Tougher Rules Urged for
Mortgage Lenders; Effort Not About `finding Excuses and Scapegoats'
WASHINGTON (AP) -- Economic policymakers on Thursday recommended
stricter regulation of mortgage lenders as part of a broad effort
to prevent a repeat of a credit crisis threatening to drive the
country into recession.
With problems in the credit and housing markets worsening, the
Bush administration now seems to favor a larger role for government
-- an approach for which Republicans generally have had little
appetite.
Recommendations from a presidential advisory group on financial
markets cover mortgage lenders and other institutions, as well
as investors, credit ratings agencies and regulators.
Treasury Secretary Henry Paulson, who leads that group, said
the effort is not about "finding excuses and scapegoats."
The suggested actions, he said, are intended to avoid another
meltdown in the credit and housing markets.
"The objective here is to get the balance right. Regulation
needs to catch up with innovation and help restore investor confidence
but not go so far as to create new problems, make our markets
less efficient or cut off credit to those who need it," Paulson
said.
Federal and state regulators should strengthen oversight of mortgage
lenders, according to the group's report released Thursday. Also,
states should follow strong, uniform licensing standards for mortgage
brokers. Legislation in Congress would create a nationwide licensing
system.
Sen. Charles Schumer, D-N.Y., said administration officials are
"beginning to put their toe in the water when it comes to
government involvement to help the economy. The bad news is they're
going to have to do a lot more than that to address the problem."
Other recommendations urge improvements by credit rating agencies,
criticized for not accurately assessing risk on complex mortgage
investments. These kinds of business transactions soured, causing
market chaos. The report also suggests clearer disclosures and
assessments of risks on investments.
Greg McBride, senior financial analyst at Bankrate.com, likened
the recommendations to "putting up a traffic light only after
a series of auto accidents."
"It is purely reactionary," he said. "The ideas
themselves are not necessarily new but the pressure to do something
is growing as housing problems become more pronounced."
The housing and credit woes have shaken Wall Street, propelled
home foreclosures to record highs and forced financial companies
to absorb multibillion losses on bad investments in mortgage-backed
securities. For the first time since 2001, recession is a serious
threat.
Federal Reserve Chairman Ben Bernanke said the proposals are
"an appropriate and effective response to the deficiencies
in our financial framework that contributed to the current turmoil
in financial markets." The central bank chairman serves on
the advisory group, created after the 1987 Wall Street crash to
monitor markets, as do the heads of the Securities and Exchange
Commission and the Commodity Futures Trading Commission.
Paulson said in a speech at the National Press Club that the
report "is not about finding excuses and scapegoats. Those
who committed fraud or wrongdoing have contributed to the current
problems; authorities need to, and are prosecuting them. But poor
judgment and poor market practices led to mistakes by all participants."
The next step, Paulson said, is to push to get the recommendations
in place. The administration did not lay out a timetable; analysts
said the process could drag on for months.
Answering questions after his speech, Paulson hewed to the position
of past secretaries when he said a strong dollar is in the national
interest.
The dollar dropped to a new low Thursday against the euro and
a 12-year low against the Japanese yen. That helps sales of U.S.
exports to foreign buyers because it makes U.S. goods less expensive.
But the drooping dollar increases inflationary pressures.
The advisory group also recommended that credit-rating agencies
differentiate between ratings on complex investment products and
conventional bonds. The ratings agencies also should disclose
conflicts of interest, Paulson said.
SEC Chairman Christopher Cox said Congress recently gave the
SEC the power to address issues including conflicts of interest
involving credit-rating agencies. "We will use that authority
to help restore investor confidence," he said.
To Paulson, "there is no single, simple solution to the
problems that have emerged ... yet we have determined that market
participants' behavior must change."
The financial problems started with certain home loans, known
as subprime mortgages, that are made to people with tarnished
credit histories or low incomes.
These borrowers got clobbered when the housing slump dragged
down home prices and mortgage rates rose. Foreclosures and late
payments soared as these borrowers found it difficult, if not
impossible, to make monthly mortgage payments.
Easy credit during the housing boom enabled people to move into
homes they otherwise could not afford. The mess later spread to
more creditworthy borrowers. |
