Environment

  • GHG Emissions
  • Air Quality
  • Energy Management
  • Water & Wastewater Management
  • Waste & Hazardous Materials Management
  • Ecological Impacts

Human Capital

  • Labor Practices
  • Employee Health & Safety
  • Employee Engagement, Diversity & Inclusion

Leadership & Governance

  • Business Ethics
  • Competitive Behavior
  • Management of the Legal & Regulatory Environment
  • Critical Incident Risk Management
  • Systemic Risk Management
General Issue Category
(industry agnostic)

Disclosure Topics (industry specific) for:
Mortgage Finance

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Selling Practices & Product Labeling

Lending Practices

The approach mortgage finance companies 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 a company’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 companies 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 companies 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 company performance. Mortgage finance companies 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 companies 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 lead to missed payments and loan defaults, while also decreasing the value of underlying assets. Disclosure of overall exposure, loan forgiveness programs, and the incorporation of climate change into lending analysis will allow shareholders to determine which mortgage finance firms are best positioned to protect value in light of environmental risks.

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