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Last Updated: Tuesday, 11 December 2007, 17:15 GMT
US Senate plans home lending bill
Boarded up house in Cleveland Ohio
Default rates have reached record levels in the US
The US Senate is planning to introduce legislation to give borrowers more protection from aggressive lenders that offer expensive sub-prime mortgages.

It would give people the right to sue lenders and brokers for losses they incur on failed loans.

The bill will be introduced this week by Christopher Dodd, chair of the Senate banking committee, but is unlikely to be passed until next year.

The House of Representatives has already put forward a similar bill.

Last week, President Bush announced an aid plan for homeowners, freezing interest rates for five years.

Reconciling the law

The measures from the House and the Senate have to be reconciled by a joint committee before becoming law.

Both bills require that lenders make only loans that can benefit borrowers and that they can repay.

But the Senate proposal takes a harder line, requiring brokers to act in the interest of borrowers, and is expected to face tougher opposition from mortgage companies and banks, US media reports say.

The growing wave of foreclosures across the US, which is destabilising the housing market and could lead to two million families losing their homes, has put pressure on Congress to do something to sort out the problem.

But the new legislation is mainly aimed at stopping sub-prime abuses from happening again, and it will not in itself stop foreclosures.

Looser standards

The US housing bubble was created by lenders loosening their standards for mortgage lending and giving loans to people who would previously have been ineligible.

Borrowers were attracted by low initial rates of interest, but found that they were unable to make their monthly payments once the interest rates increased.

That led to record defaults, which have had knock-on effects on banks worldwide that had bought up packages of US mortgage debt.

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