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Inside Washington (07/05/2009)
* WASHINGTON (7/6/09)--The Small Business Administration’s (SBA) America’s Recovery Capital (Arc) program is off to a slow start. Only 71 lenders have made a total of 139 Arc loans--worth $4.6 million--as of June 22, SBA said (American Banker July 2). The program may be off to a sluggish start because of lenders’ concerns about underwriting costs and scrutiny if a borrower defaults, said Arne Monson of Holtmeyer and Monson, a Memphis-Tenn.-based firm. Monson said he serves about 400 community banks but has only made one Arc loan. Arc offers $35,000 in interest-free loans to small businesses. SBA anticipated great demand for the program, so it capped the number of loans financial institutions can offer by the week, but the limit could be eliminated, said Janet Tasker, SBA deputy associate administrator for capital access. Financial institutions can make an Arc loan after looking at three years’ worth of financial statements and two years’ worth of cash flow projections from the applicant ... * WASHINGTON (7/6/09)--During a speech in London last week, Charles Evans, president/CEO of the Federal Reserve Bank of Chicago, suggested several ways banks could create contingent capital and bankruptcy plans to avoid bringing down the entire financial system in the event of a crisis. “The argument is that banks need to hold more capital and they tend to resist holding higher levels because it is expensive,” he said. He noted that the Squam Lake Working Group proposes that systemically important banks should issue new contingent capital certificates, where securities could be sold as debt liabilities to make standard tax-deductible interest payments. However, the liabilities would be converted into equity shares if some predetermined threshold was breached, he said. Another option is to require firms to purchase contingent capital in the form of capital insurance. A final option is to require institutions to have a “shelf bankruptcy” plan that has already considered and addressed problem areas. To carry out this plan, supervisors would require firms to address potential problem areas. “One can envision this plan being stress-tested as part of the regulator examination process,” he said ... * WASHINGTON (7/6/09)--The loans that auto dealers use to purchase dealership inventory will now be partly guaranteed under the Small Business Administration’s Dealer Floor Plan Pilot Initiative, announced Wednesday. Under the plan, the agency will guarantee 75% of floor plan loans with values between $500,000 and $2 million. The program will also be open to boat, RV, and manufactured home dealers. (American Banker July 2) ... * WASHINGTON (7/6/09)--The Department of Housing and Urban Development (HUD) has sharply increased its enforcement actions this past year and is becoming less tolerant of errors in Federal Housing Administration (FHA) mortgages. Expected increases in the agency’s public profile and risk exposure could result in even stricted enforcement actions going forward. One source said that the department acted against 111 lenders during the first nine months of the current fiscal year, a far higher rate than 95 enforcement actions taken during the prior fiscal year. HUD also recently withdrew FHA approval for 102 lenders and fined several others. Lenders have been fined for failing to check credit reports or performing quality-control audits on loans within a prescribed deadline. (American Banker July 2) …


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