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Congress eyes Wall Street’s role in subprime lending

Investors not liable for abusive loan-origination practices

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Investors who buy mortgage-backed securities shouldn't be shielded from lawsuits by homeowners who are placed in abusive or predatory loans, consumer groups told lawmakers this week. In the latest hearing on the troubled subprime mortgage lending industry, members of the House Financial Services Committee on Tuesday turned their attention to the securitization of mortgage loans for sale on Wall Street. Critics say the demand for mortgage-backed securities backed by subprime mortgage loans led originators to loosen their underwriting practices, with a resulting increase in delinquencies and foreclosures. But those engaged in the business of pooling and securitizing mortgage loans say that making investors liable for the practices of loan originators would chase investment capital out of the secondary market, raising the cost of borrowing for consumers. Existing law largely protects investors in mortgage-backed securities from class-action lawsuits by borrowers who claim they were the v...