Frank seeks strict mortgage rules

Frank seeks strict mortgage rules

House Financial Services Committee chairman Barney Frank plans to unveil a bill to more tightly regulate the way loans are sold to investors.

U.S. Rep. Barney Frank plans to unveil a plan to tighten regulation of the mortgage market.

CAMBRIDGE, Mass (Reuters) — The chairman of a powerful U.S. Congressional committee plans to unveil legislation intended to provide longer-term stability to the U.S. mortgage market by preventing lenders from securitizing the full value of their loans.

“We will bring a bill out in April that will stop people from getting loans in the future that they cannot repay,” said U.S. Rep. Barney Frank, who chairs the House Financial Services Committee, one of the government entities that is spearheading the United States’ efforts to battle the banking crisis. “It is important that we say you can’t securitize 100% of anything.”

Frank said Monday that he did not propose to eliminate entirely securitization – essentially selling a loan to investors – but that allowing lenders to securitize the full value of a loan encouraged overly risky lending practices.

“We start with restricting securitization, not to the point where it stops,” the Massachusetts Democrat said in a speech at Harvard University in Cambridge, just outside Boston.

He also said that U.S. regulators need to have the authority to wind down non-bank financial institutions, to avoid a repeat of the kind of market turmoil that accompanied the fall crisis at Lehman Brothers and American International Group (AIG, Fortune 500).

“No institution anywhere in the financial system ought to be able to get so indebted that it threatens our financial stability,” Frank said.