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Companies whose sole business involves buying and selling these loans have left the business, merged with other diversified lenders, or are filing for bankruptcy.
Investors on Wall Street seeking quality and liquidity continue to back away from securities backed by the popular 125 percent loan-to-value ratio home equity loans.
These loans are usually used for home improvement projects and debt consolidation. Many mortgage lenders have stopped making these 125 or greater LTV loans, or are doing so on a whole-loan sales basis, rather than pooling them for securitization.
Companies whose sole business involves buying and selling these high-LTV loans have either gone out of business, merged with other, more stable and diversified lenders, or are on the brink of filing for bankruptcy.
"The industry is backing away from these loans, and it is a trend that will continue," said Christine Clifford, vice president of David Olson Research in Columbia, Md. Clifford, who is not a fan of high-LTV loans, predicted that there will be a lot of lender casualties.
Last year, more than $12 billion in 125LTV loans were originated. For the past three years, this over-equity loan program was aggressively marketed by lenders and eagerly accepted by consumers seeking funds for home improvements or for money to pay off credit-card debt. The heavy marketing of the 125-LTV loans is not happening anymore, according to Clifford.
The days of super aggressive 125 lending has come to an end, which is not such a bad thing. The faster we get more conservative, the better for the industry as a whole because there are a lot of unprofitable loans out there," she said.
Consumers are still interested in the 125 loans, but there...