THE bankruptcy of LTV, America's third-biggest steel maker, on December 29th generated plenty of emotions, but surprise was not one of them.
This was not only because LTV had gone into Chapter 11 bankruptcy before and a repeat was widely expected (it was the third bust in the industry in as many months), but also because the excuse for its miserable performance was so familiar: dastardly foreigners are ruining America's once-great steel business, dumping rolls of steel on American shores at far below cost.
If added to housing loans, the average LTV ratio would jump from just under 50% (the regulated limit) to over 75%.
With bruised banks often limiting loan-to-value (LTV) ratios to 75%, a £43,000 deposit is needed those receiving national median wages (around £21,300) may need to save for a decade.
For example, mortgage underwriting standards (such as maximum LTV ratios, amortisation rules, etc).
Then there is LTV, an integrated steel maker that is about to emerge from bankrutpcy for the second time.
Originally planned for January 2014, but now to be active this month, the government will guarantee 95% LTV mortgages, shielding banks from 20% of the losses should a loan go bad.
It hoped 4m-5m borrowouldwould qualify but by May only 810,084 had participated, a mere 7% of whom had an LTV ratio of more than 105%.An important reason for the low take-up is that GSEs charge up to two percentage points of the loan amount to guarantee refinanced HARP loans, even though the refinanced loan is no riskier than before.
Before the Durbin-Delahunt bill, the biggest test came in December 2000, when LTV, a steel company, filed for bankruptcy and tried to retain money it received on inventory and receivables that it had already in effect sold to two special-purpose vehicles for $650m.
In reality, 100% LTV loans practically guarantee that any household misfortune will be substantially magnified, either because the household will be forced into default or because it will be stuck in a bad situation by its inability to sell at a profit.
