|Theme||Housing Finance Policy|
FSB Announces Next Round of Principles for Sound Residential Mortgage Underwriting Practices
In March 2011 the Financial Stability Board (FSB) published a thematic review on residential mortgage underwriting and origination practices (Link). Based on this review the FSB published a Consultation Paper entitled Principles for Sound Residential Mortgage Underwriting Practices in October 2011 (Link). These original principles were high-level rather than aimed at detailed international standards because the underlying risks will differ across jurisdictions. The newly (April 2012) announced version of the FSB principles for mortgage underwriting take into account the comments received during the consultative process (Link). Greater emphasis is given to the obligation of the lender to take into consideration the borrower’s indebtedness, and to the information the lender has to share with the borrower on assumptions about his/her repayment capacity, and the costs and risks associated with the loan. Furthermore, the principles include more detail on the regulation and oversight of appraisers and the quality of the appraisal process, taking into account incentives or benefits offered in the context of buying the property. The principles on effective supervisory tools and powers have been expanded to include the link to the wider supervisory framework and greater mindfulness to the phase of the cycle in specific jurisdictions. The document specifies more clearly and exhaustively the examples to which specific principles may apply and set such examples apart from the principles themselves.