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Senators said the plan, which empowers the Federal Housing Administration, or F.H.A., to insure risky loans, would most likely help hundreds of thousands of homeowners avoid foreclosure and stabilize the housing market.
SETBACK FOR BANK OF AMERICA A New York state judge made it easier for the bond insurer MBIA to pursue its $1.4 billion lawsuit accusing Countrywide Financial, a unit of Bank of America, of fraudulently inducing it to insure risky mortgage-backed securities.
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In its SEC filing, the home loan insurer said in 2007 it "tightened" its underwriting standards and stopped insuring risky loans, "particularly as they apply to loans with low credit scores, with high loan-to-value ratios and with homes in regions that we view as being higher risk".
To sidestep the thorny valuation problem, some have suggested that the bad bank acquire only assets that have already been marked down significantly and guarantee other assets, but officials would have just as difficult a task in determining how much to charge for insuring risky assets.
The government filed the lawsuit with the U.S. District Court in Manhattan, six months after accusing Deutsche Bank AG in a $1 billion fraud lawsuit of misleading it into insuring risky mortgages.
Turner, chairman of the Financial Services Authority, said banks would need to put aside money to insure against risky activities, following a sliding scale that meant high-risk trading would need to be backed by more capital.
There are concerns that Lloyds could face a bill of up to £12.5bn to insure the risky assets - largely inherited from HBOS - and that it is being forced to pay almost twice the 2% fee that Royal Bank of Scotland was charged last week for insurance of £325bn of its assets.
Goldman's second big bet was that AIG was sound enough to insure those risky derivatives against default.
The bank, which last year rejected the first round of a government bailout, has done it again, this time turning down an opportunity to insure its riskiest assets.
However, some firms are leaving flood-prone areas, reasoning it's bad business to continue insuring such risky properties.
The regulator signalled its intentions following the bank bailout in October and again at the end of February when it proposed a code of conduct alongside the government's new asset protection scheme, used by Lloyds and Royal Bank of Scotland to insure their most risky assets.
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