Accurate, Focused Research on Law, Technology and Knowledge Discovery Since 2002

Mortgage insurance: market structure, underwriting cycle and policy implications – Consultative paper

Mortgage insurance: market structure, underwriting cycle and policy implications – Consultative paper released by the Joint Forum, February 2013

  • “This consultative report on Mortgage insurance: market structure, underwriting cycle and policy implications examines the interaction of mortgage insurers with mortgage originators and underwriters. The report sets out the following recommendations directed at policymakers and supervisors with the aim of reducing the likelihood of mortgage insurance stress and failure in such tail events.
    • Policymakers should consider requiring that mortgage originators and mortgage insurers align their interests;

    • Supervisors should ensure that mortgage insurers and mortgage originators maintain strong underwriting standards;
    • Supervisors should be alert to – and correct for – deterioration in underwriting standards stemming from behavioural incentives influencing mortgage originators and mortgage insurers;
    • Supervisors should require mortgage insurers to build long-term capital buffers and reserves during the valleys of the underwriting cycle to cover claims during its peaks;
    • Supervisors should be aware of and mitigate cross-sectoral arbitrage which could arise from differences in the accounting between insurers’ technical reserves and banks’ loan loss provisions, and from differences in the capital requirements for credit risk between banks and insurers; and
    • Supervisors should apply the FSB Principles for Sound Residential Mortgage Underwriting Practices (“FSB Principles”) to mortgage insurers noting that proper supervisory implementation necessitates both insurance and banking expertise.”
    • See related postings on financial system
  • Sorry, comments are closed for this post.