Key features and scope of the two Opinions
While a mortgage is likely to be the greatest individual financial commitment of a borrower in his or her lifetime, it can also give rise to risks that can affect borrowers, creditors as well as more generally, the stability of the financial system. Against this backdrop, the EBA adopted the two Opinions on good practices to ensure that potential risks associated with mortgage lending and with borrowers in mortgage payment difficulties are managed adequately by credit institutions, and to contribute to the development of consistent practices in this area.
In particular, the Opinion on responsible mortgage lending sets out good practices on the following aspects:
Verification of information provided by the mortgage applicant;
Reasonable debt service coverage;
Appropriate loan-to-value ratios; and
Lending and supervisory processes.
The Opinion on the treatment of borrowers in mortgage payment difficulties, in turn, sets out good practices on the following aspects:
Policies and procedures;
Provision of information and assistance to the borrower; and
The two Opinions complement, and provide suggestions on how to give effect to, the related provisions expected to be set out in the pending EU Directive on Credit Agreements Relating to Residential Property (also known as Mortgage Credit Directive).
The evidence underlying the two Opinions is based on a survey conducted by the EBA on national supervisory as well as more general market practices across the EU related to both, responsible lending and the treatment of borrowers in payment difficulty. Also, the good practices set out in the Opinion on responsible lending are based on the Principles for Sound Residential Mortgage Underwriting Practices identified by the Financial Stability Board (FSB).
Both Opinions relate to mortgage credit. However, to minimise the risk of regulatory arbitrage, the authorities will want to consider the widest application of these good practices to other forms of non-mortgage credit, consistent with their respective scope of supervisory responsibility.
Opinion on responsible mortgage lending
Opinion on treatment of borrowers in mortgage payment difficulties
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