Oct. 24 (Bloomberg) -- U.S. Representative Barney Frank, chairman of the House Financial Services Committee, defended mortgage legislation introduced this week, saying new rules are needed to prevent future abuses and restore investor confidence.

``We are now in the most serious financial crisis the world has seen since the late '90s,'' Frank said at a committee hearing in Washington today. ``It is inconceivable to me that we, the Congress, and the regulators working together would do nothing to diminish the likelihood'' of future abuses.

Frank, whose committee oversees the mortgage industry, called the hearing to examine legislation he unveiled Oct. 22 to curb predatory lending. The bill would require lenders to ensure borrowers have a ``reasonable'' ability to repay, ban prepayment penalties on subprime loans and require all mortgage brokers and other originators to be licensed and registered.

The Massachusetts Democrat fended off Republican criticism of a provision to hold mortgage securitizers partly responsible for bad loans, saying it would be ``market-enhancing'' by offering investors more assurance.

Committee Republicans faulted the plan, saying it could stifle lending to consumers with less-than-perfect credit.

``We still have to remember that millions of people have homeownership opportunities because of the subprime market,'' said Representative Jeb Hensarling, a Texas Republican. ``I am very wary of any legislation that could undercut that market.''

Top federal and state banking regulators including Federal Reserve Governor Randall Kroszner and U.S. Comptroller of the Currency John Dugan testified at the hearing, generally endorsing the aims of the bill while cautioning lawmakers against overreaching.

`Strike the Right Balance'

The Fed ``believes it is extremely important to strike the right balance by seeking to protect consumers from predatory practices without restricting credit from responsible lenders to borrowers with shorter or lower-rated credit histories,'' Kroszner told the lawmakers.

Dugan expressed concern that the legislation's ``highly subjective'' requirements that mortgages be appropriate and in the consumer's interest ``could significantly increase the litigation exposure of all banks.''

Frank has criticized the Fed and other bank regulators for failing protect consumers against predatory tactics in mortgage and other types of lending. In response, the Fed is developing rules to curb mortgage-lending abuses, focusing on prepayment penalties and loans that don't require income documentation.

Mortgage-industry representatives withheld support for the bill, expressing concern it wouldn't override stronger state laws. They called for a uniform standard to contain loan costs.

`Single, National Standard'

There should be a ``single, national standard, which is not subject to 50 variations flowing from state legislation,'' said Marc Lackritz, president of the Securities Industry and Financial Markets Association. The Wall Street lobbying group's members include Countrywide Financial Corp. and Citigroup Inc.

U.S. home foreclosures doubled in September from a year earlier as subprime borrowers struggled to meet payments on adjustable-rate mortgages, according to RealtyTrac Inc. There were 223,538 foreclosure filings last month, the Irvine, California-based research company said.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

Last Updated: October 24, 2007 18:51 EDT