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Inside Washington (05/05/2009)
* WASHINGTON (5/6/09)--An amendment that would have narrowed a “safe harbor” to protect mortgage servicers who modify troubled loans was defeated by the Senate Tuesday (Reuters May 5). If the safe harbor amendment had passed, some mortgage investors could have sued mortgage servicers for lowering a borrower’s monthly loan payment. Mortgage investors usually lose money when terms of a mortgage are modified, so some investors worried that mortgage servicers would modify loans without regard for investors ... * WASHINGTON (5/6/09)--Results of the Federal Reserve Board’s April 2009 Senior Loan Officer Opinion Survey on Banking Lending Practices released Monday indicate that a significant majority of banks expect that credit quality for all types of loans likely will deteriorate over the year if the economy progresses according to consensus forecasts. The survey addressed changes in the supply of, and demand for, loans to businesses and households over the previous three months. Respondents indicated that demand for loans from both businesses and households continued to weaken for nearly all types of loans over the survey period, except demand for prime mortgages. About 50% of domestic respondents indicated that they had tightened their lending standards on prime mortgages the previous three months, and about 65% of the 25 banks that originated nontraditional residential mortgage loans during the survey period reported tightening their lending standards on such loans. About 35% of domestic respondents saw stronger demand, for prime residential mortgage loans during the previous three months, compared with the roughly 10% that reported weaker demand in the January survey ... * WASHINGTON (5/6/09)--In a speech Monday, Federal Reserve Bank of Kansas City President Thomas Hoenig said that breaking up large companies may be an option to prevent “such institutions from holding us hostage in the future.” Commenting on the notion that some banks are perceived as “too big to fail,” Hoenig said some institutions should be subject to size or activity limit, higher capital requirements and other limitations on the systemic risks they impose on the financial system. “I fear that if we pour in enough public funds to see us through the current crisis, we will then breathe a sigh of relief and back off from implementing any comprehensive solutions to controlling the use of government guarantees and to addressing the problems posed by systemically important institutions,” he added ...


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