1. It's lower riskout of interest why do they offer to <80% only?
1. It's lower risk
2. Because they can
You better tell the people who make a living out of assigning credit ratings to RMBS notes.Marginally lower risk in the grand scheme of it.
Marginally lower risk in the grand scheme of it. 500K house with LTV of 90% is a mortgage of 450k, vs 80% is 400k. Monthly costs probably onlt ~200 Euro difference so no real difference in default risk of the holder.
I am wondering if by doing it at 80% it just severely limits the amount of people that can take the lower rates.
Marginally lower risk in the grand scheme of it. 500K house with LTV of 90% is a mortgage of 450k, vs 80% is 400k. Monthly costs probably onlt ~200 Euro difference so no real difference in default risk of the holder.
You better tell the people who make a living out of assigning credit ratings to RMBS notes.
LTV is also a factor in RWA calculations, which is a pretty important value to banks.
Eh, they’re vastly different.
An 80% LTV has 100% more equity than a 90% LTV.
Hi Andrew
If you take out a 90% mortgage, a 10% fall in house prices will wipe out your equity. History shows that people in negative equity are less likely to keep up their payments.
If you take out an 80% mortgage, you will still be in positive equity with a 10% fall in house prices.
The data show that there is very little default and very low losses arising from default for mortgages below 80% LTV. It starts to rise fairly sharply at 80% and increases as it exceeds 90%.
The Central Bank has issued a number of studies on it.
Brendan
Andrew,
The entire European market lends at LTV rates. It's less prevalent in Ireland than elsewhere, and external commentators look at this as dysfunctional.
PD (which you focus on) is just 1 element of the overall credit risk to the bank.
Banks care about return on equity. Which largely in a lending context cares about net interest margin, and the amount of equity they need to hold.
On lower LTV's, they've a lower cost of funds. We've already mentioned RMBS, and you're familiar with that market.
On lower LTV's they also have lower RWA's. So they need less capital.
So higher net interest margin on a lower capital base = happy shareholders!
There's vast amounts of data and reports on the topic of LTV, default, and RWA, that no doubt you've read as a result of your career, so I won't spell it all out for you.
Taking UB as the example, they currently have over 2.5bn in RMBS issuance. The lower the LTV on their pool, the better the credit rating of the RMBS notes, the lower the interest rate. Etc.In summary the cost of borrowing from a bank perspective costs more for loans at higher ltvs?
Taking UB as the example, they currently have over 2.5bn in RMBS issuance. The lower the LTV on their pool, the better the credit rating of the RMBS notes, the lower the interest rate. Etc.
It's all on their website, under investor information.UB are securitizing their mortgage portfolio amd selling it? Have you got a link to an ISIN / prospectus?
It's all on their website, under investor information.
There is not much there
No, it's not as simple as that. But the value of the underlying assets is a major factor in the size of the senior notes, and their credit rating. So if you've a securitisation where all the mortgages are <60% LTV for example, you can issue more senior notes than if they were 90% LTV. And the junior notes will cost less because there's less risk to the investor.So you are saying that in the European market tranches based on ltv
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