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February 14, 2008
(Bloomberg)—Treasury Secretary Henry Paulson said U.S. regulators plan to alter rules for packaging loans into bonds in the aftermath of the subprime-credit collapse. Mr. Paulson and Federal Reserve Chairman Ben S. Bernanke first want markets to stabilize, reducing borrowing costs for companies and consumers. Policy makers are trying to revive an economy that expanded at the slowest pace since 2002 last year. Mr. Paulson and Mr. Bernanke, along with their counterparts at the Securities & Exchange Commission and Commodity Futures Trading Commission, are “carefully” reviewing loan securitizations, the Treasury chief said yesterday. The process magnified losses on subprime mortgage-linked securities because it reduced the incentive for lenders to ensure that borrowers could repay their debts. “You can’t have gone through the process we’ve gone through without knowing there needs to be some changes,” Mr. Paulson said in an interview with Bloomberg Television yesterday in Washington. “First, we need to get through this period with as little impact as possible on our economy. And then secondly, we need a strong policy response.” Democratic Senator Christopher Dodd introduced legislation in December to curb predatory mortgage lending. His bill includes a provision to hold mortgage-bond investors responsible for loans that violate the law. Similar legislation passed by the House in November would hold companies that sell mortgage-backed securities responsible for bad loans. Mr. Dodd, a Connecticut Democrat, said last year that regulators had “flexibility” to make investors accountable. Mr. Paulson predicted it will be “a number of months” before the four-member President’s Working Group on Financial Markets announces its recommendations on securitized loans. The group, which advises the White House, consists of Mr. Paulson, Mr. Bernanke, SEC Chairman Christopher Cox and CFTC Chairman Walter Lukken. |