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GAO looks at nonprime loan bill
WASHINGTON (8/4/09)—The Government Accountability Office (GAO) recently studied a 2007 mortgage reform bill (H.R. 3915), which was introduced but not passed, and evaluated what the long-term impact of the bill would have been if enacted. The report also dipped into the history of nonprime loans and revealed that almost 75% of securitized nonprime mortgages originated from 2000 through 2007 would not have met H.R. 3915's safe harbor requirements. Those requirements included such things as full documentation of a borrower’s income and assets and a prohibition on mortgages for which the loan principal can increase over time. The extent to which mortgages met specific safe harbor requirements varied by origination year, the GAO noted, citing for example the percentage of nonprime mortgages with less than full documentation rose from 27% in 2000 to almost 60% in 2007. “Consistent with the consumer protection purpose of the bill, GAO found that certain variables associated with the safe harbor requirements influenced the probability of a loan entering default (i.e., 90 or more days delinquent or in foreclosure) within 24 months of origination,” the report summary said. All other factors being equal, GAO said its statistical analysis showed a five percentage point increase in the likelihood of defaults for “the most common type of nonprime mortgage product.” The potential long-term impact of the bill, which was the topic of the report, is disputed, the GAO said. The mortgage industry generally stated that some of the bill’s provisions would limit mortgage options and increase the cost of credit for nonprime borrowers. Consumer groups, for the most part, argued a need that the provisions be strengthened to protect consumers from predatory loan products. The GAO is the audit, evaluation, and investigative arm of the U.S. Congress and generally executes studies requested by members.
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