NAMB says GAO foreclosures study vindicates brokers: Aggressive lending, securitization model led to lower underwriting standardsMortgagePress.comGAO sub-prime
The Government Accountability Office (GAO) released a report on
default and foreclosure trends in the mortgage industry on Oct. 16.
The report, titled "Information on Recent Default and Foreclosure
Trends for Home Mortgages and Associated Economic and Market
Developments," comes in response to an April 25 House Financial
Services Committee request to the GAO to investigate the high
number of foreclosures and the sub-prime market.
The National Association of Mortgage Brokers praised the
long-awaited GAO report analyzing the rash of home mortgage
defaults and foreclosures.
"This study vindicates Mortgage Brokers by confirming what we
have been saying all along," said NAMB President George
Hanzimanolis, CRMS. "Mortgage Brokers are not to blame for the
meltdown in the sub-prime mortgage market. According to GAO, the
problem started with the rise of securitization, resulting in too
much liquidity, which led to aggressive practices by banks and
other lenders. Taken together, these forces shifted risk from
lenders to investors, eliminated accountability and led to a
weakening of underwriting standards. Simply put, blaming only
Mortgage Brokers or any other one segment of this industry for this
complex meltdown doesn't hold water with the facts."
The GAO notes in its report that the overall mortgage default
rate grew by 29 percent between 2005 and 2007, while the
foreclosure rate increased by 55 percent. The sub-prime market
accounted for two-thirds or more of the increase in the number of
loans in default or foreclosure during the two-year time frame.
GAO pointed out a number of factors that contributed to the
collapse of the market, including a drop-off in home price
appreciation rates and a weakening labor market in certain parts of
the country. But it stressed that the easing of underwriting
standards and the wider use of certain loan features such as low-
and no-documentation loans and higher loan-to-value ratios
contributed to default and foreclosure increases by making loans
available to borrowers who could not keep up with their
payments.
"The real tragedy, of course, is that GAO projects more than one
million homeowners will experience foreclosure during the next six
to seven years due to this combination of circumstances,"
Hanzimanolis said. He urged Congress to consider the study's
findings carefully when drafting legislation designed to make
improvements in the mortgage market.
For more information, visit www.gao.gov.
