CREDIT POLICY - HOME LOANS

Transcription

1 CREDIT POLICY - HOME LOANS Version Type of Document Application Credit Policy All ME Staff Effective Date 28 th August 2015 Review frequency Annually Annual Review March 2016 Approver Document Owner Contact Credit Risk Committee General Manager - Credit Risk Credit Risk : Policy & Controls [email protected]

2 Contents 1.1 Summary Information Common abbreviations How to use this document Roles and Responsibilities Staff lending ME Obligations Responsible Lending Credit Assessment Report (CAR) Mortgage Insurance What is Lenders Mortgage Insurance (LMI)? When does LMI apply? Delegated Underwriting Authority (DUA) Exceptions for insured Lending Borrowers Acceptable Borrowers Joint Borrowers Guarantors Borrower and Guarantors background checks Unacceptable Borrower / Guarantors Maximum Loan to Valuation Ratio (LVR) Maximum LVR based on Loan Purpose Unacceptable Loan Purposes Maximum LVR based on Security Type Documentary Requirements based on Loan Purpose Age of documents Documentary requirements Credit Check Credit History Account Conduct Genuine Savings

3 9.1 Age of evidence Employment and Income Age of documents Verification Checks Eligible Employment and Income Type Pensions: Carer Payment/Allowance: Parenting Payment (Single or Partnered) Family Payment PAYG: Salary / Wages (Full Time / Permanent Part Time / Second Job/Casual) PAYG: Overtime PAYG: Penalty Payments / Shift or staff allowances PAYG: Commission PAYG: Bonus Income PAYG: Contracted Employees Independent Contractors Child Support / Maintenance Maternity/Paternity Leave Investment Income Rental Mining Rental Motor Vehicle - fully maintained company MV Motor vehicle - allowance Salary Sacrifice Arrangements Self Employed Serviceability

4 11.1 Income General Living Expense Liabilities and Commitments Notional Rent Apportioning debt Interest Only Security and Valuation Acceptable Security Ineligible Security Acceptable valuation types Determining the valuation type Property suitability Special Asset Classes Construction Loans National Rental Affordability Scheme (NRAS) Credit Contracts Approval in Principle Letters Letter of Offer (LoO) Counter Offers Post Origination Top Ups Interest only Appendix A: Valuation criteria Full Valuation Valuation criteria for Additional Loans (Top Ups and Additional Advances) Postcode listing / Categories Restricted Valuation Policy - Mining Postcodes Restricted Valuation Policy Non Mining Postcodes Appendix B Control Sheet

5 Introduction 1.1 Summary Information Policy Objective: The policy objective is to outline the acceptable parameters by which ME considers and assesses applications for residential lending. Application: This policy applies to all ME employees (including contractors and temporary staff). Effective Date: This policy came in to effect on the 28 th August Review Requirements: Annually Approval: Credit Risk Committee Document Owner: General Manager, Credit Risk Contact: ME Consumer Credit Risk inbox Conflicts with Other Policies: Should this policy conflict with any other ME policy please the ME Consumer Credit Risk inbox to resolve the discrepancy. Confidentiality: All ME policies are confidential documents. Only the document owner can approve the release of this document to third parties. 2-5

6 Applicable Legislation: - Corporations Act (Cwth) 2001 (Corporations Act) - National Consumer Credit Protection Act (Cwth) 2009 (NCCP) - Anti-Money Laundering /Counter Terrorism Financing Act (AML/CTF) Australian Prudential Regulation Authority (APRA) - ASIC Act Privacy Act - Financial Services Reform Act (FSRA) - Migration Act First Home Owner Grant Act First Home Owner Grant Amendment Act 2003 Related Documents: Delegated Credit Authority Policy: Click on this link and scroll down Guidance Notes - Home Loan Origination: Click on this link and scroll down Penalties for Non-Compliance (organisation): Failure to comply with the Credit Policy - Home Loans under NCCP and the Corporations Act could lead to ASIC taking action against ME. This action could include the imposition of fines/penalties, imposing additional conditions on ME s Australian Financial Services or Australian Credit Licences, or suspension/cancellation of these licences. Penalties for Non-Compliance (individual): Failure to comply with the Credit Policy - Home Loans under NCCP and the Corporations Act, could lead to ASIC or ME taking action against individuals. This action could include the imposition of fines/penalties, disciplinary action and dismissal. Record Keeping: ME is required to maintain records showing what it has done to comply with its obligations under the Corporations Act and NCCP in relation to any breaches. These records must contain the following information: Description of the actual or potential breach; A full analysis of the breach; Details of any action taken to resolve the breach; Details of who reported the breach or how the breach was identified, and the date of breach; Details of the report submitted in relation to the identified breach and any disciplinary action taken (if any); and Confirmation how or whether the breach has any direct impact on our customers (if applicable). 2-6

7 1.2 Common abbreviations CAT DCA DUA FHB LMI LVR Credit Assessment Tool Delegated Credit Authority Delegated Underwriting Authority First Home Buyer Lenders Mortgage Insurance Loan to Valuation Ratio For the purpose of this policy the terms borrower, consumer, applicant and customer are all interchangeable. 1.3 How to use this document This document is to be used in conjunction with the Residential Lending Procedures document owned by Credit Operations when assessing applications for a home loan. Neither policy nor process document s should be used in isolation. Should an application not fall within policy or the policy is silent in relation to a certain matter, the application needs to be treated as an exception and referred to: Uninsured Loans - a DCA holder with the appropriate exception ability Insured Loans - a DCA holder with the appropriate exception ability and the Mortgage Insurer 2-7

8 1.4 Roles and Responsibilities The major roles and responsibilities within ME that impact this Credit Policy are as follows:- Role Responsibility ME Board Delegate appropriate authorities to develop, create and manage Credit Policy Credit Risk Committee (CRC) Ensure Credit Policy reflects risk appetite in consideration of the Banks strategy, brand and reputation Credit Risk Establish and maintain the Credit Policy Monitor trends impacting the credit quality of MEs portfolio Provide effective leadership in the recommendation of coaching and training requirements when identified in Business Unit monitoring programs Review credit processes and provide recommendations Conducting regular reviews to ensure the appropriateness of lending decisions made and ensuring they meet appropriate Delegated Credit Authority and policy requirements Exercise Level 3 DCA Managing the Delegated Credit Authority (DCA) policy Business Units (BU) Manage internal and external customers in a timely and conducive manner Assist in the development of credit skill by providing ongoing and regular training Establish and maintain adequate processes Ensure compliance with policy and processes Ensure compliance with statutory and other regulatory requirements Ensure sound credit decisions are made when exercising delegations Ensure quality and integrity of data is maintained with the Banks core banking systems Ensure compliance with segregation of duties Delegated Credit Authority (DCA) Holder Assess the loan application for its credit worthiness Is accountable for the decisions of the assessment Has the ability to approve, decline or seek additional information in relation to applications 1.5 Staff lending To avoid conflicts of interest and provide privacy any loan to ME employees, their spouse or immediate family must be reviewed and approved by Level 3 DCA holders. 2-8

9 2 ME Obligations 2.1 Responsible Lending ME has an obligation to comply with the National Consumer Credit Protection Act 2009 (NCCP). The key concept is that ME must not enter into a credit contract with a consumer, suggest a credit contract to a consumer or assist a consumer to apply for a credit contract if the credit contract is unsuitable for the consumer. The responsible lending obligation under NCCP applies when ME:- Enters a credit contract with a consumer; or Increases the limit on an existing credit contract As part of the application assessment ME must conduct reasonable inquiries about the customer. This is completed by undertaking the following actions:- Requirement and Objective Inquiries When establishing a customer s requirements and objectives ME should as a minimum establish the customers situation concerning:- The amount of credit being sought The purpose for which the credit is sought and the benefit to the consumer Its impact on the customer s standard of living It may also be necessary to establish: The type of features the customer is looking for in their loan; and How long credit is sought for Financial Inquiries When making financial inquiries the following information should as a minimum be collected on :- Income or benefits Expenses i.e. living expenses, other debts etc. Extent of other debts that are to be repaid from the credit The customer s credit history Smaller amounts(<$50k): for smaller amounts of credit and where information about the customer is already held, a customer s past behaviour and their confirmation that they had a minimum available monthly income will constitute reasonable inquiries into their financial situation. Foreseeable changes: staff should ask the customer about any foreseeable changes to their financial situation that may impact their ability to meet their repayment, such as impending retirement or a change in employment. 2-9

10 Depending on circumstances, additional financial information may need to be sought from the customer (e.g. number of dependents, savings/assets). These requirements are detailed in this policy. Verification Verification of a customer s financial declaration, such as income and employment information from independent sources must be undertaken in all circumstances. Verification requirements are detailed in this policy. There is limited information and means to verify living and other expenses, ME applies the greater of the customer provided information or the Banks minimum standard. The proposed credit application will be unsuitable if, at the time of assessment, it is likely that: The consumer will be unable to comply with their financial obligations under the proposed credit contract or could only comply with substantial hardship; or The proposed credit facility will not meet the consumers requirements or objectives Documented evidence is required from the customer where the customer s requirements or objectives change after applying for a loan. 2.2 Credit Assessment Report (CAR) If the consumer requests a copy of the final assessment, ME must give the consumer a written copy of the assessment (Credit Assessment Report) within the following timeframes, free of charge; Before entering the contract or increasing the credit limit if the consumer s request is made before this time Within 7 business days if the request is made within 2 years of the contract being entered into or the credit limit increased Within 21 business days for requests made more than 2 years after the contract is entered into or the credit limit increased ME is not required to give a consumer a copy of the assessment if the: a) Contract is not entered into or the credit limit is not increased; or b) Request is made more than 7 years after the credit contract is entered into or the credit limit is increased. The Credit Assessment Report must: On request, provide a customer with a written summary of the factual information provided by the customer that ME used to assess the credit as not unsuitable Contain information that helps the customer understand why the credit has been assessed as not unsuitable for them 2-10

11 3 Mortgage Insurance 3.1 What is Lenders Mortgage Insurance (LMI)? The LMI protects the lender in the event of the borrower defaulting on their loan and where there is a shortfall on the sale of security. The borrower must be advised that LMI applies. The payment of the premium provides the lender with protection in the event of a default &/or loss and not the borrower. Failure to advise the borrower that LMI is applicable may cause reputational damage or result in an Ombudsman claim. The fee for LMI is paid as a once only fee at loan settlement and varies depending on the amount of money being borrowed and the LVR. To ensure the premium charged reflects the agreement with the insurer, the LMI Premium Calculator must be used in all cases. Failure to use the calculator may result in a shortfall or overcharging of the premium. 3.2 When does LMI apply? LMI is driven by the LVR of the transaction. Unless otherwise advised LMI applies when LVR exceeds 80%. There are situations when ME s mortgage insurer will not insure the application. In these instances where the application is considered to be credit worthy a submission for approval to DCA Level 3 can be made. 3.3 Delegated Underwriting Authority (DUA) Exceptions for insured Lending DUA is a delegated authority provided to ME by the Banks mortgage insurers and not the Board of the Bank. Under certain circumstances ME s insurers seek to review the application for funding to ensure that the risk is acceptable. The following situations will require the application to be forwarded to the Bank s insurer for consideration. 3-11

12 Exception Aggregated borrowers exposure Genuine Savings Explanation Any insured loan where the asset is located in:- - ACT, NSW, QLD, SA, VIC & WA that takes the ME aggregated mortgage insured exposure to any borrower above $1,000,000 - TAS & NT that takes the ME aggregated mortgage insured exposure to any borrower above $750,000 Any insured where the genuine savings requirements apply and have not been completely satisfied Non-Arm s Length or Favourable property purchases Credit Checks Borrower type Security type Valuation age Any insured loan where the purchase is a non-arm s length or favourable transaction and where the borrower is seeking more than the contracted price Any insured loan where the Credit Check reveals that the borrower has recorded:- - an inquiry by Genworth within the past twelve months - paid &/or unpaid defaults, judgements or writs - any form of prior bankruptcy Any insured loan above $500,000 to a borrower type who:- - Is not an Australian or New Zealand Citizen - Does not have permanent residency status Any insured loan secured by:- - Vacant land with a land area greater than 2.2 Ha - Un-serviced vacant land - Improved property with a land area greater than 10 Ha - Hotel / Motel redevelopment - Aged housing - A boarding house - Small sized property between 30-<40m2 - Luxury housing - Any application for ineligible securities - A property that has a known unauthorised structure/s Any insured loan that uses a Contract of Sale or Full valuation older than 90 days at the time of application. 3-12

13 Valuation Report Any insured loan where the full valuation report that identifies:- - A minimum of two 4 or one 5 risk rating, or - A selling period of greater than six months, or - The property is located within 50 metres of high voltage transmission power lines, or - A comment by the Valuer that identifies a material impact in saleability for the property in isolation Postcode Referral Certain post codes where the LVR exceeds 90% will require referral to insurer. These post codes are highlighted in Appendix A: Valuation criteria Income evidence Any insured loan not supported by a fully documented evidence of income. This excludes additional advances on the existing loan or mortgage. Income type Previous Insured application Credit Policy is silent Any insured loan where all or part of the income required for servicing is from:- - Workers compensation payments - Rent from boarders - Child maintenance - Unemployment benefits Any application that has been submitted for insurance that has been declined Any insured loan where this Credit Policy appears to be silent 3-13

14 4 Borrowers 4.1 Acceptable Borrowers An acceptable borrower is anyone that:- Is a natural person (over the age of 18); and Is a citizen or permanent resident of Australia or New Zealand and Has a beneficial interest in the loan transaction either by way of joint ownership of the security and/or dependence on the mortgage in a marital or de-facto relationship Any discharged bankrupt greater than 24 months (can only be an acceptable borrower where DCA Level 3 is exercised as well as Mortgage Insurer referral for insured loans). There is no DCA exception ability available for this section of Credit Policy: 4.1 Acceptable Borrowers. 4.2 Joint Borrowers A joint borrower is where there is more than one borrower on the application. Joint borrowers are both jointly and separately liable for the debt. All joint borrowers must be an acceptable borrower. All borrowers under a joint application must receive a benefit from the loan and must not be acting under duress. 4.3 Guarantors A guarantor is an individual who agrees to be liable for the debt of another borrower. A guarantee is obtained from a mortgagor when they are not named as a borrower on any of the loans secured by that property. Guarantors must obtain independent legal advice prior to executing any legal documentation including the Letter of Offer. Guarantor/s who currently live overseas must execute a Power of Attorney in favour of an Australian resident. 4-14

15 4.4 Borrower and Guarantors background checks With the exception of existing customers, all borrowers and guarantors must have been identified in accordance the current Know Your Customer (KYC) regulations and have had a Fraud Check completed. 4.5 Unacceptable Borrower / Guarantors An unacceptable borrower or guarantor includes:- Minors a natural person under the age of 18 Borrower of convenience - is a borrower / guarantor that is added to a loan application to provide serviceability and/or security however does not receive a tangible benefit from the loan transaction A Bankrupt an individual that is an undischarged declared bankrupt or have a judgement pending in a bankruptcy case or a have a bankruptcy discharged < 24 months. For any discharged bankrupt >24 months refer section 4.1 Acceptable Borrowers Associations a group of individuals organised for a joint business activity Company an incorporated entity that conducts business activity Trust is a relationship whereby an asset (i.e. property, shares) is held by one party for the benefit of another Not a citizen or permanent resident of Australia or New Zealand There is no DCA exception ability available for this section of Credit Policy: 4.5 Unacceptable Borrowers. 4-15

16 5 Maximum Loan to Valuation Ratio (LVR) To ensure maximum LVR s are complied with, first determine that the loan purpose is within the maximum LVR then ensure that there are no restrictions based upon the security type. Instances where the maximum LVR exceeds either by purpose or security type escalation to DCA Level 3 is required as well as Mortgage Insurer referral for insured loans. 5.1 Maximum LVR based on Loan Purpose Loan Purpose Purchase of a new or existing residential property Max LVR Uninsured Max LVR (Base Loan) Max LVR including LMI Capitalisation 80% 95% 95% - Max LVR including LMI capitalisation for FHB only can be extended to 97%. If FHB and Interest Only, max LVR remains 95% (inclusive of LMI capitalisation). Refinance of a home loan/s 80% 95% 95% - Internal and external Refinance of a home loan/s and any nonmortgaged related debt/s 80% 90% 95% - Debt consolidation - LVR for the base loan cannot be exceeded when capitalising the LMI premium Construction of residential property as an owner builder 50% 50% - - Nil Construction of residential property with a registered builder 80% 95% 95% - Max LVR including LMI capitalisation for FHB only can be extended to 97%. If FHB and Interest Only, max LVR remains 95% (inclusive of LMI capitalisation). - Where the borrower is an owner builder and a registered builder the owner builder s Max LVR applies Equity Release / Cash Out 80% 90% 95% - LVR for the base loan cannot be exceeded when capitalising the LMI premium Note If the transaction includes loan funds that are released directly to the borrower, i.e. equity release or cash out, then the following LVR limits and dollar restrictions apply: 0% to 85% LVR - no limit applicable to cash out component. >85% to 90% LVR - cash out component is limited to 20% of the security value. >90% LVR - no cash out component allowed. 5-16

17 First Home Buyer (FHB): Where a residential dwelling or vacant land is being purchased, or a residential dwelling is being constructed (by a registered builder) for the sole purpose of owner occupation by the applicant/s. Applicant/s who have owned or currently own an investment property, are eligible provided that they do not currently or have not previously owned an owner occupied premises. Interest Only is available to a maximum LVR of 95% (inclusive of LMI capitalisation). Any application that exceeds these maximum LVR limits requires referral to DCA Level 3. For insured loans, referral to DCA Level 3 and the Mortgage Insurer is required. 5.2 Unacceptable Loan Purposes Unacceptable loan purposes include:- Loans for business purposes, e.g. working capital (used to fund a customer business cash flow requirements to pay for stock and creditors) Loans to pay tax liabilities Loans dependant on future savings plans Loans for construction where it is a cost plus contract Any application for an unacceptable loan purpose requires referral to DCA Level 3. For insured loans, referral to DCA Level 3 and the Mortgage Insurer is required. 5.3 Maximum LVR based on Security Type There are some security types where ME has set certain maximum LVR s as its preferred position, which are outlined in the following table. From time to time there will be applications with strong mitigating circumstances that will be considered. Where the maximum LVR without LMI is being exceeded, referral to DCA Level 3 is required. For insured loans, referral to DCA Level 3 is required as well as Mortgage Insurer referral. Applications with multiple security types which have a different maximum LVR limit/s will require a calculation for the maximum loanable amount. This amount equals the sum of the maximum loanable amount of each security. The resulting LVR from this calculation is the acceptable Maximum LVR 5-17

18 Security type & definition Maximum LVR without LMI Maximum LVR with LMI ACT Leasehold 80% 95% (note 97% Leasehold is a system of land tenure. For Residential leases the lessee buys the right to use land under a lease for a term of 99 years. In every practical way though, the lessee builds the house and owns it just as anywhere else in Australia. Rural leases are usually granted for up to 50 years. Although the Land Act (ACT) does not provide any certainty of tenure by way of lease renewal it is nevertheless acceptable for the loan maturity date to exceed the leasehold maturity date. for FHB inclusive of LMI Capitalisation is acceptable) Display house 80% Above 80% A residential property that has been built by a builder or developer for the purpose of advertising / display purposes &/or offered for sale as an investment opportunity under a leaseback agreement refer to DCA Level 3 and Mortgage Insurer High density house 80% Above 80% Uninsured : A residential property located in specific postcodes (as detailed below) and is within a development complex comprising more than 35 units / apartments Insured : A residential property located in specific postcodes (as detailed below) and is within a development complex comprising more than 10 units / apartments refer to DCA Level 3 and Mortgage Insurer State Postcodes NSW , 2017, 2138 NT 0800 QLD , 4215, 4217, 4218, 4870, 4879 SA TAS 7000 VIC 3000, 3001, , 3141, 3205 WA , 6210 Luxury Housing 70% Above 80% A residential property that are in excess of the medium price for that State and are usually of high value in either land or property due to location or quality refer to DCA Level 3 and Mortgage State Property value of Land, Units, Townhouses above: Property value of Houses above: Insurer NSW $2.5 million $3.5 million VIC / WA $2.0 million $3.0 million NT/ACT/QLD/SA $1.5 million $2.0 million TAS $1.0 million $1.5 million 5-18

19 Mining Postcodes 70% Not Available A residential property that is located in an area that services the mining industry State Postcodes NSW 2330,2335,2382,2878 QLD 4680,4705,4709,4712, ,4737,4741, ,4804,4805, 4825,4869, 4874,4880 WA 6254,6346,6390,6423,6426,6429,6438,6440,6442,6443,6479, 6518,6519,6537,6620,6640,6642,6707,6710, , 6716,6718, , 6743,6751, 6753,6754, 6758,6760, 6762,6770 Multi Dwellings on one title Properties where there are two fully self-contained residences constructed on one title (i.e. not subdivided / strata title) Properties where there are three or four fully self-contained residences constructed on one title (i.e. not subdivided / strata title) Above 80% 80% refer to DCA Level 3 and Mortgage Insurer 65% Above 80% refer to DCA Level 3 and Mortgage Insurer Residential 80% 95% Houses, townhouses, units, flats, apartments which are free standing or attached (semi-detached) and which are used exclusively for the purpose of private housing which is either tenanted or owner occupied (note 97% for FHB inclusive of LMI Capitalisation is acceptable) Residential Vacant Land Unimproved allotments less than 2.2 hectares which are zoned for residential or rural residential housing 80% 95% A property >2.2 and <=10 hectares which is ready for the construction of a residential dwelling Note: these property types must be situation in fringe city / town location (i.e. must have a postcode which is nominated within the metro or regional locations). If not located within nominated metro or regional locations referral to DCA Level 3 is required A property >10 and <=20 hectares which is ready for the construction of a residential dwelling Note: these property types must be situation in fringe city / town location (i.e. must have a postcode which is nominated within the metro or regional locations). If not located within nominated metro or regional locations referral to DCA Level 3 is required 80% Above 80% refer to DCA Level 3 and Mortgage Insurer 70% Above 80% Not available 5-19

20 A property >20 and <=40 hectares which is ready for the construction of a residential dwelling Note: these property types must be situation in fringe city / town location (i.e. must have a postcode which is nominated within the metro or regional locations). If not located within nominated metro or regional locations referral to DCA Level 3 is required. 60% Above 80% Not available Residential large sized properties A property >2.2 and <=10 hectares with residential improvements 80% 95% (note 97% for FHB inclusive of LMI Capitalisation is acceptable) A property >10 and <=20 hectares with residential improvements Note: these property types must be situation in fringe city / town location (i.e. must have a postcode which is nominated within the metro or regional locations). If not located within nominated metro or regional locations referral to DCA Level 3 is required A property >20 and <=40 hectares with residential improvements Note: these property types must be situation in fringe city / town location (i.e. must have a postcode which is nominated within the metro or regional locations). If not located within nominated metro or regional locations referral to DCA Level 3 is required. 70% Above 80% Not available 60% Above 80% Not available Small sized properties 80% Above 80% Any residential property where the floor area of the property is >= 40m2 & <=50m2. This excludes outdoor alfresco areas, carports and garages refer to DCA Level 3 and Mortgage Insurer University Apartments / Students Accommodation > 30m2 50% Above 80% Often set up in a similar fashion to a serviced apartment or as a standard residential unit and, where the whole unit complex is marketed as a university apartment or student apartment. Not available 5-20

21 6 Documentary Requirements based on Loan Purpose 6.1 Age of documents Age of documents will be as at the submission date. 6.2 Documentary requirements The following table outlines required documentation based on the acceptable loan purposes. Purpose : Purchase the acquisition of residential real estate Documentary Requirements Borrowers identification (as required) Fully completed loan application form Income verification documents (refer employment & income section of this policy) Contract of Sale or equivalent (note: a fully executed Contract of Sale is required prior to settlement) Vendors statement (where applicable) Evidence of the funds to complete the purchase When the property is purchased Off the Plan and is a residential dwelling:- The subject property must be near completion and access is available for valuation purposes Certificate of Occupancy or equivalent is to be provided prior to settlement Settlement can only occur upon completion When the property is purchased Off the Plan and is vacant land:- Submission of the loan application can only occur within 90 days of the verified settlement date Non-Arm s Length Purchase (excludes Marital Separation which is assessed under Purpose: Refinance / Debt Consolidation ) A non-arm s length transaction relates to the sale of a property where:- - A registered Real Estate Agent is not acting for the vendor - The sale provides an advantageous / favourable purchases to family members at a discounted price - The vendor is selling the property to a person to whom they are indebted Different valuation methods apply when the purchase is non-arm s length. 6-21

22 Purpose : Refinance / Debt Consolidation the act of repaying one loan or loans with another new loan or loans Documentary Requirements Borrowers identification (as required) Fully completed loan application form Income verification documents (refer employment & income section of this policy) Bank statements (refer below) Bank Statements Satisfactory conduct of loan facilities being refinanced must be established. If the loan is to repay:- - another Financial Institution loan: Obtain latest issued loan statement/s that displays the account name and cover a consecutive six month period - another Financial Institution credit card facility: Obtain latest issued bank statement/s that display the account name and cover a consecutive three month period - ME facility: The provision of bank statement/s is waived as reference to internal systems will suffice Statements (including internet) are only acceptable if all of the following are present:- - Borrowers name - Account number - Individual transactions are itemised and there is a running account balance - The logo of the bank or financial institution is displayed - Where the borrowers name or logo is not displayed on the internet statement, a separate bank issued statement must be provided to verify these details If the loan involves a Marital Separation:- - Obtain a copy of the separation agreement or court order 6-22

23 Purpose : Equity Release / Cash Out when a borrower requests a loan for personal use from the equity held in their property Documentary Requirements Borrowers identification (as required) Fully completed loan application form Income verification documents (refer employment & income section of this policy) Written advice from the customer on the purpose of funds (or written advice from a ME Salesperson or Broker, outlining the conversation with the customer) Purpose : Construction - When finance is required to construct or structurally alter a residential dwelling for owner occupation or long term personal investment OR when non-structural renovations are proposed to an existing residential dwelling and the finance amount sought is > $100,000 Documentary Requirements Borrowers identification (as required) Fully completed loan application form Income verification documents (refer employment & income section of this policy) Evidence of the capacity to complete Building Permit Home warranty insurance certificate (if applicable to your state or territory) Where construction is by a Registered Builder:- Fully executed fixed priced building contract Plans and Specifications (Council approval is required prior to settlement) Builders all risk and indemnity insurance certificate/s Where construction is by an Owner/Builder:- Plans and specifications A fully costed project report prepared by owner or owners representative (i.e. project manager) Owner s construction works insurance certificate Refer section 13 for additional requirements 6-23

24 7 Credit Check Each time a new application is assessed, it is a requirement that a credit report is obtained for each borrower (under all known names/related entities) and guarantor (under all known names/related entities). 7.1 Credit History ME consider the following indicators to be satisfactory credit history:- Care: DUA Exception may apply Credit Check feature Satisfactory Credit History if: Assessment Requirements Enquiries Not more than 7 enquiries in the last 12 months to any financial institution Enquiries need to be matched with the liabilities section in the application form and any loan payments appearing in bank statements. All enquiries to other financial institutions in the last 24 months must have their current status advised Defaults, Judgements and Writs Care: DUA Exception may apply Paid & Unpaid Items Paid or Unpaid defaults <2 and/or <=$1,000 Judgements = 0 Writs/Summons = 0 Director of company that has entered into external admin = 0 Any defaults, judgements or writs are required to be understood. The assessment is to include a satisfactory explanation from the borrower to the default, judgement or writ. Escalation to DCA Level 4A is required for all applications not meeting default, judgement or writs satisfactory credit history. All insured applications with any defaults, judgements or writs must also be referred to the mortgage insurer. Company Directorship No adverse items recorded The assessment is to include a satisfactory explanation of any unusual trading history (e.g. external administration) 7-24

25 8 Account Conduct Satisfactory account conduct is achieved when:- Loan / Overdraft accounts - Currently no arrears - Has not been in excess of its limit in the previous 6 months - Not more than 1 missed payment over a 6 month period Credit Cards - Currently no arrears - Is not over the limit - Not more than 1 missed payment over a 3 month period - Consistent minimum monthly payments can be verified For the purpose of this policy arrears means more than $100 accumulative across all loan / overdraft accounts and credit cards. 8-25

26 9 Genuine Savings A minimum deposit of 5% of the property price must be evidenced from genuine savings where the base loan LVR, prior to any capitalisation of lenders mortgage insurance is > 85%. Genuine savings must be held in the borrowers name and sourced from the following: Funds held or accumulated in savings accounts for 3 months or more (including gifts or inheritance) Equity in residential property Term deposits held for 3 months or more Shares held for 3 months or more Employee funded superannuation contributions Re-drawable funds in a mortgage or line of credit Proceeds from sale of real estate Unacceptable forms of genuine savings include:- Tax refunds Work bonuses First Home Buyers Grant (FHOG) Gifts or inheritance held for less than 3 months and/or not in the name of the borrower Gambling proceeds Any application where genuine savings cannot be evidenced; Must demonstrate servicing on ME servicing tools AND the Genworth Servicing calculator; AND Must be referred to Mortgage Insurer as it falls outside of the Delegated Underwriting Authority (DUA). 9.1 Age of evidence Age of evidence will be as at the submission date. 9-26

27 10 Employment and Income A loan is only offered to borrowers who can demonstrate an ability to repay over the life of the loan. An ability to repay is determined by:- Determining eligible income Verifying income documents Assessing the borrowers living arrangements, for example single, single with dependants, married with no dependants; etc. Adding all ongoing liabilities and commitments Considering the borrowers situation i.e. apportioning debt, adding in rent for those borrowers living at home Age of documents Age of documents will be as at the submission date Verification Checks Payslips: Payslips are considered acceptable when they identify: - the employers name - the employees name - the date of payment - the pay period - the gross and net amount of payment - any loadings, monetary allowances, bonuses, incentive based payments, penalty rates or other separately identifiable entitlements paid Letter from Employer: Letters from an employer are considered acceptable when: - No older than 4 weeks old - On employer letterhead - Signed by the employer - Confirms gross income excluding superannuation or any other additional benefits Details within the letter must be confirmed verbally by the employer. The employer contact details must be obtained from an independent source (e.g. Telephone directory). Details of the conversation must be recorded and include: - Date and time the conversation was held - Name and position of the person at the employer s premises 10-27

28 10.3 Eligible Employment and Income Type The following tables outline a variety of income sources, the minimum documentation requirements, any pertinent restrictions or conditions of use, verification requirements and the maximum usage limit of that income source. Foreign currency income: Where any of the income sources have been provided in currency other than AUD a conversion to AUD is required. The maximum amount of income that can be included in serviceability is 90%. Insured Loans: Any insured loan where an exception to policy is required must be referred to a DCA Level 3 holder as well as the Mortgage Insurer referral Pensions: Age: A payment by the Government to support living costs Armed Services: Pension paid to current and previously serving members of the Australian Armed Forces Invalid / Disability: A Government payment that provides income support for individuals with special needs Overseas: A payment from an overseas Government for borrowers who have retired from the workforce Private: Income derived from an investment acquired by a client s superannuation Carer Payment/Allowance: A Government payment to support the cost of caring for family members with special needs Restrictions Verification requirements % used for servicing None Evidence must be provided confirming the amount being received. This can be achieved through one of the following:- 1) A Centrelink statement or equivalent (i.e. statement from Veteran Affairs for Armed Service pensions), no older than 6 weeks confirming benefit amount; OR 2) Bank Statements, most recent showing regular payments over a period of 3 months 100% 90% (for overseas Pensions) Parenting Payment (Single or Partnered): A payment by the Federal Government as income support for parents or guardians to help with the cost of raising children Restrictions Verification requirements % used for servicing Must be payable for the next 5 years Single - Child must be < 3 years old Partnered - Child must be < 1 year old Evidence must be provided confirming the amount being received. This can be achieved through one of the following:- 1) A Centrelink statement, no older than 6 weeks confirming benefit amount; OR 2) Bank Statements, most recent showing regular payments over a period of 3 months 100% 10-28

29 Family Payment: A Government payment to support the cost of raising a family. This payment is separated into two parts: Part A and Part B. The Large Family Supplement (if applicable) is also eligible as an acceptable form of income and is usually paid in conjunction with the Family Payment. Restrictions Verification requirements % used for servicing Evidence must be provided confirming the amount being received. This can be achieved through one of the following:- 1) A Centrelink statement, no older than 6 weeks confirming benefit amount; OR 2) Bank Statements, most recent showing regular payments over a period of 3 months % used for servicing:- 100% of the dependants apportioned share in Part A where the dependant is <13 years of age 30% of the dependants apportioned share in Part A where the dependant is >13 years and < 18 years of age 100% of the dependants apportioned share in Part B where the dependant is <18 years of age 100% of the Large Family Supplement (if applicable) See below PAYG: Salary / Wages (Full Time / Permanent Part Time / Second Job/Casual): An individual who is employed by a business on a salary or wages basis Restrictions Verification requirements % used for servicing Base income (excludes overtime) At time of assessment, borrower has had 6 months in current job, OR 12 months in the same field / line of work. Probationary periods are acceptable Insured Loans: Loans that require referral to the Mortgage Insurer must have two of the three most recent computer generated/paper pay slips Evidence must be provided confirming the amount being received. This can be achieved through the following:- 1) A Payslip no older than 4 weeks old, OR 2) Letter from Employer (dated, signed and on employer letterhead) no older than 4 weeks; AND Any one of the following: 3) Most recent PAYG Payment Summary / Notice of Assessment, no older than 18 months; OR 4) Most recent Personal Tax Return, no older than 18 months 100% 10-29

30 PAYG: Overtime: Income paid by an employer at or above the base rate of pay for time worked beyond their scheduled hours. Restrictions Verification requirements % used for servicing Overtime can be used when it can be evidenced as being consistent over a 12 month period with the same employer or where it forms a condition of the role; e.g. industry type Verification of overtime is not required when servicing can be satisfactorily demonstrated from the borrowers base income Insured Loans: Loans that require referral to the Mortgage Insurer must have two of the three most recent computer generated/paper pay slips Evidence must be provided confirming the amount being received. This can be achieved through the following:- 1) A Payslip no older than 4 weeks old where the Year To Date income supports the overtime component, AND Any one of the following: 2) The most recent PAYG Payment Summary / Notice of Assessment, no older than 18 months; OR 3) Most recent Personal Tax Return, no older than 18 months 80% of the most recent financial information can be included in gross income PAYG: Penalty Payments / Shift or staff allowances: Allowances paid by an employer at or above the base rate. This also includes allowances that are standard conditions of employment (e.g. car, meal, shift etc.) Restrictions Verification requirements % used for servicing Penalty Payments/Shift or Staff Allowance can be used when, at time of assessment, the borrower has had 6 months in current job, OR 12 months in the same field / line of work. Insured Loans: Loans that require referral to the Mortgage Insurer must have two of the three most recent computer generated/paper pay slips Evidence must be provided confirming the amount being received. This can be achieved through the following:- 1) A Payslip no older than 4 weeks old where the Year To Date income supports this component, AND Any one of the following: 2) The most recent PAYG Payment Summary / Notice of Assessment, no older than 18 months; OR 3) Most recent Personal Tax Return, no older than 18 months 100% of the most recent financial information can be included in gross income 10-30

31 PAYG: Commission: Income paid above the base retainer when sales targets/incentives have been achieved Restrictions Verification requirements % used for servicing At time of assessment, borrower has had 6 months in current job, AND A minimum of 2 years history of the customer receiving commission Insured Loans: Loans that require referral to the Mortgage Insurer must have two of the three most recent computer generated/paper pay slips Evidence must be provided confirming the amount being received. This can be achieved through the following:- 1) A Payslip no older than 4 weeks old; AND Any one of the following for each of the preceding 2 years: 1) PAYG Payment Summary; OR 2) Personal Tax Return 100% Use the most recent year s amount. Exception Where the most recent year is > 120% of the previous year then the last 2 years average is to be used PAYG: Bonus Income: Income paid above the base retainer when sales targets/incentives have been achieved and at the employer s discretion Restrictions Verification requirements % used for servicing At time of assessment, borrower has had 6 months in current job, AND A minimum of 2 years history of the customer receiving bonus income Insured Loans: Loans that require referral to the Mortgage Insurer must have two of the three most recent computer generated/paper pay slips Evidence must be provided confirming the amount being received. This can be achieved through the following:- 1) A Payslip no older than 4 weeks old; AND Any one of the following for each of the preceding 2 years: 2) PAYG Payment Summary; OR 3) Personal Tax Return 80% Use the most recent year s amount. Exception Where the most recent year is > 120% of the previous year then the last 2 years average is to be used PAYG: Contracted Employees: A contracted employee is an individual employed by an employer to do work for a specified period of time. They have similar working conditions and salary arrangements as PAYG employees Restrictions Verification requirements % used for servicing At time of assessment, borrower has had 6 months in current job, OR 12 months in the same field / line of work Same as PAYG Salary / Wages In addition:- 1) A copy of current contract 100% 10-31

32 Independent Contractors: An independent contractor is an individual who is paid for services &/or results by one or more businesses. They usually have an ABN or ACN and get paid a gross amount for their services. They pay their own tax and incur operating expenses Restrictions Verification requirements % used for servicing At time of assessment, Borrower has had 6 months in current job, OR 12 months in the same field / line of work Same as Self Employed In addition:- 1) A copy of current contract 100% Child Support / Maintenance: Income received from an ex-partner or spouse to assist with the care of dependent children Restrictions Verification requirements % used for servicing Payments must be payable for the next 5 years (dependents are < 13 years of age) Insured Loans: Loans that require referral to the Mortgage Insurer must have two of the three most recent computer generated/paper pay slips Evidence must be provided confirming the amount being received. This can be achieved through the following:- 1) Court Order / Child Support Agency Statement or original solicitors letter; AND 2) Bank Statements, most recent showing regular Child Support payments over a period of 6 months with the last payment being within the last 4 weeks 100% 10-32

33 Maternity/Paternity Leave: A source of income that provides financial support to working parents of a newborn or recently adopted child Restrictions Verification requirements % used for servicing To use income whilst on maternity leave the following criteria must be met: (1) the income must be employer or government paid (2) the borrower has notified their employer of their intention to return to work and the employer has acknowledged this intention in writing (3) the income is currently being received and will continue to be paid until the confirmed returned work date Evidence must be provided confirming the amount being received. This can be achieved through the following:- 1) A Payslip no older than 4 weeks old; AND 2) Letter from Employer (dated, signed and on employer letterhead) no older than 4 weeks acknowledging the borrowers intention to return to work and confirmation of the return to work date 100% Insured Loans: Loans that require referral to the Mortgage Insurer must have two of the three most recent computer generated/paper pay slips Investment Income: A regular income stream that is derived from bank interest, dividends, capital gains, or any other profit made from an investment vehicle of any kind Restrictions Verification requirements % used for servicing None Evidence must be provided confirming the amount being received. This can be achieved through the following:- 80% Two of the most recent Tax Returns, the most recent being no more than 18 months old 10-33

34 Rental (excludes rent from properties located in a designated mining postcode area): Standard Income paid by a tenant for the exclusive use of a building owned by the borrower/s National Rental Affordability Scheme (NRAS) is a Federal Government initiative aimed at providing affordable rental accommodation to lower income individuals and families Defence Housing Australia (DHA): is a Federal Government initiative where housing is rented to Defence force families over longer periods of time than typical rental agreements Restrictions Verification requirements % used for servicing Future rental: Where future rental income is being used (typically for investment properties under construction), the income source is acceptable provided there is a building contract in place with a registered builder Evidence must be provided confirming the rental amount via: 1) A current lease/tenancy agreement no older than 12 months; OR 2) A rental statement issued by the managing agent or property manager no older than 90 days; OR 3) ME s valuation report; OR 4) A rental appraisal from a registered Real Estate Agent which is no older than 4 weeks For DHA only: 1) A copy of the lease agreement no older than 12 months; OR 2) A rental statement no older than 90 days For Display Homes only: 1) ME s Valuation Report Where more than one source of income verification is received, the lowest figure must be used Standard rental 80% NRAS 65% * DHA 100% less management fee * * must be input as tax free income into CAT/Pega Mining Rental: Income paid by a tenant for the exclusive use of a building owned by the borrower/s located in a designated mining postcode area (refer section 16.3) Restrictions Verification requirements % used for servicing Future rental: Where future rental income is being used (typically for investment properties under construction), the income source is acceptable provided there is a building contract in place with a registered builder Evidence must be provided confirming the rental amount via: 1) ME s valuation report; OR 2) A rental appraisal from a registered Real Estate Agent which is no older than 4 weeks Where more than one source of income verification is received, the lowest figure must be used 60% (must be input as tax free into CAT/Pega) 10-34

35 Motor Vehicle - fully maintained company MV Restrictions Verification requirements % used for servicing Allowed provided it is part of Employment Contract / conditions. Vehicle must be fully maintained (e.g. insurance, registration, running costs, etc.) with no restrictions on personal use Motor vehicle - allowance Evidence must be provided confirming the provision of the fully maintained motor vehicle. This can be achieved through the following:- 1) Letter from the employer (dated, signed and on employer letterhead); OR 2) Employment Contract Notional $7,500 can be added to the gross income Restrictions Verification requirements % used for servicing Must be permanent part of income Evidence must be provided confirming the amount of payment being made / received. This can be achieved through the following:- 1) A Payslip no older than 4 weeks old; AND Any one of the following: 2) Most recent PAYG Payment Summary / Notice of Assessment, no older than 18 months; OR 3) Letter from Employer (dated, signed and on employer letterhead); OR 4) Employment Contract 100% added to gross income Note: any loan commitments must be included in the expenditure to calculate servicing 10-35

36 Salary Sacrifice Arrangements: is an arrangement between an employer and an employee, where by the employee agrees to forgo part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar cost (to the employer). Salary sacrifice arrangements may also be referred to as salary packaging or total remuneration packaging. Common salary sacrifices include: motor vehicle, non-compulsory superannuation payments, loan repayments, expense repayments (i.e. school fees, child care costs, home phone costs), laptop computers, mobile phones Restrictions Verification requirements % used for servicing To include this in servicing the borrower must confirm that they can cease the arrangement at any time Evidence must be provided confirming the amount of payment being made / received. Normal PAYG verification rules are to apply. However the salary sacrifice component can be verified through the following:- 1) A Payslip no older than 4 weeks old; OR Any one of the following: 2) Letter or statement from the supplier (dated, signed and on letterhead) no older than 6 months old confirming the level of salary sacrifice 100% of gross income Note: any loan commitments must be included in the expenditure to calculate servicing 10-36

37 Self Employed: When an individual derives their income from an enterprise to which they are an owner or director and the enterprise is in the form of a sole trader, partnership, company, trust or a non PAYG contractor Restrictions Verification requirements % used for servicing There must be a minimum of 2 financial years trading Where 2 years trading is not evident an application can be considered on a case by case basis. In these instances, for uninsured loans DCA Level 3 approval is required. For insured loans DCA Level 3 and Mortgage Insurer approval is required. Evidence must be provided confirming the amount of income. This can be achieved through the following:- Sole proprietorship or partnership 1) Last 2 most recent years Personal / Business / Company / Trust Income Tax Returns (the most recent being no more than 24 months old); AND 2) Most recent Notice of Assessment, no older than 18 months Company or trust 1) Last 2 most recently lodged Personal / Business / Company / Trust Income Tax Returns (the most recent being no more than 24 months old); AND 2) Most recent personal Notice of Assessment, no older than 18 months 3) Last 2 most recent years Financial Statements (the most recent being no more than 24 months old) Use the most recent year s personal taxable income plus net profit/loss before tax of the business. Where taxable income has increased over the last two years by more than 20%, the maximum of 120% of the previous year s income must be used. Net Profit/Loss before tax of the business The net profit/loss before tax of the business is calculated as the net profit/loss correlating to the borrowers ownership portion (with the exception of superannuation) plus any of the allowable expense outlined below:- Interest expense: Interest on debt/s where these are being refinanced by the Bank Rent: if it is paid to the borrower Superannuation: any additional voluntary contributions paid by the business to the borrower that is above the minimum government requirement Non reoccurring expenses: expenses that will occur outside the normal course of business Depreciation Expense Add-back Up to a limit of 20% of the most recent financial year s business net profit before tax may be added back as taxfree income. Where a loss is incurred no depreciation addback is available. Note: Where the applicant s self-employed income is not being used for servicing: To understand if there are any associated liabilities or losses an accountant s letter, most recent tax return or profit and loss statement is required. Where the applicant s company or business has ceased trading or deregistered: A letter from the customer s accountant confirming current status of the entity, and any personal liability of the customer is required

38 11 Serviceability ME use a Net Income Surplus (NIS) method to assess the risk related to a borrower s ability to meet regular loan commitments. ME use buffers and interest rate floors to cover interest rate movements and/or unexpected expenses of a customer. To meet MEs servicing requirements the NIS must be greater than or equal to $0. ME assess serviceability via the application work flow tool Pega (T24 originated loans) and a calculator known as the Credit Assessment Tool (CAT) (Ultracs originated loans). Any exception for applications where the NIS is <$0 must be supported by clear mitigating notes; however a reduction of the prescribed floor rate and/or the buffer rate to achieve serviceability is not acceptable Income Allowable income sources and % used for servicing are outlined in section 10 of this policy General Living Expense The application form enables the borrower to provide ME with a figure that adequately represents their general living expenses. Where the general living expenses provided by the borrower are less than the ME standard for the borrower type (i.e. based on family type and annual gross household income) the ME standard baseline for assessment purposes will apply. This will be undertaken automatically in the serviceability assessment. MEs standard baseline is the Household Expenditure Measure (HEM) based on Gross Household Income Groups Liabilities and Commitments All of the borrower s liabilities and their associated commitments need to be considered when determining the capacity of a borrowers servicing & repayment ability. Identifying liabilities and commitments should be made through the borrower s disclosure on the application form. However care should be taken to review other source documents that may identify undisclosed liabilities / commitments. Other source documents that may be used to identify undisclosed liabilities / commitments include the:- Credit Check Bank statements ME systems 11-38

39 The following outlines the type of liabilities that should be considered when assessing a borrower/s capacity to service and repay. Existing commitments Personal Loan Other Commitments (i.e. Overdrafts / Margin Lending Loans) Home Loans other financial institutions Inputs into PEGA / Credit Assessment Tool (CAT) The current loan repayment amount and the frequency of repayment Manually calculate a monthly commitment figure by using the authorised limit multiplied by (interest rate plus 2.20%) divide by The repayment amount and frequency of repayment 2. The outstanding balance (including redraw) The servicing calculation will utilise the higher of; the applicant s stated repayments; OR calculated buffered repayment. Calculated buffered repayment is based on the outstanding balance (including redraw) of other financial institutions Home Loan over a 360 month term using the higher of: (a) the proposed ME loan product Variable Rate* plus 2.2% interest rate buffer, or (b) the ME Floor Rate (currently 7.4%) Credit Cards with an authorised limit Credit Cards with no authorised limit Other ME Home Loans HELP / HECS * The interest rate of the ME loan product the customer has applied for. The aggregated total credit card limits The average balance of the last 3 months statements plus 20% of this figure represents the monthly commitment Balance and redraw amount over the remaining term of the loan/s The interest rate to be applied is the higher of; (a) the Product s Variable Rate plus 2.20% interest rate buffer, or (b) the Floor Rate (currently 7.4%), or (c) the Fixed Interest Rate of the existing loan/s. Refer tax return or payslip to identify the liability and mark in the CAT that HELP / HECS is applicable 11.4 Notional Rent When a borrower has minimal rent expense ($0 to <$150 per week) a notional rent of $150 per week per borrower must be included in the serviceability calculation. The notional rental expense does not need to be included in servicing for owner occupied construction loans

40 11.5 Apportioning debt Where a sole borrower declares that they have joint liabilities (with married / de-facto partner) 50% of the debt can be apportioned provided it can be determined that the non-borrower receives sufficient income to service their apportioned amount of the debt. Evidence of the non-borrowers income is required and must be retained on file typically this will be evidenced on the borrower s tax return as spousal income. Where evidence of income is not supplied the liability & repayment of the full debt is to be applied to the sole borrower assessment. Notes to the assessment should outline reasons for apportioning the debt Interest Only Where a borrower requests interest only (at origination), the following parameters apply; Maximum interest only term of 10 years over the life of the loan; Serviceability must demonstrate ability to meet Principal and Interest repayments, based on loan term minus the interest only period

41 12 Security and Valuation 12.1 Acceptable Security In all instances a first ranked registered mortgage over a residential property must be taken as security Ineligible Security The following tables outline certain types of securities that are considered ineligible by ME. Accordingly any proposal to use ineligible security must be referred to DCA Level 3 for approval for uninsured loans, and DCA Level 3 and Mortgage Insurer for insured loans. Title Types Company Title Group Title Leasehold Title (except ACT leasehold or simular perpetual type lease arrangements) Purple Title / Moiety Titles Stratum Title is excluded in all States and Territories, with the exception in Tasmania where stratum title is permitted. This is not to be confused with strata title, which is permitted Time Share Property Types Aged Housing Property Development Commercial Usage Properties Recreational or special use properties Converting from another purpose Serviced Apartments (including time share) Hotel/Motel Redevelopment Transportable or relocatable homes Income Producing Property (apart from Rent) Unique Properties Mixed Usage Properties Vacant Land: Un-serviced Properties larger than 40 hectares Any residential property where the floor area of the property is <40m2 (University Apartments / Students Accommodation < 30m2) 12-41

42 Environmental Issues Properties which are the subject of any resumption order or adversely affected by a notice from any Local, State or Commonwealth department authority Other Properties which have a frequent notified flood affectation Properties which are within an area of known site contamination as advised by the Panel Valuer or Solicitor or identified within the Contract of Sale Where the security property requires repairs which would cost more than 10% of the valuation (or contract price in the case of a purchase) and the borrower does not hold sufficient funds to carry out those repairs or will not hold sufficient funds immediately following settlement. The extent and cost of essential repairs are to be advised by a Quantity Surveyor at the borrower s costs Acceptable valuation types The following table outlines MEs acceptable valuation types and any specific conditions of use:- Valuation methods Automated Valuation Model (AVM) AVM is a mathematical technique used to provide an estimate of value for a specified property at a specified date Valuation methods Contract of Sale (CoS) A Contract of Sale is a contract between parties for the purchase and sale of real estate Conditions of Use An Automated Valuation Model can be used when: It has a confidence score of 4.5 or greater. It is less than 90 days old The AVM is valid only for the application submitted. Conditions of Use A Contract of Sale can be used when:- It is less than three months old at submission date The transaction can be verified as being conducted through a licensed real estate agent The transaction is an arm s length transaction. Where the sale is not at arm s length a full valuation is required. Refer 6.2 for definition of arm s length Verification process:- The property must be verified as on the market through an independent website. ( e.g. or or independent agents web site); OR Contact the real estate agent to confirm purchase price and sale address. The real estate agents details must be obtained from an independent site i.e. white/yellow pages 12-42

43 Note: The value of any rebate received (cash, gift card, other valuable consideration) must be subtracted off the purchase price to reflect the true underlying purchase amount paid. Rates Notice A Rates Notice is from a Local Council outlining the rates payable on a property. It also includes the rateable owners and (often) the vacant land and capital improved value of the subject property Full valuation A full valuation is an appraisal of a property conducted by an ME panel Valuer A rates notice can be used when it is:- Less than 13 months old from the date of submission Where the name of the borrower is on the rates notice Where a rating value is provided A full valuation report can be used when the valuation report is considered acceptable. An acceptable valuation report:- Is conducted by a panel ME Valuer Is addressed to ME, the Mortgage Insurer and Trustee Confirms the property is zoned for residential use Outlines any encumbrances or restrictions on title (excluding title search details) Provides a minimum of 3 comparable sales Confirms that the property has power, water and sewerage connected (or tank water and septic system similar to other properties in the area). Properties with connections and services that run immediately to the property boundary (allowing connection at minimum cost) are acceptable) Confirms a selling period of 6 months or less Must be less than 90 days old 12-43

44 12.4 Determining the valuation type To determine the type of valuation required use the Valuation tool located on WIKI at: Appendix A the valuation methodology and post codes 12.5 Property suitability When a full valuation is received by ME the report is to be reviewed to determine if there are any risks associated with the property that require further investigation and/or mitigation. If any of the following conditions apply escalation to DCA Level 3 (uninsured) or our Mortgage Insurer (insured) for consideration as required:- Uninsured Insured Risk Ratings three 4 risk ratings or a minimum of one 5 two 4 or one 5 risk rating; OR risk rating Selling period No referral required A selling period of greater than six months; OR Saleability No referral required A comment by the Valuer that identifies a material impact in saleability for the property in isolation. This may be identified by a Risk Rating 4 or 5 or be found in the Valuer s general comments. Environmental No referral required The property is located within 50 metres of high voltage transmission power lines Further DUA exceptions may apply refer to Section

45 13 Special Asset Classes 13.1 Construction Loans A construction loan is defined as finance being provided for the purpose of:- - Building a residential dwelling. - A structural alteration to a residential dwelling - A non-structural renovation to an existing residential dwelling where the finance amount sought is > $100,000 - Any loan where a on completion valuation is used Valuation The value of the security must be determined by a full valuation. The valuation type ME must request is upon completion. As a condition of a construction loan, progress payments will be subject to the completion of a first and final progress inspection report which is to be undertaken by a panel Valuer. Where the LVR is above 80% for a residential property with a registered builder and for any owner builder (regardless of LVR), a progress inspection report is required at every drawdown request. Split Contracts (House and Land) When a split contract is provided for the construction of a dwelling: - In a multi-dwelling development, or - Where there is a common party wall to an adjacent dwelling The assessment must be done on the basis that full funding of the approved finance will occur when the construction of the dwelling is completed (i.e. the same as an off the plan purchase). Documentary Requirements: - Refer section 6.1 of this policy Release of funds - A copy of the approved plans and building permit is required prior to first progress payment - Release of funds must only occur after owner s equity has been provided - Where the construction is by an owner builder; release of funds must only occur once lock up or equivalent stage has been satisfactorily achieved

46 Prior to or at final draw down - Certificate of Occupancy/Completion (SA/WA only: ME Valuer s final inspection report) - Buildings Replacement Insurance certificate or Certificate of Currency 13.2 National Rental Affordability Scheme (NRAS) NRAS is a Federal and State Government initiative that aims to increase the supply of new rental dwellings and improve rental affordability. It is also designed to stimulate investment in affordable housing by providing tax incentives to investors. Approval Maximum LVR & loan amount Loan purpose LVR <= 80% requires DCA Level 3 or 4 with exception ability* LVR > 80% requires DCA Level 3 and Mortgage Insurer* 90% plus LMI premium capitalisation. Purchase of newly completed residential dwelling Construction loans are permitted for house and land packages where the contract of sale for the land purchase and fixed price building contract are provided at the time of loan approval Excludes: - Vacant land - Off-the-plan strata purchases - Refinance Serviceability Serviceability assessment to include the market rental as per the Valuation Report, discounted to 65% Tax free incentive to be excluded from serviceability assessment Valuation Eligible consortiums A full valuation is required The Valuer (if applicable) is to note that the property is part of the NRAS All NRAS consortiums need to be approved by the Banks Mortgage Insurer prior to the submission of any new loan proposal secured by a property participating in an NRAS scheme. Refer to this link for the most current listing of eligible NRAS Consortiums Feature Additional underwriting policies * LVR restrictions apply when the security is located in a designated mining area. Refer to section 16.3 for postcode listings 13-46

47 14 Credit Contracts 14.1 Approval in Principle Letters An Approval in Principle Letter (AIP):- - Is an indicative quote only of a loan amount that might be acceptable to provide to a prospective borrower based upon the minimum assessment of the prospective borrower/s ability to service that amount. - Is not an offer and ME are not obligated to lend funds to the prospective borrower after the letter has been issued. - Is typically sought to support a purchase at auction or where a new home has not yet been identified. - Is valid for a period of no greater than 90 days from issuance (120 days for Purchases). - Can be issued subject to certain criteria including valuation, mortgage insurance or credit checks Note: Care is required when seeking or issuing AIP s due to the reputational risks associated with AIP s Letter of Offer (LoO) A Letter of Offer (LoO) (inclusive of Part B):- - Is an offer to provide funds subject to the terms and conditions that are outlined within the LoO. - Is a contractual agreement between ME and the borrower. - Is legally binding and therefore enforceable once it has been signed (executed) by the borrower and guarantors (where applicable) - Can only be issued by Authorised Officers within Credit Operations - Is only valid for acceptance by the borrower for a period of 90 days from issuance. Should the borrower wish to proceed with the loan offer after this period, it must be resubmitted to the Bank and treated as a new application. - Where a LoO has been accepted by the borrower/s however has not drawn down within 90 days of acceptance (150 days for construction loans) a re-verification is required. This includes: o Confirmation in writing from the borrower/s outlining any changes to their financial position since the original submission o The most recent income verification documents i.e. payslip, pension statements to confirm no change to employment status and income o An updated credit bureau check to confirm no additional debts or adverse items since the original application The re-verification is valid for a period of up to 90 days past the expired LoO. Should the borrower wish to proceed with the loan after this period, a new application can be resubmitted to the Bank

48 14.3 Counter Offers A counter offer:- - Is when a borrower varies the original LoO prior to its return to ME consequently resulting in different terms and conditions from the original assessment. For example the borrower changes the loan amount or term before returning the LoO. - To meet NCCP obligations written confirmation from the borrower is required to confirm that the counter offer meets the customers requirements and obligations. - All counter offers must be reassessed by an appropriate DCA holder to ensure the variations made by the borrower are acceptable. To ensure obligations under NCCP are adhered too, it is important that no financial advice is offered to the borrower and guarantor during this process

49 15 Post Origination 15.1 Top Ups Additional borrowings are where an existing ME customer seeks to increase their ME debt levels. There are different assessment procedures required depending upon the loan situation. These are: Situation Top Up Assessment type 1 Where an additional loan is sought that may, but not necessarily always, have a different Standard purpose &/or security Where the additional loan will be documented with the customer using a new and separate Letter of Offer 2 Where an additional amount of > $50,000 is sought from the existing loan contract Standard Where the additional loan will be documented with the customer using Variation Letter of Offer 3 Where an additional amount of $50,000 is sought from the existing loan contract Where the additional loan will be documented with the customer using Variation Letter of Offer Top Up Decision Tree 15.2 Interest only Where a borrower requests a switch to, or an extension of, an interest only term (after origination) the following parameters apply; Loan Type Change Credit Assessment Required? Interest Only Owner Occupied Switch from Principal & Interest to Interest Only Yes Extension of Interest Only Term Interest Only Investment (originated on or after 15/8/2015) Switch from Principal & Interest to Interest Only Extension of Interest Only Term Yes Interest Only Investment (originated before 15/8/2015) Interest Only Investment (originated before 15/8/2015) Switch from Principal & Interest to Interest Only Yes Extension of Interest Only Term No 15-49

50 If a Credit Assessment is required the following applies; Request must not be due to financial stress or hardship Loan must not be currently in hardship or arrears and has no missed payments within the last 6 months Minimum documentary requirements include; Statement of Financial Position detailing borrower(s) income, expenses, assets and liabilities Serviceability must demonstrate the ability to meet principal and interest repayments over the loan term minus the interest only period Credit check satisfactory Maximum LVR 95% Maximum interest only term is 10 years over the life of the loan Loan to be repaid within the original loan term 15-50

51 16 Appendix A: Valuation criteria 16.1 Full Valuation The following security types / application will always require a full valuation. Display Home, Student Accommodation or ineligible security type Construction Loan Favourable purchase or non-arm s length transaction High Density Postcode (refer below) and property type is Apartment/Unit >10 units in development and greater than 80% LVR Type Luxury Properties A property that is in excess of the value listed below State Property value of Land, Units, Townhouses above: Property value of Houses above: NSW $2.5 million $3.5 million VIC / WA $2.0 million $3.0 million NT/ACT/QLD/SA $1.5 million $2.0 million TAS $1.0 million $1.5 million National Rental Affordability Scheme (NRAS) Homes Vacant Land >2.2 hectares not located in Metro or Regional postcode locations Off the Plan Purchase 16-51

52 16.2 Valuation criteria for Additional Loans (Top Ups and Additional Advances) Where a customer has an existing loan where the security will be collateralised with the new application, otherwise complete as a standalone security type. For securities located in a designated mining area (refer section 16.3) LVR Limits Valuation Method Conditions Proposed LVR <=70% Existing Full Valuation Existing Full Valuation <3 months old Proposed LVR <=70% AVM A confidence score of 4.5 or greater. < 3 months old Is valid only for the application submitted For all other securities LVR Limits Valuation Method Conditions Proposed LVR <=80% Existing Full Valuation Existing Full Valuation <2 years old Proposed LVR <=80% Existing Contract of Sale (COS) Existing COS <2 years old Proposed LVR >80% Existing Full Valuation Existing Full Valuation <3 months old Proposed LVR >80% to <=90% Existing COS Existing COS <3 months old Proposed LVR <=70% AVM A confidence score of 4.5 or greater. < 3 months old Is valid only for the application submitted In addition to the above, the valuation methods outlined in 16.5 Restricted Valuation Policy may also be used

53 16.3 Postcode listing / Categories Definitions NSW QLD WA Mining 2330,2335, Postcodes 2382, ,4705, 4709,4712, , 4737,4741, , 4804,4805, 4825,4869, 4874, ,6346, 6390,6423, 6426,6429, 6438,6440, 6442,6443, 6479,6518, 6519,6537, 6620,6640, 6642,6707, 6710, , 6716,6718, , 6743,6751, 6753,6754, 6758,6760, 6762,

54 The base loan, prior to any capitalisation of LMI premium, is to be used for this table Definitions ACT NSW NT QLD SA TAS VIC WA Mortgage Insurer Referral Postcodes (if LVR >90%) Nil 2259, 2320, 2321, 2325, 2330, 2335, 2382, 2878 Nil , 4556, 4680, 4700, 4705, 4709, 4712, , 4737, 4741, , 4804, 4805, 4825,4869, 4874, 4880 Nil Nil Nil 6208, 6213, 6225, 6236, 6254, 6280, 6346, 6390, 6423, 6426, 6429, 6430, 6438, 6440, 6442, 6443, 6479, 6511, 6518, 6519, 6537, 6620, 6640, 6642, 6707,6710, , 6716, 6718, , 6743, 6751, 6753, 6754, 6758, 6760, 6762,

55 The whole loan including any capitalisation of LMI premium is to be used for this table Definitions ACT NSW NT QLD SA TAS VIC WA High Density Postcodes Nil , 4215, 4217, 4218, 4870, , 3001, , 3141, , 6210 Metro Locations , , , , 2267, 2278, , , 2444, , , , , , , , , , , 4280, , 4350, , , , , 4575, , 4711, 4740, , , , , , 7021, , , , 7258, 7277, 7290, , , , , , , 3429, 3752, , , , , 3812, , ,

56 The whole loan including any capitalisation of LMI premium is to be used for this table Definitions ACT NSW NT QLD SA TAS VIC WA Regional 7248, 7307, Locations Nil , 2330, 2340, 2350, , 2443, 2445, 2450, 2452, 2456, 2460, , , , , 2580, , , , 2680, , 2795, 2800, , 4352, 4370, 4514, 4521, 4568, 4655, 4670, 4680, 4703, 4710, 4720, 4753, 4819, , , 4883, , 5290, , , 3228, 3230, , 3280, 3350, , , 3460, , , , , , , , , 6290, 6330, 6450, 6530 Other Locations Nil 2333, 2360, 2380, 2400, 2431, 2440, 2446, 2448, 2470, , 2550, 2582, 2594, 2630, 2731, 2790, 2794, 2850, , 4570, 4610, 4650, 4802, 4805, , 4816, 4818, 4820, 4825, 4850, 4860, , 5255, 5280, 5333, 5341, 5343, 5345, 5453, 5501, 5540, 5600, 5606, , , 7320, , 3300, 3305, 3352, 3377, 3400, 3444, 3465, 3564, 3585, 3677, 3759, 3761, 3770, 3775, 3777, 3820, 3825, , 3850, 3875, 3922, , , 6714, ,

57 16.4 Restricted Valuation Policy - Mining Postcodes Restricted Valuation Policy Acceptable Restricted Valuation Methods Any of the restricted valuation methods may be used to value property under the LVR and property/loan value restrictions Selected Postcodes a for valuation method The maximum amount of funds being borrowed The property must be located in the mining postcode list Where a valuation method is a the valuation method can be used up to the presecribed maximum LVR and maximum loan amount. r for valuation method Where a valuation method is r the valuation method cannot be used. (You can only use a valuation method up to the maximum prescribed limits given a a) 16-57

58 NSW The maximum borrrowing / total exposure ( the sum of all loans secured by the property or properties) allowed across all borrowers to allow security properties to qualify for valuation via any of the below methods is QLD The maximum borrrowing / total exposure ( the sum of all loans secured by the property or properties) $1.5 Million allowed across all borrowers to allow security properties to qualify for valuation via any of the below $1.0 Million methods is AVM Contract of Sale Vacant Land a a < = 70% $800,000 (AVM $560,000) $550,000 (AVM N/A) a a < = 70% r a < = 80% $800,000 $550,000 r a < = 80% r a < = 85% $700,000 $450,000 r a < = 85% r a < = 90% $600,000 $450,000 r a < = 90% r r < = 95% $600,000 $450,000 r r < = 95% AVM Contract of Sale Maximum LVR Maximum LVR Metro Locations Dwellings Regional Locations Dwellings Vacant Land AVM Contract of Sale Maximum LVR AVM Contract of Sale Maximum LVR a a < = 70% $400,000 $300,000 (AVM N/A) a a < = 70% r a < = 80% $400,000 $300,000 r a < = 80% r a < = 85% $350,000 $200,000 r a < = 85% r a < = 90% $300,000 $200,000 r a < = 90% r r < = 95% $300,000 $200,000 r r < = 95% Metro Locations Dwellings Vacant Land $600,000 (AVM $560,000) $300,000 (AVM N/A) $600,000 $300,000 $500,000 $250,000 $400,000 $250,000 $400,000 $250,000 Regional Locations Dwellings Vacant Land $400,000 $250,000 (AVM N/A) $400,000 $250,000 $350,000 $200,000 $300,000 $200,000 $300,000 $200,000 AVM Contract of Sale Maximum LVR Other Locations Other Locations Dwellings Vacant Land AVM Contract of Sale Maximum LVR a a < = 70% $300,000 $200,000 (AVM N/A) a a < = 70% $300,000 $200,000 (AVM N/A) r a < = 75% $300,000 $200,000 r a < = 75% $300,000 $200,000 r a < = 80% $250,000 $200,000 r a < = 80% $250,000 $200,000 r a < = 90% $250,000 $200,000 r a < = 90% $250,000 $200,000 r r < = 95% $250,000 N/A r r < = 95% $250,000 N/A Dwellings Vacant Land 16-58

59 WA The maximum borrrowing / total exposure ( the sum of all loans secured by the property or properties) allowed across all borrowers to allow security properties to qualify for valuation via any of the below methods is $1.0 Million AVM Contract of Sale Maximum LVR a a < = 70% r a < = 80% r a < = 85% r a < = 90% r r < = 95% AVM Contract of Sale Maximum LVR a a < = 70% r a < = 80% r a < = 85% r a < = 90% r r < = 95% Metro Locations Dwellings Vacant Land $500,000 $300,000 (AVM N/A) $500,000 $300,000 $400,000 $250,000 $350,000 $250,000 $350,000 $250,000 Regional Locations Dwellings Vacant Land $350,000 $250,000 (AVM N/A) $350,000 $250,000 $300,000 $200,000 $250,000 $200,000 $250,000 $200,000 AVM Contract of Sale Maximum LVR Other Locations Dwellings Vacant Land a a < = 70% $300,000 $200,000 (AVM N/A) r a < = 75% $300,000 $200,000 r a < = 80% $250,000 $200,000 r a < = 90% $250,000 $200,000 r r < = 95% $250,000 N/A 16-59

60 16.5 Restricted Valuation Policy Non Mining Postcodes The whole loan including any capitalisation of LMI premium is to be used for this policy reference. Restricted Valuation Policy Acceptable Restricted Valuation Methods Any of the restricted valuation methods may be used to value property under the LVR and property/loan value restrictions Selected Postcodes The maximum amount of funds being borrrowed To use any of these restricted valuation types, the property must be located in the selected postcode list High Density Postcodes Where the security a unit development comprising more than 10 units > 80% or apartments and is located in a High Density Postcode the property does not qualify under the Acceptable Valuation Methods policy and a full valuation must be conducted. Please refer to 'High Density Housing ' within the policy for these conditions. Council Rates Notice or Valuer Generals Estimate Must be latest rates notice and < = 13 months old. 100% of the property rateable value may be used a for valuation method Where a valuation method is a the valuation method can be used up to the prescribed maximum LVR and maximum loan amount. r for valuation method Where a valuation method is r the valuation method cannot be used. (You can only use a valuation method up to the maximum prescribed limits given a a ) 16-60

61 ACT The maximum borrrowing / total exposure ( the sum of all loans secured by the property or properties) allowed across all borrowers to allow security properties to qualify for valuation via any of the below methods is NSW The maximum borrrowing / total exposure ( the sum of all loans secured by the property or properties) allowed across all borrowers to allow security properties to $1.0 Million $1.5 Million qualify for valuation via any of the below methods is Metro Locations Metro Locations AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings Vacant Land a a a < = 70% $600,000 (AVM $560,000) $300,000 (AVM N/A) a a a < = 70% $800,000 (AVM $560,000) $550,000 (AVM N/A) r a a < = 80% $600,000 $300,000 r a a < = 80% $800,000 $550,000 r a r < = 85% $500,000 $250,000 r a r < = 85% $700,000 $450,000 r a r < = 90% $400,000 $250,000 r a r < = 90% $600,000 $450,000 r r r < = 95% $400,000 $250,000 r r r < = 95% $600,000 $450,000 AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings Vacant Land Regional Locations Regional Locations AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings a a a < = 70% $500,000 $200,000 (AVM N/A) a a a r a a < = 80% $500,000 $200,000 r a a r a r < = 85% $250,000 $200,000 r a r r a r < = 90% $250,000 $200,000 r a r r r r < = 95% $250,000 $200,000 r r r Vacant Land AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings Vacant Land < = 70% $400,000 $300,000 (AVM N/A) < = 80% $400,000 $300,000 < = 85% $350,000 $200,000 < = 90% $300,000 $200,000 < = 95% $300,000 $200,000 Other Locations Other Locations AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings a a a < = 70% $250,000 $200,000 (AVM N/A) a a a r a a < = 75% $250,000 $200,000 r a a r a r < = 80% $250,000 $200,000 r a r r a r < = 90% $250,000 $200,000 r a r r r r < = 95% $250,000 N/A r r r Vacant Land AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings Vacant Land < = 70% $300,000 $200,000 (AVM N/A) < = 75% $300,000 $200,000 < = 80% $250,000 $200,000 < = 90% $250,000 $200,000 < = 95% $250,000 N/A 16-61

62 The maximum borrrowing / total exposure ( the sum of all loans secured by the property or properties) allowed across all borrowers to allow security properties to qualify for valuation via any of the below methods is NT QLD The maximum borrrowing / total exposure ( the sum of all loans secured by the property or properties) allowed across all borrowers to allow security properties to $1.0 Million $1.0 Million qualify for valuation via any of the below methods is Metro Locations Metro Locations AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings a a a < = 70% $500,000 $350,000 (AVM N/A) a a a r a a < = 80% $500,000 $350,000 r a a r a r < = 85% $400,000 $300,000 r a r r a r < = 90% $300,000 $300,000 r a r r r r < = 95% $300,000 $300,000 r r r Vacant Land AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings Vacant Land < = 70% $600,000 (AVM $560,000) $300,000 (AVM N/A) < = 80% $600,000 $300,000 < = 85% $500,000 $250,000 < = 90% $400,000 $250,000 < = 95% $400,000 $250,000 Regional Locations Regional Locations AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings a a a < = 70% $350,000 $300,000 (AVM N/A) a a a r a a < = 80% $350,000 $300,000 r a a r a r < = 85% $300,000 $200,000 r a r r a r < = 90% $250,000 $200,000 r a r r r r < = 95% $250,000 $200,000 r r r Vacant Land AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings Vacant Land < = 70% $400,000 $250,000 (AVM N/A) < = 80% $400,000 $250,000 < = 85% $350,000 $200,000 < = 90% $300,000 $200,000 < = 95% $300,000 $200,000 Other Locations Other Locations AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings a a a < = 70% $300,000 $200,000 (AVM N/A) a a a r a a < = 75% $300,000 $200,000 r a a r a r < = 80% $250,000 $200,000 r a r r a r < = 90% $250,000 $200,000 r a r r r r < = 95% $250,000 N/A r r r Vacant Land AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings Vacant Land < = 70% $300,000 $200,000 (AVM N/A) < = 75% $300,000 $200,000 < = 80% $250,000 $200,000 < = 90% $250,000 $200,000 < = 95% $250,000 N/A 16-62

63 The maximum borrrowing / total exposure ( the sum of all loans secured by the property or properties) allowed across all borrowers to allow security properties to qualify for valuation via any of the below methods is SA The maximum borrrowing / total exposure ( the sum of all loans secured by the property or properties) allowed across all borrowers to allow security properties to $1.0 Million $1.0 Million qualify for valuation via any of the below methods is WA Metro Locations Metro Locations AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings a a a < = 70% $400,000 $300,000 (AVM N/A) a a a r a a < = 80% $400,000 $300,000 r a a r a r < = 85% $350,000 $250,000 r a r r a r < = 90% $300,000 $250,000 r a r r r r < = 95% $300,000 $250,000 r r r Vacant Land AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings Vacant Land < = 70% $500,000 $300,000 (AVM N/A) < = 80% $500,000 $300,000 < = 85% $400,000 $250,000 < = 90% $350,000 $250,000 < = 95% $350,000 $250,000 Regional Locations Regional Locations AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings a a a < = 70% $350,000 $250,000 (AVM N/A) a a a r a a < = 80% $350,000 $250,000 r a a r a r < = 85% $300,000 $200,000 r a r r a r < = 90% $250,000 $200,000 r a r r r r < = 95% $250,000 $200,000 r r r Vacant Land AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings Vacant Land < = 70% $350,000 $250,000 (AVM N/A) < = 80% $350,000 $250,000 < = 85% $300,000 $200,000 < = 90% $250,000 $200,000 < = 95% $250,000 $200,000 Other Locations Other Locations AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings a a a < = 70% $300,000 $200,000 (AVM N/A) a a a r a a < = 75% $300,000 $200,000 r a a r a r < = 80% $250,000 $200,000 r a r r a r < = 90% $250,000 $200,000 r a r r r r < = 95% $250,000 N/A r r r Vacant Land AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings Vacant Land < = 70% $300,000 $200,000 (AVM N/A) < = 75% $300,000 $200,000 < = 80% $250,000 $200,000 < = 90% $250,000 $200,000 < = 95% $250,000 N/A 16-63

64 VIC The maximum borrrowing / total exposure ( the sum of all loans secured by the property or properties) allowed across all borrowers to allow security properties to qualify for valuation via any of the below methods is The maximum borrrowing / total exposure ( the sum of all loans secured by the property or properties) allowed across all borrowers to allow security properties to $1.2 Million $1.0 Million qualify for valuation via any of the below methods is TAS Metro Locations Metro Locations AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings a a a < = 70% $600,000 (AVM $560,000) $300,000 (AVM N/A) a a a r a a < = 80% $600,000 $300,000 r a a r a r < = 85% $500,000 $250,000 r a r r a r < = 90% $400,000 $250,000 r a r r r r < = 95% $400,000 $250,000 r r r Vacant Land AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings Vacant Land < = 70% $350,000 $200,000 (AVM N/A) < = 80% $350,000 $200,000 < = 85% $350,000 $200,000 < = 90% $300,000 $200,000 < = 95% $300,000 $200,000 Regional Locations Regional Locations AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings a a a < = 70% $350,000 $250,000 (AVM N/A) a a a r a a < = 80% $350,000 $250,000 r a a r a r < = 85% $300,000 $200,000 r a r r a r < = 90% $250,000 $200,000 r a r r r r < = 95% $250,000 $200,000 r r r Vacant Land AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings Vacant Land < = 70% $300,000 $200,000 (AVM N/A) < = 80% $300,000 $200,000 < = 85% $250,000 $200,000 < = 90% $250,000 $200,000 < = 95% $250,000 $200,000 Other Locations Other Locations AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings a a a < = 70% $300,000 $200,000 (AVM N/A) a a a r a a < = 75% $300,000 $200,000 r a a r a r < = 80% $250,000 $200,000 r a r r a r < = 90% $250,000 $200,000 r a r r r r < = 95% $250,000 N/A r r r Vacant Land AVM Contract of Sale Council Rate or Valuer Generals Estimate Maximum LVR Dwellings Vacant Land < = 70% $250,000 $200,000 (AVM N/A) < = 75% $250,000 $200,000 < = 80% $250,000 $200,000 < = 90% $250,000 $200,000 < = 95% $250,000 N/A 16-64

65 17 Appendix B Control Sheet Version and Review History Version Date Nature of Updates Author of Changes Approver March 2014 New document Credit Risk Policy & Controls CRC Dec 2013 & Feb April 2014 Update following feedback See Credit Bulletin April Credit Risk Policy & Controls NA Non material changes April 2014 Changed High Density Housing LVR uninsured from 60% to Credit Risk Policy & Controls CRC Mar % May Changes to insured lending outlining that referral to Mortgage Insurer required for exception sign off. Credit Risk Policy & Controls CRC Apr Added to Ineligible Security Properties larger than 40 hectares June Loan term for ACT leasehold security - Genuine Savings gifts & inheritance - Self Employed depreciation add-back Credit Risk Policy & Controls CRC May Letter of Offer Credit Risk Policy & Controls CRC Jun Superannuation requiring only 3 months statements August Update as advised by Mortgage Insurer to Mortgage Credit Risk Policy & Controls NA Insurer Referral Postcodes (if LVR >90%) August Letter of Offer (Expired Accepted LoO s) Credit Risk Policy & Controls CRC Aug Standard rental Credit Risk Policy & Controls NA (Corrections) - Maximum LVR Table October FHB added to the abbreviation table Credit Risk Policy & Controls NA (Clarifications) - POA for guarantor/s reference moved from 4.4 to Re-write of 5.1 Maximum LVR based on loan purpose - Paragraph added to 5.3 Maximum LVR based on Security Type for multiple securities - Base loan / Capitalised loan references added to 16.3 and High Density Postcodes updated to align with mortgage insurer - Unauthorised structure/s add to the DUA exception list 17-65

66 Version Date Nature of Updates Author of Changes Approver February Added a Credit Check requirement for borrowers who are a director of a company Notional rent expense alteration Rent expense table for construction loans removed 11.6 Credit Risk Policy & Controls CRC Jan February DCA and mortgage insurer referral requirements clarified References to the redundant form change application form have been removed Validity requirements added for AVM s 12.3 Credit Risk Policy & Controls NA (Clarifications) March Annual Review / Policy Name Change - Expand Responsible Lending Added non-citizen and non-permanent residents as unacceptable borrowers 4.1, 4.2, Addition of Interest Only (owner occupied purpose) requirements Requirements for when Genuine Savings cannot be met Addition of Interest Only (owner occupied purpose) requirements Addition of Interest Only (owner occupied purpose) for post origination Clarification of wording for NIS and reference to Pega added Wording clarification for DCA level 3 referral 5.1, Reworded Other ME Home Loan Contracts requirements in line with Guidance Notes Rewording of Top Ups Renamed Verification process as Verification requirements 10.3 Credit Risk Policy & Controls CRC October 2014 CRC Circular Feb 2015 CRC Mar

67 June Updated sections 4.1 and 4.5 to advise New Zealand citizens or permanent residents are considered acceptable borrowers - Section 7.1 Credit History updated to reflect the level of defaults, judgements etc. considered to be satisfactory conduct and the required DCA approval level - Updated section 10.3 Investment Income removed the ability to supply 6 months statements to confirm income. - Section 11 Serviceability updated to advise no override available for floor or buffer rates. - Updated section Other ME Home Loan Contracts Buffer rate increased to 2.20% - Added to Section Property suitability under Saleability for Insured Lending the following This may not be necessarily identified by a Risk Rating 4 or 5 but may also be found in the Valuer s general comments. - Updated section 14.1 Approval in Principle Letters validity period reduced from 120 to 90 days for all loan purposes apart from Purchases June Section Updates to Overtime, Bonus and Investment Income to 80% used for servicing - Section 11.3 Detail of buffered payment for Other Mortgages other financiers added Credit Risk Policy & Controls 17-67

68 August Section 5.3 Added mining postcode commentary regarding maximum LVR - Section 7.1 Updated to reflect that ME Veda enquiries are incorporated in the number of enquiries - Section 10.3 Investment Income updated Tax Returns so the most recent is no more than 18 months old - Section 10.3 Mining Rental section added - Section 11.2 updated to reflect ME standard based on family type and household income - Section 11.6 updated as now applicable for Investment and Owner Occupied lending - Section 12.2 Residences <40m2 and Mining Postcodes >70% LVR added - Section 12.2 Contract of Sale detail added to environmental issues - Section 12.3 Value of rebate deduction added to Contract of Sale - Section 15.2 Added further detail to process regarding interest only and investment - Section 16.2 Valuation requirements for Mining postcodes added - Section 16.3 Mining Postcodes listing added - Section 16.4 added to outline Restricted Valuation Policy regarding mining postcodes - Previous section 16.4 Restricted Valuation Policy updated to 16.5 Credit Risk Policy & Controls CRC June August Section 5.3 & 16.3 Updated mining postcodes postcodes 2259, 2320, 2321, 2325, and 6511 removed Credit Risk Policy & Controls N/A Non material change 17-68