Magazine article American Banker

N.Y. Working on Guidelines to Cut Predatory Lenders from Securitization Funds

Magazine article American Banker

N.Y. Working on Guidelines to Cut Predatory Lenders from Securitization Funds

Article excerpt

New York State regulators are writing guidelines to help banks steer clear of packaging and selling predatory mortgage loans to investors. Elizabeth McCaul, New York's banking superintendent, said Monday that the guidelines, expected to be formalized later this year, will focus on ensuring all loans meet sound underwriting and appraisal practices and comply with all applicable federal and state consumer protection laws. While the Banking Department has no authority over investment banks, it does oversee lenders that make subprime loans and the few banks that securitize them. The Securities and Exchange Commission has sole authority over investment banks. Ms. McCaul said the guidelines are an effort to bridge the gap between bank and securities regulation. She said the department is working with the SEC on joint guidelines, but a spokesman for the SEC refused to comment. If federal securities regulators balked, the state would issue its own guidelines. "Securitization has acted as a virtual spigot" to mortgage lenders, she said. The practice has helped provide credit to low- and moderate-income borrowers, but at the same time has provided money for abusive loans, she said. "An increased due diligence level is necessary to make sure loans securitized are not used for abusive lending," according to Ms. McCaul. In recent months, investment banks have come under fire for financing abusive lending practices by pooling and securitizing questionable subprime loans. By packaging these loans and selling them to investors, Wall Street has created liquidity in an ever-growing subprime loan market. Currently, about $100 billion of the roughly $240 billion in outstanding subprime mortgage loans have been securitized, according to Moody's Investors Service and SMR Research Corp. of Hackettstown, N.J. Lawmakers and community activists have become increasingly concerned by the growth in predatory lending. …

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