Mortgage insurers should build capital buffers and be alert to deterioration in underwriting standards to help them better weather financial crises, a joint forum of global financial regulators said Tuesday.
The recommendations came in a report issued Tuesday by a panel of financial regulators from the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors and the International Organization of Securities Commissions. The panel issued guidelines “which aim at reducing the likelihood of mortgage insurance stress and failure” in times of financial crisis.
“Mortgage origination and mortgage insurance were at the very core of the financial crisis,” said Thomas Schmitz-Lippert, chairman of the joint forum and Executive Director of International Policy at the German Federal Financial Supervisory Authority.“The Joint Forum Recommendations on Mortgage Insurance provide guidance to national policymakers and supervisors in order to avoid mistakes of the past and strengthen resilience in the future.”
The recommendations, which are aimed “at policymakers and supervisors,” include ensuring that mortgage insurers and mortgage originators maintain strong underwriting standards, requiring mortgage insurers to “build long-term capital buffers and reserves during the troughs of the underwriting cycle to cover claims during its peaks,” and “requiring that mortgage originators and mortgage insurers align their interests.”
The report stated that the panel based its recommendations on “an analysis of existing mortgage underwriting standards and the underwriting cycle.”