85 Ltv Mortgage 1-4 Family Non Owner Occupied
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
Partitioning OF BANKING
SUPERVISION AND REGULATION
SR 93-11 (FIS)
March 11, 1993
TO THE Officeholder IN Accuse OF SUPERVISION
AT EACH FEDERAL RESERVE BANK
| SUBJECT: | Real Estate Lending Standards |
On December 31, 1992, the Federal Reserve Board, the Function of the Comptroller of the Currency, the Office of Austerity Supervision, and the Federal Deposit Insurance Corporation published in the Federal Register 1 the concluding uniform rule on real estate lending by insured depository institutions. The final dominion prescribes real estate lending standards as required by department 304 of the FDIC Improvement Act (FDICIA). Since the publication of the terminal rule, Lath staff has received several questions concerning the constructive date and the awarding of the supervisory loan-to-value limits which warrant further clarification. The final rule becomes effective on March 19, 1993. Thus, equally of this appointment, insured depository institutions are expected to have in place written policies that establish appropriate limits and standards for their real manor lending action. As prescribed in the real estate lending guidelines, an appendix to the regulation, institutions are expected to found internal loan-to-value limits which should not exceed stated supervisory limits. In that location has, however, been some confusion over whether these supervisory limits apply to existing credits. In this regard, the final rule exempts extensions of credits (including legally binding, but unfunded, lending commitments) originated prior to March 19, 1993. In the issue that such a loan has a loan-to-value ratio (LTV) in excess of the supervisory LTV and is afterward refinanced, renewed, or restructured, the loan will continue to be treated as an excluded transaction so long every bit there is no advancement of new funds or an increase in the line of credit (except for reasonable endmost costs), or the loan involves a conditioning with a conspicuously divers and well-documented conditioning program. A 2nd question has arisen on what was meant by the linguistic communication in the guidelines regarding the adding for the maximum loan amount where there is a cantankerous-collateralization of two or more properties with different supervisory LTVs. The text states: The electric current text may exist misleading because the order of the arithmetical operations could be taken to imply that the collateral value should be reduced by the senior lien before applying the LTV limit. This was not the intent of the agencies. As intended past the agencies, the maximum loan amount is adamant past first multiplying each property'southward collateral value by the loan-to-value ratio appropriate to that belongings and then deducting from that production whatsoever existing senior liens on that belongings. The sum of the results of these calculations is the maximum loan amount that may be extended nether cross-collateralization. There likewise take been several requests to clarify the guidelines' capital letter limitations on loans in excess of supervisory LTV limits. Institutions are expected to place those loans in excess of the supervisory LTV limits (i.due east., nonconforming loans) in their records. The aggregate corporeality of such loans is not to exceed 100 percent of a bank's total risk-based upper-case letter (referred to as the nonconforming basket). Inside this limit, the aggregate amount of not-1-to-4 family residential loans (e.grand., raw land, commercial, multifamily, and agricultural) that practise not arrange to supervisory LTV limits may non exceed 30 percent of total risk-based uppercase. The remaining portion of the nonconforming basket includes the aggregate corporeality of i-to-four family residential structure loans and non-possessor occupied 1-to-4 family unit residential loans with a LTV greater than 85 percentage and owner-occupied one-to-4 family residential loans with a LTV equal to or exceeding 90 percent without mortgage insurance or readily marketable collateral. Reserve Banks should communicate these clarifications on the real estate lending rule and guidelines to insured depository institutions. Attached is a suggested transmittal letter that may be used for this purpose. If at that place are any questions, call Virginia Gibbs 202- 452-2521 or Fred Teuscher 202-452-3007. ATTACHMENT TRANSMITTED ELECTRONICALLY BELOW Cross Reference: SR 93-one (FIS) Footnotes 1. Federal Reserve Board 12 CFR Function 208.Federal Register 57 FR 62890 (Dec 31, 1992). Render to text Attachment TO THE Master EXECUTIVE OFFICER OF State MEMBER BANKS AND BANK Belongings COMPANIES On Dec 31, 1992, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation published in the Federal Register one the last compatible rule on real estate lending by insured depository institutions. The final dominion prescribes real estate lending standards every bit required past section 304 of the FDIC Improvement Act (FDICIA). Since the publication of the concluding dominion, the Federal Reserve has received several questions concerning the effective date and the application of the supervisory loan-to-value limits which warrant further clarification. The final rule becomes effective on March 19, 1993. Thus, as of this date, insured depository institutions are expected to have in identify written policies that establish advisable limits and standards for their real estate lending action. As prescribed in the real estate lending guidelines, an appendix to the regulation, institutions are expected to establish internal loan-to-value limits which should not exceed stated supervisory limits. There has, however, been some confusion over whether these supervisory limits employ to existing credits. In this regard, the final dominion exempts extensions of credits (including legally binding, but unfunded, lending commitments) originated prior to March 19, 1993. In the consequence that such a loan has a loan-to-value ratio (LTV) in excess of the supervisory LTV and is subsequently refinanced, renewed, or restructured, the loan will continue to be treated every bit an excluded transaction so long as at that place is no advocacy of new funds or an increase in the line of credit (except for reasonable closing costs), or the loan involves a conditioning with a clearly defined and well-documented conditioning program. A second question has arisen on what was meant by the language in the guidelines regarding the calculation for the maximum loan amount where there is a cross-collateralization of ii or more than backdrop with different supervisory LTVs. The text states: The electric current text may exist misleading because the lodge of the arithmetical operations could exist taken to imply that the collateral value should be reduced by the senior lien earlier applying the LTV limit. This was non the intent of the agencies. As intended by the agencies, the maximum loan amount is determined by first multiplying each property's collateral value past the loan-to-value ratio appropriate to that property and then deducting from that production whatever existing senior liens on that holding. The sum of the results of these calculations is the maximum loan amount that may exist extended under cross-collateralization. There also take been several requests to clarify the guidelines' capital limitations on loans in excess of supervisory LTV limits. Institutions are expected to place those loans in excess of the supervisory LTV limits (i.e., nonconforming loans) in their records. The aggregate amount of such loans is not to exceed 100 pct of a bank's total risk-based capital (referred to as the nonconforming basket). Inside this limit, the aggregate amount of not-ane-to-iv family residential loans (eastward.g., raw land, commercial, multifamily, and agronomical) that do not conform to supervisory LTV limits may not exceed 30 percent of total risk-based upper-case letter. The remaining portion of the nonconforming basket includes the aggregate amount of one-to-iv family residential construction loans and non-owner occupied 1-to-4 family residential loans with a LTV greater than 85 percent and owner-occupied 1-to-4 family residential loans with a LTV equal to or exceeding 90 percent without mortgage insurance or readily marketable collateral. If there are any questions, contact (Reserve Bank staff member). Footnotes one. Federal Reserve Lath 12 CFR Part 208.Federal Register 57 FR 62890 (December 31, 1992). Return to text
"...the advisable maximum loan amount nether supervisory loan-to-value limits is the sum of the value of each property, less senior liens, multiplied by the appropriate loan-to-value limit for each property."
"...the appropriate maximum loan amount nether supervisory loan-to-value limits is the sum of the value of each property, less senior liens, multiplied by the appropriate loan-to-value limit for each property."
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Source: https://www.federalreserve.gov/boarddocs/srletters/1993/sr9311.htm
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