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Inside Washington (12/08/2009)
* WASHINGTON (12/9/09)--Roughly 6% of trial mortgage modifications have become permanent or likely will be permanent under the Obama administration’s Making Home Affordable Program (HAMP), according to Treasury Department data scheduled to be released Thursday. About 11% of trial modifications that were extended under HAMP have been cancelled, 49% lack documentation to convert them to permanent loans, and 33% have the required documents but haven’t been converted yet (American Banker Dec. 8). Under HAMP, servicers must finish three months of trial modifications where the loan was reduced to 31% of the debt-income ratio before a workout can be made permanent. So far, 650,000 trial modifications have been extended ... * WASHINGTON (12/9/09)--The Troubled Asset Relief Program (TARP) is slated to recover all but $42 billion from its capital infusions to financial institutions, a Treasury Department official said Monday (American Banker Dec. 8). In August, the department projected it would lose $110 billion on the program. So far, banks have repaid $71 billion. Bank of America Corp., who plans to repay by the end of the year, will bring the figure to $116 billion ... * WASHINGTON (12/9/09)--The Small Business Administration (SBA) needs to improve its lender risk rating system, according to a Government Accountability Office (GAO) study. The study found that the system uses some of the same information that federal financial regulators and selected large lenders use to conduct off-site monitoring, but its usefulness is limited because SBA has not followed common industry standards when validating the system. SBA hasn’t assessed the system’s ability to accurately predict outcomes, the report said. GAO recommends that SBA ensure its contract, consistent with industry standards, follows sound model validation practices, use its own data to assess the lender risk rating system, develop a strategy for targeting lenders for onsite reviews that relies more on its lender risk ratings, and consider revising its on-site review policies and procedures. SBA responded to the report, GAO noted, saying that it agreed with the recommendations and plans to take steps to address them ... * WASHINGTON (12/9/09)--The Federal Reserve Board stands to lose some of its power if financial reform legislation is enacted, observers said. On Monday, Fed Chairman Ben Bernanke told the Economic Club of Washington that he opposes a plan that would subject the central bank to audits by the Government Accountability Office (GAO). He also stressed the importance of the Fed’s role as a supervisor. However, observers said the Fed’s powers will be narrowed (American Banker Dec. 8). The Fed will lose some political battles and will have a tougher time arguing against the proposed measures, said Brian Gardner, Keefe, Bruyette and Woods. Inc. analyst. The House is expected to vote on a bill this week that would reform the financial system and subject the Fed to GAO audits. On the Senate side, Sen. Bernie Sanders (I-Vt.) has just won two co-sponsors, Blanche Lincoln (D-Ark.) and Russ Feingold (D-Wis.), on similar reform legislation. The Fed also opposes legislation by Senate Banking Committee Chairman Christopher Dodd (D-Conn.), which would strip the Fed’s bank supervisory powers completely ...


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