FSB Releases Consultation Paper on Principles for Sound Residential Mortgage Underwriting Practices

Date Published 10/26/2011
Author Marja Hoek-Smit
Theme Housing Finance Policy

The Financial Stability Board (FSB) launched a public consultation on its draft Principles for Sound Residential Mortgage Underwriting Practices. As stated in the press release by the FSB: “In response to the crisis, a number of FSB members have encouraged stricter underwriting practices so as to limit the risks that mortgage markets pose to financial stability and to better safeguard borrowers and investors. Internationally agreed principles will help to strengthen residential mortgage underwriting practices and help supervisors to more effectively monitor and detect the erosion of underwriting practices particularly when the housing market is booming. Given that the underlying risks can differ across jurisdictions, the principles are high-level rather than aimed at detailed international standards.”

In March 2011, the FSB published a thematic review on residential mortgage underwriting and origination practices across the FSB membership (Link), including recent actions taken by national authorities to promote sound practices. In the absence of internationally agreed standards to act as a benchmark, the review conducted a comprehensive survey of existing practices in these areas and drew lessons going forward.

The findings and recommendations of the review formed the basis for the draft principles for public consultation, which were prepared by a team of experts drawn from FSB member institutions and led by Guillermo Babatz, President, Mexican National Banking and Securities Commission who also chaired the team that conducted the thematic review.

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