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GAO-09-848R 1 (2009-07-28)

handle is hein.gao/gaobaanox0001 and id is 1 raw text is: I GA 0 T I M Accountability * Integrity * Reliability United States Government Accountability Office Washington, DC 20548 July 28, 2009 The Honorable Carolyn B. Maloney Chair Joint Economic Committee House of Representatives The Honorable Charles E. Schumer Vice Chairman Joint Economic Committee United States Senate Subject: Characteristics and Performance of Nonprime Mortgages During the first part of this decade, the number of mortgage originations grew rapidly, particularly in the nonprime segment of the mortgage market, which includes subprime and Alt-A loans.' In dollar terms, nonprime loans accounted for an increasing share of the overall mortgage market, rising from 12 percent in 2000 to 34 percent in 2006. Over this period, the dollar volume of nonprime mortgages originated annually climbed from $100 billion to $600 billion in the subprime market and from $25 billion to $400 billion in the Alt-A market.2 However, these market segments contracted sharply in the summer of 2007, partly in response to a dramatic increase in default and foreclosure rates for these mortgages. As we reported in 2007, a loosening of underwriting standards for subprime and Alt-A loans contributed to this increase. As of the first quarter of 2009, approximately 1 in 8 nonprime mortgages were in the foreclosure process. The negative repercussions from nonprime lending practices has prompted greater scrutiny of this market segment, a number of government efforts to modify troubled loans, and proposals to strengthen federal regulation of the mortgage industry. To inform congressional oversight and decision making about efforts to address current problems in the mortgage market, you requested that we examine the evolution and condition of the nonprime market segment. Accordingly, this report 'Although the categories are not rigidly defined, subprime loans feature higher interest rates and fees and are generally made to borrowers who have tarnished credit histories. Alt-A loans are generally for borrowers whose credit histories are close to prime, but the loans have one or more high-risk features such as limited documentation of income or assets. 2See Inside Mortgage Finance, The 2009 Mortgage Market Statistical Annual (Bethesda, Md., 2009), 4. 3See GAO, Information on Recent Default and Foreclosure Trends for Home Mortgages and Associated Economic and Market Developments, GAO-08-78R (Washington, D.C.: Oct. 16, 2007). GAO-09-848R Nonprime Mortgages

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