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Last Updated: Thursday, 14 June 2007, 23:30 GMT 00:30 UK
Fed could lose mortgage authority
US homes
Sub-prime problems have not hurt the wider economy, say analysts
A senior US lawmaker has called on the Federal Reserve to protect US home buyers from unfair home loans.

Barney Frank, a House Democrat from Massachusetts, said the lack of rules curbing deceptive mortgage practices was a "serious problem".

He also warned the Fed that if it did not use its authority in this area, it would be transferred to another agency.

The comments comes as late payments on high-risk mortgages rose to all-time highs in the year's first three months.

According to the Mortgage Bankers Association, late or missed payments on mortgages made to consumers with poor credit history from January to March soared to 15.75% - up from 14.44% in the prior quarter.

Not aware

People who have taken out sub-prime mortgages, which typically have a variable monthly rate, have suffered recently as rising interest rates and a weak housing market have made it tough for them to keep up with their repayments.

In many cases, the borrowers are not made properly aware of the financial burden they could face by greedy brokers, say market observers and consumer groups.

The Fed currently has the power to curb abusive banking practices under the Home Ownership and Equity Protection Act (HOEPA).

But Mr Frank, the chairman of the House of Representative's powerful Financial Services Committee, warned that these powers could be transferred to another federal body, such as the Treasury's Office of the Comptroller of the Currency (OCC), which regulates national banks.

The comments were made at a Federal Reserve hearing to discuss what it should do to address concerns about home mortgage loans "in a way that preserves incentives for responsible lenders to provide credit to borrowers", it said.

'Concern'

"This is a moment of great concern in our economy as to whether sub-prime is going to pull us all down," said Susan Wachter, a finance professor at the Wharton School of Business.

In separate news on Thursday, two major banks said earnings for the quarter had been hit by slowing mortgage businesses.

Bear Stearns saw its profits drop by a third.

Though Goldman Sachs saw overall second-quarter results climb - net earnings added 1% to $2.33bn - its mortgage operations slowed.




SEE ALSO
Effort to ease US mortgage woes
17 Apr 07 |  Business
Sub-prime crisis sours US dream
05 Apr 07 |  Business

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