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Fed Warns Congress Not to Limit Securitizers and Credit Availability

Mortgage News > Fed Warns Congress Not to Limit Securitizers and Credit Availability
Date: 10/28/2007    Fed Warns Congress Not to Limit Securitizers and Credit Availability

Federal Reserve Board governor Randall Kroszner cautioned Congress Wednesday not to put too much blame and added restrictions on mortgage securitizers, as a new House bill proposes.

The bill, sponsored by House Financial Services Committee chairman Barney Frank, D-Mass., would penalize those who turn mortgage loans into secondary market securities if the loans go into foreclosure.

"Such laws should be very clearly delineated to ensure that they do not have a detrimental impact on the ability of lenders to securitize loans," Kroszner said. "Specifically, assignees must be able to conduct due diligence and determine whether an originator has complied with the law, so that they can evaluate and price for any risks."

Kroszner said the Fed did agree with some of the other provisions of the bill.

"The Board supports the goal of ensuring that consumers do not receive unaffordable and abusive loans," he said. "However, it is critical to carefully craft such laws or rules to ensure that they do not inappropriately reduce credit availability in the mortgage market, to the detriment of consumers."

The Fed is also creating its own stricter rules and regulations for mortgage lenders to prevent abusive lending practices.

"We are looking closely at practices such as prepayment penalties, failure to offer escrow accounts for taxes and insurance, stated-income and low-documentation lending, and the failure to give adequate consideration to a borrower's ability to repay," Kroszner said.

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