The Federal Reserve yesterday announced an extensive shake-up of US mortgage regulation that it hopes will reduce abuses and pave the way for a revival in the subprime lending industry. Financial Times

The proposed new rules would go beyond simple disclosure requirements and industry guidance to ban some practices outright and restrict others.

Randall Kroszner, the Fed governor in charge of the overhaul, said abusive practices harmed both consumers and the 'integrity of the mortgage market'. He said the Fed hoped that the new rules would make it likely that “responsible capital will again flow to traditionally under-served borrowers and communities”.

The Fed action follows severe criticism of the US central bank – particularly under the leadership of former chairman Alan Greenspan – by leading Democrats for failing to use its authority to stop sub-prime abuse.