WASHINGTON — Federal Reserve Board Gov. Elizabeth Duke on Friday called for a two-tiered approach to regulating mortgage lending, saying the heightened regulatory burdens faced by community banks are putting a sizable portion of the origination market in jeopardy.

"Balancing the cost of regulation that is prescriptive with respect to underwriting, loan structure, and operating procedures against the lack of evidence that balance sheet lending by community banks created significant problems, I think an argument can be made that it is appropriate to establish a separate, simpler regulatory structure to cover such lending," Duke said in prepared remarks for a Chicago speech to the Community Bankers Symposium, an event sponsored jointly by the three federal bank regulatory agencies.

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