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Report to the Joint Economic Committee, United States Congress: 

United States Government Accountability Office: 
GAO: 

August 2010: 

Nonprime Mortgages: 

Analysis of Loan Performance, Factors Associated with Defaults, and 
Data Sources: 

GAO-10-805: 

GAO Highlights: 

Highlights of GAO-10-805, a report to the Joint Economic Committee, 
United States Congress. 

Why GAO Did This Study: 

The surge in mortgage foreclosures that began in late 2006 and 
continues today was initially driven by deterioration in the 
performance of nonprime (subprime and Alt-A) loans. Nonprime mortgage 
originations increased dramatically from 2000 through 2006, rising 
from about 12 percent ($125 billion) of all mortgage originations to 
about 34 percent ($1 trillion). The nonprime market contracted sharply 
in mid-2007, partly in response to increasing defaults and 
foreclosures for these loans. 

This report (1) provides information on the performance of nonprime 
loans through December 31, 2009; (2) examines how loan and borrower 
characteristics and economic conditions influenced the likelihood of 
default (including foreclosure) of nonprime loans; and (3) describes 
the features and limitations of primary sources of data on nonprime 
loan performance and borrower characteristics, and discusses federal 
government efforts to improve the availability or use of such data. To 
do this work, GAO analyzed a proprietary database of securitized 
nonprime loans and Home Mortgage Disclosure Act data, and reviewed 
information on mortgage data sources maintained by private firms and 
the federal government. 

What GAO Found: 

The number of active nonprime loans originated from 2000 through 2007 
that were seriously delinquent (90 or more days late or in the 
foreclosure process) increased from 1.1 million at the end of 2008 to 
1.4 million at the end of 2009. Serious delinquency rates were higher 
for certain adjustable-rate products common in the subprime and Alt-A 
market segments than they were for fixed-rate products. The number of 
nonprime loans that were 90 or more days late grew throughout 2009, 
accounting for most of the overall growth in the number of serious 
delinquencies. By comparison, the number of active loans in the 
foreclosure process grew in the first half of the year, and then began 
to decline somewhat. Additionally, 475,000 nonprime mortgages 
completed the foreclosure process during 2009. The persistently weak 
performance of nonprime loans suggests that problems in the nonprime 
market will not be resolved quickly, and underscores the importance of 
federal efforts to assist distressed borrowers and prevent a 
recurrence of the aggressive lending practices that helped precipitate 
the foreclosure crisis. 

In addition to performance differences between mortgage products, GAO 
found across product types that house price changes, loan amount, the 
ratio of the amount of the loan to the value of the home, and borrower 
credit score were among the variables that influenced the likelihood 
of default on nonprime loans originated from 2004 through 2006. In 
addition, loans that lacked full documentation of borrower income and 
assets were associated with increased default probabilities, and the 
influence of borrowers’ reported income varied with the level of 
documentation. GAO found that borrower race and ethnicity were 
associated with the probability of default, particularly for loans 
used to purchase rather than to refinance a home. However, these 
associations should be interpreted with caution because GAO lacks data 
on factors that may influence default rates and that may also be 
associated with race and ethnicity, such as borrower wealth and first-
time homebuyer status. 

Existing sources of data on nonprime mortgages contain a range of 
information to support different uses. While these data sources offer 
some similar elements, they vary in their coverage of loan, property, 
and borrower attributes. The data sources generally lack information 
on certain attributes that could help inform policy decisions or 
regulatory efforts to mitigate risk. For example, first-time 
homebuyers are not identified in any of the data sources, limiting the 
ability of analysts to compare the marginal effect of prior 
homeownership experience on default probabilities. In addition, most 
of the data sources do not cover the entire nonprime mortgage market. 
Ongoing federal efforts have the potential to provide data that may 
not have some of the constraints of the existing sources. For example, 
officials from the Board of Governors of the Federal Reserve System 
and Freddie Mac are collaborating on a pilot project to develop a 
publicly available National Mortgage Database, which would compile 
data on a representative sample of outstanding mortgages and provide 
more comprehensive data than are currently available. 

What GAO Recommends: 

GAO makes no recommendations in this report. 

View [hyperlink, http://www.gao.gov/products/GAO-10-805] or key 
components. To view the e-supplement online, click [hyperlink, 
http://www.gao.gov/products/GAO-10-806SP]. For more information, 
contact William B. Shear at (202) 512-8678 or shearw@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Nonprime Loan Performance Deteriorated through the End of 2009 and 
Varied by Market Segment, Product Type, Cohort Year, and Location: 

House Price Changes and Certain Loan and Borrower Characteristics Were 
Associated with Default Rates: 

Available Nonprime Mortgage Data Sources Provide Useful Information 
but Have Constraints That May Be Addressed, in Part, by Ongoing 
Efforts: 

Observations: 

Appendix I: Description of the Econometric Analysis of Nonprime 
Mortgage Default Probabilities: 

Appendix II: Matching CoreLogic LoanPerformance and Home Mortgage 
Disclosure Act Records: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Variables Used in the Logistic Regression Models: 

Table 2: Mean Values for Short-term Hybrid ARMs: 

Table 3: Mean Values for Longer-term ARMs: 

Table 4: Mean Values for Fixed-rate Mortgages: 

Table 5: Estimation Results for Short-term Hybrid ARMs for Owner- 
Occupants: 

Table 6: Estimation Results for Short-term Hybrid ARMs for Investors: 

Table 7: Estimation Results for Longer-term ARMs for Owner-Occupants: 

Table 8: Estimation Results for Fixed-rate Mortgages for Owner- 
Occupants: 

Table 9: Results of the Matching Process (CoreLogic LP Loan Records to 
HMDA Loan Records): 

Table 10: Median Initial Interest Rates, by Loan Origination Year, 
Mortgage Product Type, and Match Status: 

Figures: 

Figure 1: Percentage of Subprime and Alt-A Loans Originated from 2000 
through 2007, by Product Type: 

Figure 2: Status of Nonprime Loans Originated from 2000 through 2007 
as of December 31, 2009: 

Figure 3: Active Nonprime Loans by Performance Category as of December 
31, 2009: 

Figure 4: Number of Seriously Delinquent Nonprime Loans, December 31, 
2008, through December 31, 2009: 

Figure 5: Serious Delinquency Rates for Subprime Loans as of December 
31, 2009, and Year-over-Year Changes in Serious Delinquency (Dec. 31, 
2008-Dec. 31, 2009): 

Figure 6: Serious Delinquency Rates for Alt-A Loans as of December 31, 
2009, and Year-over-Year Changes in Serious Delinquency (Dec. 31, 2008-
Dec. 31, 2009): 

Figure 7: Cumulative Percentage of Subprime and Alt-A Loans That 
Completed the Foreclosure Process by Cohort Year, 2004 through 2007: 

Figure 8: Estimated Probability of Nonprime Mortgages Defaulting 
within 24 Months under Different House Price Appreciation Assumptions 
in the First 2 Years of the Loan, 2004 through 2006 Loans: 

Figure 9: Estimated Probability of Nonprime Mortgages Defaulting 
within 24 Months under Different Loan Amount, CLTV Ratio, and Credit 
Score Assumptions, 2004 through 2006 Loans: 

Figure 10: Estimated Probability of Nonprime Mortgages Defaulting 
within 24 Months under Different Reported Income Assumptions for 
Borrowers with and without Full Documentation, 2004 through 2006 Loans: 

Figure 11: Default Rates for Nonprime Mortgages 24 Months after First 
Payment, by Race and Ethnicity, Not Controlling for Other Variables, 
2004 through 2006 Loans: 

Figure 12: Estimated Probability of Nonprime Mortgages Defaulting 
within 24 Months, by Borrower Race and Ethnicity, 2004 through 2006 
Loans: 

Figure 13: Examples of Available Data in Selected Mortgage Data 
Sources: 

Abbreviations: 

ABS: asset-backed securities: 

ARM: adjustable-rate mortgage: 

BLS: Bureau of Labor Statistics: 

CLTV: combined loan-to-value: 

CoreLogic LP: CoreLogic LoanPerformance: 

DTI: debt-service-to-income: 

FFIEC: Federal Financial Institutions Examination Council: 

FHA: Federal Housing Administration: 

FHFA: Federal Housing Finance Agency: 

HMDA: Home Mortgage Disclosure Act: 

HPA: house price appreciation: 

HPI: house price index: 

HUD: Department of Housing and Urban Development: 

LLS: Loan Level Servicing: 

LPS: Lender Processing Services: 

LTV: loan-to-value: 

MBS: mortgage-backed securities: 

NMDB: National Mortgage Database: 

SFDW: Single Family Data Warehouse: 

Nonprime Mortgages: Data on Loan Performance by Cohort Year, Product 
Type, and Location, an E-Supplement to GAO-10-805 (GAO-10-806SP): 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

August 24, 2010: 

The Honorable Carolyn B. Maloney:
Chair:
The Honorable Charles E. Schumer:
Vice Chairman:
Joint Economic Committee:
United States Congress: 

The surge in mortgage foreclosures that began in late 2006 and 
continues today was initially driven by deterioration in the 
performance of nonprime (subprime and Alt-A) loans.[Footnote 1] 
Nonprime mortgage originations increased dramatically from 2000 
through 2006, rising from about 12 percent ($125 billion) of all 
mortgage originations to about 34 percent ($1 trillion).[Footnote 2] 
The nonprime market contracted sharply in mid-2007, partly in response 
to increasing default and foreclosure rates for these mortgages. As 
economic conditions deteriorated in 2008 and 2009, growing numbers of 
borrowers--including those with both nonprime and prime loans--entered 
foreclosure, exacerbating stresses in the mortgage and housing markets. 

Researchers and policymakers have sought to understand the causes of 
the foreclosure crisis and develop policy responses to reduce 
foreclosures and prevent similar crises in the future. However, data 
limitations have complicated efforts to analyze the nonprime mortgage 
market, in part because no one database provides complete information 
on the features and performance of nonprime loans and the 
characteristics of borrowers. Furthermore, questions have been raised 
about whether timely access to more comprehensive information on the 
nonprime mortgage market could have helped federal banking regulators 
anticipate the foreclosure crisis or respond to it more quickly and 
effectively. 

To inform congressional oversight and decision making about efforts to 
address problems in the mortgage market, you requested that we examine 
the evolution and condition of the nonprime market segment. In prior 
reports, we discussed certain characteristics of nonprime loans and 
borrowers; the performance of nonprime mortgages as of March 31, 2009, 
and June 30, 2009; the extent of negative equity among nonprime 
borrowers in selected metropolitan areas and nationwide as of June 30, 
2009; and the proportion of nonprime borrowers with negative equity 
and seriously delinquent loans, by state, from 2006 through 2009. 
[Footnote 3] This report (1) provides information on the performance 
of nonprime loans through December 31, 2009; (2) examines how loan and 
borrower characteristics and economic conditions influenced the 
likelihood of default and foreclosure of nonprime loans; and (3) 
describes the features and limitations of primary sources of data on 
nonprime loan performance and borrower characteristics, and discusses 
federal government efforts to improve the availability or use of such 
data. An electronic supplement to this report provides additional 
information on the performance of nonprime mortgages by annual loan 
cohort, product type, Census division, state, and congressional 
district as of December 31, 2009.[Footnote 4] 

To examine the recent performance of nonprime mortgages, we used data 
from CoreLogic LoanPerformance's (CoreLogic LP) Asset-Backed 
Securities Database for nonprime loans originated from 2000 through 
2007 (the last year in which substantial numbers of nonprime mortgages 
were made). The CoreLogic LP database contains loan-level data on a 
large majority of nonagency securitized mortgages in subprime and Alt- 
A pools.[Footnote 5] For the purposes of our analysis, we defined a 
subprime loan as a loan in a subprime pool and an Alt-A loan as a loan 
in an Alt-A pool.[Footnote 6] We focused our analysis on first-lien 
purchase and refinance mortgages for one-to four-family residential 
units. For the nonprime market as a whole, and for the subprime and 
Alt-A market segments, we calculated the number and percentage of 
nonprime mortgages that were in different performance categories--for 
example, current (up to date on payments); delinquent (30 to 89 days 
behind); in default (90 or more days behind); in the foreclosure 
process; or having completed the foreclosure process--at the end of 
each quarter from December 31, 2008, through December 31, 2009, the 
most recent quarterly data that we could analyze within the time frame 
of our review.[Footnote 7] We classified mortgages in default or in 
the foreclosure process as "seriously delinquent." We also examined 
mortgage performance as of December 31, 2009, by loan cohort; product 
type; and geographic areas, including Census divisions, states, and 
congressional districts.[Footnote 8] These latter analyses are 
reported in detail in the electronic supplement to this report. 
[Footnote 9] 

To analyze the influence of loan and borrower characteristics and 
economic conditions on the performance of nonprime loans, we developed 
a statistical model to estimate the relationship between relevant 
variables and the probability of loan default or foreclosure within 24 
months after the borrower's first payment. We define a loan as being 
in default or foreclosure if it was delinquent by at least 90 days, in 
the foreclosure process (including loans identified as in real-estate-
owned status), paid off after being 90-days delinquent or in 
foreclosure, or already terminated with evidence of a loss. We 
analyzed nonprime loans originated from 2004 to 2006, using records 
from the CoreLogic LP database that we matched to records in the Home 
Mortgage Disclosure Act (HMDA) database compiled by the Federal 
Financial Institutions Examination Council (FFIEC) from information 
reported by lenders.[Footnote 10] Combining the information in these 
two data sources yielded a data set with loan-level information on 
loan characteristics (mortgage type and key mortgage terms); loan 
performance (payment status at particular times); and certain borrower 
characteristics (such as borrower race, ethnicity, reported income, 
and credit score).[Footnote 11] In addition, we used the Federal 
Housing Finance Agency's (FHFA) house price indexes (HPI) for 
metropolitan areas to incorporate data on house price appreciation. 
[Footnote 12] We also used employment data from the Bureau of Labor 
Statistics (BLS) and Census tract-level data from the 2000 Census to 
control for various economic conditions and neighborhood 
characteristics. Appendix I contains additional information on the 
methodology for this statistical model. 

To identify sources of data on nonprime loans and borrowers, we 
reviewed research literature on mortgage markets and interviewed 
knowledgeable private sector and federal agency officials. For data 
sources that are national in scope, provide loan-level information on 
nonprime loans, and are widely available for free or a fee, we 
reviewed database documentation and related research and interviewed 
agency and company officials to determine the scope and features of 
each data source. We also collected and reviewed similar documentation 
for data on loans insured by the Department of Housing and Urban 
Development's (HUD) Federal Housing Administration (FHA) because 
borrowers served by FHA earlier in the decade had some similar 
characteristics to subprime borrowers. We also used our review of 
documentation and research and interviews to identify limitations in 
data availability and federal government efforts to address them or to 
improve the use of such data. 

We tested the reliability of the data used in this report by reviewing 
documentation on the process that the data providers use to collect 
and ensure the reliability and integrity of their data, and by 
conducting reasonableness checks on data elements to identify any 
missing, erroneous, or outlying data. We also interviewed CoreLogic LP 
representatives to discuss the interpretation of various data fields. 
We concluded that the data we used were sufficiently reliable for our 
purposes. 

We conducted this engagement in Washington, D.C., and Chicago, 
Illinois, from December 2009 through August 2010 in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings 
and conclusions based on our audit objectives. We believe that the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

Background: 

The nonprime mortgage market has two segments: 

* Subprime: Generally serves borrowers with blemished or limited 
credit histories, and the loans feature higher interest rates and fees 
than prime loans. 

* Alt-A: Generally serves 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 or the option of making 
monthly payments that are lower than would be required for a fully 
amortizing loan. 

Of the 14.5 million nonprime loans originated from 2000 through 2007, 
9.4 million (65 percent) were subprime loans and 5.1 million (35 
percent) were Alt-A loans. 

In both of these market segments, two types of loans are common: fixed-
rate mortgages, which have unchanging interest rates, and adjustable- 
rate mortgages (ARM), which have interest rates that can adjust 
periodically on the basis of changes in a specified index. Specific 
types of ARMs are prevalent in each market segment. "Short-term hybrid 
ARMs" accounted for 70 percent of subprime mortgage originations from 
2000 through 2007 (see figure 1). These loans have a fixed interest 
rate for an initial period (2 or 3 years) but then "reset" to an 
adjustable rate for the remaining term of the loan. In the Alt-A 
segment, "payment-option ARMs" are a common adjustable-rate product, 
accounting for 17 percent of Alt-A mortgage originations from 2000 
through 2007. For an initial period of typically 5 years, or until the 
loan balance reaches a specified cap, this product provides the 
borrower with multiple payment options each month, including minimum 
payments that are lower than what would be needed to cover any of the 
principal or all of the accrued interest. After the initial period, 
payments are "recast" to include an amount that will fully amortize 
the outstanding balance over the remaining loan term. 

Figure 1: Percentage of Subprime and Alt-A Loans Originated from 2000 
through 2007, by Product Type: 

[Refer to PDF for image: 2 pie-charts] 

Subprime loans (9.4 million): 
Short-term hybrid ARM: 70%; 
Fixed rate: 25%; 
Other ARM: 3%; 
Other: 2%. 

Alt-A loans (5.1 million): 
Fixed rate: 44%; 
Other ARM: 38%; 
Payment-option ARM: 17%; 
Other: 1%. 

Source: GAO analysis of CoreLogic LP data. 

[End of figure] 

Several payment categories describe the performance of mortgages, 
including nonprime mortgages: 

* Current: The borrower is meeting scheduled payments. 

* Delinquent: The borrower is 30 to 89 days behind in scheduled 
payments. 

* Default: The borrower is 90 days or more delinquent.[Footnote 13] At 
this point, foreclosure proceedings against the borrower become a 
strong possibility. 

* In the foreclosure process: The borrower has been delinquent for 
more than 90 days, and the lender has elected to foreclose in what is 
often a lengthy process. The loan is considered active during the 
foreclosure process. 

* Completed the foreclosure process: The borrower's loan terminates 
and foreclosure proceedings end with one of several possible outcomes. 
For example, the borrower may sell the property or the lender may 
repossess the home. 

* Prepaid: The borrower has paid off the entire loan balance before it 
is due. Prepayment often occurs as a result of the borrower selling 
the home or refinancing into a new mortgage. 

In this report, we describe mortgages in default or in the foreclosure 
process as "seriously delinquent." 

As we have stated in previous reports, a combination of falling house 
prices, aggressive lending practices, and weak economic conditions 
have contributed to the increase in troubled mortgages. For example, 
in 2009, we noted that falling house prices had left a substantial 
proportion of nonprime borrowers in a negative equity position--that 
is, their mortgage balances exceeded the current value of their homes--
limiting their ability to sell or refinance their homes in the event 
they could not stay current on their mortgage payments.[Footnote 14] 
Additionally, we reported that an easing of underwriting standards and 
wider use of certain loan features associated with poorer loan 
performance contributed to increases in mortgage delinquencies and 
foreclosures.[Footnote 15] These features included mortgages with 
higher loan-to-value (LTV) ratios (the amount of the loan divided by 
the value of the home at loan origination), adjustable interest rates, 
limited or no documentation of borrower income or assets, and deferred 
payment of principal or interest. Also, in some cases, mortgage 
originators engaged in questionable sales practices that resulted in 
loans with onerous terms and conditions that made repayment more 
difficult for some borrowers. Furthermore, rising unemployment has 
contributed to mortgage defaults and foreclosures because job loss 
directly affects a borrower's ability to make mortgage payments. 

The foreclosure crisis has imposed significant costs on borrowers, 
neighborhoods, and taxpayers. For example, vacant and foreclosed 
properties have contributed to neighborhood blight and reduced 
property values in many communities. Additionally, foreclosures 
affecting minority populations and the high incidence of subprime 
lending to members of these groups have heightened concerns that these 
groups have received disparate treatment in mortgage lending. In light 
of these costs and concerns, Congress and federal agencies have taken 
a number of steps to address and prevent a recurrence of ongoing 
problems in the mortgage market. These efforts include programs to 
modify or refinance the loans of distressed borrowers and legislation 
to strengthen mortgage-lending standards and prevent mortgage 
originators from steering borrowers into high-risk or high-cost 
mortgages. 

Nonprime Loan Performance Deteriorated through the End of 2009 and 
Varied by Market Segment, Product Type, Cohort Year, and Location: 

The Worsening Performance of Nonprime Loans Was Reflected in Increases 
in Serious Delinquencies: 

As of December 31, 2009, 63 percent of the 14.50 million nonprime 
loans originated from 2000 through 2007 (the last year in which 
substantial numbers of nonprime mortgages were made) was no longer 
active. Fifty percent of the nonprime loans originated during this 
period had prepaid, and 13 percent had completed foreclosure (see 
figure 2).[Footnote 16] 

Figure 2: Status of Nonprime Loans Originated from 2000 through 2007 
as of December 31, 2009: 

[Refer to PDF for image: pie-chart] 

Prepaid (7.25 million): 50.0%; 
Active (4.59 million): 31.6%; 
Completed the foreclosure process (1.88 million): 13.0%; 
Unknown (0.78 million): 5.4%. 

Total: 14.50 million nonprime loans. 

Source: GAO analysis of CoreLogic LP data. 

Note: The percentages in this figure were calculated from unrounded 
numbers. 

[End of figure] 

Among the 4.59 million nonprime loans that remained active as of the 
end of 2009, about 16 percent was in default (90 or more days late) 
and about 14 percent was in the foreclosure process, for a total 
serious delinquency rate of 30 percent (see figure 3).[Footnote 17] 
About 12 percent was in a less serious stage of delinquency (30 to 89 
days late), and the remaining 58.5 percent was current. 

Figure 3: Active Nonprime Loans by Performance Category as of December 
31, 2009: 

[Refer to PDF for image: pie-chart] 

Current (2.68 million): 58.5%; 
In default (0.75 million): 16.4%; 
In the foreclosure process (0.63 million): 13.6%; 
Delinquent (0.53 million): 11.5%. 

Total: 4.59 million active nonprime loans. 

Source: GAO analysis of CoreLogic LP data. 

Note: The percentages in this figure were calculated from unrounded 
numbers. 

[End of figure] 

The performance of nonprime mortgages originated from 2000 through 
2007 deteriorated from the end of 2008 through the end of 2009. At the 
end of 2009, 1.38 million active nonprime loans were seriously 
delinquent, compared with 1.10 million at the end of 2008.[Footnote 
18] Over the 12-month period, the serious delinquency rate rose from 
21 percent to 30 percent. About three-quarters of the year-over-year 
change in the number of serious delinquencies was due to an increase 
in defaults, while the remainder was due to an increase in loans in 
the foreclosure process. As shown in figure 4, the number of active 
nonprime loans in default grew each quarter, with the largest 
increases occurring in the third and fourth quarters of 2009. By 
comparison, the number of active nonprime loans in the foreclosure 
process grew in the first two quarters of the year, held almost steady 
in the third quarter, and declined in the last quarter of 2009. The 
decline in the number of loans in the foreclosure process may be 
attributable to decisions by lenders not to begin foreclosure 
proceedings on defaulted loans. 

Figure 4: Number of Seriously Delinquent Nonprime Loans, December 31, 
2008, through December 31, 2009: 

[Refer to PDF for image: vertical bar graph] 

Date: 2008, Q4; 
Loans in default: 548,012	
Loans in the foreclosure process: 550,450	
Total seriously delinquent loans (loans in default + loans in the 
foreclosure process): 1,098,462. 

Date: 2009, Q1; 
Loans in default: 590,183	
Loans in the foreclosure process: 608,624	
Total seriously delinquent loans (loans in default + loans in the 
foreclosure process): 1,198,807. 

Date: 2009, Q2; 
Loans in default: 625,212	
Loans in the foreclosure process: 637,991	
Total seriously delinquent loans (loans in default + loans in the 
foreclosure process): 1,263,203. 

Date: 2009, Q3; 
Loans in default: 694,110	
Loans in the foreclosure process: 637,261	
Total seriously delinquent loans (loans in default + loans in the 
foreclosure process): 1,331,371. 

Date: 2009, Q4; 
Loans in default: 750,154	
Loans in the foreclosure process: 624,940	
Total seriously delinquent loans (loans in default + loans in the 
foreclosure process): 1,375,094. 

Source: GAO analysis of CoreLogic LP data. 

[End of figure] 

In addition, among all nonprime loans originated from 2000 through 
2007, the cumulative percentage that had completed the foreclosure 
process increased from 10 percent at the end of 2008 to 13 percent at 
the end of 2009. About 475,000 nonprime loans completed foreclosure in 
2009, or roughly 119,000 per quarter. Most (63 percent) of the 759,000 
decline in the number of active loans in 2009 was attributable to 
loans completing foreclosure, rather than to prepayments. 

Loan Performance Varied by Market Segment, Product Type, Cohort Year, 
and Location: 

In 2009, the performance of nonprime loans differed between the 
subprime and Alt-A market segments and, within each segment, among 
product types (fixed-rate mortgages versus ARMs). Nonprime loan 
performance also varied by the year of loan origination (cohort year) 
and by location. 

Loan Performance by Market Segment and Product Type: 

In general, the subprime market segment performed worse than the Alt-A 
segment in 2009. 

* Of the 2.76 million subprime loans that were active at the end of 
2008, 10 percent (267,000) completed foreclosure in 2009. By 
comparison, 8 percent (208,000) of the 2.59 million Alt-A loans that 
were active at the end of 2008 completed foreclosure in 2009. 

* Cumulatively, 15 percent (1.41 million) of subprime loans originated 
from 2000 through 2007 had completed foreclosure as of December 31, 
2009, compared with 9 percent (474,000) of Alt-A loans. 

* Among active loans at the end of 2009, 36 percent (858,000) of 
subprime loans were seriously delinquent, compared with 23 percent 
(517,000) of Alt-A loans. 

However, Alt-A loans accounted for 55 percent (152,000) of the 277,000 
year-over-year increase in the number of seriously delinquent loans. 

Within the subprime and Alt-A market segments, loan performance varied 
by product type. As we stated in a previous report, serious 
delinquency rates were higher for certain adjustable-rate products 
common in the subprime and Alt-A market segments than they were for 
fixed-rate products or the market as a whole.[Footnote 19] Although 
many nonprime borrowers with adjustable-rate loans fell behind on 
their mortgages before their payments increased, the higher serious 
delinquency rates for these products may partly reflect the 
difficulties some borrowers had in making their payments when their 
interest rates reset to higher levels or when their monthly payments 
recast to fully amortizing amounts. In the subprime market segment, 
the serious delinquency rate for short-term hybrid ARMs was 48 percent 
at the end of 2009, compared with 21 percent for fixed-rate mortgages 
and 36 percent for all active subprime loans (see figure 5). The 
serious delinquency rate increased by 11 percentage points for short-
term hybrid ARMs in 2009, compared with 8 percentage points for fixed-
rate mortgages and 10 percentage points for all active subprime loans. 
However, the year-over-year increase in the number of fixed-rate 
mortgages that were seriously delinquent (over 62,000) was greater 
than the corresponding increase among short-term hybrid ARMs (over 
47,000), even though short-term hybrid ARMs were more prevalent than 
fixed-rate mortgages among subprime loans. 

Figure 5: Serious Delinquency Rates for Subprime Loans as of December 
31, 2009, and Year-over-Year Changes in Serious Delinquency (Dec. 31, 
2008-Dec. 31, 2009): 

[Refer to PDF for image: illustrated table] 

Total subprime market: 
Serious delinquency rate as of December 31, 2009: 36%; 
Change in serious delinquency from year-end 2008 to year-end 2009: 
By percentage point: +10; 
By number of loans: +126,308. 

Short-term hybrid ARMs: 
Serious delinquency rate as of December 31, 2009: 48%; 
Change in serious delinquency from year-end 2008 to year-end 2009: 
By percentage point: +11; 
By number of loans: +47,413. 

Fixed-rate loans: 
Serious delinquency rate as of December 31, 2009: 21%; 
Change in serious delinquency from year-end 2008 to year-end 2009: 
By percentage point: +8; 
By number of loans: +62,328. 

Source: GAO analysis of CoreLogic LP data. 

[End of figure] 

In the Alt-A segment, the serious delinquency rate at the end of 2009 
was higher for payment-option ARMs (38 percent) than for fixed-rate 
mortgages (15 percent) and active Alt-A mortgages as a whole (23 
percent) (see figure 6). The serious delinquency rate increased by 14 
percentage points for payment-option ARMs in 2009, compared with 7 
percentage points for fixed-rate mortgages and 9 percentage points for 
all active Alt-A mortgages. Although the serious delinquency rate grew 
faster for payment-option ARMs than for fixed-rate mortgages, the year-
over-year increase in the number of seriously delinquent loans was 
greater for fixed-rate mortgages (about 63,000) than for payment-
option ARMs (over 36,000), reflecting the preponderance of fixed-rate 
mortgages in the Alt-A market segment. 

Figure 6: Serious Delinquency Rates for Alt-A Loans as of December 31, 
2009, and Year-over-Year Changes in Serious Delinquency (Dec. 31, 2008-
Dec. 31, 2009): 

[Refer to PDF for image: illustrated table] 

Total Alt-A market: 
Serious delinquency rate as of December 31, 2009: 23%; 
Change in serious delinquency from year-end 2008 to year-end 2009: 
By percentage point: +9; 
By number of loans: +152,168. 

Payment option ARMs: 
Serious delinquency rate as of December 31, 2009: 38%; 
Change in serious delinquency from year-end 2008 to year-end 2009: 
By percentage point: +14; 
By number of loans: +36,216. 

Fixed-rate loans: 
Serious delinquency rate as of December 31, 2009: 15%; 
Change in serious delinquency from year-end 2008 to year-end 2009: 
By percentage point: +7; 
By number of loans: +62,948. 

Source: GAO analysis of CoreLogic LP data. 

[End of figure] 

Loan Performance by Cohort Year: 

Nonprime mortgages originated from 2004 through 2007 accounted for 
most of the distressed loans at the end of 2009. Of the active 
subprime loans originated from 2000 through 2007, 94 percent of those 
that were seriously delinquent as of December 31, 2009, were from 
those four cohorts. In addition, loans from these cohorts made up 77 
percent of the subprime loans that had completed the foreclosure 
process. This pattern was more pronounced in the Alt-A market, where 
98 percent of the loans that were seriously delinquent as of December 
31, 2009, were from the 2004 through 2007 cohorts. Similarly, 95 
percent of the Alt-A loans that had completed the foreclosure process 
were from those cohorts. 

Also, within each market segment, the percentage of mortgages 
completing the foreclosure process generally increased for each 
successive loan cohort (see figure 7). Within 3 years of loan 
origination, 5 percent of subprime loans originated in 2004 had 
completed the foreclosure process, compared with 8 percent of the 2005 
cohort and 16 percent each of the 2006 and 2007 cohorts. Among Alt-A 
loans, 1 percent of the 2004 cohort had completed the foreclosure 
process within 3 years of origination, compared with 2 percent of the 
2005 cohort, 8 percent of the 2006 cohort, and 13 percent of the 2007 
cohort. 

Figure 7: Cumulative Percentage of Subprime and Alt-A Loans That 
Completed the Foreclosure Process by Cohort Year, 2004 through 2007: 

[Refer to PDF for image: 2 multiple line graphs] 

Subprime loans: 

Loan duration in years: 1; 
2004: 0; 
2005: 0; 
2006: 0; 
2007: 1%. 

Loan duration in years: 2; 
2004: 2%; 
2005: 3%; 
2006: 5%; 
2007: 8%. 

Loan duration in years: 3; 
2004: 05%; 	
2005: 08%; 
2006: 16%; 
2007: 16%. 

Loan duration in years: 4; 
2004: 08%; 
2005: 15%; 
2006: 23%. 

Loan duration in years: 5; 
2004: 10%; 
2005: 18%. 	 

Loan duration in years: 6; 
2004: 11%. 		 

Alt-A loans: 

Loan duration in years: 1; 
2004: 0; 
2005: 0; 
2006: 0; 
2007: 0. 

Loan duration in years: 2; 
2004: 0; 
2005: 0; 
2006: 2%; 
2007: 5%. 

Loan duration in years: 3; 
2004: 1%; 
2005: 2%; 
2006: 8%; 
2007: 13%. 

Loan duration in years: 4; 
2004: 2%; 
2005: 6%; 
2006: 16%. 

Loan duration in years: 5; 
2004: 3%; 
2005: 10%. 	 

Loan duration in years: 6; 
2004: 5%. 		 

Source: GAO analysis of CoreLogic LP data. 

[End of figure] 

This trend is partly attributable to a decline in the appreciation of 
or an absolute decline in house prices in much of the country 
beginning in 2005 and worsening in subsequent years. This situation 
made it more difficult for some borrowers to sell or refinance their 
homes to avoid default or foreclosure. In addition, borrowers who 
purchased homes but came to owe more than the properties were worth, 
had incentives to stop making mortgage payments to minimize their 
financial losses. The deterioration in loan performance for the 
successive cohorts may also reflect an increase in riskier loan and 
borrower characteristics over time, such as limited documentation of 
borrower income and higher ratios of debt to household income. 

Loan Performance by Location: 

The proportion of active nonprime loans that were seriously delinquent 
as of December 31, 2009, varied across the states. Four states-- 
Florida, Illinois, Nevada, and New Jersey--had serious delinquency 
rates above 35 percent at the end of 2009. Seven states had serious 
delinquency rates between 30 and 35 percent; 9 states had serious 
delinquency rates between 25 and 30 percent; and 19 states had serious 
delinquency rates between 20 and 25 percent. The remaining 12 states 
had serious delinquency rates of less than 20 percent, including 
Wyoming's rate of 15 percent, which was the lowest in the country. 
Detailed data on the performance of nonprime loans by cohort year and 
location, as well as by market segment and product type, are available 
in the electronic supplement to this report.[Footnote 20] 

House Price Changes and Certain Loan and Borrower Characteristics Were 
Associated with Default Rates: 

House price changes and loan and borrower characteristics, such as 
loan amount, combined LTV (CLTV) ratio, and borrower credit score, 
were among the variables that we found influenced the likelihood of 
default on nonprime loans originated from 2004 through 2006, the peak 
years of nonprime mortgage lending.[Footnote 21] In addition, nonprime 
loans that lacked full documentation of borrower income and assets 
were associated with increased default probabilities, and the 
influence of borrowers' reported income varied by product type, loan 
purpose, and the level of documentation. For purchase loans in 
particular, borrower race and ethnicity were associated with the 
probability of default. However, these associations should be 
interpreted with caution because we lack data on factors--such as 
borrower wealth, first-time homebuyer status, and employment status--
that may influence default rates and that may also be associated with 
race and ethnicity. 

Description of our Statistical Model: 

Prior research has shown that various loan, borrower, and economic 
variables influence the performance of a mortgage.[Footnote 22] We 
developed a statistical model to examine the relationship between such 
variables and the probability of a loan defaulting within 24 months 
after the borrower's first payment. We focused on the probability of a 
loan defaulting within 24 months as our measure of performance because 
a large proportion of nonprime borrowers had hybrid ARMs and prepaid 
their loans (e.g., by refinancing) within 2 years. For the purposes of 
this analysis, we defined a loan as being in default if it was 
delinquent by at least 90 days, in the foreclosure process (including 
loans identified as in real-estate-owned status), paid off after being 
90 days delinquent or in foreclosure, or already terminated with 
evidence of a loss.[Footnote 23] 

We developed the statistical model using data on nonprime mortgages 
originated from 2004 through 2006. To include more information on 
borrower demographics (i.e., race, ethnicity, and reported income) 
than is available in the CoreLogic LP data, we matched CoreLogic LP 
records to HMDA records.[Footnote 24] Although we matched about three-
quarters of the CoreLogic LP loans, and the loans that we could match 
were similar in important respects to the loans that we could not 
match, our estimation results may not be fully representative of the 
securitized portion of the nonprime market or the nonprime market as a 
whole. (See appendix II for additional information on our matching 
methodology.) 

We produced separate estimates for the three most prevalent nonprime 
loan products: (1) short-term hybrid ARMs, representing 51 percent of 
nonprime loans originated during this period; (2) longer-term ARMs-- 
those with interest rates that were fixed for 5, 7, or 10 years before 
adjusting (11 percent of originations); and (3) fixed-rate mortgages 
(27 percent of originations). For each product type, we produced 
separate estimates for purchase and refinance loans and for loans to 
owner-occupants and investors.[Footnote 25] Twenty-four months after 
the first loan payment, default rates were highest for short-term 
hybrid ARMs and, across product types, were generally higher for 
purchase loans than refinance loans. Appendix I provides additional 
information about our model and estimation results. 

Across Product Types, Changes in House Prices Influenced Default 
Probabilities: 

Consistent with prior research, we found that lower rates of house 
price appreciation or declines in house prices were strongly 
associated with a higher likelihood of default for each product type 
and loan purpose.[Footnote 26] To illustrate the role of this 
variable, we estimated the default probability assuming house price 
changes that resembled the actual patterns in certain metropolitan 
areas, all else being equal.[Footnote 27] For example, for short-term 
hybrid ARMs used for home purchases, house price appreciation of 25 
percent in the 1ST year of the loan and then 20 percent in the 2ND 
year was associated with about a 5 percent estimated default 
probability, all else being equal (see figure 8).[Footnote 28] 
Assuming instead that house prices stayed about level in the 1ST year 
of the loan and then dropped by about 10 percent in the 2ND year, the 
estimated default probability for short-term hybrid ARM purchase loans 
increased by about 26 percentage points, to 31 percent. These two 
scenarios approximate the actual house price changes in Los Angeles 
beginning in early 2004 and mid-2005, respectively, and are emblematic 
of a number of markets in which a period of substantial house price 
growth was followed by a period of decline. Assuming that house prices 
rose by a modest 2 percent per year--approximating the pattern in a 
number of midwestern markets--the estimated default probability was 
about 22 percent. As shown in figure 8, the influence of house prices 
changes on estimated default probabilities was greater for short-term 
hybrid ARMs than for other mortgage products. 

Figure 8: Estimated Probability of Nonprime Mortgages Defaulting 
within 24 Months under Different House Price Appreciation Assumptions 
in the First 2 Years of the Loan, 2004 through 2006 Loans: 

[Refer to PDF for image: illustrated table] 

Short-term hybrid ARMs: 
Estimated probability of default for house price appreciation 
assumptions (year 1/year 2): 25%/20% appreciation: 
Public loan: 5.0%; 
Refinance loan: 4.1%; 
Estimated probability of default for house price appreciation 
assumptions (year 1/year 2): 2%/2% appreciation: 
Public loan: 22.2%; 
Refinance loan: 15.1%; 
Estimated probability of default for house price appreciation 
assumptions (year 1/year 2): 0%/(10%) appreciation: 
Public loan: 30.9%; 
Refinance loan: 20.4%. 

Longer-term ARMs: 
Estimated probability of default for house price appreciation 
assumptions (year 1/year 2): 25%/20% appreciation: 
Public loan: 1.1%; 
Refinance loan: 0.8%; 
Estimated probability of default for house price appreciation 
assumptions (year 1/year 2): 2%/2% appreciation: 
Public loan: 4.8%; 
Refinance loan: 3.9%; 
Estimated probability of default for house price appreciation 
assumptions (year 1/year 2): 0%/(10%) appreciation: 
Public loan: 7.7%; 
Refinance loan: 5.9%. 

Fixed-rate mortgages: 
Estimated probability of default for house price appreciation 
assumptions (year 1/year 2): 25%/20% appreciation: 
Public loan: 1.2%; 
Refinance loan: 1.4%; 
Estimated probability of default for house price appreciation 
assumptions (year 1/year 2): 2%/2% appreciation: 
Public loan: 5.4%; 
Refinance loan: 5.1%; 
Estimated probability of default for house price appreciation 
assumptions (year 1/year 2): 0%/(10%) appreciation: 
Public loan: 8.3%; 
Refinance loan: 7.2%. 

Source: GAO analysis of CoreLogic LP, HMDA, FHFA, Census, and BLS data. 

Note: This figure compares the estimated probability of default 
assuming the house price change values shown in the 1ST and 2ND year 
of the loan, all else being equal. The results presented are for owner-
occupants. The estimated default probabilities that we present do not 
necessarily reflect the ultimate performance of any product type. 

[End of figure] 

House price changes may also reflect broader economic trends, thereby 
affecting the precision of estimated impacts of other broad economic 
variables, such as employment growth, on mortgage defaults. In our 
model, we included a variable for state-level employment growth and 
noted that the variable was positively correlated with the variable 
for house price changes.[Footnote 29] With that in mind, we found that 
for purchase and refinance loans of all product types, lower rates of 
employment growth were associated with somewhat higher estimated 
default probabilities. For example, for short-term hybrid ARM purchase 
loans, moving from a 4 percent employment growth rate over 24 months 
to a zero percent employment growth rate was associated with about a 1 
percentage point increase in estimated default probabilities. For each 
of the other product types and loan purposes, the corresponding change 
was between 1 and 2 percentage points. 

Loan Amount, CLTV Ratio, and Credit Score Also Were Associated with 
the Likelihood of Default for All Product Types: 

In general, we found that higher loan amounts, higher CLTV ratios, and 
lower credit scores also were strongly associated with higher 
likelihoods of default.[Footnote 30] For example: 

* Loan amount: For each product type and loan purpose, we estimated 
the default probability assuming a loan amount near the 25TH 
percentile for that product and purpose and compared this with the 
estimated default probability assuming a loan amount near the 75TH 
percentile for that product and purpose. For short-term hybrid ARMs 
used for home purchases, moving from a loan amount of $125,000 to 
$300,000 was associated with a 6 percentage point increase in 
estimated default probability, all else being equal (see figure 9). A 
similar pattern held across product types, with a larger effect for 
purchase loans than refinance loans. 

* CLTV ratio: For each product type and loan purpose, we estimated the 
default probability assuming a CLTV ratio close to the 25TH percentile 
for that product and purpose and compared this with the estimated 
default probability assuming a CLTV ratio close to the 75TH percentile 
for that product and purpose. For short-term hybrid ARMs used for home 
purchases, moving from a CLTV ratio between 80 and 90 percent to a 
CLTV ratio of 100 percent or more was associated with a 10 percentage 
point increase in estimated default probability, all else being equal 
(see figure 9). For short-term hybrid ARMs used for refinancing, 
moving from a CLTV ratio of less than 80 percent to a CLTV ratio of 90 
percent was associated with a 7 percentage point increase in estimated 
default probability. For the other product types, the effects of 
increasing the CLTV ratio were smaller for both purchase and refinance 
loans. 

* Borrower credit score: For each product type and loan purpose, we 
estimated the default probability assuming a borrower credit score 
near the 75TH percentile for that product and purpose and compared 
this with the estimated default probability assuming a loan amount 
near the 25THpercentile for that product and purpose. For short-term 
hybrid ARMs used for home purchases, moving from the higher credit 
score to the lower one was associated with a 10 percentage point 
increase in estimated default probability, all else being equal (see 
figure 9). For the other product types (whether for home purchase or 
refinancing), the effects were smaller. 

Figure 9: Estimated Probability of Nonprime Mortgages Defaulting 
within 24 Months under Different Loan Amount, CLTV Ratio, and Credit 
Score Assumptions, 2004 through 2006 Loans: 

[Refer to PDF for image: illustrated table] 

Short-term hybrid ARMs: 

Loan amount: 
Variable Base: $125,000; 
Estimated probability of default: 14.6% (Purchase loan); 
Assumption Alternative: $300,000; 
Estimated probability of default: 20.3% (Purchase loan); 
Loan amount: 
Variable Base: $140,000; 
Estimated probability of default: 10.0% (Refinance loan); 
Assumption Alternative: $300,000; 
Estimated probability of default: 13.4% (Refinance loan); 
CLTV ratio: 
Variable Base: 80% to 90%; 
Estimated probability of default: 11.0% (Purchase loan); 
Assumption Alternative: 100% or more; 
Estimated probability of default: 20.9% (Purchase loan); 
CLTV ratio: 
Variable Base: Less than 80%; 
Estimated probability of default: 7.8% (Refinance loan); 
Assumption Alternative: 90%; 
Estimated probability of default: 15.0% (Refinance loan); 
Borrower credit score: 
Variable Base: 675; 
Estimated probability of default: 13.9% (Purchase loan); 
Assumption Alternative: 600; 
Estimated probability of default: 23.3% (Purchase loan); 
Borrower credit score: 
Variable Base: 635; 
Estimated probability of default: 10.0% (Refinance loan); 
Assumption Alternative: 550; 
Estimated probability of default: 15.0% (Refinance loan). 

Longer-term ARMs: 

Loan amount: 
Variable Base: $200,000; 
Estimated probability of default: 3.8% (Purchase loan); 
Assumption Alternative: $500,000; 
Estimated probability of default: 5.7% (Purchase loan); 
Loan amount: 
Variable Base: $200,000; 
Estimated probability of default: 3.2% (Refinance loan); 
Assumption Alternative: $500,000; 
Estimated probability of default: 4.1% (Refinance loan); 
CLTV ratio: 
Variable Base: 80% to 90%; 
Estimated probability of default: 2.0% (Purchase loan); 
Assumption Alternative: 100% or more; 
Estimated probability of default: 6.9% (Purchase loan); 
CLTV ratio: 
Variable Base: Less than 80%; 
Estimated probability of default: 2.0% (Refinance loan); 
Assumption Alternative: 90%; 
Estimated probability of default: 6.5% (Refinance loan); 
Borrower credit score: 
Variable Base: 750; 
Estimated probability of default: 3.3% (Purchase loan); 
Assumption Alternative: 6500; 
Estimated probability of default: 7.3% (Purchase loan); 
Borrower credit score: 
Variable Base: 700; 
Estimated probability of default: 3.6% (Refinance loan); 
Assumption Alternative: 600; 
Estimated probability of default: 7.1% (Refinance loan). 

Fixed-rate mortgages: 

Loan amount: 
Variable Base: $125,000; 
Estimated probability of default: 3.6% (Purchase loan); 
Assumption Alternative: $300,000; 
Estimated probability of default: 5.2% (Purchase loan); 
Loan amount: 
Variable Base: $125,000; 
Estimated probability of default: 3.5% (Refinance loan); 
Assumption Alternative: $300,000; 
Estimated probability of default: 4.8% (Refinance loan); 
CLTV ratio: 
Variable Base: 80% to 90%; 
Estimated probability of default: 2.8% (Purchase loan); 
Assumption Alternative: 100% or more; 
Estimated probability of default: 6.8% (Purchase loan); 
CLTV ratio: 
Variable Base: Less than 80%; 
Estimated probability of default: 2.8% (Refinance loan); 
Assumption Alternative: 90%; 
Estimated probability of default: 6.9% (Refinance loan); 
Borrower credit score: 
Variable Base: 750; 
Estimated probability of default: 2.4% (Purchase loan); 
Assumption Alternative: 650; 
Estimated probability of default: 6.8% (Purchase loan); 
Borrower credit score: 
Variable Base: 700; 
Estimated probability of default: 2.5% (Refinance loan); 
Assumption Alternative: 600; 
Estimated probability of default: 6.3% (Refinance loan). 

Source: GAO analysis of CoreLogic LP, HMDA, FHFA, Census, and BLS data. 

Note: For each variable presented, the figure compares the estimated 
probability of default assuming values near the 25TH and 75TH 
percentile for the respective product type and loan purpose, all else 
being equal. The results presented in this figure are for loans to 
owner-occupants. 

[End of figure] 

We also found that the difference between the loan's initial interest 
rate and the relevant interest rate index (interest rate spread) had a 
significant influence on estimated default probabilities, which is 
generally consistent with other economic research showing a positive 
relationship between higher interest rates and default probabilities 
for nonprime mortgages.[Footnote 31] Across product types and loan 
purposes, the interest rate spread had a statistically significant 
influence on estimated default probabilities. For example, for short- 
term hybrid ARMs, moving from a spread of 3.0 percent (near the 25TH 
percentile for that product) to a spread of 4.5 percent (near the 75TH 
percentile) was associated with about a 4 percentage point increase in 
default probability for purchase and refinance loans, all other things 
being equal. 

We also estimated the effect of the debt-service-to-income (DTI) ratio 
at origination and found that for all product types, this variable did 
not have a strong influence on the probability of default within 24 
months.[Footnote 32] This relatively weak association, based on the 
DTI ratio at origination, could differ from the impact of changes to 
the DTI ratio after origination due, in part, to changes in borrower 
income or indebtedness. For example, a mortgage that is affordable to 
the borrower at origination may become less so if the borrower 
experiences a decline in income or takes on additional nonmortgage 
debt.[Footnote 33] 

Level of Income Documentation Influenced Default Probabilities, and 
Associations between Income and Defaults Varied by Product Type, Loan 
Purpose, and Documentation Level: 

Loans originated with limited documentation of borrowers' income or 
assets became prevalent in the nonprime mortgage market, particularly 
in the Alt-A market segment. We found that documentation of borrower 
income and assets influenced the probability of default of nonprime 
loans originated from 2004 through 2006. For purchase and refinance 
loans of all product types, limited documentation of income and assets 
was associated with a 1 to 3 percentage point increase in the 
estimated probability of default, all other things being equal. Our 
results are generally consistent with prior research showing an 
association between a lack of documentation and higher default 
probabilities.[Footnote 34] 

Because our data indicated that borrowers with full documentation 
loans had different reported risk characteristics (e.g., credit score, 
CLTV ratio, and reported income) than borrowers with limited 
documentation loans, we more closely explored the relationship between 
documentation level and default for short-term hybrid ARMs (the most 
common nonprime product) taking these differences into account. On 
average, short-term hybrid ARM purchase loans with limited 
documentation went to borrowers with higher credit scores, higher 
reported incomes, and somewhat lower CLTV ratios, compared with 
borrowers who had full documentation loans.[Footnote 35] To account 
for these differences, we estimated default probabilities separately 
for borrowers with full and limited documentation loans, using the 
mean credit score, reported income, and CLTV ratio values specific to 
each group.[Footnote 36] Using this method, the expected default 
probability for the limited documentation group was 3 percentage 
points lower than for the full documentation group, reflecting their 
better reported risk characteristics. However, in reality, borrowers 
with limited documentation loans had a 5 percentage point higher 
default rate than borrowers with full documentation loans. The 
differences between the estimated and actual default probabilities for 
these borrowers suggest that the reported risk characteristics--
particularly income--may be misstated, or that other unobserved 
factors may be associated with the use of the limited documentation 
feature. For example, mortgage originators or borrowers may have used 
the limited documentation feature in some cases to overstate the 
financial resources of borrowers and qualify them for larger, 
potentially unaffordable loans. In addition, borrowers who used the 
feature could have experienced decreases in their income after loan 
origination, thereby making it more difficult for them to stay current 
on their payments. 

We also found that the influence of borrowers' reported income varied 
by product type and loan purpose and, in some cases, depended on 
whether the loan had full documentation. For example, for short-term 
hybrid ARMs used for home purchases and refinancing, moving from 
$60,000 to $100,000 in reported income was associated with an 1 
percentage point decrease in the estimated default probability for 
loans with full documentation, all else being equal (see figure 10). 
However, for loans with limited documentation, the same change in 
reported income was associated with a slight increase (0.2 percentage 
points) in estimated default probability for purchase loans and a 
small decrease (0.5 percentage points) for refinance loans. For fixed-
rate mortgages used for purchase and refinancing, moving from $60,000 
to $100,000 in reported income was associated with small decreases in 
estimated default probabilities for both full and limited 
documentation loans, although the decreases were slightly smaller for 
loans with limited documentation. For longer-term ARMs, moving from 
the lower to the higher income level generally did not affect the 
estimated default probabilities for purchase or refinance loans, 
regardless of the level of documentation. 

Figure 10: Estimated Probability of Nonprime Mortgages Defaulting 
within 24 Months under Different Reported Income Assumptions for 
Borrowers with and without Full Documentation, 2004 through 2006 Loans: 

[Refer to PDF for image: illustrated table] 

Short-term hybrid ARMs: Purchase loan: 
Documentation of borrower income and assets: Full; 
Income assumption (in thousands): $60; 
Estimated probability of default: 16.0%; 
Documentation of borrower income and assets: Full; 
Income assumption (in thousands): $100; 
Estimated probability of default: 15.0%; 
Documentation of borrower income and assets: Limited; 
Income assumption (in thousands): $60; 
Estimated probability of default: 20.6%; 
Documentation of borrower income and assets: Limited; 
Income assumption (in thousands): $100; 
Estimated probability of default: 20.8%. 

Short-term hybrid ARMs: Refinance loan: 
Documentation of borrower income and assets: Full; 
Income assumption (in thousands): $60; 
Estimated probability of default: 11.3%; 
Documentation of borrower income and assets: Full; 
Income assumption (in thousands): $100; 
Estimated probability of default: 10.0%. 
Documentation of borrower income and assets: Limited; 
Income assumption (in thousands): $60; 
Estimated probability of default: 14.7%; 
Documentation of borrower income and assets: Limited; 
Income assumption (in thousands): $100; 
Estimated probability of default: 14.2%. 

Longer-term ARMs: Purchase loan: 
Documentation of borrower income and assets: Full; 
Income assumption (in thousands): $60; 
Estimated probability of default: 3.1%; 
Documentation of borrower income and assets: Full; 
Income assumption (in thousands): $100; 
Estimated probability of default: 3.0%; 
Documentation of borrower income and assets: Limited; 
Income assumption (in thousands): $60; 
Estimated probability of default: 5.8%; 
Documentation of borrower income and assets: Limited; 
Income assumption (in thousands): $100; 
Estimated probability of default: 5.9%. 

Longer-term ARMs: Refinance loan: 
Documentation of borrower income and assets: Full; 
Income assumption (in thousands): $60; 
Estimated probability of default: 2.4%; 
Documentation of borrower income and assets: Full; 
Income assumption (in thousands): $100; 
Estimated probability of default: 2.4%; 
Documentation of borrower income and assets: Limited; 
Income assumption (in thousands): $60; 
Estimated probability of default: 4.8%; 
Documentation of borrower income and assets: Limited; 
Income assumption (in thousands): $100; 
Estimated probability of default: 4.9%. 

Fixed-rate mortgages: Purchase loan: 
Documentation of borrower income and assets: Full; 
Income assumption (in thousands): $60; 
Estimated probability of default: 3.6%; 
Documentation of borrower income and assets: Full; 
Income assumption (in thousands): $100; 
Estimated probability of default: 3.3%; 
Documentation of borrower income and assets: Limited; 
Income assumption (in thousands): $60; 
Estimated probability of default: 6.2%; 
Documentation of borrower income and assets: Limited; 
Income assumption (in thousands): $100; 
Estimated probability of default: 6.0%. 

Fixed-rate mortgages: Refinance loan: 
Documentation of borrower income and assets: Full; 
Income assumption (in thousands): $60; 
Estimated probability of default: 3.8% 
Documentation of borrower income and assets: Full; 
Income assumption (in thousands): $100; 
Estimated probability of default: 3.3%; 
Documentation of borrower income and assets: Limited; 
Income assumption (in thousands): $60; 
Estimated probability of default: 5.9%; 
Documentation of borrower income and assets: Limited; 
Income assumption (in thousands): $100; 
Estimated probability of default: 5.8%. 

Source: GAO analysis of CoreLogic LP, HMDA, FHFA, Census, and BLS data. 

Note: This figure compares the estimated probability of default 
assuming different levels of reported income, with all other variables 
for each product type and loan purpose being equal. The results 
presented in this figure are for owner-occupants. 

[End of figure] 

Associations between Race and Ethnicity and the Likelihood of Default 
Varied by Product Type and Loan Purpose, but Other Unobserved 
Variables May Help to Explain these Associations: 

Some researchers and market observers have noted that the foreclosure 
crisis has hit minority borrowers particularly hard. We found that, 
for certain product types and loan purposes, reported race and 
ethnicity were associated with the probability of default for nonprime 
mortgages. Not controlling for other variables, black or African-
American borrowers had higher 24-month default rates across product 
types than white borrowers, especially for purchase loans.[Footnote 
37] For example, for short-term hybrid ARMs, black or African-American 
borrowers had about a 12 percentage point higher default rate than 
white borrowers for purchase loans and about a 2 percentage point 
higher default rate for refinance loans (see figure 11). Additionally, 
Hispanic or Latino borrowers (of all races) generally had higher 
default rates than (non-Hispanic) white borrowers. For example, 
Hispanic or Latino borrowers had about an 8 percentage point higher 
default rate than white borrowers for short-term hybrid ARM purchase 
loans and about a 2 percentage point higher default rate for refinance 
loans. For fixed-rate refinance loans, however, Hispanic borrowers had 
essentially the same default rate as white borrowers. 

Figure 11: Default Rates for Nonprime Mortgages 24 Months after First 
Payment, by Race and Ethnicity, Not Controlling for Other Variables, 
2004 through 2006 Loans: 

[Refer to PDF for image: illustrated table] 

Short-term hybrid ARMs: 
Default rate, by race and ethnicity: White; Purchase loan: 17.6%; 
Default rate, by race and ethnicity: White; Refinance loan: 14.9%; 
Default rate, by race and ethnicity: Black or African-American; 
Purchase loan: 31.0%; 
Default rate, by race and ethnicity: Black or African-American; 
Refinance loan: 16.6%; 
Default rate, by race and ethnicity: Hispanic or Latino; Purchase 
loan: 25.5%; 
Default rate, by race and ethnicity: Hispanic or Latino; Refinance 
loan: 17.2%. 

Longer-term ARMs: 
Default rate, by race and ethnicity: White; Purchase loan: 6.7%; 
Default rate, by race and ethnicity: White; Refinance loan: 7.3%; 
Default rate, by race and ethnicity: Black or African-American; 
Purchase loan: 16.8%; 
Default rate, by race and ethnicity: Black or African-American; 
Refinance loan: 11.7%; 
Default rate, by race and ethnicity: Hispanic or Latino; Purchase 
loan: 23.7%; 
Default rate, by race and ethnicity: Hispanic or Latino; Refinance 
loan: 15.6%. 

Fixed-rate mortgages: 
Default rate, by race and ethnicity: White; Purchase loan: 6.4%; 
Default rate, by race and ethnicity: White; Refinance loan: 7.0%; 
Default rate, by race and ethnicity: Black or African-American; 
Purchase loan: 19.6%; 
Default rate, by race and ethnicity: Black or African-American; 
Refinance loan: 9.6%; 
Default rate, by race and ethnicity: Hispanic or Latino; Purchase 
loan: 12.8%; 
Default rate, by race and ethnicity: Hispanic or Latino; Refinance 
loan: 7.1%. 

Source: GAO analysis of CoreLogic LP and HMDA data. 

Note: The White category excludes people who identified their 
ethnicity as Hispanic or Latino. The Black or African-American 
category includes people of all ethnicities. The Hispanic or Latino 
category includes people of all races. The results presented in this 
figure are for owner-occupants. 

[End of figure] 

Various factors may help to explain some of the observed differences 
in the default rates between racial and ethnic groups. Across product 
types, black or African-American borrowers had lower average credit 
scores and reported incomes than white and Hispanic or Latino 
borrowers. Also, black or African-American borrowers generally were 
more likely than white borrowers to have CLTV ratios of 90 percent or 
more. For short-term hybrid ARMs and longer-term ARMs, black or 
African-American and Hispanic or Latino borrowers were less likely to 
have loans that originated in 2004, when house price appreciation was 
still strong in many parts of the country. In addition, Hispanic or 
Latino borrowers had a higher incidence of limited documentation loans 
and were concentrated in California, where house price declines in a 
number of areas were particularly severe. 

Controlling for these variations, we found that the differences in 
estimated default probabilities by racial and ethnic group were still 
significant but considerably smaller than the actual observed 
differences (i.e., the differences without the statistical controls in 
place). Taking short-term hybrid ARMs used for home purchases as an 
example, when we estimated default probabilities by racial and ethnic 
group holding the other variables in our model to the mean values for 
each group, we found that the estimated default probability for black 
or African-American borrowers was about 7 percentage points higher 
than for white borrowers, compared with the observed 12 percentage 
point difference that we have previously discussed (see figure 12). 
[Footnote 38] Using the same assumptions, the corresponding 
default probability for Hispanic or Latino borrowers was about 4 
percentage points higher than for white borrowers. For short-term 
hybrid ARMs used for refinancing, black or African-American borrowers 
had only about a 1 percentage point higher estimated default 
probability than white borrowers, while Hispanic or Latino borrowers 
had about the same estimated default probability as white borrowers. 

Figure 12: Estimated Probability of Nonprime Mortgages Defaulting 
within 24 Months, by Borrower Race and Ethnicity, 2004 through 2006 
Loans: 

[Refer to PDF for image: illustrated table] 

Short-term hybrid ARMs: 
Estimated probability of default, by borrower race and ethnicity: 
White; Purchase loan: 15.5%; 
Estimated probability of default, by borrower race and ethnicity: 
White; Refinance loan: 11.7%; 
Estimated probability of default, by borrower race and ethnicity: 
Black or African-American; Purchase loan: 22.6; 
Estimated probability of default, by borrower race and ethnicity: 
Black or African-American; Refinance loan: 12.8%; 
Estimated probability of default, by borrower race and ethnicity: 
Hispanic or Latino; Purchase loan: 19.7%; 
Estimated probability of default, by borrower race and ethnicity: 
Hispanic or Latino; Refinance loan: 11.9%. 

Longer-term ARMs: 
Estimated probability of default, by borrower race and ethnicity: 
White; Purchase loan: 3.1%; 
Estimated probability of default, by borrower race and ethnicity: 
White; Refinance loan: 3.0%; 
Estimated probability of default, by borrower race and ethnicity: 
Black or African-American; Purchase loan: 7.3%; 
Estimated probability of default, by borrower race and ethnicity: 
Black or African-American; Refinance loan: 5.9%; 
Estimated probability of default, by borrower race and ethnicity: 
Hispanic or Latino; Purchase loan: 11.8%; 
Estimated probability of default, by borrower race and ethnicity: 
Hispanic or Latino; Refinance loan: 6.3%. 

Fixed-rate mortgages: 
Estimated probability of default, by borrower race and ethnicity: 
White; Purchase loan: 3.6%; 
Estimated probability of default, by borrower race and ethnicity: 
White; Refinance loan: 4.0%; 
Estimated probability of default, by borrower race and ethnicity: 
Black or African-American; Purchase loan: 10.0%; 
Estimated probability of default, by borrower race and ethnicity: 
Black or African-American; Refinance loan: 6.4%; 
Estimated probability of default, by borrower race and ethnicity: 
Hispanic or Latino; Purchase loan: 6.7%; 
Estimated probability of default, by borrower race and ethnicity: 
Hispanic or Latino; Refinance loan: 3.7%. 

Source: GAO analysis of CoreLogic LP and HMDA data. 

Note: The White category excludes people who identified their 
ethnicity as Hispanic or Latino. The Black or African-American 
category includes people of all ethnicities. The Hispanic or Latino 
category includes people of all races. The results presented in this 
figure are for owner-occupants. We estimated the default probability 
for each group of borrowers setting all variables to their mean values 
for the respective group. 

[End of figure] 

Inferences drawn from these statistical results should be viewed with 
caution because we lack data for variables that may help to explain 
the remaining differences in estimated default probabilities between 
borrowers of different racial and ethnic groups. Unobserved factors 
that may influence the likelihood of default may also be associated 
with race and ethnicity. For example: 

* First-time homebuyer: We could not determine which nonprime 
borrowers were first-time homebuyers, but other evidence suggests that 
members of minority groups are disproportionately first-time 
homebuyers.[Footnote 39] To the extent that black or African-American 
and Hispanic or Latino borrowers with purchase loans were 
disproportionately first-time homebuyers, their higher estimated 
default probabilities may partly reflect limited experience with the 
risks and costs of homeownership. As shown in figure 12, we found that 
the differences in estimated default rates between racial and ethnic 
groups were much smaller for nonprime refinance loans--which, by 
definition, exclude first-time homebuyers--than they were for purchase 
loans. 

* Employment status: We did not have data on the employment status of 
nonprime borrowers, but unemployment rates are generally higher for 
black or African-American and Hispanic or Latino workers than for 
white workers.[Footnote 40] The higher estimated default probabilities 
that we found for black or African-American and Hispanic or Latino 
borrowers may reflect that nonprime borrowers from minority groups 
were disproportionately affected by unemployment in recent years. 

* Wealth: Although we obtained data on reported income by matching 
CoreLogic LP and HMDA records, we did not have information on nonprime 
borrowers' savings or other assets, which may affect their ability to 
keep up with their mortgage payments if faced with job loss or other 
unexpected changes in income or expenses. However, according to the 
Survey of Consumer Finances, nonwhite and Hispanic families generally 
are less likely to save or hold financial assets than non-Hispanic 
white families.[Footnote 41] Furthermore, the median value of assets 
for nonwhite and Hispanic families having financial assets is 
dramatically less than for non-Hispanic white families.[Footnote 42] 

* Origination channel or lender steering to higher-cost or riskier 
loans: We did not have data on whether the nonprime loans were 
originated by mortgage brokers (intermediaries between borrowers and 
lenders) or directly by a lender's retail branch, or how the loans 
were marketed to the borrowers. Some evidence suggests that broker- 
originated loans were associated with higher default rates and that, 
at least in some markets, minority families were more likely to access 
the mortgage market through brokers rather than through retail 
lenders.[Footnote 43] In addition, some researchers and market 
observers have raised concerns that some nonprime loan originators 
used questionable marketing tactics in lower-income and minority 
neighborhoods.[Footnote 44] Such practices may have led borrowers to 
take out higher-cost or riskier loans than necessary, which may have 
increased their probability of default. 

Available Nonprime Mortgage Data Sources Provide Useful Information 
but Have Constraints That May Be Addressed, in Part, by Ongoing 
Efforts: 

Several Private and Public Sector Data Sources Cover Nonprime Loans: 

Mortgage market participants, financial regulators, investors, and 
public policy analysts use mortgage data for a variety of purposes. 
Some of the broad uses of such data include monitoring and modeling 
the performance of mortgages and mortgage-backed securities, assessing 
the soundness of financial institutions with mortgage-related 
holdings, and examining fair lending and consumer protection issues. 
For example, in a 2009 report, we used loan-level mortgage data to 
assess the implications of proposed mortgage reform legislation on 
consumer protections and on the availability of mortgage credit. 
[Footnote 45] Existing sources of data on nonprime mortgages contain a 
range of information to support these different uses. Loan-level data 
with broad national coverage of the nonprime market segment are 
available from several sources: four mortgage databases (three 
maintained by private firms and one by the federal government) and two 
major credit reporting agencies.[Footnote 46] For comparison, we also 
reviewed information on a HUD database of FHA-insured mortgages, 
because the borrower populations served by FHA and the nonprime market 
earlier in the decade had some similarities (e.g., relatively low 
credit scores) and the database is rich in detail. 

* CoreLogic LP Asset-Backed Securities (ABS) Database: A private 
sector database of nonprime loans that contains information on 
nonagency securitized mortgages in subprime and Alt-A pools.[Footnote 
47] The data are supplied by a number of different parties, including 
loan servicers; broker-dealers; and security issuers, trustees, and 
administrators. 

* CoreLogic LP Loan Level Servicing (LLS) database: A private sector 
database of prime, nonprime, and government-guaranteed mortgages that 
contains data supplied by participating loan servicers.[Footnote 48] 
The mortgages include loans in agency and nonagency securitizations 
and loans held in lenders' portfolios.[Footnote 49] 

* Lender Processing Services (LPS) Loan Level Data: Similar to the LLS 
database, this private sector database contains data supplied by 
participating loan servicers on prime, nonprime, and government- 
guaranteed mortgages, including loans in agency and nonagency 
securitization and loans held in lenders' portfolios. 

* Consumer credit file data: Two national credit reporting agencies-- 
both private firms--provide anonymous data from consumer credit files 
that include information on prime, nonprime, and government-guaranteed 
mortgages. 

* FFIEC HMDA data: A federal government database that contains 
information reported by lenders on about 80 percent of all mortgages 
funded each year, including nonprime loans. 

* HUD Single Family Data Warehouse (SFDW): A federal government 
database with information on mortgages insured by FHA.[Footnote 50] 

Among the data sources that include nonprime mortgages, the private 
databases and extracts of credit file data can be licensed or 
purchased for a fee. Recent HMDA data can be acquired at no charge. 
Some of these data may be subject to use restrictions determined by 
the provider. The private companies and credit reporting agencies 
update data on a daily or monthly basis and provide the updated data 
to users within 1 month or upon request. HMDA data are updated 
annually with a lag of 9 months.[Footnote 51] 

While these data sources currently offer some similar data elements, 
the sources vary in their coverage of loan, property, and borrower 
attributes.[Footnote 52] In part, this variation reflects the 
different primary purposes of the data sets. For example, the HMDA 
database is intended to provide the public with loan data that can 
assist in identifying potential risks for discriminatory patterns to 
help enforce antidiscrimination laws and evaluate bank community 
reinvestment initiatives. Accordingly, the HMDA data provide 
relatively detailed information about mortgage borrowers but no 
information about the performance of the loans. By contrast, the 
CoreLogic LP and LPS databases offer performance data to support the 
benchmarking and analysis of loans or mortgage-backed securities. 
Figure 13 presents some of the available data elements, with a focus 
on data that may assist in evaluating the probability of mortgage 
default and differences in mortgage outcomes across demographic 
groups.[Footnote 53] All of the nonprime data sources report on loan 
amount. The sources vary in their coverage of other loan attributes, 
such as mortgage type and performance status. All of the nonprime data 
sources report the property location at the ZIP code or Census-tract 
level, while coverage of other property attributes, such as property 
type and appraised value, varies. In the category of borrower 
attributes, all but one of the nonprime data sources provide borrower 
credit score at loan origination and owner-occupancy status. Among the 
nonprime data sources, only the HMDA data and credit reporting agency 
data provide additional demographic information on borrowers. 

Figure 13: Examples of Available Data in Selected Mortgage Data 
Sources: 

[Refer to PDF for image: illustrated table] 

Loan attribute: Loan amount; 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Check]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Check]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Check]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): [Check]; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Check]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Loan attribute: Loan start date[B]; 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Check]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Check]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Check]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): [Check]; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Check]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Loan attribute: Loan purpose (i.e., purchase or refinance); 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Check]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Check]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Check]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): [Empty]; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Check]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Loan attribute: Loan status (e.g., delinquent, in foreclosure); 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Check]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Check]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Check]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): [Check]; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Empty]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Loan attribute: Outstanding loan balance; 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Check]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Check]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Check]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): [Check]; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Empty]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Loan attribute: Initial interest rate; 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Check]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Check]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Check]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): [Empty]; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Empty]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Loan attribute: Loan-to-value ratio at loan origination; 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Check]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Check]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Check]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): [Empty]; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Empty]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Loan attribute: Product type (e.g., fixed or adjustable rate); 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Check]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Check]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Check]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): [Empty]; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Empty]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Loan attribute: Debt service-to-income ratio; 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Check]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Check]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Empty]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): [Empty]; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Empty]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Property attribute: Lowest level geographic indicator; 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): Zip code; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): Zip code; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): Zip code; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): Zip code; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): Census tract; 
HUD: SFDW (FHA-insured mortgages): Zip code. 

Property attribute: Property type (e.g., single unit, multiunit); 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Check]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Check]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Check]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): [Empty]; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Check]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Property attribute: Appraised value at origination or sale price; 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Check]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Check]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Check]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): [Empty]; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Empty]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Borrower attribute: Credit score at loan origination; 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Check]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Check]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Check]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): [Check]; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Empty]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Borrower attribute: Investor or owner-occupant; 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Check]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Check]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Check]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): [Empty]; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Check]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Borrower attribute: Age or date of birth; 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Empty]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Empty]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Empty]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): [Check]; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Empty]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Borrower attribute: Race and ethnicity; 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Empty]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Empty]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Empty]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): [Empty]; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Check]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Borrower attribute: Reported income; 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Empty]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Empty]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Empty]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): Estimates of income are 
available; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Check]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Borrower attribute: Sex; 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Empty]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Empty]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Empty]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): [Empty]; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Check]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Borrower attribute: First-time homebuyer; 
CoreLogic LP: ABS (Nonagency securitized mortgages in subprime and Alt-
A pools): [Empty]; 
LLS (Prime, nonprime, and government-guaranteed mortgages serviced by 
CoreLogic LP: participating servicers): [Empty]; 
LPS: Loan Level Data (Prime, nonprime, and government-guaranteed 
mortgages serviced by participating servicers): [Empty]; 
Equifax and Experian[A]: Credit file information (Prime, nonprime, and 
government-guaranteed mortgages as reported to credit reporting 
agencies by lenders and loan servicers): May be imputed from 
borrower's credit account history; 
FFEIC: HMDA (Prime, nonprime, and government-guaranteed mortgages 
originated by lenders required to report): [Empty]; 
HUD: SFDW (FHA-insured mortgages): [Check]. 

Source: GAO analysis of information provided by CoreLogic LP, LPS, 
Experian, Equifax, FFIEC, and HUD. 

[A] For all data elements, an "X" indicates that both credit reporting 
agencies provide the information, and a blank cell indicates that 
neither agency provides the information. Analysts may be able to 
calculate values for some data elements without an "X," such as LTV 
and DTI ratios, depending on the availability of supplemental or 
estimated information. 

[B] Loan start date represents either the loan origination date or, 
for the credit reporting agencies, the date that the credit account 
was opened. The specificity of the loan start date varies by data 
source. The publicly available HMDA data provide the year only, and 
the credit reporting agencies and one other source provide at least 
the month and year. The remaining two nonprime data sources provide 
the day, month, and year; but for some loans, the origination date is 
imputed from the date of the first loan payment. 

[End of figure] 

Several other sources of mortgage data provide useful information 
about the mortgage market, including nonprime loans, but do not 
provide loan-level detail or, in some cases, lack broad national data 
coverage. For example, the Mortgage Bankers Association's National 
Delinquency Survey provides quarterly summary statistics on the 
performance of the overall mortgage market and different market 
segments, including subprime loans. RealtyTrac offers data on the 
number of properties in some stage of the foreclosure process but not 
data on all active loans. Additionally, federal banking regulators and 
the government-sponsored enterprises produce free or comparatively low-
cost data that are typically aggregated and only cover mortgages 
within their regulatory jurisdiction. 

Limitations in Data Sources Constrain Analysis of Some Aspects of 
Nonprime Mortgages: 

Although the selected data sources that include nonprime mortgages 
contain important loan, property, and borrower characteristics, the 
sources have a number of constraints. First, the data sources 
generally lack information on certain attributes that could help 
inform policy decisions or regulatory efforts to mitigate risk, 
including the following: 

* Loan attributes: Although three of the five nonprime data sources 
provide information on the initial interest rates of the mortgages 
(and, in some cases, how those interest rates can change over the life 
of the loan), they do not provide information on other mortgage costs, 
such as points and fees paid at loan closing.[Footnote 54] For 
example, one study that found no evidence of adverse pricing of 
subprime loans by race, ethnicity, or gender noted that an important 
caveat to the analysis was the lack of data on points and fees. 
[Footnote 55] Consequently, data users have limited ability to 
evaluate the influence of loan costs on default probabilities or to 
examine fair lending concerns regarding loan pricing. In addition, 
while the CoreLogic LP LLS and LPS Loan Level Data databases indicate 
whether a mortgage was originated by a broker or directly by a 
lender's retail branch, the other data sources do not. As we have 
previously noted, some research has suggested associations between 
origination channel and mortgage performance. 

* Borrower attributes: A number of borrower characteristics that may 
be associated with default risk generally does not appear in the 
nonprime data sources we reviewed. For example, first-time homebuyers 
are not directly identified in any of the nonprime data sources, 
limiting the ability of analysts to compare the marginal effect of 
prior homeownership experience on default probabilities. (By 
comparison, SFDW identifies first-time homebuyers with FHA-insured 
mortgages and contains data on loan performance.) In addition, none of 
the nonprime data sources contain information on borrower wealth 
(savings and other assets), a factor that could affect a borrower's 
ability to continue making mortgage payments in times of economic 
stress. With the exception of the credit reporting agencies, the data 
sources also do not always directly provide information on the amount 
of borrowers' other mortgage debt (second liens), which may constrain 
accurate assessment of the relationship between home equity and 
default.[Footnote 56] Similarly, data on nonmortgage credit 
obligations are unavailable, except from the credit reporting 
agencies, which may limit researchers' understanding of how borrowers' 
total debt burden affects the mortgages they obtain and their ability 
to meet mortgage obligations. Also, the data sources lack information 
on borrower life events that may influence the probability of mortgage 
default, such as job loss or divorce. 

A second type of constraint is that analysts may not be able to 
generalize their results to the entire nonprime market because certain 
data sources do not cover all segments of the market and some mortgage 
originators, securitizers, or servicers do not contribute information. 
For example, the CoreLogic LP ABS database contains information on a 
large majority of nonprime mortgages that were securitized but not 
those that lenders hold in their portfolios. As we have previously 
noted, researchers have found that nonprime mortgages that were not 
securitized may have less risky characteristics than those that were 
securitized. Private sector databases that contain information on both 
securitized and nonsecuritized mortgages (CoreLogic LP LLS and LPS 
Loan Level Data) cover the majority of the market but do not provide 
complete market coverage because not all servicers contribute 
information to the databases. Similarly, because mortgage originators 
located outside of metropolitan areas are not required to report their 
loan information, the HMDA data do not capture many mortgages made in 
rural areas. By contrast, the credit reporting agencies have broader 
market coverage but lack data on key mortgage attributes, such as loan 
type and purpose. 

The third constraint we identified is that the existing nonprime data 
sources cannot readily be combined to create a single database with a 
more comprehensive set of variables. Merging data sources enables 
researchers to more thoroughly analyze lending patterns and factors 
influencing loan performance. However, due to competition and privacy 
concerns, the selected data sources either elect not to provide or are 
restricted from providing certain key fields that could be used to 
merge databases, such as the property address. For example, to match 
loan records in the CoreLogic LP ABS database and HMDA data, we relied 
in part on loan origination date fields that are not publicly released 
due to privacy concerns.[Footnote 57] Even with the origination date 
fields, we could not match all of the CoreLogic LP records to HMDA 
records. 

Finally, a user of existing data sources may have the ability to track 
some specific loans over time but may not easily track a specific 
borrower or property. Tracking a specific borrower or property over 
time would provide insights into mortgage outcomes throughout a 
homeownership experience, even if a borrower refinances into a new 
mortgage.[Footnote 58] 

Ongoing Federal Efforts May Address Some Constraints in Mortgage Data 
Sources: 

Ongoing federal efforts could provide data on the entire mortgage 
market that potentially would not have some of the constraints that we 
identified in the existing sources of mortgage data. First, officials 
from the Board of Governors of the Federal Reserve System (Federal 
Reserve Board) and Freddie Mac are collaborating on a pilot project to 
develop a publicly available National Mortgage Database (NMDB). The 
officials are exploring the feasibility of developing a federally 
funded, loan-level, and representative database of first-lien 
mortgages designed to address mortgage-related policy, finance, and 
business concerns. NMDB would compile data on a representative sample 
of outstanding mortgages from a national credit reporting agency, 
supplement those data by matching records to existing mortgage 
databases (such as the HMDA data), and obtain data unavailable in any 
existing databases through a survey of borrowers. Since NMDB would 
include data from a variety of sources, it would provide more 
comprehensive data on the first-lien mortgage market than are 
currently available. If implemented, the combined database would 
contain loan-level information on (1) mortgage terms; (2) mortgage 
performance from origination to termination; (3) borrowers' other 
credit circumstances over the life of the loan; (4) borrower 
demographics; and (5) other borrower attributes, such as key life 
events and shopping behavior. 

Second, the Dodd-Frank Wall Street Reform and Consumer Protection Act 
provides for additional compilation of HMDA data, such as borrower age 
and credit score, loan origination channel, and--as the Bureau of 
Consumer Financial Protection deems appropriate--a unique identifier 
for the loan originator and a universal loan identifier.[Footnote 59] 
Additionally, the act includes the creation of a publicly available 
Default and Foreclosure database that would include Census tract-level 
information on the number and percentage of mortgages delinquent for 
more than 30 and 90 days, real-estate-owned properties, mortgages in 
the foreclosure process, mortgages with negative equity, and other 
information. If implemented, the universal loan identifier could 
facilitate matching among mortgage databases, and the HMDA data would 
become more comprehensive. 

Observations: 

The growth of the nonprime market earlier in this decade was 
accompanied by a shift toward increasingly risky mortgage products. 
Nonprime loans provided homeownership and refinancing opportunities 
that may have benefited many households. However, many nonprime loans 
had features or were underwritten to standards that made them 
vulnerable to default and foreclosure, particularly in recent years 
when house prices began to stagnate and decline and economic 
conditions eroded more broadly. As a result, millions of nonprime 
borrowers have lost their homes or are in danger of doing so. These 
issues have particular salience for minority borrowers, who have 
experienced particularly high default rates. 

The persistently weak performance of nonprime mortgages suggests that 
loan performance problems in the nonprime market will not be resolved 
quickly, and underscores the importance of federal efforts to assist 
distressed borrowers and prevent a recurrence of the aggressive 
lending practices that helped precipitate the foreclosure crisis. As 
lawmakers seek to reform mortgage lending practices, they will need to 
consider how their efforts may affect consumer protections, the 
availability of mortgage credit, and progress toward the goal of 
sustainable homeownership. 

Data on the performance of nonprime loans and on the borrowing and 
lending practices associated with them can help analysts and 
policymakers assess the potential effects of proposed reforms and 
evaluate the results of their implementation. Although extensive data 
are available on nonprime loans, no one data source is comprehensive. 
Existing data sources can be combined with effort, but even then 
certain data that could inform understanding of the nonprime market-- 
such as total mortgage costs and first-time homebuyer status--are not 
readily available. Having access to a more comprehensive set of data 
might have enhanced the ability of researchers, regulators, and 
investors to monitor lending practices, evaluate mortgage performance, 
and assess the mortgage outcomes for different groups of borrowers. 
Ongoing federal efforts, including the NMDB pilot project, may improve 
the quality and availability of mortgage market data going forward. 

As agreed with your offices, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
from the report date. At that time, we will send copies of this report 
to the appropriate congressional committees and other interested 
parties. In addition, the report will be made available at no charge 
on GAO's Web site at [hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact me at (202) 512-8678 or shearw@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. Key contributors to this report are 
listed in appendix III. 

Signed by: 

William B. Shear: 
Director, Financial Markets and Community Investment: 

[End of section] 

Appendix I: Description of the Econometric Analysis of Nonprime 
Mortgage Default Probabilities: 

This appendix describes the econometric model we developed to examine 
the relationship between variables representing loan attributes, 
borrower characteristics, and economic conditions and the probability 
of a nonprime loan entering default within 24 months after the first 
loan payment. Certain loan attributes and borrower characteristics 
have been associated with a higher risk of mortgage default. For 
example, lower down payments, lower borrower credit scores, and 
limited documentation of borrowers' income and assets have been cited 
as increasing the risk of default. Economic conditions, such as house 
price changes, have also been associated with default risk. 

Since minority borrowers have accounted for a larger share of the 
nonprime mortgage market than the mortgage market as a whole, 
associations between race and ethnicity and nonprime mortgage 
performance also are of interest. However, data limitations have 
complicated efforts to analyze the demographic characteristics of 
nonprime borrowers, such as race, ethnicity, and income. Existing data 
sets either provide detailed information about nonprime loans but 
limited information about the borrowers (e.g., CoreLogic 
LoanPerformance (CoreLogic LP) data) or provide more extensive 
information about borrowers but not about loan performance over time 
(e.g., Home Mortgage Disclosure Act (HMDA) data). To include 
information on the demographic characteristics of nonprime borrowers 
in our model, we matched records in the CoreLogic LP data to HMDA 
records. For securitized first-lien nonprime loans originated from 
2004 through 2006, we achieved a match rate of approximately 73 
percent, representing about 6.9 million records. (Appendix II contains 
a more detailed discussion of our methodology.) 

Of all the CoreLogic LP records that we matched to HMDA records, we 
used those for which the associated property was located in an area 
covered by the Federal Housing Finance Agency's (FHFA) house price 
indexes (HPI) for metropolitan areas, approximately 92 percent of 
loans.[Footnote 60] Based on each associated property's state and 
Census tract, we also incorporated employment data from the Bureau of 
Labor Statistics (BLS) and data from the 2000 Census to control for 
various economic conditions and neighborhood characteristics. For each 
loan, we determined the performance status 24 months after the month 
of the first payment. We defined a loan as being in default if it was 
delinquent by at least 90 days, in the foreclosure process (including 
loans identified as in real-estate-owned status), paid off after being 
90-days delinquent or in foreclosure, or already terminated with 
evidence of a loss. 

We separately analyzed the three most prevalent types of nonprime 
loans: short-term hybrid adjustable-rate mortgages (ARM) (ARMs with 
initial 2-or 3-year fixed-rate periods followed by frequent interest 
rate adjustments); fixed-rate mortgages; and other longer-term ARMs 
(ARMs with initial 5-, 7-, or 10-year fixed-rate periods). For each 
product type, we estimated default probabilities for purchase money 
loans separately from loans for refinance, and for each product type 
and loan purpose, we examined separately loans made to owner-occupants 
and investors. Our primary reason for examining performance by product 
type, loan purpose, and occupancy status is that borrower incentives 
and motivations may vary for loans with different characteristics and 
purposes. For example, because of their early, frequent, and upward 
interest rate adjustments, short-term hybrid ARMs provide a stronger 
incentive for a borrower to exit earlier from a mortgage as compared 
with fixed-rate mortgages or longer-term ARMs. Also, an investor may 
not react the same way as an owner-occupant may react when facing 
similar economic circumstances. 

We estimated separate default models for each mortgage product type, 
although the general underlying structure of the models was similar. 
We used a logistic regression model to explain the probability of loan 
default, based on the observed pattern of actual defaults and the 
values of variables representing loan attributes, borrower 
characteristics, and economic conditions (see table 1). Some variables 
describe conditions at the time of mortgage origination, such as the 
loan-to-value (LTV) ratio, the borrower's credit score, and the 
borrower's reported income. Other factors influencing loan performance 
vary over time in ways that can be observed, or at least approximated. 
For example, greater house price appreciation (HPA) contributes to 
greater housing equity, thus reducing the probability that a borrower, 
if facing financial distress, views defaulting on a loan as a better 
option than prepaying. More generally, greater house price 
appreciation creates equity that may induce a borrower to prepay, 
which eliminates any default risk that would remain if the loan were 
active. Some potentially significant determinants of mortgage default, 
such as job loss or illness, are not available for inclusion in our 
model. In addition, we lack data on certain factors--such as borrower 
wealth and first-time homebuyer status--that could be especially 
relevant to explaining actual loan performance. 

Table 1: Variables Used in the Logistic Regression Models: 

Variable: Mortgage default (dependent variable); 
Variable description: One if the mortgage was in default by 24 months 
after the month of first payment, 0 otherwise. We defined a loan as in 
default if it was delinquent by at least 90 days, in the foreclosure 
process (including loans identified as in real-estate-owned status), 
paid off after being 90-days delinquent or in foreclosure, or with 
evidence of a loss. 

Variable: Loan origination period indicator; 
Variable description: A series of 0-1 categorical variables indicating 
whether the loan originated in the first or second half of 2004, 2005, 
or 2006. The omitted category was early 2005. 

Variable: Loan amount; 
Variable description: Defined as a continuous variable representing 
the original loan amount. 

Variable: House price appreciation; 
Variable description: Defined using FHFA's metropolitan house price 
indexes and split into time periods measuring (1) appreciation during 
the 1[ST] year of the loan and (2) the difference in appreciation 
between the 1st and 2nd years of the loan. We assigned each loan to a 
metropolitan area using the property ZIP code information in the 
CoreLogic LP database and data that relate ZIP codes to Core-based 
Statistical Areas. 

Variable: Combined loan-to-value (CLTV) ratio; 
Variable description: This represents the amount of the mortgage and 
any known associated second lien, divided by the house value. Because 
the CoreLogic LP data do not capture all second liens, the reported 
CLTV ratios are likely understated for some loans. This complicates 
interpretation of CLTV in continuous form, since many loans with a 
value of exactly 80 may have "true" CLTV values of 90 or 100. 
Therefore, we defined a series of 0-1 categorical variables indicating 
the specific CLTV value or range, as follows: less than 80, equal to 
80, more than 80 and less than 90, equal to 90, more than 90 and less 
than 100, and greater than or equal to 100. The omitted category was 
"equal to 80." 

Variable: Debt-service-to-income (DTI) ratio; 
Variable description: This represents the borrower's total monthly 
debt service payments, divided by monthly gross income. Since this 
information is not available for many loans, we constructed a set of 0-
1 categorical variables indicating the DTI range, as follows: less 
than 35 percent, 35 to 41 percent, greater than 41 percent, and 
missing. The omitted category was "35 to 41 percent." 

Variable: FICO score; 
Variable description: FICO score (at loan origination) represents a 
measure of the borrower's credit history. Defined as a single 
continuous variable for fixed-rate mortgages and as a set of 
continuous variables split into low, middle, and high ranges for the 
two types of adjustable-rate mortgages. Specifically, for short-term 
hybrid ARMs, the low FICO range was either 600 or the FICO score 
itself if the FICO score was below 600; the middle range varied 
between 0 and 60, with a minimum of 0 if the FICO score was 600 or 
less, a maximum of 60 if the FICO score was above 660, and between 0 
and 60 if the FICO score was between 600 and 660; and the high range 
was 0 for FICO scores of 660 or less and the difference between the 
FICO score and 660 for FICO scores above 660. Because Alt-A borrowers 
generally had higher credit scores, the range boundaries for longer- 
term ARMs were 680 and 740, rather than 600 and 660. 

Variable: High cost spread; 
Variable description: This variable incorporates information about the 
loan's high cost status as reported in the HMDA data. For fixed-rate 
and longer-term adjustable rate mortgages, we defined this to be a 0-1 
variable in which the value of 1 indicates whether the loan's annual 
percentage rate as calculated by the loan's originator exceeded a 
benchmark rate by at least 3 percentage points, and 0 otherwise. For 
short-term hybrid ARMs, we defined a series of 0-1 categorical 
variables based on the magnitude of this reported spread. The 
categories are as follows: missing (an indication that the spread is 
presumed to be less than 3 percent); the spread is greater than or 
equal to 3 percent but is less than 4 percent; greater than or equal 
to 4 and less than 5 percent; greater than or equal to 5 and less than 
6 percent; and greater than or equal to 6 percent. The omitted 
category was "is greater than or equal to 3 percent but is less than 4 
percent." 

Variable: Initial interest rate; 
Variable description: Defined as a pair of continuous variables that 
split a loan's original interest rate into two parts: a relevant 
Treasury rate at the time of origination, and the difference between 
the loan's initial interest and that Treasury rate. For short-term 
hybrid ARMs, we used the 2-year Treasury constant maturity rate; 
for fixed-rate mortgages, we used the 10-year Treasury constant 
maturity rate; and for longer-term ARMs, we used the 5-year Treasury 
constant maturity rate. 

Variable: ARM initial fixed-rate period; 
Variable description: For longer-term ARMs, we defined a set of 
categorical variables describing the number of years for which the 
initial interest rate is fixed. The categories are 5 years, 7 years, 
and 10 years. The omitted category was 5 years. 

Variable: Documentation of borrower income and assets; 
Variable description: One if full documentation, 0 otherwise. 

Variable: Income if full documentation, and income if limited 
documentation; 
Variable description: Defined as a pair of continuous variables 
permitting the possibility that the effects of reported income (from 
HMDA) differ depending on whether the loan had full documentation of 
income or had limited documentation of income. 

Variable: Race; 
Variable description: Defined as a series of 0-1 categorical variables 
based on the borrower's reported race. The categories are as follows: 
Black (1 if black or African-American, 0 otherwise); Asian (1 if 
Asian, 0 otherwise); White (1 if white, 0 otherwise); and Other (1 if 
other reported category, 0 otherwise). We excluded observations for 
which borrower race was not available. The omitted category is White. 

Variable: Ethnicity; 
Variable description: One if Hispanic or Latino, 0 otherwise. We 
excluded observations for which borrower ethnicity was not available. 

Variable: Change in employment growth; 
Variable description: We cannot observe borrowers' employment status. 
As an indicator of economic conditions in the borrower's community, we 
used a state measure of employment growth over the 24-month 
performance window. These data are from BLS. 

Variable: Census neighborhood characteristics[A]; 
Variable description: We defined a series of 0-1 indicators 
representing high and low levels of education, unearned income (e.g., 
interest or dividends), new versus old housing, and housing vacancy 
rates that may provide information about housing and borrower 
characteristics in the Census tract where the property is located. 
Specifically, the indicators were as follows: 
* 1 if property is in a tract with a high incidence of less than high 
school education, 0 otherwise; 
* 1 if property is in a tract with a high incidence of greater than 
college education, 0 otherwise; 
* 1 if property is in a tract with a low incidence of unearned income, 
0 otherwise; 
* 1 if property is in a tract with a high incidence of unearned 
income, 0 otherwise; 
* 1 if property is in a tract with a high incidence of very old 
housing, 0 otherwise; 
* 1 if property is in a tract with a high incidence of vacant housing, 
0 otherwise. 

Variable: State; 
Variable description: Defined as a series of 0-1 categorical variables 
based on the property's state. The omitted category is Texas. 

Variable: Regulator; 
Variable description: We defined a series of 0-1 indicators 
representing the regulatory agencies with oversight over the practices 
of the lending institutions reporting HMDA data. Specifically, the 
indicators were the Office of the Comptroller of the Currency, Federal 
Reserve System, Federal Deposit Insurance Corporation, Office of 
Thrift Supervision, and Department of Housing and Urban Development. 
We excluded loans made by institutions overseen by the National Credit 
Union Administration. The omitted category was the Federal Reserve 
System. 

Source: GAO. 

[A] For each of the Census neighborhood characteristics variables, we 
used information on the distribution of values across all Census 
tracts for the relevant Census data element. We defined cutoffs for a 
high or low incidence based on, approximately, the top or bottom 10 
percent of the distribution for each data element. 

[End of table] 

Tables 2 through 4 provide information on the number of loans and mean 
values for each of the product types for which we estimated default 
probabilities. Short-term hybrid ARMs were the most prevalent type of 
mortgage, and purchase loans were more prevalent than refinance loans, 
except among fixed-rate mortgages. Default rates were highest for 
short-term hybrid ARMs and generally higher for purchase loans than 
for refinance loans, except for fixed-rate and longer-term ARM loans 
to investors. 

Table 2: Mean Values for Short-term Hybrid ARMs: 

Number of observations; 
Purchase loans: Owner-occupants: 1,189,791; 
Purchase loans: Investors: 115,587; 
Refinance loans: Owner-occupants: 1,187,804; 
Refinance loans: Investors: 80,565. 

Mortgage in default by 24 months; 
Purchase loans: Owner-occupants: 0.227; 
Purchase loans: Investors: 0.233; 
Refinance loans: Owner-occupants: 0.157; 
Refinance loans: Investors: 0.203. 

Loan amount (thousands); 
Purchase loans: Owner-occupants: 228.851; 
Purchase loans: Investors: 170.519; 
Refinance loans: Owner-occupants: 236.064; 
Refinance loans: Investors: 177.615. 

HPA: First year of the loan; 
Purchase loans: Owner-occupants: 1.084; 
Purchase loans: Investors: 1.087; 
Refinance loans: Owner-occupants: 1.089; 
Refinance loans: Investors: 1.076. 

HPA: Difference between 1[ST] and 2nd year of the loan; 
Purchase loans: Owner-occupants: 0.081; 
Purchase loans: Investors: 0.075; 
Refinance loans: Owner-occupants: 0.085; 
Refinance loans: Investors: 0.071. 

Change in employment growth; 
Purchase loans: Owner-occupants: 1.026; 
Purchase loans: Investors: 1.026; 
Refinance loans: Owner-occupants: 1.025; 
Refinance loans: Investors: 1.023. 

DTI ratio missing; 
Purchase loans: Owner-occupants: 0.256; 
Purchase loans: Investors: 0.200; 
Refinance loans: Owner-occupants: 0.248; 
Refinance loans: Investors: 0.207. 

DTI ratio less than 35 percent; 
Purchase loans: Owner-occupants: 0.143; 
Purchase loans: Investors: 0.296; 
Refinance loans: Owner-occupants: 0.196; 
Refinance loans: Investors: 0.305. 

DTI ratio 35 percent to 41 percent; 
Purchase loans: Owner-occupants: 0.155; 
Purchase loans: Investors: 0.168; 
Refinance loans: Owner-occupants: 0.150; 
Refinance loans: Investors: 0.146. 

DTI ratio greater than 41 percent; 
Purchase loans: Owner-occupants: 0.446; 
Purchase loans: Investors: 0.335; 
Refinance loans: Owner-occupants: 0.406; 
Refinance loans: Investors: 0.343. 

FICO score; 
Purchase loans: Owner-occupants: 639.527; 
Purchase loans: Investors: 673.047; 
Refinance loans: Owner-occupants: 597.178; 
Refinance loans: Investors: 632.890. 

FICO score, low range; 
Purchase loans: Owner-occupants: 593.282; 
Purchase loans: Investors: 597.380; 
Refinance loans: Owner-occupants: 576.197; 
Refinance loans: Investors: 589.052. 

FICO score, middle range; 
Purchase loans: Owner-occupants: 32.969; 
Purchase loans: Investors: 45.423; 
Refinance loans: Owner-occupants: 16.970; 
Refinance loans: Investors: 31.269. 

FICO score, high range; 
Purchase loans: Owner-occupants: 13.276; 
Purchase loans: Investors: 30.245; 
Refinance loans: Owner-occupants: 4.011; 
Refinance loans: Investors: 12.570. 

CLTV ratio less than 80; 
Purchase loans: Owner-occupants: 0.034; 
Purchase loans: Investors: 0.056; 
Refinance loans: Owner-occupants: 0.346; 
Refinance loans: Investors: 0.368. 

CLTV ratio equal to 80; 
Purchase loans: Owner-occupants: 0.138; 
Purchase loans: Investors: 0.112; 
Refinance loans: Owner-occupants: 0.133; 
Refinance loans: Investors: 0.189. 

CLTV ratio between 80 and 90; 
Purchase loans: Owner-occupants: 0.035; 
Purchase loans: Investors: 0.111; 
Refinance loans: Owner-occupants: 0.193; 
Refinance loans: Investors: 0.194. 

CLTV ratio equal to 90; 
Purchase loans: Owner-occupants: 0.079; 
Purchase loans: Investors: 0.414; 
Refinance loans: Owner-occupants: 0.141; 
Refinance loans: Investors: 0.212. 

CLTV ratio between 90 and 100; 
Purchase loans: Owner-occupants: 0.151; 
Purchase loans: Investors: 0.234; 
Refinance loans: Owner-occupants: 0.101; 
Refinance loans: Investors: 0.035. 

CLTV ratio greater than or equal to 100; 
Purchase loans: Owner-occupants: 0.563; 
Purchase loans: Investors: 0.073; 
Refinance loans: Owner-occupants: 0.087; 
Refinance loans: Investors: 0.002. 

Full documentation; 
Purchase loans: Owner-occupants: 0.549; 
Purchase loans: Investors: 0.461; 
Refinance loans: Owner-occupants: 0.652; 
Refinance loans: Investors: 0.491. 

Reported income (thousands); 
Purchase loans: Owner-occupants: 85.556; 
Purchase loans: Investors: 113.446; 
Refinance loans: Owner-occupants: 79.432; 
Refinance loans: Investors: 108.972. 

Reported income among borrowers with full documentation loans 
(thousands); 
Purchase loans: Owner-occupants: 74.882; 
Purchase loans: Investors: 99.807; 
Refinance loans: Owner-occupants: 73.537; 
Refinance loans: Investors: 93.247. 

Reported income among borrowers with limited documentation loans 
(thousands); 
Purchase loans: Owner-occupants: 98.558; 
Purchase loans: Investors: 125.119; 
Refinance loans: Owner-occupants: 90.479; 
Refinance loans: Investors: 124.118. 

High cost spread, less than 3 percent; 
Purchase loans: Owner-occupants: 0.196; 
Purchase loans: Investors: 0.225; 
Refinance loans: Owner-occupants: 0.190; 
Refinance loans: Investors: 0.189. 

High cost spread, between 3 and 4 percent; 
Purchase loans: Owner-occupants: 0.155; 
Purchase loans: Investors: 0.155; 
Refinance loans: Owner-occupants: 0.172; 
Refinance loans: Investors: 0.148. 

High cost spread, between 4 and 5 percent; 
Purchase loans: Owner-occupants: 0.216; 
Purchase loans: Investors: 0.186; 
Refinance loans: Owner-occupants: 0.205; 
Refinance loans: Investors: 0.178. 

High cost spread, between 5 and 6 percent; 
Purchase loans: Owner-occupants: 0.244; 
Purchase loans: Investors: 0.207; 
Refinance loans: Owner-occupants: 0.233; 
Refinance loans: Investors: 0.220. 

High cost spread, 6 percent or more; 
Purchase loans: Owner-occupants: 0.189; 
Purchase loans: Investors: 0.226; 
Refinance loans: Owner-occupants: 0.200; 
Refinance loans: Investors: 0.265. 

2-year Treasury constant maturity rate; 
Purchase loans: Owner-occupants: 3.784; 
Purchase loans: Investors: 3.664; 
Refinance loans: Owner-occupants: 3.658; 
Refinance loans: Investors: 3.682. 

Spread over 2-year Treasury constant maturity rate; 
Purchase loans: Owner-occupants: 3.765; 
Purchase loans: Investors: 4.479; 
Refinance loans: Owner-occupants: 4.019; 
Refinance loans: Investors: 4.502. 

High incidence of less than high school education; 
Purchase loans: Owner-occupants: 0.093; 
Purchase loans: Investors: 0.146; 
Refinance loans: Owner-occupants: 0.095; 
Refinance loans: Investors: 0.176. 

High incidence of more than college education; 
Purchase loans: Owner-occupants: 0.040; 
Purchase loans: Investors: 0.034; 
Refinance loans: Owner-occupants: 0.046; 
Refinance loans: Investors: 0.033. 

Low incidence of wealth; 
Purchase loans: Owner-occupants: 0.090; 
Purchase loans: Investors: 0.225; 
Refinance loans: Owner-occupants: 0.089; 
Refinance loans: Investors: 0.243. 

High incidence of wealth; 
Purchase loans: Owner-occupants: 0.051; 
Purchase loans: Investors: 0.037; 
Refinance loans: Owner-occupants: 0.063; 
Refinance loans: Investors: 0.029. 

High incidence of old housing; 
Purchase loans: Owner-occupants: 0.062; 
Purchase loans: Investors: 0.176; 
Refinance loans: Owner-occupants: 0.071; 
Refinance loans: Investors: 0.191. 

High incidence of vacant units; 
Purchase loans: Owner-occupants: 0.044; 
Purchase loans: Investors: 0.096; 
Refinance loans: Owner-occupants: 0.042; 
Refinance loans: Investors: 0.085. 

Asian; 
Purchase loans: Owner-occupants: 0.048; 
Purchase loans: Investors: 0.047; 
Refinance loans: Owner-occupants: 0.030; 
Refinance loans: Investors: 0.032. 

Black or African-American; 
Purchase loans: Owner-occupants: 0.206; 
Purchase loans: Investors: 0.301; 
Refinance loans: Owner-occupants: 0.196; 
Refinance loans: Investors: 0.343. 

Other race; 
Purchase loans: Owner-occupants: 0.022; 
Purchase loans: Investors: 0.015; 
Refinance loans: Owner-occupants: 0.021; 
Refinance loans: Investors: 0.018. 

Hispanic or Latino; 
Purchase loans: Owner-occupants: 0.279; 
Purchase loans: Investors: 0.157; 
Refinance loans: Owner-occupants: 0.191; 
Refinance loans: Investors: 0.152. 

Source: GAO analysis of CoreLogic LP, HMDA, FHFA, Census, and BLS data. 

[End of table] 

Table 3: Mean Values for Longer-term ARMs: 

Number of observations; 
Purchase loans: Owner-occupants: 227,066; 
Purchase loans: Investors: 52,070; 
Refinance loans: Owner-occupants: 127,675; 
Refinance loans: Investors: 26,171. 

Mortgage in default by 24 months; 
Purchase loans: Owner-occupants: 0.115; 
Purchase loans: Investors: 0.099; 
Refinance loans: Owner-occupants: 0.093; 
Refinance loans: Investors: 0.101. 

Loan amount (thousands); 
Purchase loans: Owner-occupants: 341.356; 
Purchase loans: Investors: 223.645; 
Refinance loans: Owner-occupants: 386.097; 
Refinance loans: Investors: 260.090. 

HPA: First year of the loan; 
Purchase loans: Owner-occupants: 1.073; 
Purchase loans: Investors: 1.092; 
Refinance loans: Owner-occupants: 1.063; 
Refinance loans: Investors: 1.065. 

HPA: Difference between 1[ST] and 2nd year of the loan; 
Purchase loans: Owner-occupants: 0.098; 
Purchase loans: Investors: 0.099; 
Refinance loans: Owner-occupants: 0.098; 
Refinance loans: Investors: 0.094. 

Change in employment growth; 
Purchase loans: Owner-occupants: 1.025; 
Purchase loans: Investors: 1.029; 
Refinance loans: Owner-occupants: 1.020; 
Refinance loans: Investors: 1.023. 

DTI ratio missing; 
Purchase loans: Owner-occupants: 0.334; 
Purchase loans: Investors: 0.322; 
Refinance loans: Owner-occupants: 0.297; 
Refinance loans: Investors: 0.335. 

DTI ratio less than 35 percent; 
Purchase loans: Owner-occupants: 0.190; 
Purchase loans: Investors: 0.294; 
Refinance loans: Owner-occupants: 0.245; 
Refinance loans: Investors: 0.304. 

DTI ratio 35 percent to 41 percent; 
Purchase loans: Owner-occupants: 0.201; 
Purchase loans: Investors: 0.170; 
Refinance loans: Owner-occupants: 0.194; 
Refinance loans: Investors: 0.160. 

DTI ratio greater than 41 percent; 
Purchase loans: Owner-occupants: 0.275; 
Purchase loans: Investors: 0.214; 
Refinance loans: Owner-occupants: 0.264; 
Refinance loans: Investors: 0.202. 

FICO score; 
Purchase loans: Owner-occupants: 711.103; 
Purchase loans: Investors: 726.171; 
Refinance loans: Owner-occupants: 689.428; 
Refinance loans: Investors: 710.290. 

FICO score, low range; 
Purchase loans: Owner-occupants: 672.704; 
Purchase loans: Investors: 677.005; 
Refinance loans: Owner-occupants: 663.126; 
Refinance loans: Investors: 673.242. 

FICO score, middle range; 
Purchase loans: Owner-occupants: 30.268; 
Purchase loans: Investors: 37.721; 
Refinance loans: Owner-occupants: 21.195; 
Refinance loans: Investors: 29.878. 

FICO score, high range; 
Purchase loans: Owner-occupants: 8.130; 
Purchase loans: Investors: 11.445; 
Refinance loans: Owner-occupants: 5.107; 
Refinance loans: Investors: 7.170. 

CLTV ratio less than 80; 
Purchase loans: Owner-occupants: 0.081; 
Purchase loans: Investors: 0.156; 
Refinance loans: Owner-occupants: 0.458; 
Refinance loans: Investors: 0.612. 

CLTV ratio equal to 80; 
Purchase loans: Owner-occupants: 0.190; 
Purchase loans: Investors: 0.241; 
Refinance loans: Owner-occupants: 0.162; 
Refinance loans: Investors: 0.210. 

CLTV ratio between 80 and 90; 
Purchase loans: Owner-occupants: 0.028; 
Purchase loans: Investors: 0.068; 
Refinance loans: Owner-occupants: 0.114; 
Refinance loans: Investors: 0.065. 

CLTV ratio equal to 90; 
Purchase loans: Owner-occupants: 0.064; 
Purchase loans: Investors: 0.192; 
Refinance loans: Owner-occupants: 0.074; 
Refinance loans: Investors: 0.077. 

CLTV ratio between 90 and 100; 
Purchase loans: Owner-occupants: 0.161; 
Purchase loans: Investors: 0.174; 
Refinance loans: Owner-occupants: 0.110; 
Refinance loans: Investors: 0.029. 

CLTV ratio greater than or equal to 100; 
Purchase loans: Owner-occupants: 0.476; 
Purchase loans: Investors: 0.169; 
Refinance loans: Owner-occupants: 0.081; 
Refinance loans: Investors: 0.007. 

Full documentation; 
Purchase loans: Owner-occupants: 0.383; 
Purchase loans: Investors: 0.390; 
Refinance loans: Owner-occupants: 0.426; 
Refinance loans: Investors: 0.312. 

Reported income (thousands); 
Purchase loans: Owner-occupants: 129.498; 
Purchase loans: Investors: 184.110; 
Refinance loans: Owner-occupants: 132.477; 
Refinance loans: Investors: 187.598. 

Reported income among borrowers with full documentation loans 
(thousands); 
Purchase loans: Owner-occupants: 109.492; 
Purchase loans: Investors: 158.083; 
Refinance loans: Owner-occupants: 111.412; 
Refinance loans: Investors: 157.090. 

Reported income among borrowers with limited documentation loans 
(thousands); 
Purchase loans: Owner-occupants: 141.927; 
Purchase loans: Investors: 200.770; 
Refinance loans: Owner-occupants: 148.103; 
Refinance loans: Investors: 201.410. 

High cost spread indicator; 
Purchase loans: Owner-occupants: 0.143; 
Purchase loans: Investors: 0.222; 
Refinance loans: Owner-occupants: 0.206; 
Refinance loans: Investors: 0.197. 

5-year Treasury constant maturity rate; 
Purchase loans: Owner-occupants: 4.225; 
Purchase loans: Investors: 4.217; 
Refinance loans: Owner-occupants: 4.240; 
Refinance loans: Investors: 4.219. 

Spread over 5-year Treasury constant maturity rate; 
Purchase loans: Owner-occupants: 2.079; 
Purchase loans: Investors: 2.698; 
Refinance loans: Owner-occupants: 2.107; 
Refinance loans: Investors: 2.460. 

High incidence of less than high school education; 
Purchase loans: Owner-occupants: 0.057; 
Purchase loans: Investors: 0.075; 
Refinance loans: Owner-occupants: 0.059; 
Refinance loans: Investors: 0.106. 

High incidence of more than college education; 
Purchase loans: Owner-occupants: 0.127; 
Purchase loans: Investors: 0.079; 
Refinance loans: Owner-occupants: 0.140; 
Refinance loans: Investors: 0.096. 

Low incidence of wealth; 
Purchase loans: Owner-occupants: 0.043; 
Purchase loans: Investors: 0.090; 
Refinance loans: Owner-occupants: 0.040; 
Refinance loans: Investors: 0.116. 

High incidence of wealth; 
Purchase loans: Owner-occupants: 0.129; 
Purchase loans: Investors: 0.080; 
Refinance loans: Owner-occupants: 0.161; 
Refinance loans: Investors: 0.084. 

High incidence of old housing; 
Purchase loans: Owner-occupants: 0.050; 
Purchase loans: Investors: 0.070; 
Refinance loans: Owner-occupants: 0.049; 
Refinance loans: Investors: 0.096. 

High incidence of vacant units; 
Purchase loans: Owner-occupants: 0.051; 
Purchase loans: Investors: 0.093; 
Refinance loans: Owner-occupants: 0.046; 
Refinance loans: Investors: 0.075. 

Asian; 
Purchase loans: Owner-occupants: 0.076; 
Purchase loans: Investors: 0.063; 
Refinance loans: Owner-occupants: 0.059; 
Refinance loans: Investors: 0.056. 

Black or African-American; 
Purchase loans: Owner-occupants: 0.089; 
Purchase loans: Investors: 0.107; 
Refinance loans: Owner-occupants: 0.092; 
Refinance loans: Investors: 0.132. 

Other race; 
Purchase loans: Owner-occupants: 0.023; 
Purchase loans: Investors: 0.014; 
Refinance loans: Owner-occupants: 0.022; 
Refinance loans: Investors: 0.015. 

Hispanic or Latino; 
Purchase loans: Owner-occupants: 0.206; 
Purchase loans: Investors: 0.117; 
Refinance loans: Owner-occupants: 0.166; 
Refinance loans: Investors: 0.122. 

Source: GAO analysis of CoreLogic LP, HMDA, FHFA, Census, and BLS data. 

[End of table] 

Table 4: Mean Values for Fixed-rate Mortgages: 

Number of observations; 
Purchase loans: Owner-occupants: 350,486; 
Purchase loans: Investors: 104,889; 
Refinance loans: Owner-occupants: 621,968; 
Refinance loans: Investors: 96,326. 

Mortgage in default by 24 months; 
Purchase loans: Owner-occupants: 0.092; 
Purchase loans: Investors: 0.077; 
Refinance loans: Owner-occupants: 0.074; 
Refinance loans: Investors: 0.070. 

Loan amount (thousands); 
Purchase loans: Owner-occupants: 230.568; 
Purchase loans: Investors: 151.556; 
Refinance loans: Owner-occupants: 233.057; 
Refinance loans: Investors: 161.606. 

HPA: First year of the loan; 
Purchase loans: Owner-occupants: 1.071; 
Purchase loans: Investors: 1.088; 
Refinance loans: Owner-occupants: 1.081; 
Refinance loans: Investors: 1.085. 

HPA: Difference between 1[ST] and 2nd year of the loan; 
Purchase loans: Owner-occupants: 0.063; 
Purchase loans: Investors: 0.063; 
Refinance loans: Owner-occupants: 0.079; 
Refinance loans: Investors: 0.066. 

Change in employment growth; 
Purchase loans: Owner-occupants: 1.024; 
Purchase loans: Investors: 1.027; 
Refinance loans: Owner-occupants: 1.022; 
Refinance loans: Investors: 1.025. 

DTI ratio missing; 
Purchase loans: Owner-occupants: 0.538; 
Purchase loans: Investors: 0.576; 
Refinance loans: Owner-occupants: 0.410; 
Refinance loans: Investors: 0.535. 

DTI ratio less than 35 percent; 
Purchase loans: Owner-occupants: 0.129; 
Purchase loans: Investors: 0.181; 
Refinance loans: Owner-occupants: 0.188; 
Refinance loans: Investors: 0.211. 

DTI ratio 35 percent to 41 percent; 
Purchase loans: Owner-occupants: 0.115; 
Purchase loans: Investors: 0.098; 
Refinance loans: Owner-occupants: 0.125; 
Refinance loans: Investors: 0.091. 

DTI ratio greater than 41 percent; 
Purchase loans: Owner-occupants: 0.218; 
Purchase loans: Investors: 0.146; 
Refinance loans: Owner-occupants: 0.278; 
Refinance loans: Investors: 0.162. 

FICO score; 
Purchase loans: Owner-occupants: 691.031; 
Purchase loans: Investors: 721.308; 
Refinance loans: Owner-occupants: 643.810; 
Refinance loans: Investors: 694.148. 

CLTV ratio less than 80; 
Purchase loans: Owner-occupants: 0.111; 
Purchase loans: Investors: 0.165; 
Refinance loans: Owner-occupants: 0.500; 
Refinance loans: Investors: 0.639. 

CLTV ratio equal to 80; 
Purchase loans: Owner-occupants: 0.180; 
Purchase loans: Investors: 0.244; 
Refinance loans: Owner-occupants: 0.128; 
Refinance loans: Investors: 0.188. 

CLTV ratio between 80 and 90; 
Purchase loans: Owner-occupants: 0.035; 
Purchase loans: Investors: 0.065; 
Refinance loans: Owner-occupants: 0.151; 
Refinance loans: Investors: 0.083. 

CLTV ratio equal to 90; 
Purchase loans: Owner-occupants: 0.068; 
Purchase loans: Investors: 0.266; 
Refinance loans: Owner-occupants: 0.082; 
Refinance loans: Investors: 0.073. 

CLTV ratio between 90 and 100; 
Purchase loans: Owner-occupants: 0.170; 
Purchase loans: Investors: 0.136; 
Refinance loans: Owner-occupants: 0.084; 
Refinance loans: Investors: 0.014. 

CLTV ratio greater than or equal to 100; 
Purchase loans: Owner-occupants: 0.435; 
Purchase loans: Investors: 0.124; 
Refinance loans: Owner-occupants: 0.055; 
Refinance loans: Investors: 0.002. 

Full documentation; 
Purchase loans: Owner-occupants: 0.506; 
Purchase loans: Investors: 0.507; 
Refinance loans: Owner-occupants: 0.649; 
Refinance loans: Investors: 0.466. 

Reported income (thousands); 
Purchase loans: Owner-occupants: 99.991; 
Purchase loans: Investors: 144.007; 
Refinance loans: Owner-occupants: 87.518; 
Refinance loans: Investors: 137.163. 

Reported income among borrowers with full documentation loans 
(thousands); 
Purchase loans: Owner-occupants: 85.711; 
Purchase loans: Investors: 125.619; 
Refinance loans: Owner-occupants: 77.873; 
Refinance loans: Investors: 114.861. 

Reported income among borrowers with limited documentation loans 
(thousands); 
Purchase loans: Owner-occupants: 114.641; 
Purchase loans: Investors: 162.941; 
Refinance loans: Owner-occupants: 105.313; 
Refinance loans: Investors: 156.605. 

High cost spread indicator; 
Purchase loans: Owner-occupants: 0.257; 
Purchase loans: Investors: 0.381; 
Refinance loans: Owner-occupants: 0.361; 
Refinance loans: Investors: 0.319. 

10-year Treasury constant maturity rate; 
Purchase loans: Owner-occupants: 4.498; 
Purchase loans: Investors: 4.451; 
Refinance loans: Owner-occupants: 4.477; 
Refinance loans: Investors: 4.440. 

Spread over 10-year Treasury constant maturity rate; 
Purchase loans: Owner-occupants: 2.546; 
Purchase loans: Investors: 2.775; 
Refinance loans: Owner-occupants: 2.725; 
Refinance loans: Investors: 2.640. 

High incidence of less than high school education; 
Purchase loans: Owner-occupants: 0.057; 
Purchase loans: Investors: 0.095; 
Refinance loans: Owner-occupants: 0.087; 
Refinance loans: Investors: 0.133. 

High incidence of more than college education; 
Purchase loans: Owner-occupants: 0.081; 
Purchase loans: Investors: 0.058; 
Refinance loans: Owner-occupants: 0.063; 
Refinance loans: Investors: 0.060. 

Low incidence of wealth; 
Purchase loans: Owner-occupants: 0.059; 
Purchase loans: Investors: 0.127; 
Refinance loans: Owner-occupants: 0.084; 
Refinance loans: Investors: 0.175. 

High incidence of wealth; 
Purchase loans: Owner-occupants: 0.097; 
Purchase loans: Investors: 0.055; 
Refinance loans: Owner-occupants: 0.083; 
Refinance loans: Investors: 0.049. 

High incidence of old housing; 
Purchase loans: Owner-occupants: 0.064; 
Purchase loans: Investors: 0.143; 
Refinance loans: Owner-occupants: 0.065; 
Refinance loans: Investors: 0.151. 

High incidence of vacant units; 
Purchase loans: Owner-occupants: 0.044; 
Purchase loans: Investors: 0.085; 
Refinance loans: Owner-occupants: 0.045; 
Refinance loans: Investors: 0.071. 

Asian; 
Purchase loans: Owner-occupants: 0.052; 
Purchase loans: Investors: 0.059; 
Refinance loans: Owner-occupants: 0.030; 
Refinance loans: Investors: 0.042. 

Black or African-American; 
Purchase loans: Owner-occupants: 0.126; 
Purchase loans: Investors: 0.143; 
Refinance loans: Owner-occupants: 0.167; 
Refinance loans: Investors: 0.192. 

Other race; 
Purchase loans: Owner-occupants: 0.016; 
Purchase loans: Investors: 0.012; 
Refinance loans: Owner-occupants: 0.020; 
Refinance loans: Investors: 0.016. 

Hispanic or Latino; 
Purchase loans: Owner-occupants: 0.176; 
Purchase loans: Investors: 0.103; 
Refinance loans: Owner-occupants: 0.166; 
Refinance loans: Investors: 0.113. 

Source: GAO analysis of CoreLogic LP, HMDA, FHFA, Census, and BLS data. 

[End of table] 

The results of our analysis are presented in tables 5 through 8. We 
ran 12 regressions: separate owner-occupant and investor regressions 
for purchase and refinance loans of three product types (short-term 
hybrid ARMs, fixed-rate mortgages, and longer-term ARMs). For short-
term hybrid ARMs, the most prevalent product type, we present the 
results for purchase and refinance loans to owner-occupants (table 5) 
and investors (table 6). For the other product types, we present the 
results for purchase and refinance loans to owner-occupants only 
(tables 7 and 8); the results for investors were substantively 
similar. We present coefficient estimates as well as a transformation 
of the coefficients into a form that can be interpreted as the 
marginal effect of each variable on the estimated probability of 
default. This marginal effect is the calculation of the change in the 
estimated probability of default that would result if a variable's 
standard deviation were added to that variable's mean value, while all 
other variables are held at their mean values. This permits a 
comparison of the impact of different variables within and across 
product types. In general, HPA, loan amount, CLTV ratio, and FICO 
score had substantial marginal effects across different product types 
and loan purposes. Specifically, lower HPA, higher loan amount, higher 
CLTV ratio, and lower FICO scores were associated with higher 
likelihoods of default. The observed effects for DTI ratio were 
smaller. Documentation of borrower income and assets and a loan's 
interest rate spread over the applicable Treasury rate had substantial 
marginal effects. Limited documentation and higher interest rate 
spreads were associated with higher default probabilities. 

Table 5: Estimation Results for Short-term Hybrid ARMs for Owner- 
Occupants: 

Number of observations: 
Purchase loans - 1,189,791; 
Refinance loans - 1,187,804. 

Intercept; 
Purchase loans: Coefficient: 10.904; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: [Empty]; 
Refinance loans: Coefficient: 10.207; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: [Empty]. 

Loan amount; 
Purchase loans: Coefficient: 0.002; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 5.11; 
Refinance loans: Coefficient: 0.002; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 3.24. 

HPA: First year of the loan; 
Purchase loans: Coefficient: (7.974); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (8.51); 
Refinance loans: Coefficient: (6.752); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (5.31). 

HPA: Difference between 1[ST] and 2nd year of the loan; 
Purchase loans: Coefficient: 2.850; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 3.45; 
Refinance loans: Coefficient: 2.328; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 1.92. 

Change in employment growth; 
Purchase loans: Coefficient: (2.246); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.81); 
Refinance loans: Coefficient: (3.994); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (1.03). 

DTI ratio missing; 
Purchase loans: Coefficient: 0.023; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.15; 
Refinance loans: Coefficient: 0.024; 
Refinance loans: Significance: **; 
Refinance loans: Marginal effect: 0.11. 

DTI ratio less than 35 percent; 
Purchase loans: Coefficient: (0.028); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.14); 
Refinance loans: Coefficient: (0.025); 
Refinance loans: Significance: **; 
Refinance loans: Marginal effect: (0.10). 

DTI ratio greater than 41 percent; 
Purchase loans: Coefficient: 0.079; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.59; 
Refinance loans: Coefficient: 0.066; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.35. 

FICO score, low range; 
Purchase loans: Coefficient: (0.006); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (1.39); 
Refinance loans: Coefficient: (0.005); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (1.55). 

FICO score, middle range; 
Purchase loans: Coefficient: (0.009); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (3.08); 
Refinance loans: Coefficient: (0.006); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (1.32). 

FICO score, high range; 
Purchase loans: Coefficient: (0.006); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (2.18); 
Refinance loans: Coefficient: (0.007); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (1.04). 

CLTV ratio less than 80; 
Purchase loans: Coefficient: (0.962); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (2.42); 
Refinance loans: Coefficient: (0.498); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (2.28). 

CLTV ratio between 80 and 90; 
Purchase loans: Coefficient: (0.519); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (1.36); 
Refinance loans: Coefficient: 0.028; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.12. 

CLTV ratio equal to 90; 
Purchase loans: Coefficient: (0.361); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (1.38); 
Refinance loans: Coefficient: 0.242; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.91. 

CLTV ratio between 90 and 100; 
Purchase loans: Coefficient: (0.071); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.37); 
Refinance loans: Coefficient: 0.386; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 1.28. 

CLTV ratio greater than or equal to 100; 
Purchase loans: Coefficient: 0.249; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.88; 
Refinance loans: Coefficient: 0.804; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 2.59. 

Full documentation; 
Purchase loans: Coefficient: (0.174); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (1.24); 
Refinance loans: Coefficient: (0.159); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.77). 

Reported income if full documentation; 
Purchase loans: Coefficient: (0.002); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (1.32); 
Refinance loans: Coefficient: (0.003); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (1.61). 

Reported income if limited documentation; 
Purchase loans: Coefficient: 0.0003; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.25; 
Refinance loans: Coefficient: (0.001); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.56). 

High cost spread, less than 3 percent; 
Purchase loans: Coefficient: (0.167); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.95); 
Refinance loans: Coefficient: (0.116); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.47). 

High cost spread, between 4 and 5 percent; 
Purchase loans: Coefficient: 0.106; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.65; 
Refinance loans: Coefficient: 0.066; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.28. 

High cost spread, between 5 and 6 percent; 
Purchase loans: Coefficient: 0.194; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.26; 
Refinance loans: Coefficient: 0.092; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.42. 

High cost spread, 6 percent or more; 
Purchase loans: Coefficient: 0.121; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.71; 
Refinance loans: Coefficient: 0.053; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.22. 

2-year Treasury constant maturity rate; 
Purchase loans: Coefficient: 0.195; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 2.87; 
Refinance loans: Coefficient: 0.259; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 2.95. 

Spread over 2-year Treasury constant maturity rate; 
Purchase loans: Coefficient: 0.160; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 3.02; 
Refinance loans: Coefficient: 0.251; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 3.93. 

High incidence of less than high school education; 
Purchase loans: Coefficient: (0.015); 
Purchase loans: Significance: [Empty]; 
Purchase loans: Marginal effect: (0.06); 
Refinance loans: Coefficient: (0.023); 
Refinance loans: Significance: **; 
Refinance loans: Marginal effect: (0.07). 

High incidence of more than college education; 
Purchase loans: Coefficient: (0.141); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.40); 
Refinance loans: Coefficient: (0.115); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.25). 

Low incidence of wealth; 
Purchase loans: Coefficient: 0.255; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.09; 
Refinance loans: Coefficient: 0.042; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.13. 

High incidence of wealth; 
Purchase loans: Coefficient: (0.247); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.78); 
Refinance loans: Coefficient: (0.142); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.36). 

High incidence of old housing; 
Purchase loans: Coefficient: 0.163; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.58; 
Refinance loans: Coefficient: 0.129; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.35. 

High incidence of vacant units; 
Purchase loans: Coefficient: 0.201; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.61; 
Refinance loans: Coefficient: 0.115; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.24. 

Asian; 
Purchase loans: Coefficient: 0.023; 
Purchase loans: Significance: *; 
Purchase loans: Marginal effect: 0.07; 
Refinance loans: Coefficient: (0.047); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.08). 

Black or African-American; 
Purchase loans: Coefficient: 0.483; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 3.05; 
Refinance loans: Coefficient: 0.042; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.17. 

Other race; 
Purchase loans: Coefficient: 0.081; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.18; 
Refinance loans: Coefficient: (0.017); 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: (0.03). 

Hispanic or Latino; 
Purchase loans: Coefficient: 0.188; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.27; 
Refinance loans: Coefficient: 0.093; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.39. 

Source: GAO analysis of CoreLogic LP, HMDA, FHFA, Census, and BLS data. 

Note: In the "Significance" columns, the symbols *, **, and *** 
indicate statistical significance at the 10 percent, 5 percent, and 1 
percent levels, respectively. A blank cell in these columns indicates 
that the coefficient for the variable was not statistically 
significant at these levels. 

[End of table] 

Table 6: Estimation Results for Short-term Hybrid ARMs for Investors: 

Number of observations: 
Purchase loans - 115,587; 
Refinance loans - 80,565. 

Intercept; 
Purchase loans: Coefficient: 12.020; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: [Empty]; 
Refinance loans: Coefficient: 15.119; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: [Empty]. 

Loan amount; 
Purchase loans: Coefficient: 0.003; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 4.79; 
Refinance loans: Coefficient: 0.001; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 2.23. 

HPA: First year of the loan; 
Purchase loans: Coefficient: (8.384); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (7.42); 
Refinance loans: Coefficient: (7.717); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (6.71). 

HPA: Difference between 2[ST] and 3nd year of the loan; 
Purchase loans: Coefficient: 0.427; 
Purchase loans: Significance: [Empty]; 
Purchase loans: Marginal effect: 0.41; 
Refinance loans: Coefficient: 1.393; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 1.25. 

Change in employment growth; 
Purchase loans: Coefficient: (2.965); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (1.00); 
Refinance loans: Coefficient: (7.628); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (2.35). 

DTI ratio missing; 
Purchase loans: Coefficient: 0.005; 
Purchase loans: Significance: [Empty]; 
Purchase loans: Marginal effect: 0.02; 
Refinance loans: Coefficient: 0.015; 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: 0.08. 

DTI ratio less than 35 percent; 
Purchase loans: Coefficient: 0.079; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.45; 
Refinance loans: Coefficient: (0.010); 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: (0.06). 

DTI ratio greater than 41 percent; 
Purchase loans: Coefficient: 0.031; 
Purchase loans: Significance: [Empty]; 
Purchase loans: Marginal effect: 0.18; 
Refinance loans: Coefficient: 0.018; 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: 0.11. 

FICO score, low range; 
Purchase loans: Coefficient: (0.005); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.64); 
Refinance loans: Coefficient: (0.005); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (1.28). 

FICO score, middle range; 
Purchase loans: Coefficient: (0.009); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (2.33); 
Refinance loans: Coefficient: (0.006); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (1.83). 

FICO score, high range; 
Purchase loans: Coefficient: (0.008); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (3.58); 
Refinance loans: Coefficient: (0.010); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (2.89). 

CLTV ratio less than 80; 
Purchase loans: Coefficient: (0.550); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (1.50); 
Refinance loans: Coefficient: (0.526); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (2.88). 

CLTV ratio between 80 and 90; 
Purchase loans: Coefficient: 0.302; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.22; 
Refinance loans: Coefficient: 0.239; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 1.22. 

CLTV ratio equal to 90; 
Purchase loans: Coefficient: 0.547; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 3.67; 
Refinance loans: Coefficient: 0.513; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 2.81. 

CLTV ratio between 90 and 100; 
Purchase loans: Coefficient: 0.568; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 3.24; 
Refinance loans: Coefficient: 0.676; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 1.62. 

CLTV ratio greater than or equal to 100; 
Purchase loans: Coefficient: 0.869; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 3.04; 
Refinance loans: Coefficient: 0.237; 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: 0.14. 

Full documentation; 
Purchase loans: Coefficient: (0.212); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (1.26); 
Refinance loans: Coefficient: (0.276); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (1.63). 

Reported income if full documentation; 
Purchase loans: Coefficient: (0.003); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (2.34); 
Refinance loans: Coefficient: 0.000; 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: 0.24. 

Reported income if limited documentation; 
Purchase loans: Coefficient: (0.003); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (2.29); 
Refinance loans: Coefficient: 0.000; 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: 0.30. 

High cost spread, less than 3 percent; 
Purchase loans: Coefficient: (0.215); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (1.08); 
Refinance loans: Coefficient: (0.054); 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: (0.26). 

High cost spread, between 4 and 5 percent; 
Purchase loans: Coefficient: 0.021; 
Purchase loans: Significance: [Empty]; 
Purchase loans: Marginal effect: 0.10; 
Refinance loans: Coefficient: 0.083; 
Refinance loans: Significance: **; 
Refinance loans: Marginal effect: 0.40. 

High cost spread, between 5 and 6 percent; 
Purchase loans: Coefficient: 0.116; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.59; 
Refinance loans: Coefficient: 0.110; 
Refinance loans: Significance: **; 
Refinance loans: Marginal effect: 0.57. 

High cost spread greater than or equal to 6 percent; 
Purchase loans: Coefficient: (0.041); 
Purchase loans: Significance: [Empty]; 
Purchase loans: Marginal effect: (0.21); 
Refinance loans: Coefficient: 0.101; 
Refinance loans: Significance: **; 
Refinance loans: Marginal effect: 0.56. 

2-year Treasury constant maturity rate; 
Purchase loans: Coefficient: 0.225; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 2.81; 
Refinance loans: Coefficient: 0.271; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 3.67. 

Spread over 2-year Treasury constant maturity rate; 
Purchase loans: Coefficient: 0.109; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.65; 
Refinance loans: Coefficient: 0.198; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 3.45. 

High incidence of less than high school education; 
Purchase loans: Coefficient: 0.048; 
Purchase loans: Significance: *; 
Purchase loans: Marginal effect: 0.21; 
Refinance loans: Coefficient: 0.028; 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: 0.13. 

High incidence of more than college education; 
Purchase loans: Coefficient: (0.389); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.85); 
Refinance loans: Coefficient: (0.229); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.51). 

Low incidence of wealth; 
Purchase loans: Coefficient: 0.504; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 2.81; 
Refinance loans: Coefficient: 0.147; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.80. 

High incidence of wealth; 
Purchase loans: Coefficient: (0.330); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.76); 
Refinance loans: Coefficient: (0.134); 
Refinance loans: Significance: *; 
Refinance loans: Marginal effect: (0.28). 

High incidence of old housing; 
Purchase loans: Coefficient: 0.302; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.48; 
Refinance loans: Coefficient: 0.127; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.63. 

High incidence of vacant units; 
Purchase loans: Coefficient: 0.275; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.03; 
Refinance loans: Coefficient: 0.098; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.34. 

Asian; 
Purchase loans: Coefficient: (0.122); 
Purchase loans: Significance: **; 
Purchase loans: Marginal effect: (0.32); 
Refinance loans: Coefficient: (0.065); 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: (0.14). 

Black or African-American; 
Purchase loans: Coefficient: 0.367; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 2.22; 
Refinance loans: Coefficient: 0.102; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.61. 

Other race; 
Purchase loans: Coefficient: (0.007); 
Purchase loans: Significance: [Empty]; 
Purchase loans: Marginal effect: (0.01); 
Refinance loans: Coefficient: (0.104); 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: (0.17). 

Hispanic or Latino; 
Purchase loans: Coefficient: (0.160); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.71); 
Refinance loans: Coefficient: (0.071); 
Refinance loans: Significance: **; 
Refinance loans: Marginal effect: (0.31). 

Source: GAO analysis of CoreLogic LP, HMDA, FHFA, Census, and BLS data. 

Note: In the "Significance" columns, the symbols *, **, and *** 
indicate statistical significance at the 10 percent, 5 percent, and 1 
percent levels, respectively. A blank cell in these columns indicates 
that the coefficient for the variable was not statistically 
significant at these levels. 

[End of table] 

Table 7: Estimation Results for Longer-term ARMs for Owner-Occupants: 

Number of observations: 
Purchase loans - 227,066; 
Refinance loans - 127,675. 

Intercept; 
Purchase loans: Coefficient: 14.625; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: [Empty]; 
Refinance loans: Coefficient: 17.372; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: [Empty]. 

Loan amount; 
Purchase loans: Coefficient: 0.001; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.59; 
Refinance loans: Coefficient: 0.0009; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.90. 

HPA: First year of the loan; 
Purchase loans: Coefficient: (7.409); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (2.35); 
Refinance loans: Coefficient: (7.719); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (1.99). 

HPA: Difference between 1[ST] and 2[YEAR OF THE LOAN] an; 
Purchase loans: Coefficient: 3.433; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.26; 
Refinance loans: Coefficient: 2.739; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.78. 

Change in employment growth; 
Purchase loans: Coefficient: (7.745); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.79); 
Refinance loans: Coefficient: (9.297); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.80). 

DTI ratio missing; 
Purchase loans: Coefficient: 0.045; 
Purchase loans: Significance: *; 
Purchase loans: Marginal effect: 0.09; 
Refinance loans: Coefficient: 0.059; 
Refinance loans: Significance: *; 
Refinance loans: Marginal effect: 0.10. 

DTI ratio less than 35 percent; 
Purchase loans: Coefficient: (0.070); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.12); 
Refinance loans: Coefficient: (0.142); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.21). 

DTI ratio greater than 41 percent; 
Purchase loans: Coefficient: 0.042; 
Purchase loans: Significance: **; 
Purchase loans: Marginal effect: 0.08; 
Refinance loans: Coefficient: 0.069; 
Refinance loans: Significance: **; 
Refinance loans: Marginal effect: 0.11. 

FICO score, low range; 
Purchase loans: Coefficient: (0.006); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.43); 
Refinance loans: Coefficient: (0.007); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.62). 

FICO score, middle range; 
Purchase loans: Coefficient: (0.009); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.89); 
Refinance loans: Coefficient: (0.010); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.79). 

FICO score, high range; 
Purchase loans: Coefficient: (0.011); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.69); 
Refinance loans: Coefficient: (0.012); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.54). 

CLTV ratio less than 80; 
Purchase loans: Coefficient: (0.856); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.92); 
Refinance loans: Coefficient: (0.757); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (1.13). 

CLTV ratio between 80 and 90; 
Purchase loans: Coefficient: (0.564); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.39); 
Refinance loans: Coefficient: 0.218; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.25. 

CLTV ratio equal to 90; 
Purchase loans: Coefficient: (0.428); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.44); 
Refinance loans: Coefficient: 0.487; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.48. 

CLTV ratio between 90 and 100; 
Purchase loans: Coefficient: 0.330; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.56; 
Refinance loans: Coefficient: 0.757; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.94. 

CLTV ratio greater than or equal to 100; 
Purchase loans: Coefficient: 0.706; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.81; 
Refinance loans: Coefficient: 1.143; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 1.29. 

Full documentation; 
Purchase loans: Coefficient: (0.634); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (1.17); 
Refinance loans: Coefficient: (0.705); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (1.06). 

Reported income if full documentation; 
Purchase loans: Coefficient: (0.0005); 
Purchase loans: Significance: **; 
Purchase loans: Marginal effect: (0.16); 
Refinance loans: Coefficient: 0.0002; 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: 0.05. 

Reported income if limited documentation; 
Purchase loans: Coefficient: 0.0002; 
Purchase loans: Significance: *; 
Purchase loans: Marginal effect: 0.11; 
Refinance loans: Coefficient: 0.001; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.25. 

High cost spread indicator; 
Purchase loans: Coefficient: 0.158; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.25; 
Refinance loans: Coefficient: (0.036); 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: (0.05). 

5-year Treasury constant maturity rate; 
Purchase loans: Coefficient: 0.205; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.52; 
Refinance loans: Coefficient: 0.199; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.41. 

Spread over 5-year Treasury constant maturity rate; 
Purchase loans: Coefficient: 0.404; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.35; 
Refinance loans: Coefficient: 0.265; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.83. 

High incidence of less than high school education; 
Purchase loans: Coefficient: 0.020; 
Purchase loans: Significance: [Empty]; 
Purchase loans: Marginal effect: 0.02; 
Refinance loans: Coefficient: (0.041); 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: (0.03). 

High incidence of more than college education; 
Purchase loans: Coefficient: (0.299); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.42); 
Refinance loans: Coefficient: (0.337); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.39). 

Low incidence of wealth; 
Purchase loans: Coefficient: 0.108; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.10; 
Refinance loans: Coefficient: 0.096; 
Refinance loans: Significance: *; 
Refinance loans: Marginal effect: 0.07. 

High incidence of wealth; 
Purchase loans: Coefficient: (0.236); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.33); 
Refinance loans: Coefficient: (0.208); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.26). 

High incidence of old housing; 
Purchase loans: Coefficient: (0.043); 
Purchase loans: Significance: [Empty]; 
Purchase loans: Marginal effect: (0.04); 
Refinance loans: Coefficient: 0.040; 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: 0.03. 

High incidence of vacant units; 
Purchase loans: Coefficient: 0.237; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.23; 
Refinance loans: Coefficient: 0.184; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.14. 

Asian; 
Purchase loans: Coefficient: 0.214; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.25; 
Refinance loans: Coefficient: 0.094; 
Refinance loans: Significance: **; 
Refinance loans: Marginal effect: 0.08. 

Black or African-American; 
Purchase loans: Coefficient: 0.496; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.66; 
Refinance loans: Coefficient: 0.092; 
Refinance loans: Significance: **; 
Refinance loans: Marginal effect: 0.10. 

Other race; 
Purchase loans: Coefficient: 0.075; 
Purchase loans: Significance: *; 
Purchase loans: Marginal effect: 0.05; 
Refinance loans: Coefficient: 0.141; 
Refinance loans: Significance: **; 
Refinance loans: Marginal effect: 0.07. 

Hispanic or Latino; 
Purchase loans: Coefficient: 0.596; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.18; 
Refinance loans: Coefficient: 0.398; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.57. 

Source: GAO analysis of CoreLogic LP, HMDA, FHFA, Census, and BLS data. 

Note: In the "Significance" columns, the symbols *, **, and *** 
indicate statistical significance at the 10 percent, 5 percent, and 1 
percent levels, respectively. A blank cell in these columns indicates 
that the coefficient for the variable was not statistically 
significant at these levels. 

[End of table] 

Table 8: Estimation Results for Fixed-rate Mortgages for Owner- 
Occupants: 

Number of observations: 
Purchase loans - 350,486; 
Refinance loans - 621,968. 

Intercept; 
Purchase loans: Coefficient: 16.255; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: [Empty]; 
Refinance loans: Coefficient: 15.972; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: [Empty]. 

Loan amount; 
Purchase loans: Coefficient: 0.002; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.82; 
Refinance loans: Coefficient: 0.002; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 1.42. 

HPA: First year of the loan; 
Purchase loans: Coefficient: (7.574); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (2.05); 
Refinance loans: Coefficient: (6.240); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (1.85). 

HPA: Difference between 1[ST] and 2nd year of the loan; 
Purchase loans: Coefficient: 3.161; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.05; 
Refinance loans: Coefficient: 2.504; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.81. 

Change in employment growth; 
Purchase loans: Coefficient: (5.744); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.57); 
Refinance loans: Coefficient: (7.156); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.68). 

DTI ratio missing; 
Purchase loans: Coefficient: 0.039; 
Purchase loans: Significance: *; 
Purchase loans: Marginal effect: 0.08; 
Refinance loans: Coefficient: (0.035); 
Refinance loans: Significance: **; 
Refinance loans: Marginal effect: (0.07). 

DTI ratio less than 35 percent; 
Purchase loans: Coefficient: (0.002); 
Purchase loans: Significance: [Empty]; 
Purchase loans: Marginal effect: 0.00; 
Refinance loans: Coefficient: (0.050); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.08). 

DTI ratio greater than 41 percent; 
Purchase loans: Coefficient: 0.135; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.25; 
Refinance loans: Coefficient: 0.084; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.16. 

FICO score; 
Purchase loans: Coefficient: (0.011); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (2.17); 
Refinance loans: Coefficient: (0.010); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (1.95). 

CLTV ratio less than 80; 
Purchase loans: Coefficient: (0.912); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (1.08); 
Refinance loans: Coefficient: (0.592); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (1.05). 

CLTV ratio between 80 and 90; 
Purchase loans: Coefficient: (0.268); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.21); 
Refinance loans: Coefficient: 0.076; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.11. 

CLTV ratio equal to 90; 
Purchase loans: Coefficient: (0.086); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.09); 
Refinance loans: Coefficient: 0.337; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.39. 

CLTV ratio between 90 and 100; 
Purchase loans: Coefficient: 0.330; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.56; 
Refinance loans: Coefficient: 0.468; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.56. 

CLTV ratio greater than or equal to 100; 
Purchase loans: Coefficient: 0.662; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.64; 
Refinance loans: Coefficient: 0.835; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.84. 

Full documentation; 
Purchase loans: Coefficient: (0.444); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.86); 
Refinance loans: Coefficient: (0.306); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.56). 

Reported income if full documentation; 
Purchase loans: Coefficient: (0.003); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.66); 
Refinance loans: Coefficient: (0.003); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.75). 

Reported income if limited documentation; 
Purchase loans: Coefficient: (0.001); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.23); 
Refinance loans: Coefficient: (0.001); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.23). 

High cost spread indicator; 
Purchase loans: Coefficient: 0.176; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.34; 
Refinance loans: Coefficient: 0.014; 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: 0.03. 

10-year Treasury constant maturity rate; 
Purchase loans: Coefficient: 0.125; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.18; 
Refinance loans: Coefficient: 0.130; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.18. 

Spread over 10-year Treasury constant maturity rate; 
Purchase loans: Coefficient: 0.275; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 1.46; 
Refinance loans: Coefficient: 0.231; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 1.22. 

High incidence of less than high school education; 
Purchase loans: Coefficient: 0.058; 
Purchase loans: Significance: **; 
Purchase loans: Marginal effect: 0.06; 
Refinance loans: Coefficient: (0.013); 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: (0.02). 

High incidence of more than college education; 
Purchase loans: Coefficient: (0.268); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.30); 
Refinance loans: Coefficient: (0.202); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.19). 

Low incidence of wealth; 
Purchase loans: Coefficient: 0.271; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.28; 
Refinance loans: Coefficient: 0.019; 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: 0.02. 

High incidence of wealth; 
Purchase loans: Coefficient: (0.277); 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: (0.34); 
Refinance loans: Coefficient: (0.122); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.13). 

High incidence of old housing; 
Purchase loans: Coefficient: 0.207; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.22; 
Refinance loans: Coefficient: 0.117; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.12. 

High incidence of vacant units; 
Purchase loans: Coefficient: 0.172; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.15; 
Refinance loans: Coefficient: 0.032; 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: 0.03. 

Asian; 
Purchase loans: Coefficient: 0.002; 
Purchase loans: Significance: [Empty]; 
Purchase loans: Marginal effect: 0.00; 
Refinance loans: Coefficient: (0.125); 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: (0.09). 

Black or African-American; 
Purchase loans: Coefficient: 0.520; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.80; 
Refinance loans: Coefficient: (0.035); 
Refinance loans: Significance: **; 
Refinance loans: Marginal effect: (0.05). 

Other race; 
Purchase loans: Coefficient: 0.210; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.12; 
Refinance loans: Coefficient: 0.026; 
Refinance loans: Significance: [Empty]; 
Refinance loans: Marginal effect: 0.02. 

Hispanic or Latino; 
Purchase loans: Coefficient: 0.241; 
Purchase loans: Significance: ***; 
Purchase loans: Marginal effect: 0.41; 
Refinance loans: Coefficient: 0.063; 
Refinance loans: Significance: ***; 
Refinance loans: Marginal effect: 0.10. 

Source: GAO analysis of CoreLogic LP, HMDA, FHFA, Census, and BLS data. 

Note: In the "Significance" columns, the symbols *, **, and *** 
indicate statistical significance at the 10 percent, 5 percent, and 1 
percent levels, respectively. A blank cell in these columns indicates 
that the coefficient for the variable was not statistically 
significant at these levels. 

[End of table] 

[End of section] 

Appendix II: Matching CoreLogic LoanPerformance and Home Mortgage 
Disclosure Act Records: 

Data Sources: 

To describe the race, ethnicity, and reported income of nonprime 
borrowers, we matched loan-level records from two primary data 
sources--CoreLogic LoanPerformance's (CoreLogic LP) Asset-Backed 
Securities Database and Home Mortgage Disclosure Act (HMDA) data 
compiled by the Federal Financial Institutions Examination Council 
(FFIEC). The CoreLogic LP database provides extensive information 
about the characteristics and performance of securitized nonprime 
mortgages. However, it contains relatively little information about 
borrowers, providing only credit scores and debt-service-to-income 
ratios.[Footnote 61] In contrast, HMDA data contain limited 
information about loan characteristics and nothing about performance, 
but they do provide information on borrowers' race, ethnicity, and 
reported income. HMDA data are estimated to capture about 80 percent 
of the mortgages funded each year and cover all major market segments, 
including nonprime loans. HMDA data, therefore, should capture most of 
the loans in the CoreLogic LP database. 

While the CoreLogic LP and HMDA data emphasize different kinds of loan 
and borrower information, they do have some information in common. 
These common data items--including loan amount, loan purpose, loan 
origination date, property location, and loan originator--allow the 
two data sets to be matched on a loan-by-loan basis. Using the 
methodology that we developed in previous work, we matched records 
from the CoreLogic LP database for loans that were originated from 
2004 through 2006 to HMDA data files for those same years.[Footnote 
62] We focused on loan originations from this period because there 
were large numbers of nonprime originations in those years. 

The CoreLogic LP data set that we used for the matching process 
contained records for 9,292,684 loans. The data set included records 
for conventional first-lien purchase and refinance loans to owner- 
occupants, investors, and owners of second homes. The data excluded 
records for loans for units in multifamily structures, and for 
manufactured housing; loans in Guam, Puerto Rico, and the Virgin 
Islands; and loans with terms other than 15, 30, or 40 years. 

The HMDA data set that we used for the matching process contained 
records for 24,227,566 loans. As with the CoreLogic LP data, we 
focused on first-lien purchase and refinance loans. The HMDA data set 
excluded loans for properties other than one-to four-family 
residential units. Because the CoreLogic LP database contained only 
conventional loans in private label securitizations, we also excluded 
from the HMDA data set loans that involved government programs--such 
as mortgages guaranteed by the Federal Housing Administration or the 
Department of Veterans Affairs--and conventional loans that were 
indicated as sold to Fannie Mae, Freddie Mac, Ginnie Mae, or Farmer 
Mac. 

Steps Taken to Make the Data Sets Compatible: 

Matching the loan records from the two data sources required us to 
make the common data items compatible. We were able to use a 
straightforward process for the loan amount and purpose that required 
only rounding the CoreLogic LP loan amount to the nearest $1,000 and 
aggregating the three CoreLogic LP refinance categories into one 
category. However, the process was more complicated for origination 
date and property location.[Footnote 63] We determined that the name 
of the loan originator was not particularly useful for making initial 
matches of loan records because this information was missing for a 
substantial percentage of the CoreLogic LP records. However, the 
originator's name was useful in assessing the quality of the matches 
that we made using other data elements. 

Loan Origination Dates: 

About 15 percent of the loans in our CoreLogic LP data set had an 
origination date that was the 1ST day of a month.[Footnote 64] This 
distribution pattern was inconsistent with the distribution of 
origination days in HMDA, which showed a much more even pattern 
throughout the month, with an increase in originations toward the end 
of each month rather than the beginning of each month. Because of this 
inconsistency, we relied on the origination month rather than the 
origination month and day to match loan records. 

Property Location: 

The CoreLogic LP and HMDA data provided different geographic 
identifiers for loans, with the CoreLogic LP data providing the ZIP 
code and the HMDA data providing the Census tract. To facilitate 
record matching on the basis of property location, we related the 
Census tract information in the HMDA data to a corresponding ZIP code 
or ZIP codes in the CoreLogic LP data, using 2000 Census files and ZIP 
code boundary files from Pitney Bowes Business Insight. Using mapping 
software, we overlaid Census tract boundaries on ZIP code boundaries 
to determine the proportion of each Census tract's area that fell 
within a given ZIP code area. For each Census tract, we kept all ZIP 
codes that accounted for at least 5 percent of that tract's area. 
About 60 percent of the Census tracts were associated with only one 
ZIP code (meeting the 5 percent threshold), and almost all Census 
tracts (97.5 percent) included no more than four ZIP codes. When a 
Census tract was associated with only one ZIP code, all HMDA records 
in that Census tract were candidates to match CoreLogic LP records in 
that ZIP code. All HMDA records in tracts with more than one ZIP code 
were candidates to match CoreLogic LP records in those ZIP codes. 

Matching Methodology: 

We matched loan records in the CoreLogic LP and HMDA data sets as 
follows. First, for each loan origination year (2004, 2005, and 2006), 
we made initial matches by identifying CoreLogic LP and HMDA loans 
with the same property location,[Footnote 65] origination month, loan 
amount, and loan purpose. After finding all possible HMDA matches for 
each CoreLogic LP record, we classified these initial matches as 
either one-to-one matches (CoreLogic LP records with one corresponding 
HMDA record), one-to-many matches (CoreLogic LP records with more than 
one corresponding HMDA record), or nonmatches (CoreLogic LP records 
with no corresponding HMDA record). One-to-one matches accounted for 
about 55 percent of the loans in our CoreLogic LP data set, one-to-
many matches accounted for about 25 percent, and nonmatches accounted 
for about 15 percent. Our match rates were highest for 2004 
originations, about 85 percent, and lowest for 2006 originations, 
about 82 percent. 

The quality of the matches was particularly important because we were 
examining statistical relationships between borrower characteristics 
and loan performance. To provide reasonable assurance that the matches 
were robust, we performed three types of quality checks on our initial 
one-to-one and one-to-many matches. First, we used information about 
the loan originator--information that was included in both the 
CoreLogic LP and HMDA data. The HMDA data clearly identified loan 
originators--referred to as "HMDA respondents"--using a series of 
codes that corresponded to a list of standardized originator names. 
However, in more than 40 percent of the CoreLogic LP records in our 
data set, the originator name was marked as not available. In other 
cases, the originator was listed by a generic term, such as "conduit," 
or was an entity that appeared to be involved in the securitization 
process but was not necessarily the originator. Originators that were 
listed were often referred to in a number of ways--for example, 
"Taylor Bean," "Taylor Bean Whitaker," "Taylor, Bean & Whitaker," 
"TaylorBean," "TBW," and "TBW Mortgage Corp." all referred to the HMDA 
respondent "Taylor, Bean & Whitaker." For CoreLogic LP loans with 
originator information, we standardized the originator names in the 
CoreLogic LP data, and we used these same originator names for the 
HMDA data. We compared the standardized originator names in matched 
records and if the standardized names matched, we classified the match 
as a robust match, and deleted any other HMDA records that might have 
matched to that CoreLogic LP record. 

Second, for CoreLogic LP loans with no originator name, we examined 
the relationship between the HMDA loan originator and the issuer of 
the securities associated with the loan. Many institutions, such as 
Countrywide and Ameriquest, originated and securitized large numbers 
of nonprime loans. While some of these institutions identified 
themselves as the originator of a loan, others typically did not make 
the originator information available. In these cases, if the CoreLogic 
LP securitizer matched the HMDA originator, we classified an initial 
match as a robust match. If the issuer did not originate substantial 
numbers of nonprime loans, or also relied on other originators to 
provide loans for its securitizations, we developed criteria to check 
for evidence of business relationships between the issuer and various 
originating institutions. This check had two components. First, if 
within the CoreLogic LP data set we identified an originator-issuer 
combination, we defined that combination as a business relationship. 
Second, we considered combinations of originators from the HMDA data 
and issuers from the CoreLogic LP data. For an originator-issuer 
combination to be a business relationship, a combination had to appear 
at least 250 times in our set of initial one-to-one matches, or meet 
one of two additional criteria. Specifically, if the combination 
appeared at least 100 times, the originator must have made 10 percent 
of the issuer's securitized loans, or if the combination appeared at 
least 50 times, the issuer had to have securitized 33 percent of the 
loans made by the originator. We classified initial matches for which 
such business relationships existed as robust matches. 

Additionally, if none of these tests resulted in a robust match, we 
examined the loan origination day in the CoreLogic LP and HMDA data 
sets. If the days matched exactly, we classified an initial match as a 
robust match. Finally, for some one-to-many matches that shared 
originator, issuer, or business relationship characteristics, we 
examined the CoreLogic LP and HMDA characterizations of whether the 
borrower was an owner-occupant. In some cases, we were able to 
classify an initial match as a robust match if CoreLogic LP and HMDA 
owner-occupant characteristics matched. Overall, we produced high-
quality matches for about 73 percent of the records in our CoreLogic 
LP data set, including about 75 percent of the loans originated in 
2004, about 73 percent of the loans originated in 2005, and about 72 
percent of the loans originated in 2006 (see table 9). 

Table 9: Results of the Matching Process (CoreLogic LP Loan Records to 
HMDA Loan Records): 

Loan origination year: 2004; 
Initial matches to HMDA records: Number: 2,292,747; 
Initial matches to HMDA records: Percentage: 83.4%; 
Robust matches to HMDA records: Number: 2,053,999; 
Robust matches to HMDA records: Percentage: 74.7%. 

Loan origination year: 2005; 
Initial matches to HMDA records: Number: 3,000,004; 
Initial matches to HMDA records: Percentage: 82.6%; 
Robust matches to HMDA records: Number: 2,640,799; 
Robust matches to HMDA records: Percentage: 72.7%. 

Loan origination year: 2006; 
Initial matches to HMDA records: Number: 2,471,231; 
Initial matches to HMDA records: Percentage: 81.6%; 
Robust matches to HMDA records: Number: 2,191,156; 
Robust matches to HMDA records: Percentage: 72.3%. 

Loan origination year: Total; 
Initial matches to HMDA records: Number: 7,763,982; 
Initial matches to HMDA records: Percentage: 82.5%; 
Robust matches to HMDA records: Number: 6,885,954; 
Robust matches to HMDA records: Percentage: 73.2%. 

Source: GAO analysis of CoreLogic LP and HMDA data. 

[End of table] 

A potential concern with constructing a data set using a matching 
process is that records that do not match may differ systematically 
from records that do match, thereby making it difficult to make 
inferences from the matched data. However, we believe that the 
CoreLogic LP records that we were unable to match to HMDA records were 
similar in important respects to CoreLogic LP records that we could 
match. For example, loans in subprime pools represented 61.5 percent 
of the overall CoreLogic LP sample, and 62.3 percent of matched loans. 
Purchase loans represented 44.8 percent of the overall CoreLogic LP 
data set, and 46.0 percent of matched loans. In terms of geography, 
state shares of unmatched and matched loans were similar. Loans in 
California represented 23.1 percent of the full CoreLogic LP data set 
and 22.5 percent of matched records. Furthermore, nonprime borrowers 
with matched and unmatched records had similar FICO scores. For 
example, subprime borrowers with matched records had median FICO 
scores of 617, 620, and 617 for loans originated in 2004, 2005, and 
2006, respectively; the corresponding scores for subprime borrowers 
with unmatched records were 617, 617, and 615. Likewise, Alt-A 
borrowers with matched records had median FICO scores of 708, 709, and 
703 for 2004, 2005, and 2006, respectively; the corresponding scores 
for Alt-A borrowers with unmatched records were 706, 707, and 702. In 
addition, as shown in table 10, for each loan origination year and 
mortgage product type, median initial interest rates were identical or 
similar for borrowers with matched and unmatched records. 

Table 10: Median Initial Interest Rates, by Loan Origination Year, 
Mortgage Product Type, and Match Status: 

Mortgage product type: Short-term hybrid ARMs; 
Median initial interest rate, by loan origination year: 
2004: Matched: 7.000; 
2004: Unmatched: 6.990; 
2005: Matched: 7.350; 
2005: Unmatched: 7.375; 
2006: Matched: 8.375; 
2006: Unmatched: 8.375. 

Mortgage product type: Fixed-rate mortgages; 
Median initial interest rate, by loan origination year: 
2004: Matched: 6.625; 
2004: Unmatched: 6.500; 
2005: Matched: 6.500; 
2005: Unmatched: 6.500; 
2006: Matched: 7.400; 
2006: Unmatched: 7.450. 

Mortgage product type: Longer-term ARMs; 
Median initial interest rate, by loan origination year: 
2004: Matched: 5.625; 
2004: Unmatched: 5.625; 
2005: Matched: 6.125; 
2005: Unmatched: 6.125; 
2006: Matched: 6.875; 
2006: Unmatched: 6.875. 

Source: GAO analysis of CoreLogic LP and HMDA data. 

[End of table] 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

William B. Shear, (202) 512-8678 or shearw@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Steve Westley (Assistant 
Director), William Bates, Jan Bauer, Stephen Brown, Julianne 
Dieterich, DuEwa Kamara, John McGrail, John Mingus, Marc Molino, Bob 
Pollard, and Jennifer Schwartz made key contributions to this report. 

[End of section] 

Footnotes: 

[1] The subprime segment of the nonprime loan market generally serves 
borrowers with blemished or limited credit histories, while the Alt-A 
market segment serves borrowers whose credit histories are close to 
prime, but the loans have one or more high-risk features. 

[2] GAO, Characteristics and Performance of Nonprime Mortgages, 
[hyperlink, http://www.gao.gov/products/GAO-09-848R] (Washington, 
D.C.: July 28, 2009). 

[3] GAO, State-Level Information on Negative Home Equity and Loan 
Performance in the Nonprime Mortgage Market, [hyperlink, 
http://www.gao.gov/products/GAO-10-633R] (Washington, D.C.: May 14, 
2010); Loan Performance and Negative Home Equity in the Nonprime 
Mortgage Market, [hyperlink, http://www.gao.gov/products/GAO-10-146R] 
(Washington, D.C.: Dec. 16, 2009); and GAO-09-848R. 

[4] See GAO, Nonprime Mortgages: Data on Loan Performance by Cohort 
Year, Product Type, and Location, an E-Supplement to [hyperlink, 
http://www.gao.gov/products/GAO-10-805], [hyperlink, 
http://www.gao.gov/products/GAO-10-806SP] (Washington, D.C.: Aug. 24, 
2010). For a discussion of our methodology for estimating performance 
by congressional district, see [hyperlink, 
http://www.gao.gov/products/GAO-09-848R]. 

[5] Nonagency mortgage-backed securities (MBS), also known as private- 
label MBSs, are backed by nonconforming conventional mortgages 
securitized primarily by investment banks. Nonconforming mortgages are 
those that do not meet the purchase requirements of Fannie Mae or 
Freddie Mac because they are too large or do not meet their 
underwriting criteria. About 75 percent of subprime and Alt-A 
mortgages originated from 2001 through 2007 were securitized. For the 
period of January 2001 through July 2007, the CoreLogic LP database 
contains information covering, in dollar terms, an estimated 87 
percent of securitized subprime loans and 98 percent of securitized 
Alt-A loans. Researchers have found some evidence that nonprime 
mortgages that were not securitized (mortgages that lenders held in 
their portfolios) may have less risky characteristics than those that 
were securitized. See Christopher L. Foote and others, "Reducing 
Foreclosures," Federal Reserve Bank of Boston Public Policy Discussion 
Paper No. 09-2 (April 2009). 

[6] The CoreLogic LP database has a loan-level indicator for loan 
class (subprime or Alt-A), but it is not well populated. Therefore, we 
used the pool-level classification. According to mortgage researchers, 
some of the loans in subprime pools may not be subprime loans, and 
some of the loans in Alt-A pools may not be Alt-A loans. 

[7] Unless otherwise noted, we treated delinquent loans, loans in 
default, and loans in the foreclosure process as mutually exclusive 
categories. We considered a loan to have completed the foreclosure 
process if it was in real-estate-owned status as of a particular date, 
or was paid off after being either 90 or more days delinquent, in the 
foreclosure process, or in real-estate-owned status. 

[8] A loan cohort is a group of loans that originated in the same year. 

[9] [hyperlink, http://www.gao.gov/products/GAO-10-806SP]. 

[10] The period of 2004 through 2006 covers the peak years of nonprime 
mortgage lending, and the performance window includes periods of both 
house price appreciation and depreciation. Additionally, we focused on 
this period because data limitations complicated our efforts to 
produce robust matches between the CoreLogic LP and HMDA databases for 
loans originated in other years. 

[11] Although the HMDA data provide information on borrowers' race, 
ethnicity, and reported income, they contain limited information about 
loan characteristics and no information about performance. HMDA data 
are estimated to capture about 80 percent of the mortgages funded each 
year and cover all major market segments, including nonprime loans. 
HMDA data should therefore capture most of the loans in the CoreLogic 
LP database, which provides extensive information about loan 
characteristics and performance. 

[12] More than 90 percent of loans in the CoreLogic LP database was 
for properties located in metropolitan areas covered by FHFA's HPIs. 
We excluded loans for properties outside of these areas. 

[13] There is no uniform definition of default across the lending 
industry. For the purposes of this report, we use the definition 
provided unless otherwise noted. 

[14] [hyperlink, http://www.gao.gov/products/GAO-10-146R]. 

[15] GAO, Information on Recent Default and Foreclosure Trends for 
Home Mortgages and Associated Economic and Market Developments, 
[hyperlink, http://www.gao.gov/products/GAO-08-78R] (Washington, D.C.: 
Oct. 16, 2007). 

[16] As we have previously noted, the data we used for our analysis do 
not cover the entire nonprime market but do cover the large majority 
of nonagency securitized mortgages within that market. 

[17] By comparison, as of the first quarter of 2007, active nonprime 
loans originated from 2000 through 2005 had a serious delinquency rate 
of 7 percent. Although defaults and foreclosures also increased in 
other market segments, the serious delinquency rate for the mortgage 
market as a whole was substantially lower. According to the Mortgage 
Bankers Association, the serious delinquency rate for the broader 
mortgage market was approximately 2 percent as of the first quarter of 
2007 and 10 percent at the end of 2009. 

[18] Active loans can move in and out of serious delinquency status 
over time. For example, if a borrower makes one or more payments on a 
loan that has been in default (more than 90 days past due), its status 
could improve to delinquent (30 to 89 days past due) or current. 

[19] [hyperlink, http://www.gao.gov/products/GAO-09-848R]. 

[20] [hyperlink, http://www.gao.gov/products/GAO-10-806SP]. 

[21] The CLTV ratio is the amount of the first mortgage and any second 
liens divided by the value of the home at loan origination. 

[22] In a prior report, we examined the relationship between these 
types of variables and the likelihood of default to assess the 
implications of proposed legislation intended to strengthen consumer 
protections for mortgage borrowers. See GAO, Home Mortgages: 
Provisions in a 2007 Mortgage Reform Bill (H.R. 3915) Would Strengthen 
Borrower Protections, but Views on Their Long-term Impact Differ, 
[hyperlink, http://www.gao.gov/products/GAO-09-741] (Washington, D.C.: 
July 31, 2009). 

[23] Earlier in this report, we used the term "in default" to refer 
only to loans that were delinquent by at least 90 days. For efficiency 
of language, henceforth we use the broader definition stated in this 
section of the report. 

[24] In [hyperlink, http://www.gao.gov/products/GAO-09-741], we used a 
similar model to estimate mortgage defaults. However, the results 
presented in that prior report and this report are not directly 
comparable, in part because we did not match the CoreLogic LP data to 
HMDA data in the prior report. Therefore, we did not include 
information on borrowers' race, ethnicity, or reported income. Also, 
for that study, we estimated default probabilities for loans 
originated from 2000 through 2006. 

[25] We present the results for purchase and refinance loans to owner- 
occupants in the body of this report and results for loans to 
investors in appendix I. 

[26] Michelle A. Danis and Anthony Pennington-Cross, "The Delinquency 
of Subprime Mortgages," Journal of Economics and Business, vol. 60 
(2008); Andrew Haughwout, Richard Peach, and Joseph Tracy, "Juvenile 
Delinquent Mortgages: Bad Credit or Bad Economy?," Journal of Urban 
Economics, vol. 64 (2008); Shane M. Sherlund, "The Past, Present, and 
Future of Subprime Mortgages," Finance and Economic Discussion Series, 
no. 2008-63, Federal Reserve Board (November 2008); and Yuliya S. 
Demyanyk, "Quick Exits of Subprime Mortgages," Federal Reserve Bank of 
St. Louis Review, vol. 91, no. 2 (2009). 

[27] When we use the phrase "all else being equal" in describing the 
marginal effect of changes in a particular variable, we mean that we 
estimated default probabilities using two different values for that 
variable, setting the values for all other variables to their means 
for the respective product type and loan purpose. 

[28] We used FHFA's metropolitan HPIs, which are broad measures of the 
movement of single-family house prices in 384 metropolitan areas. The 
HPIs are published by FHFA using home price data provided by Fannie 
Mae and Freddie Mac on the basis of sales and refinancings of the same 
properties at different points in time. 

[29] That is, house prices and employment growth tended to move in the 
same direction. Specifically, the correlation coefficient between our 
measures for house price changes and employment growth in the first 24 
months of the loan was 0.66. (The Pearson's correlation coefficient is 
a statistical measure of association, ranging in value from negative 1 
to positive 1, with negative 1 indicating a perfect negative 
correlation, 0 an absence of correlation, and positive 1 a perfect 
positive correlation.) 

[30] Other research has found similar associations. See Danis and 
Pennington-Cross, "The Delinquency of Subprime Mortgages"; Haughwout, 
Peach, and Tracy, "Juvenile Delinquent Mortgages: Bad Credit or Bad 
Economy?"; Sherlund, "The Past, Present, and Future of Subprime 
Mortgages"; and Demyanyk, "Quick Exits of Subprime Mortgages." 

[31] In our statistical model, we split the initial interest rate into 
two variables, representing the relevant interest rate index and the 
interest rate spread, and found that both variables had a positive 
association with default probabilities. Other research examining the 
influence of those two interest rate components together also found a 
positive association with default probabilities. See Demyanyk, "Quick 
Exits of Subprime Mortgages." 

[32] The DTI ratio represents the percentage of a borrower's income 
that goes toward all recurring debt payments, including the mortgage 
payments. The higher the ratio, the greater the risk that the borrower 
will have cash-flow problems and will miss mortgage payments. 

[33] For a further discussion of this hypothesis, see Foote and 
others, "Reducing Foreclosures." 

[34] Anthony Pennington-Cross and Giang Ho, "The Termination of 
Subprime Hybrid and Fixed Rate Mortgages," Federal Reserve Bank of St. 
Louis Working Paper Series, no. 2006-042A (July 2006); Danis and 
Pennington-Cross, "The Delinquency of Subprime Mortgages"; and 
Haughwout, Peach, and Tracy, "Juvenile Delinquent Mortgages: Bad 
Credit or Bad Economy?." 

[35] This pattern reflects the fact that loans with limited 
documentation of income were typically associated with the Alt-A 
market, which serves borrowers with credit histories better than those 
of subprime borrowers. 

[36] To produce these estimates we used a statistical model similar to 
the one used to produce the other estimates in this report, except 
that the model excluded the documentation variable. We estimated 
default probabilities separately for loans with and without full 
documentation using the documentation-level-specific means for credit 
score, reported income, and CLTV ratio and the mean values for all 
loans for all other variables. The mean loan amount was higher for 
loans with limited documentation (about $265,000) than for loans with 
full documentation (about $200,000). To control for the tendency of 
the higher loan amount to increase the default risk for loans with 
limited documentation, we used the mean loan amount for all loans 
(about $230,000) in this example. 

[37] In this report, we use the race and ethnicity categories defined 
in the HMDA data. When we refer to white borrowers, we exclude 
borrowers who identified their ethnicity as Hispanic or Latino. When 
we refer to black or African-American borrowers, we include borrowers 
of all ethnicities. When we refer to Hispanic or Latino borrowers, we 
include borrowers of all races. 

[38] To produce these estimates, we used a statistical model similar 
to the one we used to produce the other estimates in this report, 
except that the model excluded the race and ethnicity variables. We 
estimated default probabilities separately for white, black or African-
American, and Hispanic or Latino borrowers using the mean values for 
all variables for the respective group. 

[39] For example, among owner-occupants, about 60 percent of black 
homeowners and 55 percent of Hispanic homeowners were first-time 
buyers, compared with 40 percent of all homeowners in 2007, according 
to the American Housing Survey. See U.S. Census Bureau, Current 
Housing Reports series H150/07, American Housing Survey for the United 
States: 2007 (Washington, D.C.: 2008), p. 158. 

[40] In 2006, for example, the average unemployment rate was 8.9 
percent for the black or African-American civilian population, 5.2 
percent for the Hispanic population, and 4.0 percent for the white 
population, according to BLS. 

[41] For example, in 2007, 51 percent of nonwhite and Hispanic 
families reported that they had saved in the preceding year and 87 
percent reported owning any financial assets; the corresponding 
percentages for non-Hispanic white families were 59 percent and 98 
percent, respectively. See Brian K. Bucks and others, "Changes in U.S. 
Family Finances from 2004 to 2007: Evidence from the Survey of 
Consumer Finances," Federal Reserve Bulletin (February 2009). 

[42] In 2007, the median assets for nonwhite and Hispanic families 
having any assets was $9,000, compared with $44,000 for non-Hispanic 
white families, according to the Survey of Consumer Finances. 

[43] William P. Alexander and others, "Some Loans Are More Equal than 
Others: Third-Party Originations and Defaults in the Subprime Mortgage 
Industry," Real Estate Economics, vol. 30 (2002); and Carolina Reid 
and Elizabeth Laderman, "The Untold Costs of Subprime Lending: 
Examining the Links among Higher-Priced Lending, Foreclosures and Race 
in California," (a paper presented at the Institute for Assets and 
Social Policy, Brandeis University, April 2009). 

[44] William C. Apgar and Allegra Calder, "The Dual Mortgage Market: 
The Persistence of Discrimination in Mortgage Lending," in The 
Geography of Opportunity: Race and Housing Choice in Metropolitan 
America, ed. Xavier deSousa Briggs (Washington, D.C.: Brookings 
Institution Press, 2005). 

[45] [hyperlink, http://www.gao.gov/products/GAO-09-741]. 

[46] As we have previously noted, we focused on data sources that are 
widely available. As a result, we did not include proprietary data 
maintained by lending institutions and other mortgage market 
participants in our scope. 

[47] As we have previously explained, nonagency securitized loans are 
nonconforming conventional mortgages securitized primarily by 
investment banks. Nonconforming mortgages are those that do not meet 
the purchase requirements of Fannie Mae or Freddie Mac because they 
are too large or do not meet their underwriting criteria. 

[48] The prime market segment serves borrowers with strong credit 
histories and provides the most attractive interest rates and mortgage 
terms. The government-guaranteed market segment primarily serves 
borrowers who may have difficulty in qualifying for prime mortgages 
but features interest rates competitive with prime loans in return for 
payment of insurance premiums or guarantee fees. FHA and the 
Department of Veterans Affairs operate the two main federal programs 
that insure or guarantee mortgages. 

[49] Agency securitized loans are conforming conventional mortgages 
that meet the requirements for purchase and securitization by Fannie 
Mae or Freddie Mac. 

[50] HUD provides aggregated and some loan-level data on its Web site 
(see [hyperlink, http://www.hud.gov/offices/hsg/hsgrroom.cfm] 
(accessed July 6, 2010) and [hyperlink, 
https://entp.hud.gov/sfnw/public/] (accessed July 6, 2010)). 

[51] For example, HMDA data on mortgages made in 2009 are not 
available until September 2010. HMDA data can be ordered through the 
FFIEC Web site (see [hyperlink, http://www.ffiec.gov/hmda/] (accessed 
July 6, 2010)). 

[52] The data sources may have different definitions for certain data 
elements. Some data fields in the HMDA database may be unavailable to 
the public to protect borrowers' privacy, and some data fields in 
nonprime data sources may not be well populated. 

[53] Information in figure 13 is current as of July 2010. The 
availability of different data elements may change over time. The data 
elements shown in the figure are those available to data users outside 
of the companies or agencies that maintain the data. 

[54] The HMDA data, however, do provide information on the spread 
between the annual percentage rate--a measure of credit cost to the 
borrower that takes account of the interest rate, points, and certain 
lender charges--and the rate on Treasury securities of comparable 
maturity for loans with prices above designated thresholds. A point is 
a loan charge, usually paid at loan closing, expressed as a percentage 
of the loan amount (1 point is 1 percent of the loan balance). 

[55] The study examined pricing in terms of interest rates for 
subprime loans originated from 2004 through 2006. See Andrew 
Haughwout, Christopher Mayer, and Joseph Tracy, "Subprime Mortgage 
Pricing: The Impact of Race, Ethnicity, and Gender on the Cost of 
Borrowing," Federal Reserve Bank of New York Staff Paper No. 368 
(April 2009). 

[56] CoreLogic LP offers a separate data product that provides 
information on other mortgage debt. HMDA data contain records on first 
and junior liens but do not identify whether two or more loans are 
related to the same property. However, using a record-matching 
process, it is possible to identify pairs of loans used to finance the 
same property. See GAO, Federal Housing Administration: Decline in the 
Agency's Market Share Was Associated with Product and Process 
Developments of Other Mortgage Market Participants, [hyperlink, 
http://www.gao.gov/products/GAO-07-645] (Washington, D.C.: June 29, 
2007). 

[57] We requested and obtained the date fields from FFIEC, which 
compiles and publishes the HMDA data, to conduct studies requested by 
Congress. Under GAO's disclosure regulations, set forth at 4 C.F.R. 
Part 81, we do not provide members of the public with records that 
originate in another agency obtained in connection with our work. 
Instead, we refer members of the public requesting information to the 
agency that originated the record. 4 C.F.R. § 81.5(a). Additionally, 
under our regulations, we do not disclose to the public records 
containing confidential financial information, see 4 C.F.R. § 81.6(e), 
nor do we disclose records containing private or personal information, 
which, if disclosed to the public, would amount to a clearly 
unwarranted invasion of the privacy of a person, see 4 C.F.R. § 
81.6(f). 

[58] Some firms offer databases that draw on public records and may be 
used to track properties or borrowers over time. For example, 
researchers used historical registry of deeds records for the entire 
state of Massachusetts to track homeownership experiences of subprime 
borrowers. See Kristopher Gerardi, Adam Hale Shapiro, and Paul S. 
Willen, "Subprime Outcomes: Risky Mortgages, Homeownership 
Experiences, and Foreclosures," Federal Reserve Bank of Boston Working 
Paper No. 07-15 (May 2008). 

[59] Pub. L. No. 111-203, 124 Stat. 1376 (July 21, 2010). 

[60] We used the FHFA metropolitan HPIs, which are broad measures of 
the movement of single-family house prices in 384 metropolitan areas. 
The HPIs are published by FHFA using home price data provided by 
Fannie Mae and Freddie Mac on the basis of sales and refinancings of 
the same properties at different points in time. 

[61] The debt-service-to-income ratio is the borrower's total monthly 
debt service payments divided by monthly gross income. 

[62] GAO, Loan Performance and Negative Home Equity in the Nonprime 
Mortgage Market, [hyperlink, http://www.gao.gov/products/GAO-10-146R] 
(Washington, D.C.: Dec. 16, 2009). 

[63] For privacy reasons, the origination date is omitted from each 
HMDA record when it is publicly released. We requested and obtained 
the date fields from FFIEC, which compiles and publishes the HMDA 
data. Under GAO's disclosure regulations, set forth at 4 C.F.R. Part 
81, we do not provide members of the public with records that 
originate in another agency obtained in connection with our work. 
Instead, we refer members of the public requesting information to the 
agency that originated the record. 4 C.F.R. § 81.5(a). Additionally, 
under our regulations, we do not disclose to the public records 
containing confidential financial information, see 4 C.F.R. § 81.6(e), 
nor do we disclose records containing private or personal information, 
which, if disclosed to the public, would amount to a clearly 
unwarranted invasion of the privacy of a person, see 4 C.F.R. § 
81.6(f). 

[64] This pattern reflects CoreLogic LP's practice of imputing the 
origination month for some loans on the basis of the month in which 
the first payment is due. In these cases, CoreLogic LP records the 
origination date as the 1ST day of the imputed origination month. 

[65] Property location is reported at the Census tract level in HMDA 
and at the ZIP code level by CoreLogic LP. We used the spatial 
relationships between Census tracts and ZIP codes to assign each 
Census tract to those ZIP codes associated with it. 

[End of section] 

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