Thrifts warned of peril in home equity loans U.S. agency is concerned about loans for more than a house is worth; Savings and loans


WASHINGTON -- The U.S. Office of Thrift Supervision is warning savings and loans about acquiring excessive concentrations of a certain type of home equity loans often used for debt consolidation.

The agency, which regulates the nation's 1,200 savings and loans, warned about high loan-to-value mortgage loans, or "high-LTV" loans, which are mortgages that can approach or even exceed the value of the property they're borrowed on.

Such loans, which can have first or second-liens on a home, typically are used to consolidate credit card, auto loan and other debt into a single monthly mortgage payment.

They're attractive to borrowers because interest on loans secured by a home are generally tax deductible.

Most consumer interest isn't deductible.

Few thrifts are making these loans in high volumes, the OTS said yesterday.

But, the agency warned, the thrift industry should be aware of their potential problems.

"Most of the high LTV loans are being made by private, nonregulated lenders, but now we have a growing concern about OTS-regulated institutions getting into this type of lending," said Richard Riccobono, OTS deputy director.

"These loans entail risks that are different from more traditional home mortgage and consumer loans," Riccobono said.

Acting Comptroller of the Currency Julie Williams issued a similar warning to bankers during a speech in Chicago last month.

Federal regulators recommend banks and thrifts limit their investment in high loan-to-value loans to 100 percent of their total capital.

Thrifts that fail to adequately monitor and control risk from

so-called LTV loans "will be subject to supervisory action," the OTS said.

High-LTV loans can be dangerous for lenders if borrowers default.

Lenders could have trouble recovering the full value of a defaulted mortgage if the collateral -- the house -- is worth less than the note.

Pub Date: 8/28/98

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