IBA Compliance Connection

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When reporting loans in excess of our supervisory loan-to-value limits under Part 365 of the FDIC’s regulations, we are wondering if we should report loans that exceed our supervisory loan-to-value limits if they are covered under private mortgage insurance. Would these loans be considered excluded transactions as “guaranteed or insured by a state, municipal or local government, or an agency thereof”?

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No, we do not believe that a mortgage loan with private mortgage insurance (PMI) would be treated as insured (or guaranteed) by a governmental agency. PMI providers are by definition “private,” so we would not view PMI as provided by a public entity and would not view a loan covered by PMI as an excluded transaction on that basis.

However, we believe that the loan-to-value ratio for a particular residential mortgage loan can be calculated by taking PMI into account. The definition of “loan-to-value ratio” in Part 365 appears to contemplate the use of credit enhancements such as “mortgage insurance” when calculating a loan-to-value (LTV) ratio. Consequently, the use of PMI may lower a loan’s LTV enough to allow you to avoid reporting it to your board as an exception loan.

For resources related to our guidance, please see:

  • 12 CFR Part 365, Subpart A, Appendix A, Interagency Guidelines for Real Estate Lending Policies (“Loans in Excess of the Supervisory Loan-to-Value Limits . . . . Such loans should be identified in the institution’s records, and their aggregate amount reported at least quarterly to the institution’s board of directors.”)
  • 12 CFR Part 365, Subpart A, Appendix A, Interagency Guidelines for Real Estate Lending Policies (“Excluded Transactions. The agencies also recognize that there are a number of lending situations in which other factors significantly outweigh the need to apply the supervisory loan-to-value limits. These include: . . . Loans guaranteed or insured by a state, municipal or local government, or an agency thereof, provided that the amount of the guaranty or insurance is at least equal to the portion of the loan that exceeds the supervisory loan-to-value limit, and provided that the lender has determined that the guarantor or insurer has the financial capacity and willingness to perform under the terms of the guaranty or insurance agreement.”)
  • 12 CFR Part 365, Subpart A, Appendix A, Interagency Guidelines for Real Estate Lending Policies (“Loan-to-value or loan-to-value ratio means the percentage or ratio that is derived at the time of loan origination by dividing an extension of credit by the total value of the property(ies) securing or being improved by the extension of credit plus the amount of any readily marketable collateral and other acceptable collateral that secures the extension of credit. The total amount of all senior liens on or interests in such property(ies) should be included in determining the loan-to-value ratio. When mortgage insurance or collateral is used in the calculation of the loan-to-value ratio, and such credit enhancement is later released or replaced, the loan-to-value ratio should be recalculated.”)
  • 12 CFR Part 365, Subpart A, Appendix A, Interagency Guidelines for Real Estate Lending Policies (“Loans in Excess of the Supervisory Loan-to-Value Limits . . . . Such loans should be identified in the institution’s records, and their aggregate amount reported at least quarterly to the institution’s board of directors.”)