Anti-predatory lending rules urged

Federal Deposit Insurance Corp. Chairman Sheila Bair said Congress should set a standard to protect borrowers against predatory lenders, becoming the first top regulator to urge a legislative response to the sub-prime crisis.

“The time has come for national anti-predatory lending standards,” she said Tuesday at a House Financial Services subcommittee hearing in Washington. Legislation “should raise the bar by strengthening protections available to borrowers” and be broad enough to cover state-regulated lenders that issue most sub-prime loans, she said.

Bair also called on the Federal Reserve to use its existing authority to crack down on lax lending standards that led to a surge in delinquencies. The hearing was the second in a week on the meltdown in the market for mortgages taken out by the riskiest borrowers.

Legislators called hearings after delinquencies on sub-prime mortgages jumped to 13.3% last quarter, the highest since September 2002. As many as 2.4 million Americans who own homes financed by sub-prime lending may lose them to foreclosure, the Center for Responsible Lending said in testimony at the hearing.

Also Tuesday, the Securities and Exchange Commission said it set up a 25-member unit to investigate possible fraud by sub-prime mortgage companies.

The SEC is examining whether appropriate disclosures were made to investors who bought securities backed by sub-prime mortgages, Chairman Christopher Cox told a House Appropriations subcommittee in Washington. Cox didn’t identify any companies being investigated by the new unit.