The intent of the following article is to review and demonstrate methods that mortgage industry investors use to track and report Loan To Value (LTV) statistics for loans in their servicing portfolio. Investors monitor the distribution of loan LTV in their portfolios for risk management and seller performance monitoring purposes.
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When underwriting a mortgage loan it is necessary to determine if the property provides sufficient value to recover the investment should a loan default occur. The mortgage’s Loan To Value (LTV) is a key indicator of the lender’s ability to recover on its investment should a loan default occur. The Loan To Value (LTV) is the loan amount divided by the value of the property. The higher the Loan To Value ratio, the greater the monetary risks for the lender should a default occur. Lenders use the LTV ratio in conjunction with other key performance indicators (e.g. FICO Credit Score values and Debt to Income (DTI) ratios) to determine whether a borrower qualifies for a mortgage.
The following represents a simple Loan To Value (LTV) Calculation.
Loan Amount = $212,700
Property’s Appraised / Market Value = $289,500
Loan To Value (LTV) = $212,700/$289,500 = 73.47%
Investors are concerned with the distribution of LTV ratios in their servicing portfolio and the identification of sellers that have sold them a disproportionate number of loans with a high LTV. The “Reporting Mortgage Loan To Value (LTV) Statistics” section of this article details steps for creating a report that an investor might use to track and report the distribution of LTV ratios for loans that a seller has delivered to the investor. A disproportionate percentage of loans with a high LTV ratio from a single seller could represent a significant risk to the investor. The Sample Mortgage Loan To Value (LTV) Report in this article can be used as a model for a stand alone seller LTV report or incorporated into a comprehensive Seller Scorecard report.
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