FDIC's classification treatment for high loan-to-value residential refinance loansMortgagePress.comFDIC, LTV, Uniform Retail Credit Classification and Account Management Policy
Loans to refinance performing real estate mortgages to a
lower interest rate, despite a higher LTV, generally should not be
adversely classified provided the credit complies with sound
underwriting guidelines. The FDIC is affirming that the standards
in the Uniform Retail Credit Classification and Account Management
Policy should be followed relative to the classification treatment
for high LTV residential refinance loans. The guidance establishes
that retail loan classifications should be based on the borrower's
payment performance, not the value of the collateral, which can
rise and fall as market conditions change.
• The Uniform Retail Credit Classification and Account
Management Policy recognizes that a borrower's payment performance
is the principal factor in determining the classification treatment
of a residential real estate loan.
• Historically, creditworthy borrowers typically refinance
mortgages to prevailing market rates when interest rates fall.
• Many performing residential borrowers have been unable
to take advantage of the recent decline in interest rates due to
insufficient equity in their properties, although the borrowers
meet all other underwriting criteria.
• Reducing the interest rate for performing borrowers
generally strengthens the borrowers' repayment ability.
• In the case of performing borrowers, examiners generally
should not adversely classify residential refinance loans that
lower the rate to a market interest rate and otherwise follow sound
underwriting guidelines, except for a high LTV ratio.
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