High loan-to-value mortgages with ratios of 90% or higher are being priced based on risk. Lenders charge higher interest rates to compensate for the increased credit risk. Regulations require banks to hold more capital for high LTV mortgages, but don't distinguish between first and second mortgages with the same LTV. The study shows that combining first and second mortgages has the same risk as a single first mortgage with the same total LTV. Default risk is influenced by the option to default on debt. Separating high LTV mortgages into first and second mortgages can create a funding advantage.