The Federal Reserve Board is weighing whether it should ban some mortgage lending practices that fueled the recent housing market boom, Fed governor Randall Kroszner told a panel of lawmakers Wednesday.
"We will also seriously consider whether there are mortgage lending practices that should be prohibited," Kroszner said in prepared remarks before a U.S. House of Representatives panel discussing consumer protection.
Kroszner said that the Fed was specifically eyeing 'stated-income' loan applications and prepayment penalties, as well as considering whether lenders should require annual fees like taxes to be paid monthly.
On Thursday, Kroszner himself will chair a Fed hearing on its enforcement of the Home Ownership and Equity Protection Act (HOEPA), which gives the central bank broad authority to prohibit unfair lending practices.
Christopher Dodd, the Democratic chairman of the Senate Banking Committee, has chastised the Fed for not doing more to control dangerous loans that were behind a multi-year run up in home prices.
The Fed, Kroszner said, will take care to not hamper safe lending as it crafts its response to failures among subprime loans, which are offered to borrowers with damaged credit.
"We must be careful, however, not to curtail responsible subprime lending or beneficial financing options for consumers," Kroszner said.
He said the Fed will rely on extensive consumer testing as it considers new rules for mortgage and credit card lending.