Kroszner: Fed to consider mortgage rule objections

WASHINGTON (Reuters) - Federal Reserve Board Governor Randall Kroszner said on Thursday the Fed will carefully consider objections to proposed consumer protection rules for subprime mortgages, but argued the rules could help restore confidence in the mortgage market.

In prepared remarks to the National Association of Hispanic Real Estate Professionals in Washington, Kroszner said the rules, open for public comments until April 8, are targeted at loans that carry a higher interest rate.

They will mainly cover subprime loans aimed at borrowers with poor credit records and the riskier end of the near-prime segment known as "Alt-A", he said.

"We anticipate vigorous public comment on this proposal, and once we have carefully considered all the input we receive, we will move expeditiously to a final rule," Kroszner said. "Effective consumer protection can help to restore confidence in the mortgage markets and help to preserve the flow of capital to consumers who wish to purchase a home."

His prepared remarks did not touch on the central bank's monetary policy or the broader U.S. economic outlook.

He said some in the mortgage industry have expressed concerns that in the current market environment, using an interest-rate trigger for the rules could cover the market too broadly.

"We will carefully consider the issues they raise and other possible approaches to achieve our objective." he said.

Under the Fed's proposal, a "higher-priced mortgage loan" would be one that has an annual percentage rate that exceeds the yield on comparable Treasury securities by three or more percentage points for first-lien loans, or five or more percentage points for subordinate loans.

He said a key change under the rules is the emphasis on verification of a borrower's repayment ability.  Continued...