Variable-rate loans have unquestionably helped to stabilise the housing market during the financial crisis. Variable-rate loans entail a payment risk for the borrower, while fixed-rate loans entail a price risk. In order to maintain investor confidence in the mortgage-credit system, the mortgage banks should take a portfolio view when assessing their total lending.
The future Supervisory Diamond for mortgage banks will lay down the overall framework for the mortgage banks’ risk profile, but first and foremost it is the mortgage banks themselves that are responsible for their own risk management.