This excerpt taken from the CITZ 10-K filed Mar 15, 2007.
Single-Family Residential Loans
Substantially all of the Banks single-family residential mortgage loans consist of conventional loans. Conventional loans are neither insured by the Federal Housing Administration (FHA) nor partially guaranteed by the Department of Veterans Affairs (VA). The vast majority of the Banks single-family residential mortgage loans are secured by properties located in Lake and Porter Counties in northwest Indiana and Cook, DuPage and Will Counties in Illinois.
The Banks residential mortgage loans have either fixed interest rates or variable interest rates which adjust periodically during the term of the loan. Fixed-rate loans generally have maturities between 10 and 30 years and are fully amortizing with monthly loan payments sufficient to repay the total amount of the loan and interest by the maturity date. The Bank does not originate non-amortizing single-family residential loans. Substantially all of the Banks single-family residential mortgage loans contain due-on-sale clauses, which permit the Bank to declare the unpaid balance to be due and payable upon the sale or transfer of any interest in the property securing the loan. The Bank enforces such due-on-sale clauses.
The Banks fixed-rate loans are generally originated under terms, conditions and documentation which permit them to be sold in the secondary market for mortgages. The Bank primarily retains within its portfolio certain fixed-rate loans when the borrowers credit score is above a certain minimum. Fixed-rate loans originated with credit scores below the minimum are generally sold in the secondary market. At December 31, 2006, $66.6 million, or 29.5%, of the Banks single-family residential mortgage loans were fixed-rate loans. During 2006, the Bank sold approximately $10.0 million of fixed-rate loans with servicing released.
The adjustable-rate single-family residential mortgage (ARM) loans currently offered by the Bank have interest rates which are fixed for the initial three or five years and then adjust annually to the corresponding CMT plus a stipulated margin. The Banks ARMs generally have a cap of 2% on any increase or decrease in the interest rate at any adjustment date and include a specified cap on the maximum interest rate over the life of the loan. This cap is generally 6% above the initial rate. The Banks ARMs require that any payment adjustment resulting from a change in the interest rate of an adjustable-rate loan be sufficient to result in full amortization of the loan by the end of the loan term and do not permit any of the increased payment to be added to the principal amount of the loan, or so-called negative amortization. At December 31, 2006, $158.9 million, or 70.5%, of the Banks single-family residential mortgage loans were adjustable-rate loans.
The Banks single-family residential loans generally do not exceed amounts limited to the maximum amounts contained in U.S. Government sponsored agency guidelines. In addition, the Banks maximum loan-to-value (LTV) ratio for these loans is generally 95% of the lesser of the secured propertys sales price or appraised value, provided that private mortgage insurance is generally obtained on the portion of the principal amount that exceeds 80% of the appraised value.