WASHINGTON, DC – US regulators have announced a toughening up of rules for mortgage brokers, lenders and credit agencies, to restore market confidence and eradicate the unscrupulous lending practices that triggered the subprime and credit crises – now threatening to drag the US into recession.
Secretary of the Treasury Henry Paulson used his speech at Washington’s National Press Club to outline the 20 pages of recommendations outlined by the President’s working group for financial markets, which blames the global credit turmoil on a “dramatic weakening” of underwriting standards.
Paulson recommended stronger licensing standards for mortgage brokers, stringent federal and state-level supervision over all mortgage providers and more transparency of loan terms to the borrower.
He also criticised the financial innovation behind complex structured products such as structured investment vehicles (SIVs) that sliced up subprime debt and rebundled it into complex packages subsequently sold across the globe.
The Treasury secretary urged banks to keep lending, lest the economy slip into recession if lending dried up amid the already strained environment.
Paulson said: “We are encouraging financial institutions to continue to strengthen balance sheets by raising capital and revisiting dividend policies; we need those institutions to continue to lend and facilitate economic growth.”