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

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 RatiosB3-6-02, Debt-to-Income Ratios, for additional information.)

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: The HCLTV ratio calculation may differ for certain mortgage loans. For details on these differences, see B2-1.3-05, Payoff of Installment Land Contract RequirementsB2-1.3-05, Payoff of Installment Land Contract Requirements; B5-2-03, Manufactured Housing Underwriting RequirementsB5-2-03, Manufactured Housing Underwriting Requirements; B5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing TransactionsB5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing Transactions; B5-3.3-01, HomeStyle Energy for Improvements on Existing PropertiesB5-3.3-01, HomeStyle Energy for Improvements on Existing Properties; B5-3.2-03, HomeStyle Renovation Mortgages: Collateral ConsiderationsB5-3.2-03, HomeStyle Renovation Mortgages: Collateral Considerations; and B5-5.1-02, Community Seconds Loan EligibilityB5-5.1-02, Community Seconds Loan Eligibility.

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