You would think that a loan-to-value (LTV) calculation would be a simple, straightforward exercise, and for most loan types it is. However, as you dig into the various loan types and lien positions it can become quite complicated. Should you look at credit limit or balance? Should you include junior liens or not?
We recently sent out a survey asking one simple question: How do you most commonly analyze a loan-to-value of a line of credit in second position? Potential responses were Credit Limit + Senior Balance / Value, Outstanding Balance + Senior Balance divided by value, or Other. Of the 332 responses over 63% indicated the most common definition was Credit Limit + Senior Balance / Value.
Most of the “Other” responses indicated that both definitions are used.
Based on this survey, as well as conversations with many clients, Visible Equity will soon be releasing the following LTV definitions:
Each of these LTV types will also have an original version, such as LTV-Original, which of course uses the original balance or credit limit and the original value of the collateral.
In the vast majority of cases, you will want to use LTV. This is also effectively a CLTV (Combined Loan-to-Value) for loan types that include a senior lien. We choose not to use the term CLTV for practical purposes, such as grouping LTV stratification and to avoid confusion when analyzing loans with a simple LTV, but the calculation will be the same. In fact, the only time you will want to use LTV (LOC Balances) is when you want to look at a line of credit and see the balance to value, instead of the credit limit to balance.
The two more obscure LTV definitions of LTV (No Senior) and LTV (All loans) will not be available by default, but are available upon request.