Senator says regulators accountable on subprime

WASHINGTON (Reuters) - U.S. Senate Banking Committee Chairman Christopher Dodd said on Wednesday regulators bear some responsibility for problems in the subprime mortgage sector and he plans to call them before the committee for questioning.

"That's what's made me angry here -- that the regulators apparently have not been doing as good a job as I think they should have been doing," Dodd told reporters after speaking at a U.S. Chamber of Commerce conference on market competitiveness.

"But we'll know the answer to that question as we bring them before the committee," said the Connecticut Democrat.

He said regulators should help explain "how we got to this point."

Dodd, a U.S. presidential candidate from a state with many hedge funds and insurers, has not set a hearing date.

The riskiest segment of the U.S. mortgage market, which serves borrowers with poor credit histories at high interest rates, has seen rising default rates in recent months amid falling prices and slower sales in the housing market.

At least 20 lenders in the subprime mortgage sector have gone out of business as a result.

The Federal Deposit Insurance Corp., which recently issued a cease-and-desist order against Fremont General Corp. over its subprime mortgage and commercial real estate lending practices, declined to comment on Dodd's remarks.

Less than two weeks ago, the FDIC and other banking regulators issued draft guidelines that would require mortgage lenders to tighten standards for subprime lending.

The FDIC's director of supervision and consumer protection, Sandra Thompson, defended the agency's efforts to police the subprime mortgage industry.

Thompson told Reuters regulators started examining non- traditional mortgage loans in the prime market in late 2004 and issued final regulations -- which excluded subprime loans -- in September 2006.

Work on those regulations was well under way by the time banking regulators saw emerging signs of subprime loan problems and regulators opted not to delay the non-traditional mortgage loan regulation, she said.

"We started to have problems with the 2005 and 2006 vintage," Thompson said, referring to subprime loans that originated in those years. "We started working diligently together to try to address issues that were coming to the forefront in the subprime area."

The Conference of State Bank Supervisors, a regulatory group, said it welcomed more congressional oversight.

"We've been asking, actually for a long time, Congress to look at the whole regulatory regime," John Ryan, executive vice president of the state group, told Reuters. "At the state level we've been preempted by the federal regulators from completely being able to affect mortgage lending issues in our states."

The Federal Reserve declined to comment on Dodd's remarks.

The Office of the Comptroller of the Currency, which regulates national banks, said it would work closely with Dodd's committee.

The OCC "will provide as much information as we can on this issue," an agency spokesman said.

Similarly, a spokesman for the Office of Thrift Supervision said it welcomed "the opportunity to participate in any discussion" with Dodd's committee about subprime mortgages.

Christopher Cox, chairman of the U.S. Securities and Exchange Commission, said the SEC is not a front-line regulator for the subprime lending industry, but is "interested as well."

"It is impossible for there to be significant issues in one area of our capital markets that don't wash over more generally to the rest," said Cox, speaking on the sidelines of the Chamber of Commerce conference.

The SEC has opened a preliminary investigation into New Century Financial Corp., the largest independent U.S. subprime mortgage lender, the company said on Monday.

Cox would not comment on whether the investor protection agency was conducting targeted enforcement in the industry, saying: "I think it's best to read our actions."

(Additional reporting by Karey Wutkowski and Mark Felsenthal)