Advisors can rest assured. The impact from new guidelines released by the federal agency overseeing lending practices won't stretch too far.
Advisors fearful that the federal agency overseeing lending practices would issue in another potential drag to the economy are breathing easy with new guidelines set to do little more than affect first-time home buyers.
The Office of the Superintendent of Financial Institutions (OSFI) released its Guideline B-21 Residential Mortgage Insurance Underwriting Practices and Procedures Thursday, which include “six fundamental principles for sound mortgage insurance underwriting.”
The industry has feared B-21 would bring with it further restrictions to those implemented by B-20.
The B-21 draft, which is based on OSFI’s internal review as well as the Financial Stability Board and the Joint Forum, will now enter a consultation period that is open until May 23.
“Once comments have been considered, a final guideline will be issued and an implementation date set,” an official release from OSFI states.
The six principles – which include implementing an underwriting plan, assessing mortgage lenders and their underwriting practices, and risk mitigation, among others -- can be found below.
Principle 1: Residential Mortgage Insurance Underwriting Plan
A (federally-regulated mortgage insurer) FRMI that is engaged in residential mortgage insurance underwriting should have a comprehensive Residential Mortgage Insurance Underwriting Plan (RMIUP). The FRMI’s insurance underwriting practices and procedures should comply with its established RMIUP.
Principle 2: Establishing Standards for the Initial Assessment and Qualification of Mortgage Lenders
A FRMI should establish sound standards for the purpose of initially assessing and qualifying mortgage lenders for mortgage insurance coverage.
Principle 3: Mortgage Insurance Criteria and Insurance Coverage Requirements for Lenders
A FRMI should establish prudent underwriting criteria, which specify the characteristics and parameters of insurable mortgage loans for lenders. In addition, a FRMI should promote sound mortgage underwriting and loan management practices by mortgage lenders by establishing prudent requirements in its insurance policies (e.g., Master Policy Agreements) for the purpose of controlling risk. (continued)
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Principle 4: FRMI’s Periodic Assessments of Lenders’ Underwriting Practices
A FRMI should exercise reasonable due diligence regarding lenders’ underwriting practices, on a periodic basis, in order to assess consistency with the FRMI’s criteria for insuring mortgage loans and compliance with the requirements contained in the FRMI’s policy coverage documents. A FRMI should establish clear policies for identifying, escalating, and as needed, addressing weak or non-compliant lender practices.
Principle 5: Assessment and Validation of Underwriting Systems, Models, and Underwriters’ Processes
A FRMI that is engaged in residential mortgage insurance underwriting should periodically assess and validate its insurance underwriting systems, models, and underwriters’ processes, to ensure sound insurance underwriting outcomes and consistency with the FRMI’s RMIUP.
Principle 6: Effective Portfolio Risk Management and other Risk Mitigation
FRMIs should have effective portfolio risk management practices, including the use of stress testing and, as appropriate, the use of reinsurance. Given the objectives and risk appetite established in the RMIUP, a FRMI should consider the outcome of stress-testing and risk mitigation in appropriately setting or adjusting its mortgage insurance underwriting criteria.
Click here to access the draft in its entirety.
Related Articles:
Do mortgage brokers have the 'aptitude' for financial planning?
The Office of the Superintendent of Financial Institutions (OSFI) released its Guideline B-21 Residential Mortgage Insurance Underwriting Practices and Procedures Thursday, which include “six fundamental principles for sound mortgage insurance underwriting.”
The industry has feared B-21 would bring with it further restrictions to those implemented by B-20.
The B-21 draft, which is based on OSFI’s internal review as well as the Financial Stability Board and the Joint Forum, will now enter a consultation period that is open until May 23.
“Once comments have been considered, a final guideline will be issued and an implementation date set,” an official release from OSFI states.
The six principles – which include implementing an underwriting plan, assessing mortgage lenders and their underwriting practices, and risk mitigation, among others -- can be found below.
Principle 1: Residential Mortgage Insurance Underwriting Plan
A (federally-regulated mortgage insurer) FRMI that is engaged in residential mortgage insurance underwriting should have a comprehensive Residential Mortgage Insurance Underwriting Plan (RMIUP). The FRMI’s insurance underwriting practices and procedures should comply with its established RMIUP.
Principle 2: Establishing Standards for the Initial Assessment and Qualification of Mortgage Lenders
A FRMI should establish sound standards for the purpose of initially assessing and qualifying mortgage lenders for mortgage insurance coverage.
Principle 3: Mortgage Insurance Criteria and Insurance Coverage Requirements for Lenders
A FRMI should establish prudent underwriting criteria, which specify the characteristics and parameters of insurable mortgage loans for lenders. In addition, a FRMI should promote sound mortgage underwriting and loan management practices by mortgage lenders by establishing prudent requirements in its insurance policies (e.g., Master Policy Agreements) for the purpose of controlling risk. (continued)
#pb#
Principle 4: FRMI’s Periodic Assessments of Lenders’ Underwriting Practices
A FRMI should exercise reasonable due diligence regarding lenders’ underwriting practices, on a periodic basis, in order to assess consistency with the FRMI’s criteria for insuring mortgage loans and compliance with the requirements contained in the FRMI’s policy coverage documents. A FRMI should establish clear policies for identifying, escalating, and as needed, addressing weak or non-compliant lender practices.
Principle 5: Assessment and Validation of Underwriting Systems, Models, and Underwriters’ Processes
A FRMI that is engaged in residential mortgage insurance underwriting should periodically assess and validate its insurance underwriting systems, models, and underwriters’ processes, to ensure sound insurance underwriting outcomes and consistency with the FRMI’s RMIUP.
Principle 6: Effective Portfolio Risk Management and other Risk Mitigation
FRMIs should have effective portfolio risk management practices, including the use of stress testing and, as appropriate, the use of reinsurance. Given the objectives and risk appetite established in the RMIUP, a FRMI should consider the outcome of stress-testing and risk mitigation in appropriately setting or adjusting its mortgage insurance underwriting criteria.
Click here to access the draft in its entirety.
Related Articles:
Do mortgage brokers have the 'aptitude' for financial planning?
