We can do so by focusing on four key issues: disclosure, origination, predatory lending and liability.

We need simple, clear, and understandable mortgage disclosure. We must identify what information is most critical for borrowers to have so that they can make informed decisions. At closing, homebuyers get writer''s cramp from initialing pages and pages of unintelligible and mostly unread boilerplate that appears to be designed to insulate the originator or lender from liability rather than to provide useful information to the borrower. We can and must do better.

The most critical facts, including potential future monthly payments, should be on a single page in clear, easy-to-understand language, to be signed by the borrower and the lender. In my judgment, this may have prevented many of the problems that we are seeing today.

The Federal Reserve is leading on this issue through a comprehensive review of the disclosure regime underlying the Truth in Lending Act. As part of this review, the Federal Reserve is engaged in extensive consumer testing to determine what types of disclosures provide the best information to consumers. I support the Federal Reserve''s consumer-oriented approach -- this testing is critical to determining what improved disclosures are going to be most useful. This is hard and necessary work, but it is very important.

Borrowers have responsibility as well. Mortgage providers must offer clear, transparent and understandable information on the mortgage products they sell. And homebuyers have a responsibility to use that information. Buying a home today is a complex process, but that in no way excuses homebuyers from their obligation for due diligence. Just as investors in the stock market have a responsibility to understand the risks associated with their investment, homebuyers have a responsibility to understand their mortgages.

Secondly, we need to bring a higher level of integrity to the mortgage origination process. The development of a uniform national licensing, education, and monitoring system for all mortgage brokers is worth considering.

Some of the conduct and practices that I have learned about are shameful. It is no secret that, while not the norm, some fraudulent activity on behalf of mortgage brokers occurred.

Today, mortgage brokers are regulated at the state level, and the rigor of that regulation varies from state to state. State regulators have begun an effort geared toward uniform licensing and education requirements for mortgage brokers. We support this effort, but since other brokers are employed by federally-regulated entities, this effort will not cover the full universe of mortgage originators. We need to consider a national approach that builds upon the state efforts that are currently underway.

Licensing requirements should take into account prior fraudulent or criminal activity, and should require initial and ongoing education. At a minimum mortgage originators should be able to demonstrate a sound understanding of the products that they will be selling.

Common sense licensing requirements that are uniformly enforced could greatly help in weeding out the bad actors. A nationwide monitoring system that covers all mortgage originators could help prevent unscrupulous mortgage originators from moving across state lines or switching employers to evade detection. This is worth considering.

The third area that also warrants our focus is predatory lending.

Homebuyers must not be subject to unfair and deceptive lending practices. Here too, the Federal Reserve is engaged in a comprehensive review of its authority under the Home Ownership and Equity Protection Act, including its authority to broadly define unfair and deceptive practices. These rules would apply to the entire mortgage industry.

The Federal Reserve can inject greater uniformity and objective standards into the mortgage origination process, and I encourage them to do so.

In addition, there have been calls for legislation to address certain practices that are often associated with predatory lending, such as prepayment penalties or stated-income loans. There are clearly circumstances in which these product features are marketed inappropriately. There are also clearly circumstances in which any one of these features can make sense for the borrower and significantly improve credit availability.

We need to strike a careful balance of providing adequate consumer protection without limiting overall credit availability or consumer choice, especially for those who most need that flexibility.

This is a difficult balance to achieve because each lending determination is relatively unique based on the different facts and circumstances associated with each borrower. Yet, I am hopeful that we can do it.

In my view, it makes a great deal of sense to recognize that certain products are right for some borrowers and not for others. The Federal Reserve has already stated that it will examine some of these specific issues including prepayment penalties, stated-income loans, escrow accounts and ability-to-repay considerations.

The fourth issue that has garnered attention is whether greater liability should be imposed on securitizers and investors. In my view, this is not the answer to the problem. Imposing broad liability provisions on investors and securitizers would very likely generate significant unintended consequences. It would potentially paralyze securitization, a process that has been extremely valuable in extending the availability of credit to millions of homeowners nationwide and lowering the cost of financing. Again, balance is critically important. Congress should proceed with extreme caution so as to avoid cutting off investment inflows to the housing market.

Before concluding I will briefly summarize two other broad-based capital markets related initiatives under way that will also address some of the problems which have arisen in the mortgage market.

Broader Capital Markets Issues