GMP Subprime

Consumer groups are pressing the Department of Housing and Urban Development not to allow lenders to offer guaranteed mortgage packages on subprime loans or high cost loans that fall under the Home Ownership and Equity Protection Act.HUD's proposal already excludes HOEPA loans from packaging -- which would allow lenders to guarantee the cost of loan fees and settlement services upfront before a mortgage application is signed. "We are advising HUD to exclude all subprime loans from packaging," Margot Saunders of the National Consumer Law Center told a congressional panel. This would exclude any loan with a prepayment penalty and any loan with a guaranteed price that equals or exceeds 5% of the principal loan amount. The Consumer Federation of America, Consumers Union, U.S. Public Interest Research Group and AARP (American Association of Retired Persons) are taking this position because they are concerned that packaging could camouflaged high cost loans and weaken consumer protections. However, lender groups maintain packaging will increase competition in the subprime market and benefit consumers. They also want HUD to drop the ban on HOEPA loans.