Check this out from the JP Morgan (JPM) earnings call
In response to a question on tightening lending standards:
“People have gone back to old-fashioned 80 percent L.T.V. (loan to value). Real verified income. More disciplined appraisals. And in some areas, we won’t even go to 80 percent L.T.V. because of expected home decreases. We are not at 80 percent in California, Nevada and Florida — we are at 65 percent.”
The loan-to-value is simply value of an asset to the amount of the loan given out by banks. So, if Joe wants buy a house for $200,000, an $160,000 mortgage would equate to 80 percent L.T.V. ratio. Under some of the newer standards in the above mentioned states, Joe would only be able to get a loan for $130,000 and would have to come up with $70,000 himself.
At the height of housing euphoria, some banks were giving loans with an L.T.V. of 105 percent to customers, meaning the loan covered the entire price of the asset — plus more, to cover closing costs. In this scenario, Joe would walk up and sign and be given the keys without a dime coming out of his pocket…
Any wonder we are where we are??? More later..
Disclosure (“none” means no position):none
Visit the ValuePlays Bookstore for Great Investing Books