Board of Governors of the Federal Reserve System

December 18, 2007

We are meeting today to discuss proposed regulatory amendments to protect consumers from fraud, deception, and unfairness in the mortgage market.  Unfair and deceptive acts and practices hurt not just borrowers and their families, but entire communities, and, indeed, the economy as a whole.  They have no place in our mortgage system.  Our goal is to promote responsible mortgage lending, for the benefit of individual consumers and the economy.  We want consumers to make decisions about home mortgage options confidently, with assurance that unscrupulous home mortgage practices will not be tolerated.

In recent years, mortgage markets have seen a remarkable wave of financial innovation.  The advent of large secondary markets and the use of automated underwriting, for instance, have brought more capital into the system and, in most respects, have helped our mortgage markets function more efficiently while providing wider access to mortgage credit.  But some of these innovations also have negative aspects.  As the mortgage market has become more segmented and as risk has become more dispersed, market discipline has in some cases broken down and the incentives to follow prudent lending procedures have, at times, eroded.  The consequences, as we are currently seeing, can include the proliferation of unfair and deceptive practices that can be devastating to consumers and to communities.

The Board is responding to these problems with proposed rules that were carefully crafted with an eye toward deterring improper lending and advertising practices without unduly restricting mortgage credit availability.  We look forward to the public’s comments about our approach.  I should note that new rules, once adopted, would apply to all mortgage lenders, not just those supervised and examined by the Federal Reserve.  Thus, we will continue our concerted efforts to work collaboratively with our fellow regulators, both state and federal, to see that the rules are consistently applied and vigorously enforced.

I will now turn it over to Governor Randall Kroszner, who has been at the forefront of this effort, to discuss the proposal in greater detail.