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Senior Financial Services Committee Members Express Concern Over "Liar Loans"

WASHINGTON, May 23, 2007 - Today, Congressman Spencer Bachus (R-AL) the Ranking Member of the House Financial Services Committee, Congressman Paul Gillmor (R-OH) the Ranking Member of the Subcommittee on Financial Institutions and Congresswoman Judy Biggert (R-IL) the Ranking Member of the Subcommittee on Housing, sent the following letter to the banking regulators involved in providing guidance on subprime lending:

Dear Chairman Bair, Chairman Bernanke, Comptroller Dugan, Chairwoman Johnson and Director Reich:

As Members of Congress closely monitoring the work of the bank regulators on solutions to the turmoil in the subprime mortgage market, 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. 

There has been, and will continue to be, a small niche for these types of loans to be made.  The serious problems arise when you combine these low-doc or no-doc loans with a high LTV and penalties which make the risk of default much more likely.  As the Comptroller points out, the market conditions of two years ago may have led both homebuyers and mortgage originators to believe that no-doc loans would be less risky as borrowers could grow their way to a different product.  When home values are increasing rapidly, a lot of bad loans are hidden.  Current circumstances in the housing market have exposed these poorly underwritten loans and we would ask the regulators to closely examine the role an expanded use of "liar loans" may have played in the subprime market defaults we are experiencing.

We would request an update as to your intentions in this particular area and hope that you will continue to evaluate guidance which will encourage a tightening of standards without installing roadblocks to homeownership. 


SPENCER BACHUS                       PAUL GILLMOR                  JUDY BIGGERT

Member of Congress             Member of Congress             Member of Congress

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