The Office of Thrift Supervision is reviewing its policy on high-loan- to-value lending, the agency said Tuesday.
Until now, the office has declined to step in, saying that not enough thrifts were involved. Although there are only a handful of institutions that make these loans, their number is increasing, a spokesman said.
High-loan-to-value loans, which have increased in popularity in the past year, allow homeowners to borrow more than their home's value and use the extra cash to consolidate debt or make purchases. Lenders have been making loans for as much as 150% of a home's value.
The riskiness of these loans has come under scrutiny by economists and legislators as more banks and thrifts extend loan limits and seek to buy high-LTV specialists.
Rumors of the OTS review may have put some of these activities in check.
Bay View Capital Corp., San Mateo, Calif., said Monday that it was suspending its plans to buy PSB Lending Corp., a Carlsbad, Calif., high- loan-to-value shop, until new guidelines were issued. Bay View is looking not for risky loans, but for "other products to balance out its portfolio," said David Haeberlin, chief financial officer at Bay View.
"This is a very scary time," for mortgage lenders, he said. Super-low interest rates and borrowers' newfound willingness to refinance their mortgage to save just a quarter of a point mean more risk for lenders when rates go up.
Those that have not properly hedged by diversifying into other products could be in for a "world of hurt" if rates rise, he said.
"All we're trying to do is intelligently manage our bank," Mr. Haeberlin said. "We're troubled by a regulatory environment that's forcing lenders into mortgage loans that in five to 10 years could be very dangerous."
The OTS would not comment on how its guidelines might affect lenders' hedging strategies.
The Department of Housing and Urban Development is also said to be publishing guidelines about high-loan-to-value lending. It did not return calls.
Senate Banking Committee Chairman Alfonse D'Amato, R-N.Y., who is reportedly on the side of high-loan-to-value lenders, is expected to speak out about the products' usefulness.
The last OTS guidance on loan-to-value limits appeared in 1992, the spokesman said, when loans for more than a home's value were "unheard of." Then, the agency said that mortgage loans for more than 90% of a home's value should carry private mortgage insurance.
The spokesman would not predict when new guidelines would be out.
