U.S. lawmaker Barney Frank intends to reduce risky mortgages with the new bill

On Monday a U.S. lawmaker Barney Frank, who chairs the House Financial Services Committee, announced that he is preparing a broad package of legislation in a move to reduce risky mortgages, promote stability in the mortgage market by limiting future subprime lending, and take on executive compensation.

He said that hearings on this bill are expected to be held by the end of April. Frank wants the package to become law by the end of the year.

The lawmaker noted he doesn’t intend to eliminate mortgage securitization - essentially selling a loan to investors - but said that allowing lenders to securitize the full value of a loan encouraged overly risky lending practices. His bill would limit the securitization of subprime mortgages, but Frank said his eventual goal is to apply the no-100% securitization rule across the financial industry.

The bill also makes allowance for executive bonuses in to ensure that financial industry officials do not take excessive risks. He also said that U.S. regulators need to get the power to wind down non-bank financial institutions, to avoid a repeat of the kind of market turmoil that followed the crises at Lehman Brothers and AIG. Frank’s committee is also planning to restrict credit card issuers' ability to impose penalty interest rates.

Frank also stated that the subprime mortgage business, loans to less-creditworthy borrowers, went into a sharp downturn three years ago, setting off the current global financial recession. He said, while activity in that business has largely ground to a halt, he is to push legislation to restrict it out of a presumption the market will return someday in the future.