Supervisory LTV Limits

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Question:

I understand from reading the OCC's Real Estate Lending and Appraisals Part 34 that renewals without the advancement of new monies are excluded from supervisory LTV limits. Does this mean that the original transaction is to be removed from the supervisory LTV report upon renewal or does it mean the original transaction remains on the report, but the subsequent renewal is not added additionally? What stops a bank from processing the original transaction on a short term basis knowing that they will be able to simply drop the entire transaction/property from the SLTV limit exception report upon renewal if indeed these transactions (original closing and renewal) are to be dropped from the SLTV report?

Answer:

I believe that you have to keep reading in that paragraph: "....where consistent with safe and sound banking practices and part of a clearly defined and well-documented program to achieve orderly liquidation of the debt, reduce risk of loss, or maximize recovery on the loan." The fact that this is a normal renewal and does not specifically involve the orderly liquidation of the debt, reduce risk of loss, or maximize recovery on the loan would qualify for the exception and it would have to remain on your SLV list. You are correct that just because the loan is renewed or refinanced it would not automatically drop off of the list.

First published on BankersOnline.com 8/25/08