The PRA has published Consultation Paper 29/16: Residential Mortgage Risk Weights (CP29/16). CP29/16 sets out proposed changes to Supervisory Statement 11/13: Internal ratings based (IRB) approaches (SS11/13).
The PRA proposes to amend SS11/13 such that firms would be expected to adopt probability of default modelling approaches for their residential mortgage portfolios that avoid the lack of risk capture identified in the point-in-time and through-the-cycle models currently used by firms, and instead calibrate their models using a consistent and appropriate assumption for the level of model cyclicality. The PRA also proposes to expect firms not to apply a house price fall assumption of less than 25% in their UK residential mortgage loss given default models. The PRA proposes that these changes will come into effect by 31 March 2019 with firms allowed until 31 May 2018 to submit for approval adjusted residential mortgage models meeting these expectations.
The consultation deadline is 31 October 2016.
View PRA consults on residential mortgage risk weights, 29 July 2016