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GAO-10-146R 1 (2009-12-16)

handle is hein.gao/gaobaanqs0001 and id is 1 raw text is: i GAO Account bility Integrity * Reliability United States Government Accountability Office Washington, DC 20548 December 16, 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: Loan Performance and Negative Home Equity in the Nonprime Mortgage Market As we reported to you in July 2009, the number of nonprime mortgage originations (including subprime and Alt-A loans) grew rapidly from 2000 through 2006, a period during which average house prices appreciated dramatically.' In dollar terms, the nonprime share of mortgage originations rose from about 12 percent ($125 billion) in 2000 to approximately 34 percent ($1 trillion) in 2006. These mortgages have been associated with what was subsequently recognized as a speculative housing bubble. As house prices subsequently fell, the subprime and Alt-A market segments contracted sharply, and very few nonprime originations were made after mid-2007. Borrowers who had obtained nonprime mortgages earlier in the decade increasingly fell behind on their mortgage payments, helping to push default and foreclosure rates to historical highs. Economic conditions and a weak housing market have contributed to the increase in troubled loans. In particular, falling house prices have left many borrowers in a negative equity position-that is, their mortgage balances exceed the current value of their homes. Negative equity makes borrowers more vulnerable to foreclosure by, among other factors, limiting their ability to sell or refinance their homes in the event they cannot stay current on their mortgage payments. To inform congressional decision making about efforts to address problems in the mortgage market, you requested that we examine the evolution and condition of the market for nonprime loans. On July 28, 2009, we provided you with an interim report on certain characteristics of nonprime loans and borrowers, and the performance of nonprime mortgages originated from 2000 through 2007 (the last year in which substantial numbers of nonprime mortgages were made) as of See GAO, Characteristics and Performance of Nonprime Mortgages, GAO-09-848R (Washington, D.C.: July 28, 2009). GAO-10-146R Nonprime Mortgages Page I

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