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Inside Washington (11/09/2009)
* WASHINGTON (11/10/09)--The Federal Housing Administration’s (FHA) move to delay releasing an audit of its capital reserves has prompted fears in the financial services industry that the fund is in the red and that the FHA will increase mortgage insurance premiums to make up the difference. The FHA has nearly depleted its reserves, and financial industry observers expect that the Department of Housing and Urban Development will try to raise more money as soon as it can. FHA lenders currently charge a borrower 165 basis points at closing plus another 50 basis points each month. The points are financed and the borrower cannot recoup the premium (American Banker Nov. 9). FHA hasn’t released information about its reserves, but the industry expects the ratio of cash to mortgages will be lower than 2%. Jim Pair, president of the National Association of Mortgage Brokers, said raising the mortgage premium would hurt the housing market ... * WASHINGTON (11/10/09)--The Federal Home Loan Bank of Seattle is undercapitalized, said the Federal Housing Finance Agency Friday (American Banker Nov. 9). The bank cannot redeem or repurchase stock or pay dividends, the agency said. While the institution has met its minimum capital requirements, the agency maintains that it is undercapitalized because of declines in the value of private-label mortgage-backed securities. Also, the bank is in danger of exhausting its retained earnings if credit losses on the securities in the fourth quarter matched losses in the third quarter. Last week, the bank said it lost $144.3 million in the first nine months of the year--$93.8 million of which was during the third quarter ... * WASHINGTON (11/10/09)--Lawmakers are debating the concept of “living wills” for financial institutions as a way to resolve systemically significant firms. Under a bill that would also create a new regulator for systemic firms, companies would be required to submit wind-down plans to the government to guide regulators so they can take apart an institution without damaging the financial system. The goal is to help the firms and the government prepare for a crisis. Rep. Barney Frank (D-Mass.) is sponsoring the bill. Several observers question if the guide would actually be followed, because the government would not be obligated to use the plan during a resolution. Harvard University Professor Kenneth Rogoff noted that firms would have to change their wills “all the time” (American Banker Nov. 9). He said the exercise wouldn’t be “bad to go through” but another line of defense is needed. Douglas Elliott, Brookings Institution fellow, said the benefits of a “living will” may be small but “still worth it” ...


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