The Securities Industry and Financial Markets Association urged regulators not to crack down too severely on subprime lending, and to enhance disclosure to borrowers, rather than banning products or imposing liability on mortgage-backed product manufacturers and investors.

SIFMA testified before the Board of Governors of the Federal Reserve System in a public hearing Thursday. On behalf of SIFMA, Michael Decker, senior managing director of research and public policy, stressed the need for regulators and legislators to take a measured approach and use caution to ensure that any regulation or legislation does not impair or stifle the ability to legitimately serve subprime borrowers, while highlighting the need for streamlined and meaningful disclosure to borrowers of lending terms.

“Any governance of subprime lending should be based on clear, objective, concise and quantifiable lending standards that maintain the ability of legitimate subprime borrowers to obtain mortgages,” said Decker. “We oppose banning particular loan products or particular loan features, as borrowers are best served by the freedom to choose what best suits their needs. However, we strongly believe that disclosure needs to be understandable and complete so that borrowers understand the terms of their loans.”

SIFMA’s testimony also cautioned members of the Board of Governors on the potential risks of imposing undue obligations or liabilities on secondary market participants. It opposes the imposition of liability for illegal lending on secondary mortgage market participants, noting that it would be inappropriate and unfair to expect mortgage wholesalers or MBS investors to be responsible for flawed origination practices.

However, if policy-makers do impose assignee liability on investors or others, SIFMA outlined principles it believes should be applied to help mitigate any negative, unwanted effects to ensure that worthy subprime borrowers continue to have access to mortgage loans, such as a single uniform national standard for assignee liability.