Tougher Rules Urged For Mortgage Lenders

Treasury Head Says Stronger Regulatory Oversight Would Avert Credit Crisis

(CBS/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 Republicans generally have had little appetite for.

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. No such nationwide system exists, although legislation in Congress would create one.

CBS News correspondent Nancy Cordes spoke with University of Maryland Economist Peter Morici, who says the proposal sends a signal to skittish investors - here and overseas - that the government is serious about reforming credit markets. But, it's a fix for the future.

Cordes asked Mordici if someone close to foreclosure should be encouraged by this plan.

"Absolutely not," he told her, "this does not do anything to help the plight of a homeowner near foreclosure."

On Capitol Hill, CBS News correspondent Bob Fuss reports Democratic leaders in Congress said Thursday more has to be done to fix the mortgage mess, despite resistance from the Bush administration.

Senate banking committee chairman Chris Dodd, D-Conn., and his house counterpart, Barney Frank, D-Mass., proposed federal money for states to buy up empty foreclosed houses and expanded government insured mortgages to help people in over their heads avoid foreclosure.

Frank said there's nothing wrong with helping people keep their homes, and their pain, he said, is hurting everyone and bringing the whole economy down.

Other recommendations from the advisory group 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."

Cordes reports it didn't have happen. Some tiny banks, like Hudson City bank in New Jersey, turned profits by sticking to a golden rule: lend money to people who are safe bets.

"We like to look at their ability to pay, we like to verify their employment and appraise their property," said Ronald Hermance, CEO of Hudson City Bancorp. You know, that's the way I guess I learned many, many years ago and we're doing it just that same way now."

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 allowed people to move into homes that they otherwise could not afford. The mess later spread to more creditworthy borrowers.

"The turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into early 2007," the advisory group said. "But the loosening of credit standards and terms in the subprime market was symptomatic of a much broader erosion of market discipline on the standards and terms of loans to households and businesses," the group said.

Paulson said market difficulties often expose weaknesses that experience can help overcome. "That experience often comes from lessons learned from prior challenges and prior mistakes," he said.

[rhp67]

Everyone wants to point the finger at mortgage lenders and say they caused the problem. The real truth is that Wall Street is where all the blame lies. It was Investment bankers who set the lending parameters, bought the loans, and sold the bill of goods to there investors. Yet the individuals who perpetuated this seemingly perfect crime, who amassed huge personal fortunes have gotten off Scott free. They always say when investigating white collar crime "Follow The Money" 60 Minutes where are you?????

[runningralph]

People should live in large apartment complexes and use public transportation. The urban sprawl has led to over development and high fuel consumption. The taxpayers should not help people in single family dwellings. Conservatism is the way to survive.

[skyk-2009]

the real problem is that the loser libs cant pay there bills and blame others for it


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Posted by jwind11 at 07:46 PM : Mar 14, 2008
+ report abuse

You are such a sad person! I find it hard to understand you fools and your attempt to bring back the past or deny the future. America runs in and has always run in Cycles. The nation was created by Liberals (libs in your small mind) and they have constantly tried to take what the founders created and make it better. They have, over our 200 year history done a pretty good job. But as is the American Way, after a round of change, they back off and look at what has been done. That''s why you folks are given a chance. When you look at what YOU could have done with your turn at bat, it''s amazing. What you decided to do though was what you folks have always done. You decided to try to turn our Democracy and our cycles into a ONE PARTY RULE situation. This is NOT new and as always has failed. Now IF you were smart you''d say okay it''s the other guys turn at bat and I''ll just have to wait for my next turn. But not you people.. oh NOOOO!! You have got to have it shoved down your throat and if history is any indication you are about to get it shoved right down there about as deep as it can go. Good luck with you childish approach and your blame of American''s for problems they didn''t create.

[hypnotoad72]

Tougher rules - isn''t that like "regulation"? I thought that was a bad thing; some tv commercials I see on cable lambaste the concept, and others lambaste politicians that support regulations.

[getcentered]

I don''t know if I can take anymore comments from our President. He and the people pulling his strings think Americans are dumb, and maybe some of us are, but I know what the word DEFICIT means and that''s what this country is in. A huge deficit. The dollar was matched againsts the euro 8 years ago.

I know lets just print some more money.....AND THEN give it to the banks!! So they can loan us some money that we aren''t making from our jobs to help us pay for things like houses, which we will eventually defalt the payments on becaue the interest rates scyrocketed!! (because the country was in debt)

A vote for McCain is like another 4 years of BUSH. Same string pullers%u2026%u2026%u2026

Vote for Democrats!!

[sharncedar]

The problem is not the little guy, the mortgage lender. The problem is that the mortgages can be resold and the big guys then play games with them, for example rating a collection of junk mortgages as AAA because there are many of them, thus the risk is spread. This is as typical attmept to blame the little guy for the absolute and terrific evil of the big players. Thre bond rating companies, the big investment houses, these are the guilty, not some little bank or mortgage officer.

Unfortunately we are in a period of history where the media is corrupt and owned by these big players, and they will say nothing but crud. It is a very dark and awkward position America is in, because even our information as well as our government is fully corrupted by the influence of these people. This is a dangerous imbalance, we can expect chaos.

[guest173]

I really mean don''t trust the newer ones, I haven''t had a problem with the bank I''ve been a member of for many many years (and who actually rejects me on some things because of my credit, which they should).

[guest173]

some of these banks that give millions of junkmail credit card offers are also very suspicious, we do need to check the fine print, it is too bad some of these banks, who the unwitting public thinks should be ethical enough not to scam us into a bank loan we couldn''t pay back, will actually do that. Don''t trust these banks, they are getting to be full of scammers, now they just look legitimate sometimes.

[jwind11]

The real problem is that Americans were really idiotic when it came time to select a leader.

Posted by rickstas at 06:09 PM : Mar 14, 2008

the real problem is that the loser libs cant pay there bills and blame others for it

[rickstas]

The real problem is that Americans were really idiotic when it came time to select a leader.