Financial Stability Board seeks feedback on residential mortgage underwriting practices

Problems arising from poorly underwritten residential mortgages contributed significantly to the global financial crisis that began in 2007. Now the Financial Stability Board (FSB) has launched a review of residential mortgage underwriting and origination practices.

The review will survey existing practices across the FSB membership, including recent actions taken by national authorities to promote sound practices, and draw internationally applicable lessons.

The review will be based on the recommendations made by the Joint Forum in its January 2010 “Review of the Differentiated Nature and Scope of Financial Regulation”. In its review the Joint Forum focused on two fundamental areas of concern in the residential mortgage market:

1. poor underwriting practices and,
2. the lack of consistent supervisory and regulatory regimes for similar activities and products.

A questionnaire to collect information from national authorities has been distributed to FSB members, and the responses will be analyzed and discussed by the FSB later this year. The review is intended to be completed and published in early 2011.

As part of this review, the FSB has indicated that it will welcome feedback from financial institutions, industry associations, consumer groups and other stakeholders on their experiences regarding residential mortgage underwriting practices, either in a particular country or across several countries. This feedback could include comments on:

• gaps in regulatory and supervisory oversight,
• areas where regulations or guidance from different agencies might overlap,
• current or best practices for measuring a borrower’s ability and willingness to repay,
• how market practices have evolved in recent years, and
• challenges faced by underwriters or originators that operate in several countries.

The FSB is seeking feedback by 25 October 2010. For those interested the relative questionnaire is available at http://www.financialstabilityboard.org/press/pr_100920.pdf

The FSB has been established to coordinate at the international level the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies. It brings together national authorities responsible for financial stability in significant international financial centers, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.