GAO Downplays High-LTV Loan Risk

Even if high-LTV loan delinquencies increased as a result of an economic downturn, the resulting losses would pose little risk to the thrift and bank insurance funds, according to a General Accounting Office report released Tuesday.The GAO report says only one federally insured depository institution, Life Savings Bank, Riverside, Calif., is heavily involved in the high-LTV market. Last year, the California thrift originated and securitized $400 million in high-LTV product. The GAO cautioned that losses to the Bank Insurance Fund and Savings Association Insurance Fund could increase if the high-LTV market expands and depository institutions started originating more loans. Concerned that just such a scenario will occur, the Office of Thrift Supervision recently implemented measures aimed at curbing thrift holdings of high-LTV loans. In the first comprehensive study of its kind, the GAO said "hundreds" of lenders originate high-LTV loans each year but only 10 institutions, including Life Savings, are heavily involved in the market. Most lenders, including banks, thrifts, and non-depository mortgage companies, originate the loans but then sell the mortgages on a servicing-released basis to firms like Life Savings and FirstPlus Financial, Dallas. High-LTV lending continues to be one of the hottest products in the mortgage industry. Lenders are expected to originate $12 billion worth of high-LTV loans in 1998, according to the GAO. The GAO's website address is http://www.gao.gov.