Comments on: Nationwide brings back 125% LTV mortgages

By: Ginger Yellow

Ginger Yellow — Mon, 13 Jul 2009 10:23:36 +0000

"LTV and DTI measure two different things. DTI measures capacity whereas LTV measures capital/collateral"

Um, I know that. That's why I contrasted the two and said the FSA prefers one over the other.

By: Bruce Krasting

Bruce Krasting — Fri, 10 Jul 2009 12:00:10 +0000

I always thought that a "good loan" was defined as having two ways out.

One would be that the borrower pays the note from their own cash flow. The other is when the collateral is seized and sold to satisfy the loan.

With a 125% loan there is certainly no two ways out. It is doubtful that there is one way out given the high default rate these loans will have.

So how is Nationwide going to 'book' these loans. Money good?? I can't imagine that. They do not meet the criteria of a good loan.

We are going the wrong way on this problem. We are just creating more bad loans.

I do not think the Japanese banks did this in the 90's. They did make 100% loans, but not 125%. May I conclude that we are gong down Japan's road and therefore this will take a decade or more to fix??

By: Edward Harrison

Edward Harrison — Thu, 09 Jul 2009 20:39:10 +0000

RTD, very much on point! Nationwide wants that up-trade because the whole housing edifice depends on it. If people can't trade up, then the whole chain of transactions doesn't happen.

Give credit where credit is due. These guys are definitely thinking outside the box.

On Credit Writedowns, I posted a press release from Nationwide. Apparently, they are getting a lot of flack about this product.

By: RTD

RTD — Thu, 09 Jul 2009 15:28:39 +0000

This is just a way to allow people to continue to trade up to bigger houses in a down market, when they should be scaling back to smaller more affordable houses.

@Ginger - LTV and DTI measure two different things. DTI measures capacity whereas LTV measures capital/collateral. Both are equally important credit metrics.

--RueTheDay

By: Robespierre

Robespierre — Thu, 09 Jul 2009 15:21:58 +0000

If independently wealthy equates to increased freedom doesn't overwhelming debt make you a slave? Isn't ironic that the land of the free is producing slaves at record pace?

By: Ginger Yellow

Ginger Yellow — Thu, 09 Jul 2009 14:54:09 +0000

FWIW, I don't think the FSA is going to cap LTVs. I've been following their public statements on this quite closely and it's pretty clear they're leaning toward a more flexible affordability measure, like a debt to income ratio, probably incorporating other indebtedness. The government could force them to, of course, but the white paper this week quite deliberately shied away from doing so.