WASHINGTON - Democrats introduced legislation in the Senate Wednesday that would let the federal government's FHA program continue using a controversial system for identifying predatory lenders.

The system, known as Credit Watch, has recently been challenged in a pair of lawsuits on grounds that it exceeds the FHA's legal authority.

Sens. Paul Sarbanes and Barbara Mikulski of Maryland sponsored the bill. It would give the government program the authority to keep using Credit Watch, which automatically revokes a lender's eligibility to originate FHA-insured loans if its default rate is three-times more than average.

Meanwhile, the New York State Banking Department said Wednesday that it has put the finishing touches on regulations to crack down on abusive home loan practices by subprime lenders. The plan would increase disclosure requirements for these lenders, restrict the number of times a loan can be refinanced, limit lenders' ability to package loans with third-party products, and set limits on points and fees.

A department spokesman said the proposal is expected to be adopted by unanimous consent of the state's Banking Board this week.

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