WASHINGTON - Economic policy makers yesterday recommended stricter regulation of mortgage lenders as part of a broad effort to prevent a repeat of a credit crisis threatening to drive the country into recession.
With problems in the credit and housing markets worsening, the Bush administration now seems to favor a larger role for government - an approach for which Republicans generally have had little appetite.
Recommendations from a presidential advisory group on financial markets cover mortgage lenders and other institutions, as well as investors, credit ratings agencies, and regulators.
Treasury Secretary Henry Paulson, who leads that group, said the effort is not about "finding excuses and scapegoats." The suggested actions, he said, are intended to avoid another meltdown in the credit and housing markets. "The objective here is to get the balance right. Regulation needs to catch up with innovation and help restore investor confidence but not go so far as to create new problems, make our markets less efficient, or cut off credit to those who need it," Paulson said.
Federal and state regulators should strengthen oversight of mortgage lenders, according to the group's report released yesterday. Also, states should follow strong, uniform licensing standards for mortgage brokers. Legislation in Congress would create a nationwide licensing system.
Senator Charles Schumer, a New York Democrat, said administration officials are "beginning to put their toe in the water when it comes to government involvement to help the economy. The bad news is they're going to have to do a lot more than that to address the problem."
Other recommendations urge improvements by credit rating agencies, criticized for not accurately assessing risk on mortgage investments. These kinds of business transactions soured, causing market chaos. The report also suggests clearer disclosures and assessments of risks on investments.