Industry News

Senator urges tighter lending rules

Fed to hold hearing in June, but Bernanke cautions against crackdown

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Sen. Chris Dodd, the Connecticut Democrat who chairs the Senate Banking Committee, wants the Federal Reserve to use its rule-making authority to require that mortgage loan originators fully evaluate a borrower's ability to make loan payments, restrict the use of low- and no-doc loans, and establish escrow accounts to make tax and insurance payments. In a letter to Dodd, Federal Reserve Chairman Ben Bernanke said regulators have already strengthened the Home Ownership and Equity Protection Act (HOEPA), and that he is reluctant to draft rules that would restrict the use of loans that, while harmful for some borrowers, may be suitable for others. But Bernanke said the Fed will consider further changes to HOEPA and other rules for lenders, and has scheduled a June 14 public hearing on the issue. Bernanke said that because borrowers can sue lenders for violating HOEPA rules, "any new rules should also be crafted in a manner that avoids creating uncertainty regarding lender compliance." The...