Magazine article American Banker

100% Loan-to-Value Second Mortgages Surge in Popularity

Magazine article American Banker

100% Loan-to-Value Second Mortgages Surge in Popularity

Article excerpt

Drive along Interstate 95 near Norwalk, Conn., and you'll see a conspicuous billboard that advertises the hottest product in home equity lending today: the 100% loan-to-value second mortgage.

Shawmut Bank's ad is one example of the proliferation of 100% LTV loans at banks across the country.

"It is clearly becoming a more popular product," said George R. Yacik, vice president, SMR Research Inc., Budd Lake, N.J.

Banks as diverse as First Chicago Corp., Union Planters Bank of East Tennessee, National City Corp., and First Federal Savings and Loan of Rochester, N.Y., are dabbling in varying degrees with the loans, in which borrowers can draw on all the equity in their homes.

While no figures on 100% LTV loan production are available, David Olson, a consultant specializing in home equity lending, said loam with loan-to-value ratios higher than 95% for first and second mortgages combined have skyrocketed in the last two years.

From 1992 to 1994, the percentage of such loans more than doubled to 28%. In 1989, only 6% had 95% LTVs are higher.

Mr. Olson said lenders are almost forced to make such loans because of the popularity of credit cards and auto loans. He said only by lending up to 100% LTV can bankers spur additional loan growth.

"There is not much place if you don't go to 100%," he said.

Also, the percentage of all conventional first mortgages with LTVs higher than 90% has been climbing markedly over the last year, according to the Federal Housing Finance Board. …

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