Democrat in mortgage reform plan

The US housing market has not bottomed out yet

A senior Democratic senator has unveiled plans to ban US mortgage brokers and lenders from encouraging borrowers to take out high-cost loans.

Christopher Dodd, a contender to be the Democratic presidential candidate, said the proposed legislation would help fight problems in the sub-prime sector.

The move came as the US Beige Book report showed housing activity had been hurt in most of the country.

Other data showed future US home sales fell to a six-year low in July.

The deterioration in the sub-prime mortgage market, resulting in a wave of foreclosures, has triggered global stock market instability.

On Wednesday the Dow Jones index closed down by about 1.1% while the Nasdaq fell 0.9%.

Voter-friendly

Senator Dodd said that his plans would "put an end to the practices that have forced thousands of Americans into foreclosure and put thousands more in danger of losing their homes".

Consumer groups welcomed the announcenement, saying such laws would be a good way to protect borrowers - especially those who had taken low teaser rates, only to see their payments soar when the deal expired.

Last week President George W Bush set out plans to help people with sub-prime mortgages meet their payments and avoid losing their homes.

The ultimate impact of these events on the economy is yet to play out Robert Steel, Treasury undersecretary

They included making it easier for some people with good credit ratings who have fallen behind with repayments to refinance their loans.

But Senator Dodd's proposal was the first explicit plan from the chairman of the Senate Banking Committee, on a subject close to the hearts of many voters.

Earlier, another top official told a Senate hearing that he full impact of financial market turmoil was far from over.

"The ultimate impact of these events on the economy is yet to play out," said Treasury undersecretary for domestic finance Robert Steel.

'Slowing growth'

The Beige Book report said that outside of real estate, the turmoil had only a limited effect on the US economy.

Reports from the 12 Federal Reserve districts indicated that economic activity continued to expand in the 17 July to 27 August period when the survey took place.

However the pace of growth was described as moderate, modest, mixed or slowing.

In separate data the National Association of Realtors' index of pending home sales, a tally of sales expected in the next two months, hit its lowest level since 2001.

Our members are telling us some sales contracts are not closing because mortgage commitments have been falling through at the last moment Lawrence Yun, National Association of Realtors

The figure was down 12.2% on the month before and 16.1% lower than July 2006.

The industry body said the fall was partly due to mortgages falling through because of the current credit squeeze.

But it emphasised that the problems were concentrated in the sub-prime loan market, where loans are offered to those with patchy credit histories.

It added that the majority of prospective homebuyers had not encountered any problems.

The NAR said the latest sales figures for previously owned homes, which were weaker than analysts had predicted, suggested lenders were taking a tougher stance on home loans.

"Our members are telling us some sales contracts are not closing because mortgage commitments have been falling through at the last moment," said Lawrence Yun, the Association's chief economist.