FSB releases RICS Red Book for property valuation [03 May 2012]

Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system, published the FSB Principles for Sound Residential Mortgage Underwriting Practices. The RICS Red Book aims to provide a framework for different countries to set minimum acceptable loan underwriting standards so as to limit the risks that mortgage markets pose to financial stability and to better safeguard borrowers and investors.
The principles acknowledge the importance of sound regulation in the form of self-regulation in establishing the minimum acceptable underwriting standards and also recommend the RICS Red Book of valuation standards for realistic property valuations.
Commenting on the development, Sachin Sandhir – Managing Director, RICS South Asia said, “The lack of adherence to sound valuation and financial principles led to the global financial crisis which has its origin in erroneous property lending and financing of long-term assets. In India, while the financial system is relatively stable in comparison to other markets, asset valuation is still at a nascent stage resulting in tremendous market volatility. RICS welcomes the FSB principles and encourages members from India such as the RBI, SEBI and Ministry of Finance to consider adoption of these principles for the creation of a healthy mortgage market, backed by sound valuation principles.”
Problems arising from poorly underwritten residential mortgages have contributed significantly to the global financial crisis. As the global crisis demonstrated, the consequences of weak residential loan underwriting practices in one country can be transferred globally through securitisation of mortgages underwritten to weak standards. As such, it is important to have sound underwriting practices at the point at which a mortgage loan is originally made.
These Principles are expected to assist FSB members in their efforts to improve financial stability and prudential standards. They also refer to consumer protection issues that contribute to these objectives.

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