Senior Republicans on the House Financial Services Committee are supporting efforts by Comptroller of the Currency John Dugan to curb "stated-income" loans, for which subprime lenders don't verify the borrower's income."We were interested to see Comptroller Dugan's recent remarks on stated-income loans, or 'liar loans,' and are deeply concerned about the explosion in originations of these mortgages in the subprime market," Reps. Spencer Bachus (Ala.), Paul Gillmor (Ohio), and Judy Biggert (Ill.) say in a letter to federal banking regulators. As previously reported, Comptroller Dugan wants to place curbs on stated-income loans in the subprime guidance that regulators are finalizing. The representatives acknowledge there should be a "small niche" for stated-income loans. But they also contend that "these low-doc or no-doc loans with a high LTV and [prepayment] penalties" increase the risks of default. "Current circumstances in the housing market have exposed these poorly underwritten loans, and we would ask the regulators to closely examine the role the use of liar loans may have played in the subprime market defaults we are experiencing," the committee members said.
