Financial Stability Board Publishes Mortgage Underwriting Principles

Mortgage Origination

On April 18, the Financial Stability Board (FSB), an international group comprised of representatives from all G-20 member countries and the European Commission, published principles for sound residential mortgage underwriting practices. The principles are intended to provide minimum acceptable standards to achieve: (i) effective verification of income and other financial information; (ii) reasonable debt service coverage; (iii) appropriate loan-to-value ratios; (iv) effective collateral management; and (v) prudent use of mortgage insurance. The FSB did not attempt to set detailed international standards, but rather established a framework to limit the risks posed by mortgage markets to global financial stability. The report also sets out an implementation framework and describes tools that can be used to monitor and supervise implementation.