21 Jan 09 Average Loan to Value Ratios Projected to Hit 109%
Home prices have fallen 18% since 2006 and could drop another 10% in 2009, which means the average mortgage could be “underwater” soon, according to a former Fannie Mae executive who served as the GSE’s chief credit officer in the 1980s. Speaking before the American Enterprise Institute, former GSE executive Edward Pinto said the average loan-to-value ratio on most single-family loans was roughly 95% at year-end 2008. Even with mortgage rates at record levels, property values continue to decline. The fear of losing home equity is still real.
Mr. Pinto, now a consultant, said that figure could rise to 109% at the end of this year, a first. He noted that a 20%-plus drop in home prices has not occurred since the Great Depression when values fell 24% between 1929 and 1933. LTVs, though, were much lower in the Depression. The consultant relies on home price indexes issued by the Federal Housing Finance Agency and S&P Case Shiller in making his price estimates. Mr. Pinto said the government is on the hook for nearly 70% of all mortgages due to its backing of Fannie Mae, Freddie Mac, the Federal Home Loan Banks, the Federal Housing Administration and Federal Deposit Insurance Corp. If Congress passes bankruptcy reform legislation that allows for mortgage cram downs, the government will be “cramming down the loans they are responsible for,” Mr. Pinto said.
Tags: home equity, mortgage rates
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