US favours tighter mortgage rules

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US Treasury Secretary Henry Paulson has set out plans to revise mortgage and credit lending rules, in a bid to avoid another credit crisis.

A group of key financial regulators, headed by Mr Paulson, issued a report seeking greater regulation over how lenders operate.

New rules were needed to help restore investor confidence, said Mr Paulson.

The move comes after a US housing slowdown triggered a surge in loan defaults among high risk borrowers.

Balance

Once interest rates increased many of those who had taken out mortgages when the market was strong, and rates were low, could no longer afford their monthly payments.

Defaults have been particularly high among sub-prime borrowers - those with limited or poor credit histories.

Recommendations in the group's report include strong nationwide licensing standards for mortgage brokers as well as stricter state and federal oversight of mortgage lenders.

The working group includes bosses of the Federal Reserve, Securities and Exchange Commission, and the Commodities Futures Trading Commission, and was set up in the wake of the 1987 financial crash.

The proposals come as finance firms have accumulated billions in losses due to bad investments, with many fearing further write downs.

"The objective here is to get the balance right," said Mr Paulson.

"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."