Financial Services Committee Chair Barney Frank (D-Mass.). During a Wednesday hearing, regulators from the Securities and Exchange Commission and the Commodity Futures Trading Commission (CFTC) said Frank’s bill was too weak. He acknowledged the criticism and said he would make some changes. He said he was unsure about a concern regarding a provision to allow end users to enter into derivatives contracts without using a clearinghouse. Market participants should be able to profit off of derivatives, Frank said. Also during the hearing, CFTC Chair Gary Gensler suggested ways to improve the bill. Standardized derivative contracts should be traded on electronic trading platforms or exchanges, he said. He also said that instead of having regulators require clearance of standard derivatives, lawmakers should enforce clearance. Frank’s bill also left out some regulatory oversight, according to Henry Hu, SEC director of the division, risk, strategy and financial innovation. Frank said he could accommodate requests, but did not want to require that end users clear standard derivatives. The Obama administration also has drafted a derivatives bill. The legislation is tougher than Frank’s because it would not give banks and others much flexibility to avoid using a clearinghouse for derivatives hedged for risk ...


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