FSB Announces Next Round of Principles for Sound Residential Mortgage Underwriting Practices
| Date Published | 4/27/2012 |
| Author | Marja Hoek-Smit |
| Theme | Housing Finance Policy |
| Country |
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.
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