Global policymakers have published a new set of principles that aim to encourage sound residential mortgage underwriting practices.

The principles, published Wednesday by the Financial Stability Board, are intended to provide a framework for countries to set minimum acceptable underwriting standards, “so as to limit the risks that mortgage markets pose to financial stability and to better safeguard borrowers and investors.”

The principles focus on some of the areas that proved to be particularly weak during the global financial crisis, including: effective verification of income and other financial information; reasonable debt service coverage; appropriate loan-to-value ratios; effective collateral management; and, prudent use of mortgage insurance.

The FSB says the principles will help to strengthen residential mortgage underwriting practices, and help supervisors to more effectively monitor and detect any erosion of underwriting practices, particularly when the housing market is booming.

The financial crisis clearly revealed the systemic consequences of irresponsible lending practices. Implementation of these principles across the FSB membership will ensure lending practices remain sound through the cycle, protecting consumers and promoting financial stability,” said Mark Carney, chairman of the FSB an governor of the Bank of Canada.

“Had these principles been in place prior to the financial crisis, markets would have been much better protected from the problems of poor quality or unaffordable lending,” added Adair Turner, chairman of the FSB Standing Committee on Supervisory and Regulatory Cooperation, and chair of the UK’s Financial Services Authority.

Last month, Canadian banking regulators issued a draft guideline setting out their expectations for prudent residential mortgage underwriting. Comments are due by May 1.

The report published today also sets out an implementation framework through which jurisdictions can apply minimum mortgage underwriting standards, and describes tools that could be used to monitor and supervise these standards.