WASHINGTON – Economic policymakers on Thursday recommended stricter regulation of mortgage lenders as part of a broad effort to prevent a repeat of a credit crisis threatening to drive the country into recession.
With problems in the credit and housing markets worsening, the Bush administration now seems to favor a larger role for government – an approach for which Republicans generally have had little appetite.
Recommendations from a presidential advisory group on financial markets cover mortgage lenders and other institutions, as well as investors, credit ratings agencies and regulators.
Treasury Secretary Henry Paulson, who leads that group, said the effort is not about finding someone to blame. The suggested actions, he said, are intended to avoid another meltdown in the credit and housing markets.
“The objective here is to get the balance right. Regulation needs to catch up with innovation and help restore investor confidence but not go so far as to create new problems, make our markets less efficient or cut off credit to those who need it,” Paulson said.
Federal and state regulators should strengthen oversight of mortgage lenders, according to the group’s report released Thursday. Also, states should follow strong, uniform licensing standards for mortgage brokers. Legislation in Congress would create a nationwide licensing system.
Other recommendations urge improvements by credit rating agencies, criticized for not accurately assessing risk on complex mortgage investments. These kinds of business transactions soured, causing market chaos. The report also suggests clearer disclosures and assessments of risks on investments.
Federal Reserve Chairman Ben Bernanke said the proposals are “an appropriate and effective response to the deficiencies in our financial framework that contributed to the current turmoil in financial markets.” The central bank chairman serves on the advisory group, created after the 1987 Wall Street crash to monitor markets, as do the heads of the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Paulson said in a speech at the National Press Club that the report “is not about finding excuses and scapegoats. Those who committed fraud or wrongdoing have contributed to the current problems; authorities need to, and are prosecuting them. But poor judgment and poor market practices led to mistakes by all participants.”
The next step, Paulson said, is to push to get the recommendations in place. The administration did not lay out a timetable; analysts said the process could drag on for months.