US politicians are drawing up a bill that could make it less attractive for Wall Street investment banks and other financiers to repackage risky mortgages into securities and then sell them to investors around the world.
Senior figures in Congress hope to force the financiers who buy mortgages and create mortgage-backed securities to share some of the liability – and thus financial cost – that might arise if mortgages were mis-sold to borrowers who proved unable to meet payments.
The proposal, which will be debated by the House financial services committee next week, could reduce the flow of finance from the capital markets into the mortgage sector. Politicians and consumer groups blame such flows for the lax lending practices that developed in the subprime market in recent years.
The idea under consideration is intended to assist distressed homeowners and prevent a recurrence of the subprime lending problems – initiatives that will also include tougher rules about how mortgages are sold to home buyers.
“We will regulate mortgage brokers,” Barney Frank, Democratic chairman of the financial services committee, told the Financial Times.