Federal Deposit Insurance Corporation
Financial Institution Letter
Oct 12, 1999
The Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision have jointly issued the attached Interagency Guidance on High Loan-to-Value (LTV) Residential Real Estate Lending. The guidance reminds institutions that the 1992 Interagency Guidelines for Real Estate Lending Policies (Guidelines) and the supervisory LTV limits apply to these transactions. The guidance also outlines some of the other controls the agencies expect institutions to have in place when involved in this field of lending.
For the purpose of applying the Guidelines to high LTV residential real estate loans, a high LTV residential real estate loan is defined as any loan, line of credit, or combination of credits secured by liens on or interests in owner-occupied 1- to 4-family residential property that equals or exceeds 90 percent of the real estate's appraised value, unless the loan has appropriate credit support. Appropriate credit support may include mortgage insurance, readily marketable collateral, or other acceptable collateral that reduces the LTV ratio below 90 percent.
High LTV residential real estate lending poses higher risk for lenders than traditional mortgage lending. The guidance discusses four primary risks associated with high LTV residential real estate lending and reminds institutions that the aggregate limit for all loans in excess of the supervisory LTV limits is 100 percent of total capital. Institutions will come under increased supervisory scrutiny as the total of all loans in excess of the supervisory LTV limits approaches 100 percent of total capital. If an institution exceeds the 100 percent of total capital limit, its regulatory agency will determine if it has a supervisory concern and take action accordingly. Such action may include directing the institution to reduce its loans in excess of the supervisory LTV limits to an appropriate level, raise additional capital, or submit a plan to achieve compliance. When determining whether these actions are necessary, the agencies will consider, among other things, the institution's capital level, overall risk profile, and the adequacy of its controls and operations.