Mumbai: US financial regulators led by the treasury department has pledged tougher rules for mortgage brokers, lenders, and credit agencies, in a bid to rescue the crisis-hit credit market and restore investor confidence.

In its report, the President's Working Group on Financial Markets has recommended higher capital requirements and better disclosure of risky investments. It has also outlined new consumer protection measures for the mortgage lenders.

The panel headed by treasury secretary Henry Paulson unveiled a new set of recommendations for revamping the "improperly weighed risky investments that held too little capital to protect against losses."

The regulators recommended "strong nationwide licensing standards" for mortgage brokers, stiffer federal and state oversight of all mortgage originators, and new rules to force more disclosure of loan terms to borrowers.

It said the credit market turmoil has been triggered by a regulation that "encouraged the securitisation of assets through facilities with very low capital requirements," and blamed a "dramatic weakening" of underwriting standards for lower-quality home loans.

Regulators knew too little about exposure to off-balance sheet investments and how Wall Street firms were measuring their exposure to risky mortgage investments, the report said.

Paulson, a Wall Street veteran who took the reins at treasury in mid-2006, said "financial innovation", like the practice of repackaging subprime mortgages, had only worsened the situation by increasing market complexities.

Paulson asked lenders to continue lending and bolster capital. Banks and other lenders must also learn to live with lesser dividend, he said.

"We are encouraging financial institutions to strengthen balance sheets by raising capital and revisiting dividend policies; we need those institutions to continue to lend and facilitate economic growth," he said.

The proposed changes, however, are unlikely to help forestall a wave of foreclosures sweeping the country, analysts said.

US foreclosure filings in February were 60 per cent higher than their year-ago level, real estate data from RealtyTrac showed.