Frank Cites Bear Debacle in Liability Argument

The Bear Stearns hedge fund "debacle" strengthens the argument that issuers of subprime mortgage securities should have some liability for the underwriting of loans they securitize, according to House Financial Services Committee Chairman Barney Frank, D-Mass.This past week, Merrill Lynch liquidated roughly $850 million in subprime-related assets it had seized from at least one Bear hedge fund after the fund failed to meet its margin calls. Bear Stearns -- after being pressured by other creditors -- is moving to shore up the hedge fund (and a second fund) to prevent a liquidation. Industry groups contend that assignee liability would "kill" the subprime securitization market. In an interview on public television's Nightly Business Report, Rep. Frank said, "But that market is dying of its own right now." He added that including a reasonable assignee liability provision in a predatory-lending bill would provide purchasers of subprime securities a "degree of confidence" that the issuer has vetted the loans. The congressman said he hopes to complete a draft of his predatory-lending bill before the August recess and hold hearings on it in the fall.