Hi,

I have a question on how people are doing their CLTV calculations. I had a business partner indicate to me they wanted to update how we calculate our LTV/CLTV which would impact HMDA reporting. The person I was speaking with said we were not doing it how others in the financial industry are doing it. Can anyone confirm how you round for LTV/CLTV calculations.

Historically we have always went out to two decimal places and have always rounded up. An example would be the following:

Loan Amount: $101,000
Lower of Sales Price/Appraised Value: $150,000
LTV/CLTV: 67.34 (calculates to 67.333333)

Another example:

Loan Amount: $200,000
Lower of Sales Price/Appraised Value: $215,500
LTV/CLTV: 92.81 (calculates to 92.80742)

I assume we always rounded up for pricing and MI reasons. The change this person wants to make is always truncate at two digits so doing the same exmples above it would look like the following:

Loan Amount: $101,000
Lower of Sales Price/Appraised Value: $150,000
LTV/CLTV: 67.33 (calculates to 67.333333)


Loan Amount: $200,000
Lower of Sales Price/Appraised Value: $215,500
LTV/CLTV: 92.80 (calculates to 92.80742)

Would anyone be willing to share how they do their rounding for LTV/CLTV?

What regulatory breakpoint happens at a hundredth of a percentage point? What difference does it make? I am not aware that there is an "industry standard".

The secondary market requires the LTV to be truncated to two decimal places, then rounded up to the nearest whole percent.

IMO - It doesn't matter too much whether you round or truncate, but it should be documented in your procedures and you should be consistent. If you make the decision to change the process, make sure to update your procedures and document the date of the change.

I would want to know that there is a valid business reason for making this type of change.

Something else you should keep in mind when making a decision like this is whether the change affects only new applications as of the date of the change, or if it affects all active applications as of that date.