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Inside Washington (12/15/2010)
*WASHINGTON (12/16/10)—Federal banks and thrift regulators announced new rules to expand the scope transactions that qualify for Community Reinvestment Act (CRA) rule consideration. The final rule, substantially similar to a proposal issued for comment in June, is intended to provide additional support to communities affected by high foreclosure levels. It encourages banks and thrifts to support eligible development activities in areas designated under the Neighborhood Stabilization Program (NSP) administered by the U.S. Department of Housing and Urban Development (HUD). Under the NSP, HUD has provided funds to state and local governments and nonprofit organizations for the purchase and redevelopment of abandoned and foreclosed properties. The new rule encourages depository institutions to make loans and investments, and provide services to support NSP activities in areas with HUD-approved plans. The rule becomes effective 30 days after its publication in the Federal Register Credit unions do not fall under CRA ... * WASHINGTON (12/16/10)--Rep. Randy Neugebauer (R-Texas), incoming chair of the House Financial Services Oversight Subcommittee, yesterday expressed “serious concern” regarding recent media reports that the Obama Administration is pressuring Fannie Mae and Freddie Mac to begin writing down mortgage principal to qualify underwater borrowers for lower-rate Federal Housing Administration (FHA) mortgages. In a letter to Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), Neugebauer asked for details and justification as to why Fannie and Freddie’s participation in the loan modification program would be in the best interest of taxpayers. “It is the responsibility of Congress and FHFA to ensure that taxpayer dollars are being spent in the most prudent manner,” Neugebauer wrote. “It appears that writing down loan principal for homeowners who are current on their mortgages simply because they may walk away from their homes does not fulfill our obligation to protect U.S. taxpayers” … * WASHINGTON (12/16/10)--Citing an agricultural sector that is susceptible to shocks from a number of sources, including volatile commodity prices, the Federal Deposit Insurance Corp. (FDIC) urged institutions to exercise prudent credit risk management practices. In a letter to banks, the FDIC said institutions should place a strong emphasis on borrower cash flow and repayment capacity without undue reliance on collateral. The agency also advised banks not to place undue reliance on cyclical factors such as appreciation of land prices when making credit decisions. “Institutions should be sensitive to evidence of speculation in agricultural land prices or commodities that are influencing the market and remain focused on repayment ability and borrower underwriting,” the letter said … * WASHINGTON (12/16/10)--The Senate Banking Committee approved President Barack Obama's nominee, Joseph Smith, as director of the Federal Housing Finance Agency by a vote of 16 to 6 on Tuesday (American Banker Dec. 15). Smith’s nomination still requires full Senate approval. Smith currently serves as the North Carolina commissioner of banks. The committee approval was not without objection. Sen. Richard Shelby (R-Ala.) said Smith had been evasive in answering questions during his confirmation hearing. Three Republicans did support Smith’s nomination: Sen. Bob Bennett of Utah, Bob Corker of Tennessee and Kay Baily Hutchison of Texas … * WASHINGTON (12/16/10)--The Home Affordable Modification Program (HAMP) will fall far short of expectations, according to a report issued by the Treasury Department Tuesday. HAMP will prevent only 700,000 to 800,000 foreclosures, far fewer than the 3 million to 4 million foreclosures that Treasury initially aimed to stop, and well short of the 8 million to 13 million foreclosures expected by 2012. The report said HAMP--which provides financial incentives to borrowers, lenders and services to modify troubled loans—failed in part because mortgages were more complicated than a one-to-one relationship between borrower and lender. For example, the report said many servicers fail to participate in the program because the servicers’ interests may at times conflict with those of lenders and borrowers. Although lenders suffer losses in foreclosures, servicers can turn a substantial profit from foreclosure-related fees. HAMP’s failure led key policymakers to join the call for nationwide mortgage servicing standards (American Banker Dec. 15). Sen. Ted Kaufman (D-Del.) said regulation should be developed to eliminate any conflict of interest …


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