Academic literature on the topic 'Loan-to-value ratio (LTVR)'

Purpose The purpose of this paper is to highlight the relation between the loan-to-value (LTV) ratio and the price-rent (PR) ratio. The paper intends to relate the PR-ratio to housing return and the potential for a leverage gain in housing investments by considering the funding structure of housing investments. Design/methodology/approach Combining a PR-ratio approach with the housing return in the case of mortgage-financed housing, as presented by Borgersen and Greibrokk (2012), this paper relates LTV to the PR-ratio. Findings When formalising the relationship between leverage and housing return, as given by Muellbauer and Murphy (1997), the paper finds the effect of a higher LTV on the user cost of housing as the net effect of a higher borrowing cost and the associated leverage gain. The latter depends on the relationship between house price growth and the mortgage rate and, because the leverage gain has an ambiguous effect on the user cost of housing, the relation between the LTV-ratio and the PR-ratio is context-specific. Originality/value The paper aims to contribute to the literature on PR ratios in two ways. First, by explicitly including the LTV-ratio in the user cost of mortgage financed housing and, correspondingly, in the PR-ratio derived from the user cost. Second, by including the funding structure of housing investments the expression for the capital gain, which often is discussed in the PR-ratio literature, is related to the funding structure and includes both a price gain and a leverage gain.

The subprime mortgage crisis in 2007-2009 which led to a global recession has highlighted the importance of regulating credit for housing market. The urgency arises not only to manage non-performing ratio, but further to manage price in the housing market which is a potent source of financial imbalance. Loan-to-value (LTV) regulation is imposed in order to dampen the housing price cycle, preventing the occurrence of bubble issue. This study tries to capture the influence of LTV implementation on housing price and assesses its effectiveness in the national scope. Error correction model is used to portray the short and long-term dynamics of housing cycle with regard to policy, macroeconomic, and financial variables. We concluded that LTV is an effective policy to dampen the price cycle in the long run, but not in the short run. In the short run, housing price is closely determined by the macroeconomic factors. Furthermore, we found that the implementation of LTV has made housing price to become more persistent, suggesting a change in the market expectation structure and the behavior of housing price cycle.

AbstractAs a rule, long-term bank loans entail solid security - a mortgage, regardless of their purpose. The mortgaged property has its specific market value during the loan approval period but during the repayment period, the value of the real estate varies. This is the reason why the initially specified indicator of the coverage of loans with the value of the mortgage - the LTV ratio changes, which in turn increases the risk of loan repayment. The aim of this paper is to draw attention to the necessity of establishing adequate initial LTV ratios (together with other important ratios). This would help nullify the risk of any variations in real estate prices, the loan currency risk, the interest rate risk, as well as the risk of an increase in bank's claims because of a long foreclosure process. The paper analyses effects of changes in LTV ratios caused by varying circumstances using the case study method. The comparative method analyses the changing trends of data on the LTV ratios for the already approved loans over a seven-year period by comparing the flow of the loan capital sum with the real value of the mortgage for three types of loans. The conclusion reached is that commercial banks should establish the initial LTV ratio for various long-term loan products and thus prevent its rise. Banks should do this by taking into account all the factors that cause the ratio’s increase, and thus give preference to the reduction of the credit risk and not the attractiveness and accessibility of loan products.

Purpose This paper aims to answer how effective the loan-to-value (LTV) regulation has been since 2011 for conventional and Islamic (participation) banks in Turkey in terms of curbing mortgage loan growth and delinquency[1]. Design/methodology/approach The authors first use unit root tests and tests of difference in loan and property price data in pre-LTV and post-LTV period. Second, the authors follow Chow test and ordinary least squares regression analyses to test for a structural break when sensitivity of mortgage loan and delinquency growth changes to property price changes considered. Findings The authors find that two periods are statistically different, while the significance level is lower for Islamic banks. Moreover, loan growth has become less responsive to property price increases; delinquency sensitivity to property price changes has significantly increased in the post-LTV period for conventional banks, while this is not the case for Islamic (participation) banks. Originality/value This paper not only increases empirical evidence regarding the effectiveness of LTV ratio policy but also fills the gap in the literature by providing a comparison between conventional banks and Islamic (participation) banks.

<span style="font-family: Times New Roman; font-size: small;"> </span><p style="margin: 0in 0.5in 0pt; text-align: justify; mso-pagination: none;" class="MsoNormal"><span style="color: black; font-size: 10pt; mso-themecolor: text1;"><span style="font-family: Times New Roman;">The current study investigates the recent mortgage crisis to determine whether deteriorating aggregate loan-to-value (LTV) ratios resulted in more acute default responses to depreciating home prices.<span style="mso-spacerun: yes;"> </span>We find evidence that default rates did not behave erratically or disproportionately to falling housing values during the subprime crisis, but we found some proof that the aggregate LTV ratio was associated with increased foreclosure rate volatility.</span></span></p><span style="font-family: Times New Roman; font-size: small;"> </span>

The purpose of this research will be to answer the contribution of the macroprudential policy of Central Bank to the microprudential of islamic banking during the period of January 2008 - February 2016. The method used by quantitative analysis with panel data regression to be able to describe macroprudential policy contribution to FDR of islamic banking in Indonesia. Macroprudential policy instruments use Loan-to-Value Ratio (LTR), Statutory Reserves (GWM) based on Loan-to-Funding Ratio (LFR) and Countercyclical Capital Buffer (CCB). The islamic bankingmicroprudential instrument used is Financing to Deposit Ratio (FDR). The result shows that macroprudential policy contribution through LTV instrument to FDR has negative and significant influence. Statutory Reserves based on LFR on FDR have a positive and significant influence and CCB on FDR of Indonesia’s islamic banking shows negative and significant influence.

This paper examines the issue of loans obtained by the small and medium-sized enterprises (SMEs) from banks through the mortgage inventory of goods. And the loan-to-value (LTV) ratio which affects the loan business is a very critical factor. In this paper, we provide a general framework to determine a bank’s optimal loan-to-value (LTV) ratio when we consider the collateral value in the financial market with Knightian uncertainty. We assume that the short-term prices of the collateral follow a geometric Brownian motion. We use a set of equivalent martingale measures to build the models about a bank’s maximum and minimum levels of risk tolerance in an environment with Knightian uncertainty. The models about the LTV ratios are established with the bank’s maximum and minimum risk preferences. Applying backward stochastic differential equations (BSDEs), we get the explicit solutions of the models. Applying the explicit solutions, we can obtain an interval solution for the optimal LTV ratio. Our numerical analysis shows that the LTV ratio in the Knightian uncertainty-neutral environment belongs to the interval solutions derived from the models.

The purpose of this study is to provide empirical evidence of the effects of the Loan to Value (LTV) policy on the financial performance of property and real estate companies listed on the Indonesia Stock Exchange (IDX). The sample selection uses a purposive sampling method of 42 property and real estate companies that meet the criteria. The research period is divided into 2 namely before the Loan to Value policy (2013-2014) and after the Loan to Value policy (2016-2017) with the Paired Sample t Test analysis technique. The test results show if the current ratio, Return on Asset, Return on Equity and Debt to Asset have significant differences between before and after the LTV policy is applied. While the fast ratio, cash ratio, net profit margin and Debt to Equity did not show a significant difference. Keywords: Financial Performance, Loan to Value, Property and Real Estate, Profitability Ratio, Liquidity Ratio, Solvability Ratio.

For more than a decade, banking systems of many countries around the world have been trying to recover from the effects of the global financial crisis. The dynamics of one of the most important indicators of the effective operation of the banking sector - the level of fulfilment of loan obligations by the debtor - is analysed in the present paper. A nonperforming loan ratio (NPL) more than doubled in the EU in the period from 2008 until 2012, and the value of this indicator increased more than 20 times in the period from 2008 until 2017 in Ukraine. Many countries worldwide have focused on activities that aim at minimizing the risks associated with lending. The experience of more than 4,000 banks in 46 countries shows that one of the most effective macroprudential tools used by European central banks for mortgage loans is the loan-to-value ratio (LTV). According to research, central banks have recommended lowering the level of LTV. Thus, in Poland, the loan-to-value ratio used to be 100% and even higher, but from 2017 the maximum level should not exceed 80%. In China, the LTV level has dropped to 40% for the secondary real estate market. In Germany, the maximum loan-to-value ratio is 80%, and mortgages with LTV of less than 60% are financed at more favourable conditions by banks. Using macroprudential policy has made it possible to stabilize the situation in the banking system, therefore in 2020 the average level of non-performing loans in the EU decreased to 2.8%. In Poland, the level of NPL is slightly higher and is 6.2%, however in Ukraine the figure remains high and reaches 41%. This study aims to identify the dependence between the adequacy of fulfilment of the collateral and the debtor’s loan obligations, which is extremely important in order to stabilize and increase the liquidity and profitability of banking institutions. The obtained results are based on the assessment of 200 loan cases for which the execution time has come.

This study investigates whether the traditional underwriting loan metrics, loan-to-value (LTV), debt coverage ratio (DSCR), and debt yield (DY) ratio, can predict lodging commercial mortgage-backed securities (CMBS) loan defaults. Using a data set of 5,266 fixed-rate lodging whole loans that were securitized into CMBS between 1996 and 2015, the results of the study provide evidence of significant relationships between all three metrics and the likelihood of default. The LTV varies positively with default, while the DSCR and DY are negatively related to default. These results hold for a subsample analysis of loans originated prior to the global financial crisis (GFC). Finally, the results show the DY spreads to be adequate proxies for the DY ratio.

Many analysts believe that problems in the United States housing market initiated the 2007-2009 global financial crisis. In this regard, the subprime mortgage crisis (SMC) shook the foundations of the financial industry by causing the failure of many iconic Wall Street investment banks and prominent depository institutions. This crisis stymied credit extension to households and businesses thus creating credit crunches and, ultimately, a global recession. This thesis specifically discusses the SMC and its components, causes, consequences and cures in relation to subprime mortgage origination, data as well as bank bailouts. In particular, the SMC has highlighted the fact that risk, credit ratings, profit and valuation as well as capital regulation are important banking considerations. With regard to risk, the thesis discusses credit (including counterparty), market (including interest rate, basis, prepayment, liquidity and price), tranching (including maturity mismatch and synthetic), operational (including house appraisal, valuation and compensation) and systemic (including maturity transformation) risks. The thesis introduces the IDIOM hypothesis that postulates that the SMC was largely caused by the intricacy and design of subprime agents, mortgage origination that led to information problems (loss, asymmetry and contagion), valuation opaqueness and ineffective risk mitigation. It also contains appropriate examples, discussions, timelines as well as appendices about the main results on the aforementioned topics. Numerous references point to the material not covered in the thesis, and indicate some avenues for further research. In the sequel, the banks that we study are subprime interbank lenders (SILs), subprime originators (SORs), subprime dealer banks (SDBs) and their special purpose vehicles (SPVs) such as Wall Street investment banks and their special structures as well as subprime investing banks (SIBs). Furthermore, the primary subprime agents that we consider are house appraisers (HAs), mortgage brokers (MBs), mortgagors (MRs), servicers (SRs), trustees, underwriters and credit enhancement providers (CEPs). Also, the insurers involved in the subprime market are originator mortgage insurers (OMIs) and monoline insurers (MLIs). The main components of the SMC are MRs, the housing market, SDBs/hedge funds/money market funds/SIBs, the economy as well as the government (G) and central banks. Here, G either plays a regulatory, bailout or policymaking role. Most of the aforementioned banks and agents are assumed to be risk neutral with SOR being the exception since it can be risk (and regret) averse on occasion. The three main aspects of the SMC - subprime mortgage origination, data and bailouts - that we cover in this thesis and the chapters in which they are found are outlined below. In Chapter 2, we discuss the dynamics of SORs' capital, information, ratings, risk and valuation under mortgage origination. In particular, we model subprime mortgages that are able to fully amortize, voluntarily prepay or default and construct a discrete-time model for SOR risk and profit incorporating costs of funds and mortgage insurance as well as loan losses. Furthermore, a constrained optimal valuation problem for SORs under mortgage origination is solved. In addition, we show how high loan-to-value ratios curtailed the refinancing of subprime mortgages, while low ratios imply favorable house equity for subprime MRs. Chapter 2 also explores the relationship between Basel capital regulation and the SMC. This involves studying bank credit and capital under Basel regulation. Further issues dealt with are the quantity and pricing of subprime mortgages as well as credit ratings under Basel capital regulation. A key problem is whether Basel capital regulation exacerbated the SMC. Very importantly, the thesis answers this question in the affirmative. Chapter 3 contains subprime data not presented in Chapters 2. We present other mortgage data that also have connections with the main subprime issues raised. In Chapter 4, a troubled SOR's recapitalization by G via subprime bank bailouts is discussed. Our research supports the view that if SOR is about to fail, it will have an incentive not to extend low risk mortgages but rather high risk mortgages thus shifting risk onto its creditors. Here, for instance, we analyze the efficiency of purchasing toxic structured mortgage products from troubled SORs as opposed to buying preferred and common equity. In this regard, we compare the cases where SORs' on-balance sheet mortgages are fully amortizing, voluntarily prepaying (refinancing and equity extraction) and involuntarily prepaying (defaulting). If bailing out SORs considered to be too big to fail involves buying assets at above fair market values, then these SORs are encouraged ex-ante to invest in high risk mortgages and toxic structured mortgage products. Contrary to the policy employed by G, purchasing common (preferred) equity is always the most (least) ex-anteand ex-post-efficient type of capital injection. Our research confirms that this is true irrespective of whether SOR volunteers for recapitalization or not. In order to understand the key results in Chapters 2 to 4, a working knowledge of discrete-time stochastic modeling and optimization is required. The work presented in this thesis is based on a book (see [103]), 2 peer-reviewed international journal articles (see [51] and [105]), 2 peer-reviewed chapters in books (see [104] and [110]) and 4 peer-reviewed conference proceedings paper (see [23], [106], [107] and [109]).
Thesis (Ph.D. (Applied Mathematics))--North-West University, Potchefstroom Campus, 2011.

Many analysts believe that problems in the U.S. housing market initiated the 2008–2010 global financial crisis. In this regard, the subprime mortgage crisis (SMC) shook the foundations of the financial industry by causing the failure of many iconic Wall Street investment banks and prominent depository institutions. This crisis stymied credit extension to households and businesses thus creating credit crunches and, ultimately, a global recession. This thesis specifically discusses the SMC and its components, causes, consequences and cures in relation to subprime mortgages, securitization, as well as data. In particular, the SMC has highlighted the fact that risk, credit ratings, profit and valuation as well as capital regulation are important banking considerations. With regard to risk, the thesis discusses credit (including counterparty), market (including interest rate, basis, prepayment, liquidity and price), tranching (including maturity mismatch and synthetic), operational (including house appraisal, valuation and compensation) and systemic (including maturity transformation) risks. The thesis introduces the IDIOM hypothesis that postulates that the SMC was largely caused by the intricacy and design of subprime agents, mortgage origination and securitization that led to information problems (loss, asymmetry and contagion), valuation opaqueness and ineffective risk mitigation. It also contains appropriate examples, discussions, timelines as well as appendices about the main results on the aforementioned topics. Numerous references point to the material not covered in the thesis, and indicate some avenues for further research. In the thesis, the primary subprime agents that we consider are house appraisers (HAs), mortgage brokers (MBs), mortgagors (MRs), servicers (SRs), SOR mortgage insurers (SOMIs), trustees, underwriters, credit rating agencies (CRAs), credit enhancement providers (CEPs) and monoline insurers (MLIs). Furthermore, the banks that we study are subprime interbank lenders (SILs), subprime originators (SORs), subprime dealer banks (SDBs) and their special purpose vehicles (SPVs) such as Wall Street investment banks and their special structures as well as subprime investing banks (SIBs). The main components of the SMC are MRs, the housing market, SDBs/hedge funds/money market funds/SIBs, the economy as well as the government (G) and central banks. Here, G either plays a regulatory or policymaking role. Most of the aforementioned agents and banks are assumed to be risk neutral with SOR being the exception since it can be risk (and regret) averse on occasion. The main aspects of the SMC - subprime mortgages, securitization, as well as data - that we cover in this thesis and the chapters in which they are found are outlined below. In Chapter 2, we discuss the dynamics of subprime SORs' risk and profit as well as their valuation under mortgage origination. In particular, we model subprime mortgages that are able to fully amortize, voluntarily prepay or default and construct a discrete–time model for SOR risk and profit incorporating costs of funds and mortgage insurance as well as mortgage losses. In addition, we show how high loan–to–value ratios due to declining housing prices curtailed the refinancing of subprime mortgages, while low ratios imply favorable house equity for subprime MRs. Chapter 3 investigates the securitization of subprime mortgages into structured mortgage products such as subprime residential mortgage–backed securities (RMBSs) and collateralized debt obligations (CDOs). In this regard, our discussions focus on information, risk and valuation as well as the role of capital under RMBSs and RMBS CDOs. Our research supports the view that incentives to monitor mortgages has been all but removed when changing from a traditional mortgage model to a subprime mortgage model. In the latter context, we provide formulas for IB's profit and valuation under RMBSs and RMBS CDOs. This is illustrated via several examples. Chapter 3 also explores the relationship between mortgage securitization and capital under Basel regulation and the SMC. This involves studying bank credit and capital under the Basel II paradigm where risk–weights vary. Further issues dealt with are the quantity and pricing of RMBSs, RMBS CDOs as well as capital under Basel regulation. Furthermore, we investigate subprime RMBSs and their rates with slack and holding constraints. Also, we examine the effect of SMC–induced credit rating shocks in future periods on subprime RMBSs and RMBS payout rates. A key problem is whether Basel capital regulation exacerbated the SMC. Very importantly, the thesis answers this question in the affirmative. Chapter 4 explores issues related to subprime data. In particular, we present mortgage and securitization level data and forge connections with the results presented in Chapters 2 and 3. The work presented in this thesis is based on 2 peer–reviewed chapters in books (see [99] and [104]), 2 peer–reviewed international journal articles (see [48] and [101]), and 2 peer–reviewed conference proceeding papers (see [102] and [103]).
Thesis (Ph.D. (Applied Mathematics))--North-West University, Potchefstroom Campus, 2011.

An increasing trend of using macroprudential instrument, caps on loan-to-value (LTV) ratio, requires a full understanding of how the instrument works in practice. As the empirical research is still scant, this thesis attempts to contribute with a new evidence on LTV effectiveness in context of six developed economies, namely Netherlands, Sweden, Ireland, Hungary, Latvia and Lithuania. To achieve this objective we analyse the impact of caps on LTV on credit growth, mortgage credit-to- GDP ratio and price growth. LTV limits are not a harmonised measure and its national-level implementation includes numerous specificities that can hinder cross-country comparisons. As a result, this thesis proposes a construction of LTV index reflecting specific aspects of the measure. Using the LTV Index we confirmed a slowdown of credit, mortgage and price growth. JEL Classification E44, E51, E52, E58, G21 Key words caps on loan-to-value ratio, maximum LTV ratio, macroprudential policy, credit-related instruments, LTV Index, house price growth, credit growth, financial stability.

O negócio bancário está exposto a diferentes fontes de risco, cujos efeitos podem ser adversos tanto ao nível do capital próprio como da sua rendibilidade. O principal risco inerente à actividade bancária é denominado de ‘risco de crédito’, que se identifica com a probabilidade de um devedor não cumprir com as obrigações contratuais acordadas. A incidência de risco de crédito permite quantificar o valor da perda esperada associada a um crédito individual. Para o efeito, devem ser calculados diferentes parâmetros: a probabilidade de incumprimento (PD), a perda em caso de incumprimento (EAD) e a exposição a incumprimento (LGD). O presente estudo aplica quatro métodos econométricos para a estimação da probabilidade de incumprimento, designadamente os modelos de probabilidade linear, logit, probit e a análise discriminante múltipla. A amostra utilizada incide sobre 200 contratos de empréstimo para aquisição de habitação, originados entre os anos de 2000 e 2010, incluindo contratos afectados por evento de default durante o ano de 2011, e contratos sem ocorrência de default no mesmo período.
Banks are exposed to different sources of risk which may affect its equity levels and profitability. The main risk approached is called ‘credit risk’, defined by the probability of a debtor to default with the agreed contractual terms. This risk allows us to quantify the expected loss regarding an individual credit, which depends on three different parameters: the probability of default (PD), the exposure at default (EAD) and the loss given default (LGD). The following study applies four econometric techniques to estimate the probability of default, namely, linear probability model, logit, probit and multiple discriminant analysis. The sample collected covers 200 mortgage residential loans, originated between 2000 and 2010, including contracts affected by a default event during 2011 and contracts free of default event during the same year.