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Calculation of Loan-to-value Ratios for Single-family Residential Mortgages

Question 89: LTV ratios must be considered in determining whether or not single-family residential mortgage loans qualify for 50% risk weighting on Schedule CCR. if an existing property is purchased at a price lower than the appraised value, which value should be used in the calculation of the LTV ratio? This distinction in the definition of "value" can be material for institutions that routinely grant loans in which purchase prices are significantly below the appraised values.

A: The value used in the ITV ratio for risk-weighting purposes would be the lesser of the purchase price or the appraised value.

Loans Secured by Duplexes

Question 72: An institution has one borrower who owns six duplexes, with one loan for all six duplexes. Based on property type this would be classified as a 1-4. However, since there is only one loan on more than four units would it be considered multifamily?

A: If there is one mortgage on several duplexes totaling 5 or more units, it is classified as multifamily (5 or more). If there were individual mortgages on each property, they would be classified as single family, that is, each loan could have different terms and each could be foreclosed on or sold separately.

Single-Family Construction Loans

Question 123: We are having an interpretation problem with [Question 72]. In our construction loans we have 20 houses in the same subdivision on one mortgage issuing partial releases as each home is sold and closed. The purpose of the loan is clear, as well as, use of its proceeds - funds are used to build free-standing, singlefamily detached houses that are for sale to the general public. Should we classify these as multi-family or as single-family construction loans? A: Q&A No. 72 applies to permanent mortgage loans. It was not intended to apply to construction loans. The instructions for SC239, Construction Loans on 1-4 Dwelling Units, respond to your question. Item number 1 under include states: "Construction loans to developers secured by tracts of land on which single-family houses, including townhouses, are being constructed." A master loan to a builder to build single-family homes should be classified on the TFR as a single family construction loan.

Source: TFP Q&As. Answers are not intended to be all encompassing. Please consult your legal sources and use the Federal Guide for further research. For more information about the Federal Guide call (202) 857 3161.