Mainstream Mortgage Lenders Rebuff Wall St.'s High-LTV Push

By Talley, Karen | American Banker, September 23, 1997 | Go to article overview

Mainstream Mortgage Lenders Rebuff Wall St.'s High-LTV Push


Talley, Karen, American Banker


Despite encouragement from Wall Street firms and finance companies, most mainstream mortgage lenders are shying away from highly leveraged loans.

Some finance companies have begun making loans of up to 125% of a home's value, and Wall Street firms are clearly eager to repackage the credits as securities. But originators of traditional mortgages are concluding that the new loans are simply too risky- for both lenders and consumers.

"We're not comfortable with that much leverage," said C. Bruce Culbreth, national sales chief at Citfed Mortgage, Dayton, Ohio. "This is not a product we see a need to put out there."

Other lenders expressed similar sentiments, saying the products offer little chance of recovery if borrowers default. "Why look to overburden ourselves or our customers?" asked one West Coast mortgage banker.

Such a split between mainstream mortgage companies and Wall Street is unusual. Together, the groups built the conventional mortgage market, and investment banks were hoping for a similar teaming-and resultant fees-on promoting highly leveraged loans.

Mortgage bankers' reservations may not halt the burgeoning market for the leveraged products, which are favorites of finance companies and should reach $10 billion of originations this year. Indeed, some mainstream mortgage companies do offer the products. But a lack of general support from mortgage bankers nationwide could squeeze a channel that was looked to to fuel growth.

Lenders' resistance was apparent at last week's Eastern Secondary Mortgage Market Conference, sponsored by the North Carolina Bankers Association in Raleigh.

Mainstream mortgage lenders were not very responsive to Wall Street representatives and finance company chiefs who urged them to add high loan-to-value, or high-LTV, products to their rosters. …

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