The Australian Prudential Regulation Authority yesterday released a prudential practice guide for authorised deposit-taking institutions setting out sound risk management practices for residential mortgage lending.
The document, "
Prudential Practice Guide APG 223 Residential mortgage lending", summarises APRA's expectations for good residential lending practices, including assessment and verification of income and expenses, loan origination, the role of lenders mortgage insurance and property valuation methods.
APRA chairman Wayne Byres noted that residential mortgages constituted the largest credit exposure in the Australian banking system and developments in the housing market have been a significant area of supervisory focus for APRA over much of the past decade.
APRA added that the document does not create any new prudential requirements for ADIs, but was a continuation of its supervisory oversight of ADIs' mortgage lending portfolios.
"Housing lending has historically demonstrated a low and stable risk profile compared with other lending exposures in Australia. However, for some time APRA has seen increasing evidence of residential mortgage lending with higher risk characteristics by Australian ADIs," Byres said.
Earlier this year, APRA sought assurances from boards of the largest housing lenders that they were actively monitoring lending standards.