The popularity of high-loan-to-value mortgages indicates to one analyst that consumer bankruptcies will continue to soar, given the historical link between these loans and bankruptcy filings.

Since 1980, bankruptcy filings have moved in tandem with the loan-to- value ratio on new mortgages, said Mark Zandi, chief economist at Regional Financial Associates, a West Chester, Pa., consulting firm. A record 1.3 million Americans filed for bankruptcy last year.

As Congress prepares to enact rules that would make it more difficult for overextended consumers to write off debt by declaring bankruptcy, Mr. Zandi's model suggests that lenders should expect filings to keep rising.

The increase in loan-to-value ratios in the mortgage industry has been "a good proxy" for the decline of credit standards across all types of consumer lending, Mr. Zandi said. In recent years, Americans of modest incomes have gained bigger credit lines on their credit cards and larger car and home loans than ever before, he said.

Mr. Zandi attributed 75% of the increase in bankruptcy filings to the decline in credit standards in recent years-often in loans to borrowers with little experience in handling debt.

Under regulatory and competitive pressures, mortgage lenders have increased their lending to borrowers making small down payments. Many of these borrowers have moderate incomes, but the surge in low-down-payment products has also helped middle-class buyers who want the biggest house they can finance.

Mortgages with loan-to-value ratios exceeding 90% have grown from less than one-10th of all originations in 1990 to 25% in 1997, according to the Federal Housing Finance Board.

Since 1995, mortgages that exceed a home's value by as much as 25% have come into their own. In 1994, less than $1 billion worth of these loans was made, according to Regional Financial Associates. Last year, $15 billion of high-LTV mortgages were written.

U.S. households owe $4 trillion on home loans and a little more than $1 trillion on installment loans, making mortgages the biggest liability on household balance sheets.

While he favors some aspects of the current bankruptcy reform bills that would make it more difficult for borrowers to defraud lenders, Mr. Zandi argued that most of the changes would boost bankruptcy filings, not reduce them.

"My view of it is that the legislation will induce lenders to reduce standards even further," Mr. Zandi said. The new rules would enable lenders to recover a bigger share of debt from borrowers who file for bankruptcy, widening profit margins.

Lenders will "compete away the margins" by making more high-loan-to- value loans, qualifying borrowers with lower credit scores and easing standards in other ways, Mr. Zandi said.

Other economists worry that bankruptcies will worsen as the economy slows and the higher risks lenders have taken during good times come home to roost. Borrowers who have stretched themselves thin to make loan payments even in good times will be hit hard by job and income losses, they said.

"The potential for future bankruptcies is greater than what we have had so far, and it directly relates to the condition of the economy," warned David A. Levy, vice chairman, director of forecasting at the Levy Institute Forecasting Center, Mount Kisco, N.Y.

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