By now banks have had the opportunity to examine real estate portfolios. What have they found…?

First of all, there is definitely a correlation between the LTVR and non-performance. It seems that the threshold is about 70% with a LTVR over that amount showing an increasing number of non-performing loans. In fact, the percentage is three times higher for LTV’s in the 70 -79% range and close to four times higher for LTV’s in excess of 80%.

Another significant finding, the percentage of problem loans for primary homes in our survey was 5%, for secondary residences it was 12% and it was over 25% for investment properties. When the LTVR variable is considered, the results are dramatic. Almost 50% of loans that have a LTV in excess of 80% and are in the investment property category are past due. Our study also shows that most, over 95%, of HELOC loans $100,000 and under are current while half of the HELOC loans over $500,000 are not.

And what about CRA loans? According to Edward Pinto, mortgage finance industry consultant and former chief credit officer of Fannie Mae in the 1980’s:

“Whatever the precise magnitude of the CRA’s role, there is no question that as the government pursued affordable-housing goals-with the CRA providing approximately half of Fannie’s and Freddie’s affordable-housing purchases-trillions of dollars in high-risk lending flooded the real-estate market, with disastrous consequences. Over the last 20 years, the percentage of conventional home-purchase mortgages made with the borrower putting 5 percent or less down more than tripled, from 8 percent in 1990 to 29 percent in 2007. Adding to the default risk: of these loans with 5 percent or less down, the average down payment declined from 5 percent to 3 percent of the loan’s value."

(Entire article click http://www.city-journal.org/2009/19_4_snd-cra.html)