Comments on: Why LTV ratios aren’t always a good default predictor http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: q http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/comment-page-1/#comment-3269 Fri, 26 Jun 2009 15:55:48 +0000 http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/#comment-3269 the value of a low LTV is that it reduces financial risk for the lender. if the LTV is low, then in most scenarios (including default) the lender does not lose money. this keeps lenders’ direct exposure to housing prices low.

]]>
By: DV66 http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/comment-page-1/#comment-3266 Fri, 26 Jun 2009 15:35:50 +0000 http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/#comment-3266 Now I recognize Carney – he’s that baffoon doing the Ostrich Pose down at the best sand in OC!!! What a joke!!!

]]>
By: RN http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/comment-page-1/#comment-3263 Fri, 26 Jun 2009 14:37:03 +0000 http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/#comment-3263 Carney’s one of those blowhards who’s in so far over his head that he doesn’t even know what he doesn’t know.

The world needs fewer of these ignorant gas pots and more refective solutions.

Guys like him are responsible for the disaster we’re in because guys like him get the moron voters of the US right wing to put brainless shells like Bush in power, and look where we end up.

]]>
By: Karen Norris http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/comment-page-1/#comment-3242 Fri, 26 Jun 2009 03:08:57 +0000 http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/#comment-3242 The Community Reinvestment Act is a good program. There are many low-income, borrowers with mattress money and non-traditional credit who can make fine homeowners. These loans just have to be carefully underwritten, and the guidelines (debt-to-income, and reserves in particular) have to be realistic and prudent. In my opinion, the APPLICATION of the program by the lenders was flawed. I’m a mortgage underwriter with a major bank. I underwrote CRA loans in 2006 and 2007 when the guidelines were ridiculously liberal. In 2008 and 2009, I’ve been underwriting primarily FHA and Conventional loans. I went back today to re-review the guidelines for one of the CRA programs and am happy to report, the credit history, number of tradelines, employment history, income, debt-to-income ratio requirements, and level of documentation have all returned to sane, rational standards.

Using LTV as a default predictor, or even monthly rental amounts, assumes that people make logical financial decisions which they absolutely do not! I’ve seen borrowers who made $8.00 an hour working a factory line at a poultry plant in Arkansas pay off a home and buy an investment property, and I’ve seen borrowers who make $20,000.00 a month, who have to get a gift for their 3% down payment. I’ve also seen high income borrowers (over $400,000.00 a year) who have plenty of money in the bank, but lousy credit because they are “too busy” to pay their bills on time. I’ve also seen borrowers in California lose 30% of the value of their home in two short years, yet they continue to pay their mortgage, and some even buy investment properties now that houses are cheaper, because their sense of financial responsibility is greater than any worry they may have about capital gain or loss, or using equity as future savings.

Behavioral psychologists are beginning to open up a separate field of study that deals specifically with financial attitudes and behavior. Making a good loan decision involves taking ALL the layers of risk, into account. It’s not simple, and one or two variables, can’t tell the whole story. There’s a reason risk-based, automated underwriting systems are constantly modifying their models. That’s because good underwriting is art, as well as science.

Let’s not throw out the baby with the bath water. The Community Reinvestment Act is good for America.

]]>
By: jonathan http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/comment-page-1/#comment-3238 Fri, 26 Jun 2009 02:05:36 +0000 http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/#comment-3238 This series of posts floors me. Ridiculous.

And if the argument is that the CRA is a step onto a slippery slope, then a) everything is and thus we should never do anything because everything has bad effects and b) the CRA has worked and continues to work and a slippery slope argument requires this step be bad not good.

Facts about the CRA are readily available. Note that CRA institutions are mostly the local banks and associations that are currently healthy – except maybe for the CRE exposure.

]]>
By: wcw http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/comment-page-1/#comment-3231 Fri, 26 Jun 2009 00:15:11 +0000 http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/#comment-3231 Enjoyable as a well-fought flame war can be to watch, I’d recommend both combatants retire from the field until he can return with data, models and predictions. There have to be dozens of Fed and NBER papers on these subjects. Pick a few and get back to us, please.

]]>
By: anon of the moment http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/comment-page-1/#comment-3230 Fri, 26 Jun 2009 00:04:33 +0000 http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/#comment-3230 As near as I can tell, Carney is arguing that slippery slopes really do exist. The logic runs something like this: the CRA forced banks to make what appear to be suspect loans in certain under-served areas, and thus the entire mortgage industry had to make truly awful loans everywhere else. Why CRA directed lending in, say, Compton, would lead to subprime lending in Orange County isn’t made clear.

I browsed some comments over at his gossip rag and found this gem by Carney:

“But because policies often have unintended consequences, what the “CRA is designed to promote” is irrelevant. The Iraq war was designed to promote democracy. How’d that work out?”

‘Nuff said.

]]>
By: Anon http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/comment-page-1/#comment-3217 Thu, 25 Jun 2009 21:55:40 +0000 http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/#comment-3217 Um, Mr. Carney, the extrapolation takes place when you look at a CRA mortgage and call it risky. What Felix is pointing out is that these mortgages have few if any characteristics of a subprime mortgage. You seem to be harping on LTV because it the only characteristic that might be similar. It appears that you think that adjustable rates, negative amortization, stated income, etc. had nothing to do with the current crisis. Sorry, if the rest of us don’t agree with you.

]]>
By: John Carney http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/comment-page-1/#comment-3211 Thu, 25 Jun 2009 21:13:41 +0000 http://blogs.reuters.com/felix-salmon/2009/06/25/why-ltv-ratios-arent-always-a-good-default-predictor/#comment-3211 I’m not extrapolating anything. I’m providing examples of when the government urged risky mortgages.

Also, you are over-stating the predictive value of the relative price of renting versus owning. Every study I’ve seen says the rental rate is not a good predictor of default rates. The problem is that the price-rent ratio is too volatile. If you make loans on this basis, you’re just gambling. You’re better off sticking to LTV.

]]>