Selling Guide

Published April 07, 2021

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B2-1.2-03, Home Equity Combined Loan-to-Value (HCLTV) Ratios (02/23/2016)

Introduction

This topic contains information on HCLTV ratios, including:

 

Calculation of the HCLTV Ratio

For first mortgages that have subordinate financing under a HELOC, the lender must calculate the HCLTV ratio. This is determined by dividing the sum of the items listed below by the lesser of the sales price or appraised value of the property.

  • the original loan amount of the first mortgage,

  • the full amount of any HELOCs (whether or not funds have been drawn), and

  • the unpaid principal balance (UPB) of all closed-end subordinate financing.

 

Note: For each subordinate liability, in order for the lender to accurately calculate the HCLTV ratio for eligibility and underwriting purposes, the lender must determine the maximum credit line for all HELOCs, if applicable, and the unpaid principal balance for all closed-end subordinate financing. If any subordinate financing is not shown on a credit report, the lender must obtain documentation from the borrower or creditor.

If the borrower discloses, or the lender discovers, new (or increased) subordinate financing after the underwriting decision has been made, up to and concurrent with closing, the lender must re-underwrite the mortgage loan. (See B3-6-02, Debt-to-Income Ratios, for additional information.)

 

 

Permanently Modified HELOCs

If the lender determines the HELOC has been permanently modified and the outstanding UPB is less than the permanently modified HELOC, the lender must use the modified HELOC amount in calculating the HCLTV ratio for eligibility purposes and for delivery. The lender must obtain appropriate documentation that the HELOC has been permanently modified and include this documentation in the loan file.

If the outstanding UPB is greater than the permanently modified HELOC, the lender must use the outstanding UPB to calculate the HCLTV ratio for eligibility purposes and for delivery. As noted above, the lender must obtain appropriate documentation and include that documentation in the loan file.

In no case may the CLTV ratio exceed the HCLTV ratio.

 

 

 

Note: Refer to the Eligibility Matrix for maximum allowable HCLTV ratios.

 

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