The GAO Latest Report: Characteristics and Performance of Nonprime Mortgages

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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.1 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.3 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.