As with all business lines, the mortgage lending strategy needs to be clearly articulated at the board of directors level. The strategy that the board articulates should include such basics as the anticipated range of risk parameters intended in the mortgage portfolio. A portfolio limited to prime single-family residential loans would presume risk-management tools consistent with that portfolio.
Institutions with broader risk appetites should define these risk parameters accordingly and also define the risk-measurement and risk-mitigation initiatives consistent with these greater risks. In onsite examinations, regulators will first evaluate the extent to which your controls reflect the acceptable levels of risk defined in your strategic plan and the consistency with which your policies and procedures reflect those risk parameters.