Alert May 05, 2009

FDIC Releases Guidance on Classification for High Loan to Value Refinancing Loans

The FDIC issued a Financial Institution Letter (FIL-19-2009 the “FIL”) that states that loans to refinance performing mortgages to grant a lower interest rate should not adversely affect the classification of those loans, even if the loan-to-value (“LTV”) ratio increases, so long as the loan complies with sound underwriting guidelines.  The FDIC refers back to the classification standards for high LTV residential refinancing loans in the previously issued Uniform Classification and Account Management Policy, which note that classification should be based primarily on the borrower’s repayment history rather than the value of the collateral.  The FIL states that declining property values and owner equity have prevented many performing residential borrowers from refinancing at lower current interest rates.  The FIL is available at