House mulls more subprime resale regulation: FT

LONDON (Reuters) - U.S. politicians are putting together a bill that could make it less attractive for banks to repackage risky mortgages into securities and sell them to investors, the Financial Times reported on Thursday.

The proposal would be debated next week by the House Financial Services Committee, headed by Massachusetts Democratic Rep. Barney Frank, it said. "We will regulate mortgage brokers," Frank told the FT in an interview.

Members of Congress hope to make the financial institutions that buy mortgages and create mortgage-backed securities share some of the liability that could arise if mortgages are mis-sold to borrowers who fail to meet payments, the newspaper said.

The plan could trim the flow of finance from the capital markets into the mortgage sector, according to the FT.

It said such flows had been blamed for lending practices that developed in the subprime market in the past few years.

The Securities Industry and Financial Markets Association criticized the proposal, the FT said. It quoted the industry body as saying: "Any legislative response should curtail abusive practices while not restricting the availability of credit or harming legitimate secondary market activity."

Frank, however, said he hoped the measures would be passed by the end of this year, the FT reported.

"It is no part of my concern whether investment banks make money ... the purpose of housing finance is to get people in houses, not to finance the U.S. financial markets," he said.

"Securitisation has not been an unalloyed good thing. We have a situation where unregulated entities have made these loans and no one now is responsible for it. There is a complete absence of any place to look when things go wrong."

The FT also quoted Frank as saying his committee was mulling whether government-related entities should help restructure some private sector subprime mortgages and related securities.

"We are in the process of talking to (government-chartered mortgage groups) Freddie Mac and Fannie Mae about what type of instrument they may come up with," he said.

"They may be willing to take something of a haircut to stop the market from collapsing."