Huntington National Bank 2012 Annual Report Download - page 55

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(1) The LTV ratios for home equity loans and home equity lines-of-credit are cumulative and reflect the balance of any
senior loans. LTV ratios reflect collateral values at the time of loan origination.
(2) Portfolio weighted average FICO scores reflect currently updated customer credit scores whereas origination
weighted average FICO scores reflect the customer credit scores at the time of loan origination.
(3) Represents only owned-portfolio originations.
Home Equity Portfolio
Our home equity portfolio (loans and lines-of-credit) consists of both first-lien and junior-lien mortgage loans with underwriting
criteria based on minimum credit scores, debt-to-income ratios, and LTV ratios. We offer closed-end home equity loans which are
generally fixed-rate with principal and interest payments, and variable-rate interest-only home equity lines-of-credit which do not
require payment of principal during the 10-year revolving period of the line-of-credit. Applications are underwritten centrally in
conjunction with an automated underwriting system.
Given the low interest rate environment over the past several years, many borrowers have utilized the line-of-credit home equity
product as the primary source of financing their home versus residential mortgages. During 2012, 75% of our home equity portfolio
originations were secured by a first-lien mortgage. As a result, the proportion of the home equity portfolio secured by a first-lien has
increased significantly over the past three years, positively impacting the portfolio’s risk profile. At December 31, 2012, 53% of our
total home equity portfolio was secured by first-lien mortgages. The first-lien position, combined with continued high average FICO
scores, significantly reduces the PD associated with these loans.
We focus on high quality borrowers primarily located within our footprint. Further, we actively manage the extension of credit
and the amount of credit extended through a combination of criteria including financial position, debt-to-income policies, and LTV
policy limits. The combination of high quality borrowers as measured by financial condition and FICO score, as well as the
concentration of first-lien position loans, provides a high degree of confidence regarding the performance of the 2009-2012
originations. Because we focus on developing complete relationships with our customers, many of our home equity borrowers utilize
other products and services. Also, the majority of our home equity line-of-credit borrowers consistently pay more than the minimum
payment required in any given month.
We believe we have underwritten credit conservatively within this portfolio. We have not originated home equity loans or lines-
of-credit with an LTV at origination greater than 100%, except for infrequent situations with high quality borrowers. However,
declines in housing prices have decreased the value of the collateral for this portfolio and have caused a portion of the portfolio to
have an LTV greater than 100%. These higher LTV ratios are directly correlated with borrower payment patterns and are a focus of
our Loss Mitigation and Home Saver groups. Effective in the 2012 third quarter, we no longer originate junior-lien loans with an LTV
greater than 90%.
Real estate market values at the time of origination directly affect the amount of credit extended and, in the event of default,
subsequent changes in these values impact the severity of losses. We obtain a property valuation for every loan or line-of-credit as
part of the origination process, and the valuation is reviewed by a real estate professional in conjunction with the credit underwriting
process. The type of property valuation obtained is based on credit parameters, and a majority of these valuations are based on
complete walkthrough appraisals. We believe an AVM estimate with a signed property inspection is an appropriate valuation source
for a portion of our home equity lending activities. This valuation policy, along with our other credit policies, are re-evaluated on an
on-going basis with the intent of ensuring complete independence in the requesting and reviewing of real estate valuations associated
with loan decisions. We update values as appropriate, and in compliance with applicable regulations, particularly for loans identified
as higher risk. Loans are identified as higher risk based on performance indicators and the updated values are utilized to facilitate our
portfolio management processes, as well as our workout and loss mitigation functions.
We continue to make origination policy adjustments based on our assessment of an appropriate risk profile and industry actions,
as well as the recently issued Basel III NPRs (see Capital section). In addition to origination policy adjustments, we take actions, as
necessary, to manage the risk profile of this portfolio. We believe our Credit Risk Management systems allow for effective portfolio
analysis and segmentation to identify the highest risk exposures in the portfolio. Our disclosures regarding lien position and FICO
distribution are examples of segmentation analysis.