Dow Jones

NEW YORK - The state Banking Department is proposing to make securities underwriters responsible for helping to protect consumers against predatory lending.

In a draft letter sent to underwriters for comment, the department proposed that firms exercise due diligence to make sure that loans backing mortgage bonds comply with state and federal consumer protection laws.

The proposal drew a lukewarm response from the Bond Market Association, which represents underwriters. The group suggested voluntary practices instead.

The Banking Department "has taken a very good first step in opening a dialogue," said Paul Saltzman, the group's executive vice president and general counsel.

"It's in everyone's best interests … to see to it that predatory lending is a practice that ceases to exist. No underwriter wants to be involved with a deal that has problematic lending practices. It's not good business," he said.

But "the underwriter is not going to be an enforcer of best practices," and the department has no authority to give that responsibility to underwriters, Mr. Saltzman said. "There's got to be a focus on the origination side," he said.

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