OTS Limits High-LTV Holdings

The Office of Thrift Supervision has designated high-LTV lending as a "high risk" activity and is restricting thrift holdings of the mortgage product to 100% of total capital.In a new thrift bulletin (TB 72) released Thursday, the OTS said it is concerned over the increase in high-LTV lending, particularly loans with LTVs exceeding 100% that often are used for debt consolidation. OTS officials said only 20 to 30 thrifts are originating high-LTV mortgages but that the regulatory agency nonetheless wanted to make other institutions aware of the risks associated with the product. "These loans entail risks that are different from more traditional home mortgage and consumer loans," said OTS Deputy Director Richard Riccobono. Mortgage subsidiaries of thrifts that engage in high-LTV lending are subject to the same restrictions as those placed on a parent. The OTS defines high-LTV loans as "first or junior lien mortgages with LTVs in excess of 90% that are not covered by mortgage insurance or government guarantees." Thrifts and their mortgage arms are exempt from the restrictions if they sell their loans without recourse within 30 days after the loan is closed.