Residential real estate will be treated even more favorably in the final version of the loan-to-value regulations than they were in the proposed rules, according to a source on the staff at the Office of Thrift Supervision.

"We agree that residential real estate is less risky and should receive appropriate treatment," he said. The proposed regs gave the most favorable treatment to residential mortgage loans. The final version will extend that treatment to residential construction and development loans, the source added.

The final regulations could be ready within a week and sent to the Treasury Department and the Office of Management and Budget for review, the source said.

Even before the 944 comment letters that arrived in time for the Aug. 31 deadline were read, staffs at OTS, the Office of the Comptroller of the Currency, the Federal Reserve Board and the Federal Deposit Insurance Corporation were at work revising the LTV regulations, which were issued in proposed form in June (see The Mortgage Marketplace, June 29, page 1).

In general, the comments strongly criticized both alternatives included in the proposed regulations. Most stressed the need for more favorable LTV ratios for residential real estate. Several said LTV ratios should be scrapped altogether as a means of assessing the relative risk of real estate loans.

That, however, is unlikely because the regulatory agencies agreed to develop LTV ratios when Sen. Timothy E. Wirth, D-Colo., last year dropped a proposed amendment to the FDIC Improvement Act that would have set specific LTV ratios. For excerpts from the comment letter from the Mortgage Bankers Association, see page 4.)

"The ABA is concerned with competitive inequity created by the establishment of regulatory mandated LTV ratio standards," the American Bankers Association wrote. "The [Fed] and the other financial institution regulatory agencies intend to impose LTV ratio standards on commercial banks and thrift institutions while other lenders remain outside the proposed regulation." The National Association of Realtors struck a theme repeated by several commenters: The goal of the FDICIA. which directed the agencies to develop uniform standards for real estate lending, "should be met through the use of guidance rather than prescriptive regulation," said the Realtors.

"Such guidance should remain flexible enough to allow lenders access to their particular marketplaces yet set as definitive and realistic underwriting standards for commercial real estate lending," the NAR said.

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