Mortgage insurance: market structure, underwriting cycle and policy implications - Consultative document.
This consultative report on Mortgage insurance: market structure, underwriting cycle and policy implicationsexamines 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.
Comments on this consultative report should be submitted by Tuesday 30 April 2013 either by email to firstname.lastname@example.org or by post to the Secretariat of the Joint Forum (BCBS Secretariat), Bank for International Settlements, CH-4002 Basel, Switzerland. All comments may be published on the websites of the Bank for International Settlements (www.bis.org), IOSCO (www.iosco.org) and the IAIS (www.iaisweb.org) unless a commenter specifically requests confidential treatment.
- Publication Date: February 2013
- Publication Type: Consultative
- Publication Status: Closed
- Publication Category: Risk Management
- Number of Pages: 42
- Keywords: Arbitrage, Incentives, Insurance, Regulation, Cycles, Supervision, Credit Risk
For definitive information on regulatory matters always consult primary sources, especially where it concerns legally binding rules and regulations.
The above regulatory document abstract is quoted verbatim in this Open Risk Manual entry and provided free of charge for the convenience of all internet users. There is no explicit or implicit endorsement of this web service by the Bank of International Settlements. The copyright of the included material rests with the original authors (Links to the original texts are duly provided).