Raising LTV Percentage

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Question:

Even though Part 365 of the Real Estate Lending Standards states that a 1-4 family owner occupied LTV percentage is 85%, is it acceptable to go to 90% if our loan policy discloses such?

Answer:

A bank is free to lend up to any LTV percentage it chooses. However, the total of all loans over the LTVs established by the regulatory agencies has to be reported to the board of directors on a quarterly basis and as the percentage of these loans increases, so will regulatory scrutiny of your lending practices. Note also that some of the loans in excess of the regulatory LTV guideline will need to be covered by some form of credit enhancement like PMI.

Editor's Note: The question refers to 12 CFR Part 365, which is the FDIC's regulation in this area. The Interagency Guidelines for Real Estate Lending Policies is Appendix A to that regulation. The equivalent regulations of other agencies include 12 CFR Part 208 Subpart C (Federal Reserve Board), 12 CFR Part 34 Subpart D (OCC), and 12 CFR Part 563 (OTS).

First published on BankersOnline.com 6/18/07