Loan-to-value ratios on newly issued mortgages are rising. While some of the reasons are quite clear, there are two views on whether there is cause for concern.

The principal reason is that most loans today are made to people who want to buy houses, and they generally want to keep the down payment to a minimum.

And this is especially true of first-time buyers, who at the moment represent an especially large segment of the purchase market.

Previously, most loans were refinancings, in which the balance has already been paid down to some extent.

Karen Wagner, a vice president in CS First Boston's market research department, holds that there is little cause for concern from an investor viewpoint.

In Mortgage Investors Review, published by Fitch Investors Service, she writes: "I believe [investor] concern may be unfounded for these three reasons: LTV ratios are more reliable for purchase mortgages; LTVs on refinancings should be lower than purchase mortgages; and credit enhancement levels are higher the higher the LTV."

Ms. Wagner explains that value side of the equation with a purchase mortgage is the actual purchase price, while a refi depends on an appraisal. Even the best appraisals, she says, have as margin of error that could make a significant difference.

Since rating agencies require more credit enhancement for lower loan-to-value ratios, the upward trend for ratios on new issues should not be problematic.

"Refinanced mortgages are attractive credit risks for reasons other than LTV. However, an overreliance on LTV in comparing last year's refi production to this year's service production may lead to the wrong conclusions about comparable credit quality."

But some analysts are not so comfortable with rising LTVs from the lender point of view. They believe a less-visible influence on the ratios for new loans is the exceptionally competitive atmosphere in mortgage lending.

Eric Hemel, an analyst with Morgan Stanley, points out that loan-to-value ratios have been creeping up even on refinancings, according to figures from the Federal Home Loan Mortgage Corp.

In the second quarter of this year, Freddie Mac reported an average loan-to-value ratio of 69% on refis.

The rates had been at 67% for a year and at 63% for at least three years.

By contrast, LTVs on loans to buy homes have climbed from an average of 76% in 1989, 1990, and 1991 to 79% in the first quarter of last year and reached 82% in the second quarter this year. The richer mix of purchase loans has pushed the combined average LTV to 75%, the highest point in at least five years.

Mr. Hemel writes: "It is the view of Freddie Mac officials that the underwriting practices throughout the mortgage market have loosened somewhat over the most recent several quarters, due in part to increased competition among mortgage lenders for their respective shares of a shrinking pie."

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