Allaying some congressional concerns, the government released a study Tuesday that painted a largely favorable picture of high- loan-to-value lending.

The General Accounting Office study found that most borrowers use these loans to replace credit card debt. Consumers are attracted by lower interest rates, longer repayment terms, and tax deductions such loans can offer versus credit cards.

Lenders, by contrast, profit from the relatively high interest rates on such loans. Most originators are not federally insured, and one company, FirstPlus Financial Group Inc., Dallas, controls about one-third of the growing market, which is expected to total $12 billion in 1998, the GAO said.

Sen. Lauch Faircloth, chairman of the Senate Banking Committee's financial institutions subcommittee, said the report eased most of his concerns about high-loan-to-value lending.

"Last year I asked the GAO to review the growth of home equity loans being made at 125% of value," the North Carolina Republican said. "I was becoming alarmed that a growing number of Americans were mortgaging their homes beyond its value."

But Sen. Faircloth said the GAO report convinced him that these loans "serve consumers well, without undue effects on consumer debt and the housing markets."

Still, the GAO warned that such loans are not without risks for borrowers and lenders. For example, the GAO said an economic downturn might boost default rates, though it failed to quantify the impact. Also, borrowers may find it more difficult to sell their homes or refinance their first mortgages.

The GAO also attempted to draw a profile of both the average loan and the average borrower.

The study found that the typical high-loan-to-value loan averages $30,000, with a term of 25 years and an interest rate of 13% to 14%, excluding points and origination fees. Combined with the value of the typical borrower's first mortgage, the loan averages 110% of the home's value.

Borrowers typically are in their late 30s, have an annual income of $60,000, have been at their current job at least five years, and came into the loan with about $20,000 in nonmortgage debt. Virtually all borrowers, the GAO found, occupied the home they used as collateral.

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