Fed: 95% of Homeowners Not Highly Leveraged

Despite the increased use of piggyback mortgages, Federal Reserve Board researchers have found that 95% of homeowners are not highly leveraged."The results show that as of mid-2005, less than 5% of borrowers have loan-to-value ratios exceeding 90%," Fed Chairman Alan Greenspan told the American Bankers Association annual convention. He called it an "encouraging finding" that only the most recent home purchasers have high LTVs. "In addition, the LTVs for recent homebuyers appear to be lower in those states that have experienced the most explosive run-up in house prices and that, conceivably, could be at risk for the largest price reversal," he said. Nevertheless, the Fed chairman called for "ongoing scrutiny" because of the "apparent froth" in the housing markets and the increased use of interest-only and payment-option mortgages. "In the event of widespread cooling in house prices, these borrowers, and the institutions that service them, could be exposed to significant losses," Mr. Greenspan said.