The HELOC Appraisal That Came in Low
A member applies for a $90,000 home equity line of credit on a home appraised at $340,000. The credit union's first-lien mortgage balance is $210,000. The credit union's policy caps total loan-to-value (CLTV) at 85% for HELOCs. The appraisal came in at $340,000, but the member disputes it, claiming a neighboring identical home sold for $395,000 two months ago. The credit union's underwriter wants to proceed at the appraised value. The member's debt-to-income ratio is 41%, within the 43% policy limit. The credit union uses a 1.25x stress factor on the HELOC payment. The member is a 12-year customer with no delinquencies.
1. Calculate CLTV and determine whether the loan can proceed as requested.
Read the worked answer
CLTV = (first lien + new HELOC) / appraised value = ($210,000 + $90,000) / $340,000 = $300,000 / $340,000 = 88.2%. That exceeds the 85% policy cap. Maximum HELOC at 85% CLTV = (0.85 × $340,000) − $210,000 = $289,000 − $210,000 = $79,000. So the requested $90,000 cannot be approved as-is under policy. Options: (1) counteroffer $79,000; (2) obtain a second appraisal or a reconsideration of value (ROV) if the member provides the comparable sale - if the value is revised to $395,000, max HELOC = (0.85 × $395,000) − $210,000 = $335,750 − $210,000 = $125,750, and $90,000 would fit; (3) require the member to pay down the first lien. Do not simply waive the CLTV cap for a long-tenured member - document any exception and route it through the exception approval process.
2. How should the stress factor and DTI interact with the CLTV decision?
Read the worked answer
DTI of 41% is within the 43% policy limit, but the 1.25x stress factor matters: the underwriter must test whether the member can service the HELOC at 125% of the fully drawn payment, not just the initial draw. If the stressed payment pushes total obligations above 43%, the loan fails the affordability test even though the current DTI passes. Process: compute the stressed HELOC payment on the full $79,000–$90,000 line, add existing obligations, and re-check DTI. If stressed DTI exceeds 43%, reduce the line or decline. The CLTV and DTI tests are independent gates - passing one does not cure the other. Document both calculations. A clean 12-year payment history is a compensating factor but does not override a hard policy cap; it may support an exception request with documented rationale.