Standardised RWAs for Property Exposures

Non-standard mortgage

A standard mortgage is a facility which:

• the mortgage is a first mortgage and has full priority over the property securing the loan;
• the source of income to repay the mortgage was been assessed and verified;
• the impact of interest rate increases on repayment with a buffer of at least 3% has been assessed;
• if the loan is interest only, the loan repayment assessment has considered the repayments required over the principal and interest period.

In addition, the following loans must be classified as non-standard:

• shared equity mortgages, where both the borrower and lender share in any gain or loss in the value of the mortgaged property; and
• loans to self-managed superannuation funds.

Reverse Mortgage

Reverse mortgages are where repayment is made in lump sum when the borrower is deceased or no longer lives in the property. Reverse mortgages allow for the borrowing of money against a primary residence and do not require principal and interest payments until termination, which is not fixed and normally occurs when nominated borrowers die, vacate the mortgaged property or the asset is sold.

First Home Loan

Residential property exposures that satisfy the conditions for inclusion within the First Home Loan Deposit Scheme or the Family Home Guarantee Scheme, which include an eligible borrower(s) seeking to purchase an eligible property.

Eligible first home buyers include:

• single applicants with a annual taxable income of up to $125,000;
• couples with an annual taxable income of up to $200,000 and are married or de-facto;
• at least 5 per cent and not more than 20 per cent of the value of an eligible property saved as a deposit;
• intend to be owner-occupiers of the purchased property and can afford principal and interest repayments;
• must be first home buyers who have not previously owned, or had an interest in, a property in Australia, either separately or jointly.

Eligible residential properties include:

• an existing house, townhouse or apartment;
• a house and land package;
• land and a separate contract to build a home;
• an off-the-plan apartment or townhouse.

Defaulted Loans

Defaulted exposure – means a non-performing exposure as defined in Prudential Standard APS 220 Credit Risk Management (APS 220):

• the borrower is 90 days or more past-due on a credit obligation:

  • at least 90 calendar days have elapsed since the due date of a contractual payment which has not been met in full or
  • the total amount unpaid outside contractual arrangements is equivalent to at least 90 days’ worth of contractual payments; or

• the borrower is unlikely to pay its credit obligations in full without recourse actions such as realising available security:

  • non-accrued status
  • charge-off or account-specific provision
  • distressed restructuring of the credit obligation
  • borrower’s bankruptcy or a similar order
  • sells the credit obligation at a material credit-related economic loss
  • exposure is a reverse mortgage with a loan-to-valuation ratio (LVR) greater than 100 per cent.

Owner-occupied

An owner occupied mortgage is a mortgage where the purpose of the loan is to purchase or (re)finance the borrowers principle place of residence. The principle place of residence is borrower's registered address and/or where they spend the majority of their time.

All other loan secured against residential property are OTH, including:

• those for property investment purposes;
• for personal purposes including loans in which cash out represents more than 50% of the funds cumulative lent;
• and loans for business purposes.

Principal and interest loan

A principal and interest loan is one in which the recurring equal payments of principal and interest are made over the life of the loan for a maximum term of 30 years. A principal and interest loan is not an interest only loan in which for an initial period the customer is contracted to make only payments of interest each period.

Lenders Mortgage Insurance

Lenders Mortgage Insurance is a loan covered by an mortgage insurance contract issued by a APRA regulated insurer that provides cover for all losses up to at least 40 per cent of the higher of the original loan amount and outstanding loan amount.

Current Loan to Value Ratio

Current LVR is calculated each month as the sum of the current t amounts of loans divided by the sum of the original (at loan origination 0) value of all cross-collateralised properties:

Loan amount should include both the current drawn and committed undrawn amounts.