IFRS Foundation

Mortgage Finance

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Current language: English
The Mortgage Finance industry provides an essential public good by enabling consumers to purchase homes and contributing to the overall home ownership rate. Entities in the industry lend capital to individual and commercial customers using property as collateral. The primary products are residential and commercial mortgages, while other services offered include mortgage servicing, title insurance, closing and settlement services, and valuation. In addition, mortgage finance entities own, manage and finance real estate-related investments such as mortgage pass-through certificates and collateralised mortgage obligations. Recent trends in the regulatory environment indicate a significant shift towards consumer protection, disclosure and accountability. Regulatory changes made in response to the global 2008 financial crisis demonstrate the potential for further alignment between the interests of society and those of long-term investors.

Relevant Issues (2 of 26)

Why are some issues greyed out? The SASB Standards vary by industry based on the different sustainability-related risks and opportunities within an industry. The issues in grey were not identified during the standard-setting process as the most likely to be useful to investors, so they are not included in the Standard. Over time, as the ISSB continues to receive market feedback, some issues may be added or removed from the Standard. Each company determines which sustainability-related risks and opportunities are relevant to its business. The Standard is designed for the typical company in an industry, but individual companies may choose to report on different sustainability-related risks and opportunities based on their unique business model.

Disclosure Topics

What is the relationship between General Issue Category and Disclosure Topics? The General Issue Category is an industry-agnostic version of the Disclosure Topics that appear in each SASB Standard. Disclosure topics represent the industry-specific impacts of General Issue Categories. The industry-specific Disclosure Topics ensure each SASB Standard is tailored to the industry, while the General Issue Categories enable comparability across industries. For example, Health & Nutrition is a disclosure topic in the Non-Alcoholic Beverages industry, representing an industry-specific measure of the general issue of Customer Welfare. The issue of Customer Welfare, however, manifests as the Counterfeit Drugs disclosure topic in the Biotechnology & Pharmaceuticals industry.
General Issue Category
(Industry agnostic)

Disclosure Topics (Industry specific) for: Mortgage Finance

Selling Practices & Product Labeling
  • Lending Practices

    The approach mortgage finance entities take when incentivizing employees, and how they communicate with customers is important for multiple reasons. First, the incentive structures and compensation policies of loan originators may unintentionally encourage them to promote lending products and services that are not in the best interest of their clients. Second, the lack of transparency provided to customers with respect to primary and add-on products may impact an entity’s reputation and invite regulatory scrutiny and costly litigation. Finally, poor performance on the first two elements could affect the characteristics of the portfolio of products, resulting in a high concentration of risky products sold. Mortgage Finance industry regulators established significant consumer protection laws in the wake of the 2008 financial crisis that seek to limit the predatory lending practices that encouraged qualified and unqualified borrowers to assume subprime mortgages. In addition, these laws prohibit mortgage originators from receiving compensation that is tied to the value of the loan and require that additional disclosures be given to borrowers. Mortgage finance entities that are able to provide transparent information and fair advice are more likely to protect shareholder value. Enhanced disclosure on key elements of lending practices will allow shareholders to determine which entities are better positioned to protect value.
  • Discriminatory Lending

    The Mortgage Finance industry aggregates individual data points to determine the terms and conditions of loans including key provisions such as the size of the loan, interest rate, up-front points, or other fees. However, the complex process may result in intentional or unintentional discriminatory lending practices by the mortgage originator. Discriminatory lending presents significant risks in the form of fines or settlements for violations of regulations such as the U.S. Equal Credit Opportunity Act (ECOA) or the U.S. Fair Housing Act (FHA), reputational risk, and negative financial performance due to loan mispricing. Disclosing processes in place to ensure non-discriminatory lending, disclosing the amount of mortgage lending broken down by minority status along with relevant financial characteristics, and disclosing the amount of monetary losses as a result of legal proceedings associated with violations of applicable laws and regulations will help investors to assess entity performance. Mortgage finance entities can reduce the risk of intentional or unintentional discriminatory lending through the implementation of strong processes, internal controls, and monitoring the loan portfolio, among other techniques. Proactive entities that develop strong techniques for preventing discrimination can effectively mitigate the risks associated with discriminatory lending.
Physical Impacts of Climate Change
  • Environmental Risk to Mortgaged Properties

    An increase in the frequency of extreme weather events associated with climate change may have an adverse impact on the Mortgage Finance industry. Specifically, hurricanes, floods and other climate change-related events have the potential to result in missed payments and loan defaults, while also decreasing the value of underlying assets. Entities which incorporate climate-related risks into lending analysis may be better positioned to create value over the long-term.

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Current Industry: Mortgage Finance

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