A collection of global financial regulators has released a consultation report that examines the mortgage insurance market and provides recommendations for improving the operations and oversight of mortgage insurers.

The group of regulators, known as the Joint Forum (which is comprised of the Basel Committee on Banking Supervision (BCBS), the International Organization of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS)), released the report on Monday, indicating that the financial crisis showed that mortgage insurance is subject to significant stress when the worst tail risks materialize.

The report examines the interaction of mortgage insurers with mortgage originators and underwriters, and makes a set of recommendations directed at policymakers and supervisors which aim at reducing the likelihood of mortgage insurance stress and failure in such tail events, it says.

Those recommendations include: requiring that mortgage originators and mortgage insurers align their interests; that regulators must maintain oversight of underwriting standards, and correcting a deterioration in underwriting standards stemming from behavioural incentives; that mortgage insurers should be required to build long-term capital buffers and reserves; that regulators should aim to mitigate cross-sectoral arbitrage due to differences in accounting rules or capital requirements; and, that regulators should apply sound underwiting principles developed by the Financial Stability Board (FSB).

“We looked through the underwriting cycle when developing the report’s recommendations. It is paramount to implement these recommendations in order to strengthen and reinforce oversight of mortgage insurers and thereby increase their resilience over the longer term,” said Thomas Schmitz-Lippert, chairman of the Joint Forum.

Comments on the report are due by April 30.