Federal banking regulators have issued a new guideline on sound underwriting practices for residential mortgage insurance, in a bid to bolster confidence in mortgage underwriting practices.
The Office of the Superintendent of Financial Institutions (OSFI) published guidance Thursday that outlines its expectations concerning mortgage insurers’ governance and internal risk management practices.
The guideline outlines principles for mortgage insurers’ own internal underwriting operations, including setting prudent requirements for lenders and applying appropriate due diligence to lenders’ practices. It also enhances disclosure requirements, in an effort to bolster confidence in mortgage insurers’ residential mortgage insurance underwriting practices.
“[The new guideline] reinforces sound mortgage underwriting by introducing expectations for mortgage insurers that complement those applicable to mortgage lenders, and by requiring mortgage insurers to conduct adequate due diligence on the lenders with which they do business,” said federal superintendent, Jeremy Rudin. “Implementing these principles, along with OSFI’s on-going supervisory work in this area, will contribute to the continued stability of the Canadian financial system.”
The guidance was published in draft form back in April, and OSFI reports that it received 15 comments on the initial draft.
The final version of the guideline is to be fully implemented by June 30, 2015. The required public disclosures in this area are to begin with the quarter ending Sept. 30, 2015.
In the meantime, OSFI says that federally regulated mortgage insurers should conduct self-assessments and establish a plan to address any compliance deficiencies before the implementation deadline. And, wherever possible, it says that firms would be complying with the principles set out in the guideline immediately.