The lags observed in my results suggest that recent crime movements may cause deteriorating property values for several years to come, making current loan-to-value ratios
inappropriate indicators of the true level of risk inherent in a loan.
Here, automated property valuation technology can be applied to calculate the aggregate current loan-to-value ratio
of a portfolio as one indicator of portfolio quality.
Fitch expects performance to remain stable, especially given the significant seasoning of the securitised portfolio of approximately 15 years, and the gradual deleveraging of the mortgages, with an estimated weighted average current loan-to-value ratio
of 46% compared with the weighted average original LTV of 77%.
The WA recovery rate is higher in this year's analysis because of a lower WA indexed current loan-to-value ratio
and a higher share of annuity loans, for which exposure at default will fall over time, leading to higher recovery rates.
The securitised portfolio also had a fairly low weighted-average current loan-to-value ratio
of 39.3% at the cut-off date.
The majority of the loans are 'peak year' (2005-07) vintages with a weighted average (WA) seasoning of 119 months, an indexed WA current loan-to-value ratio
(CLTV) of 70.93% and a WA debt-to-income ratio (DTI) of 40.36%.
- Reduction of the Weighted Average Current Loan-to-Value Ratio
of the pool being reduced from 75% to 67.5%
As home prices fell after 2006, current loan-to-value ratios
shot up, turning into negative equity, and foreclosure rates rose.
"If my property hasn't appreciated since the last time it was financed, current loan-to-value ratios
are going to prevent any lender from lending me the full amount of the last mortgage," said Richard Pergolis, also a principal in Pergolis Swartz Associates.
Current loan-to-value ratios
for mortgages have stayed consistently below 40% in 2014-1H18.
The first shows the probability of a "credit event" for varying current loan-to-value ratios
(CLTVR), and the second shows the degree of yield degradation (credit risk in basis points) due to the effects of both the original LTV and the amortization period.