#⃣LTV is the most important number in RWA. Most people ignore it.
Mortgage-to-value ratio. Basic math: mortgage quantity divided by property worth.
A $600,000 mortgage on a $1,000,000 home is 60% LTV. The borrower has $400,000 of their very own cash in the deal. If the market drops 30%, the home is price $700,000. The mortgage is nonetheless $600,000. The collateral covers the mortgage.
An 80% LTV on the similar home is $800,000 borrowed. A 30% market drop places the home at $700,000. The mortgage now exceeds the collateral. That is the place losses begin.
A 90% LTV? The borrower barely has pores and skin in the recreation. A 15% dip and the mortgage is underwater.
Examine the LTV earlier than you examine the share.
#RWA #Schooling #LTV
