Mortgage Lending Procedure - MyState Limited Mortgage Lending Procedures P a g e | 1 Quick Links (Most used sections) 3.1. Identification ... Principles ... sound practices related

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MyState Limited

Mortgage Lending Procedure Procedures

MyState Limited Mortgage Lending Procedures

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Quick Links (Most used sections)

3.1. Identification .............................................................................................................. 5

4.4.1. Acceptable conduct of current debts ........................................................................ 11

4.5. Funds to Complete .................................................................................................. 12

6. Servicing Assessment (minimum requirments) ........................................................ 14

7. Employment Requirements (minimum standards) ................................................... 16

7.1. Verifying Income (documentation required) ............................................................. 17

9. Loans Commitments (existing debts) ....................................................................... 27

9.1. Exit Strategy ............................................................................................................ 28

10.4. High LVR Home Loans (minimum requirments) ....................................................... 29

10.6. Maximum LVR ......................................................................................................... 31

10.7. Ineligible Security .................................................................................................... 36

10.8. Luxury Property Threshold ....................................................................................... 37

10.10. High Risk Postcodes (register is listed in annexure A) ............................................. 37

11. Parental Guarantee (minimum requirments) ............................................................ 39

12. Construction Loans .................................................................................................. 40


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Contents 1. Principles ................................................................................................................... 4

1. Related Regulation .................................................................................................... 4

2. Application Format ..................................................................................................... 5

3. Documentary Requirements ...................................................................................... 5

3.1. Required ID Documents for Individuals ...................................................................... 5

4. Loan Assessment ...................................................................................................... 7

4.1. Source of Truth .......................................................................................................... 7

4.2. Key Responsibilities in loan assessment: .................................................................. 8

4.3. Purpose code classification ....................................................................................... 8

4.4. Refinance and Debt Consolidation ........................................................................... 11

4.4.1. Conduct and Verification of Debts ............................................................................ 11

4.5. Funds to Complete .................................................................................................. 12

4.6. First Home Owners Grant (FHOG) .......................................................................... 13

5. Loan Approval ......................................................................................................... 13

6. Servicing Assessment ............................................................................................. 14

6.2. Interest Rate Buffer.................................................................................................. 15

6.3. Assessment Rate .................................................................................................... 15

7. Employment Requirements ...................................................................................... 16

7.1. Verifying Income ...................................................................................................... 17

7.2. Unacceptable Income .............................................................................................. 23

7.3. Employment Verification .......................................................................................... 23

7.4. Self employed applicants – Guarantees from related entities ................................... 24

8. Commitments and Expenditure ................................................................................ 25

8.1. Living Expenses ...................................................................................................... 25

8.2. Dependants ............................................................................................................. 26

9. Loans Commitments ................................................................................................ 27

9.1. Exit Strategy ............................................................................................................ 28

10. Valuation Acceptance .............................................................................................. 28

10.1. Identification of property .......................................................................................... 28

10.2. Risk assessment and acceptance ............................................................................ 28

10.3. High Density Apartments ......................................................................................... 29

10.4. High LVR Home Loans ............................................................................................ 29

10.5. High LVR Non Genuine Savings .............................................................................. 30

10.6. Maximum LVR based on Loan Purpose ................................................................... 31

10.6.1. Valuations HUB ....................................................................................................... 32

10.7. Ineligible Security .................................................................................................... 36


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10.8. Luxury Property Threshold ....................................................................................... 37

10.9. Parental Guarantee Threshold ................................................................................. 37

10.10. High Risk Postcode Register ................................................................................... 37

10.11. Residential Unit / Subdivision Concentration Limits ................................................. 38

11. Parental Guarantee ................................................................................................. 39

12. Construction Loans .................................................................................................. 40

12.1. Fixed Price Contract ................................................................................................ 40

12.2. Progress Payments ................................................................................................. 41

12.3. Borrower/Builder Relationship ................................................................................. 42

13. Owner Builders ........................................................................................................ 42

14. Non-Arms Length Transactions/Favourable Sales ................................................... 42

15. Assets...................................................................................................................... 43

16. Credit Checks .......................................................................................................... 43

16.1. Unpaid Defaults/Judgements ................................................................................... 43

16.2. Paid Defaults/Discharged Bankrupts ....................................................................... 44

16.3. Credit Enquiries ....................................................................................................... 44

17. Refinance and Debt Consolidation ........................................................................... 44

18. Cash Out Verification Requirements ........................................................................ 45

19. Loans Reliant on Foreign Income for Servicing where the Borrower is not living and working in Australia.................................................................................................. 46

19.1. Loans Reliant on Foreign Income for Servicing where the Borrower resides in Australia .................................................................................................................. 46

20. Redraw .................................................................................................................... 46

21. Top Ups ................................................................................................................... 47

22. Loan Maintenance/Variations .................................................................................. 47

22.1. Variable to Fixed Rate/Fixed Rate to Variable Rate requests .................................. 47

22.2. Principal and Interest to Interest Only/Interest Only to Interest Only ........................ 47

22.3. Interest Only to Principal and Interest ...................................................................... 48

Appendix A ......................................................................................................................... 49

Appendix B ......................................................................................................................... 51


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1. Principles Reference is made to the Principles as detailed within the MYS Credit Risk

Policy. These Principles are categorised into the following categories:

1. Establishing an appropriate credit risk environment;

2. Operating under a sound credit granting process;

3. Maintaining an appropriate credit administration, measurement and

monitoring process;

4. Ensuring adequate controls over credit risk; and

5. The role of regulators.

These credit risk management principles are to be applied in conjunction with

sound practices related to the assessment of asset quality, the adequacy of

provisions and reserves, and the disclosure of credit risk. Additional detail of

the components within each of the above categories is detailed within the MYS

Credit Risk Policy.

As per the Mortgage Standard, MSB are committed to: Lending in a responsible manner in compliance with the legislation and

intent of Responsible Lending;

Adhering to a strict, detailed and sensible lending process which includes

the use of credit scoring, Veda checks and affordability verification to

make a full assessment of a person’s capacity to repay, and ensure

compliance with other responsible lending legislation;

Allocating Delegated Lending Authorities (DLA’s) based on skills and

experience;

Helping our customers stay informed by providing them with the

information they need to be confident when making financial decisions;

Under the AML/CTF Act, MSB will ensure it meets its obligations based

on the assessment of risk on whether providing finance to a customer

may facilitate money laundering or terrorism financing;

Under the Privacy Act, MSB will not collect personal information (other

than sensitive information) unless the information is reasonably necessary

for use in the assessment of provision of finance; and

MSB will ensure we handle all personal information collected in line with

our obligations under the Privacy Act.

1. Related Regulation The following regulations are referenced and are to be adhered to in the

mortgage lending process:

Anti-Money Laundering/Counter Terrorism Financing Act (AML/CTF)

2006


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The Australian Consumer Law and The ASIC Act 2001

Financial Services Reform Act (FSRA)

National Consumer Credit Protection Act (Cwth) 2009 (NCCP)

Privacy Act

AUSTRAC

2. Application Format Loan assessment should be completed using the credit assessment

components of the approved technology based platform.

If from time to time the approved platform is unavailable, or if appropriate for

the application, then the approved paper based loan application process should

be utilised.

3. Documentary Requirements All applications require the following before proceeding:

Signed application and privacy forms for all parties including guarantors

Verification of ID for all parties as per requirements under AUSTRAC.

Income verification documents

Manual servicing calculator

First Home Owners Grant Application (if applicable)

3.1. Required ID Documents for Individuals The minimum individual customer identification requirements that must be collected are outlined below: 1 document from the Category A list; or

Both: 1 document from the Category B list; and

1 document from the Category C list; or

Both: 1 document from the Category D list; and

1 document from either the Category B or C list.

Category A Documents A current drivers licence or permit issued by an Australian State or

Territory that contains the person's photograph and full name;

A current passport issued by the Australian government (or one that

has expired within the last 2 years);


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A card issued by an Australian State or Territory for the purpose of

proving the person's age, which contains a photograph of the person in

whose name the document is issued and full name; or

A current passport or similar document issued for the purpose of

international travel, that:

contains a photograph and the signature of the person whose name the

document is issued;

is issued by a foreign government, the United Nations or an agency of

the United States; and

If it is written in a language that is not understood by the person

carrying out the verification, is accompanied by an English translation

prepared by an accredited translator.

When accepting foreign passports, also require a document which

provides evidence of the customer’s current residential address from

either photographic or non-photographic acceptable documents such

as those listed under categories B & C.

Category B Documents Birth certificate or birth extract issued by a State or Territory;

A pension card issued by Centrelink that entitles the person in whose

name the card is issued, to financial benefits;

An electoral enrolment card or other evidence of enrolment not more

than two years old;

A current Medicare card, Department of Veteran's Affairs entitlement

card or any other current entitlement card issued by the

Commonwealth Government;

A document held by MyState conferring an interest by way of security

over property of the Customer;

Records relating to a mortgage or other instrument of security granted

to the Customer by a Financial Institution other than us; or

Records held under law relating to land titles.

Category C Documents A notice issued to an individual by the Australian government, a State

or Territory within the last 12 months that contains the name of the

individual and their residential address and records the provision of

financial benefits to the individual;

A notice of assessment issued to an individual by the Australian

Taxation Office within the last 12 months that contains the name of the

individual and their residential address; or

A notice that was issued to an individual by a local government body or

utilities provider within the preceding three months that contains the

name of the individual and their residential address and records the

provision of services to that address or to that person.


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Category D Documents A current photo Firearms Licence issued by an Australian State or

Commonwealth Authority.

A current Security Industry or Commercial Agents and Private Inquiry

Agents operator licence issued by an Australian State or

Commonwealth Authority.

A current photo identity card for an Australian Police Force Officer or

Australian Defence Force Member.

A current consular photo identity card issued by the Australian

Department of Foreign Affairs and Trade.

These lists are not exhaustive. Other documents verifying a customer’s

identity may be considered if we determine that those documents are

reliable and independent. Please refer to our Compliance Area if you

require guidance.

If any of the documents are in a previous name, a customer must provide

an additional document that shows how their name was changed, issued

and recorded by an Australian State or Territory (for example a Certificate

of Marriage recorded by the registry of Births, Deaths and Marriages).

4. Loan Assessment In the assessment of a loan application, consideration must be given to

numerous aspects in the determination as to whether the request should be

approved by MyState.

4.1. Source of Truth Loan applications can be received into the business and subsequently assessed and processed by a number of means, including via Next Gen, paper based and direct into LendFast. It is imperative that a consistent and reliable source of truth is established. The source of truth should provide an accurate reflection of any source document that underpins the purpose of the application.

The determination for the source of truth as to the purpose is:

Where the application was originated on the LendFast Platform the

source of truth is the applicable purpose as per the drop down box

within the Loan Information / Product Selection screen;(Radio Button)

Where the application was not originated on the LendFast Platform at

any stage (ie what is known as a manual application), the source of

truth is to be detailed within the assessing officer’s templated notes.

This assessment is based on the assessing officer’s review of the


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applicable prevailing application documents in making the

determination.

4.2. Key Responsibilities in loan assessment: It is the responsibility of the submitting officer to ensure:

The proposal is understood and clearly communicated,

MYS Credit Risk Policy and Standards have been considered.

Financial information obtained is correct and accurately reflects the

situation of the clients capacity to meet the requirements of any

additional indebtedness in line with the requirements of responsible

lending,

All material risks have been identified and addressed.

Customer financial information has been obtained in line with the

Privacy Act and internal procedures,

Product features / parameters, including pricing is appropriate

Proposal content is accurate, and

Static data is accurately recorded in the application.

Exit strategies and Interest Only requests must be ‘Owned’ by the

borrower and must be accepted by the borrower and not advocated

without the borrowers consent by a lender or 3rd party. This is to

ensure that the borrowers understand their responsibilities and

acceptance of the strategy and that it suits their future objectives.

4.3. Purpose code classification Accurate purpose codes are important for Group Reporting

Purpose codes to be used for Mortgage Lending will either relate to

Owner Occupied codes or investment codes. It is important to ensure

you look to the appropriate purpose code to reflect alignment with one

of these

For top ups, the predominant purpose is to be used i.e. refinance

current MSB/Rock home loan of $200K and purchase new vehicle of

$50K – predominant purpose is Owner Occupied

There is no option for separating owner occupied and investment land.

At this point please select investment property if the purpose is land for

investment.

If processing a separate loan for investment purposes, the new loan

purpose is investment no matter what security is being used or how

much the separate stand alone loan is for i.e. current owner occupied

$500K, new investment separate loan $50K – the new separate loan

is an investment loan. The existing $500K remains owner occupied.


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If wanting to use owner occupied policy you will need to add to current

owner occupied loan i.e. new single loan for a total of $550K as per

previous example.

Further clarification for Investment and Owner Occupied Loans is as

follows:

1. INVESTMENT: Means a loan for the purpose of housing, where the funds are used for

a residential property that is not owner-occupied.

Where the loan is for a residential property that is different to the

residential property against which the loan is secured, this definition

refers to the occupation status of the residential property for which

the loan has been obtained (not the occupation status of the property

used as security).

It includes:

holiday or vacation homes and part-time residences that are not the

borrower’s or borrowers’ principal place of residence.

It excludes:

part-time residences that are the borrower’s or borrowers’ principal

place of residence. These should be reported under owner-

occupied.

2. OWNER OCCUPIED:

Means a loan for the purpose of housing, where the funds are used for

a residential property that is occupied or to be occupied by the

borrower(s) as their principal place of residence.

Where the loan is for a residential property that is different to the

residential property against which the loan is secured, this definition

refers to the occupation status of the residential property for which

the loan has been obtained (not the occupation status of the

residential property used as security).

It includes:

dwellings and residential land that are vacant while under

construction, but that the borrower intends to occupy as a principal

place of residence;

part-time residences that are the borrower’s or borrowers’ principal

place of residence.

It excludes:

part-time residences that are not the borrower’s or borrowers’

principal place of residence. These should be reported as

investment.


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Notes on purpose code classifications

1. Where finance is to be used for more than one purpose (owner-occupied, investment or non-housing purposes), the entire amount of the finance should be classified according to the predominant purpose (i.e. the purpose for which the largest share of the funds will be used).

2. Where there is any doubt or ambiguity about whether a loan is for an owner-occupied or investment property, report the loan as for investment.

3. Non – housing purpose is defined as a loan secured by residential property where the funds are not used for the purchase, renovation or development of residential property. For example, personal loans, furniture or funds used for the investment in shares etc. secured by residential property

4. Where a borrower is purchasing a property for owner occupation,

MyState will allow a transitional period of tenancy where the property

being purchased is subject to an existing lease. The remaining lease

term must not exceed 3 months from the date of settlement and the

borrower must make a specific declaration that they are buying the

property for owner occupation commencing at the expiry of the current

lease period not greater than 3 months from loan settlement. In

addition, no rental income for the property is to be used in the loan

assessment. Any exceptions should be discussed with credit risk

5. Where a contract for sale for a property being purchased includes a

reference to letting pool, rental management agreement or any other

arrangement that implies that the property is for rent, then the borrower

must make a specific declaration that they are buying the property for

owner occupation as at settlement (unless encumbered by an existing

lease as per terms of 1 above). This does not override the need to the

contract clause requiring letting pool etc. to be deleted / overridden by

another clause in the contract.

6. Where a contract for sale for a property being purchased includes a

reference to letting pool, rental management agreement or any other

arrangement that implies that the property is for rent, the contract

should be reviewed for any overriding clause OR the purchasers

solicitor contacted to verify the same.

7. Where a clause or check box or alike in the contract that indicates the

property is for rental / letting pool etc. is deleted, the deletion should be

correctly initialed by all parties to the contract and the solicitor for the

purchaser must verify that this has been done / the copy is true and

correct.

8. SMSF loans are automatically classified as Investor loans.

9. Loans involving a singular trust may be considered as being owner

occupied where the following exists:


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Directors and shareholders of any trustee company (if applicable),

individual trustees and adult beneficiaries are all part of the same

family unit and propose to live in the property;

Income from the property is not used in the assessment of the

application; and

A declaration from the trustees is made that the property is to be

utilised by the family as their sole place of residence

10. Refer to the appendix for more details on loan purpose classification

4.4. Refinance and Debt Consolidation Care must be exercised that MyState is not approving higher risk

refinance or debt consolidation applications. Where the purpose for the

loan is for refinance or debt consolidation, specific reference is made to

the verification requirements associated with the approval of finance for

the same. See requirements around verification of satisfactory conduct on

refinanced debts below.

4.4.1. Conduct and Verification of Debts The table below defines satisfactory conduct in relation to debts being

refinanced.

Type of facility Satisfactory conduct

Home Loans, Lines of credit No arrears in most recent three months

Personal Loans No arrears in most recent three months

Credit cards Within current limit and monthly repayments up to date. No late fees evident.

Overdrafts/Lines of Credit No limit excesses and interest met for most recent six months.

Savings accounts – Held with MSB

Account balance currently within arrangements, no overdrawings or dishonours in the most recent three months

If there are any arrears on a current mortgage or personal loan facility

within the last 30 days (even if the arrears have been rectified) the loan

application should be declined. An exception to this is where it can be

evidenced that the arrears were due to an error made by the financial

institution where the facility is currently held.

Where there are arrears evident in the last 90 days, the application should

be referred to a DLA 3 or higher with mitigants supporting the application

for assessment.

Should any doubt exist regarding the accuracy and the integrity of the

data provided, then further information is to be requested by the

assessing/approving officer.


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4.5. Funds to Complete Source of funds to complete are to be verified and evidenced as per table

below. If there appears to be doubt over the source of funds further

investigation is to be undertaken by the assessing officer.

Type of Savings

LVR Requirement

Genuine Savings

<80% MyState requires supporting evidence of

sufficient funds to complete the purchase of

the property. This may take the form of the

most recent bank statement confirming the

necessary funds are beneficially owned by

the borrower. Note that only one statement

is required unless the funds are held in

multiple accounts and then the most recent

statement from each account sufficient to

total the necessary funds to complete are to

be obtained.

Genuine Savings

>80% To align with LMI underwriting requirements

Non Genuine Savings

Source of funds to be investigated. If funds

are borrowed from a third party, terms of

repayment are to be included in

commitments.

Collateral security/equity

Considered genuine savings

Gifted funds Statutory Declaration to be obtained

confirming that funds are a gift and are non

repayable.

Cocktail Loans Cocktail Loans can be defined as a

combination of a mortgage backed loan

and a Personal Loan of any amount, where

the funds from Personal Loan are being

used to fund a shortfall, or a part thereof, of

the purchase price of the property such as

the deposit and/or associated purchasing

costs. Therefore cocktail loans are not

allowed unless strong mitigants supplied for

an exception to policy by DLA4. Please

refer to Mortgage Standard for more

details.


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4.6. First Home Owners Grant (FHOG) The amount of the FHOG or similar government subsidy can be utilised

for determination of satisfying ‘cost to complete’ where the FHOG

application has been submitted and approved at time of land settlement,

and the overall integrity of the LVR limits remain unchanged.

Where the FHOG application has not been approved at time of land

settlement, then 100% of construction cost is withheld, with client making

alternate arrangements to make up additional funds required to complete

land settlement.

5. Loan Approval Loans should be assessed under the principles as detailed in the MYS

Mortgage Loan Standards.

It is of paramount importance to apply the intent of the principle of Responsible

Lending. Failure to do so and providing applicants with debt that is unaffordable

or unsuitable is unconscionable lending.

On the basis that an application falls outside standards and procedures, if the

loan is being recommended, the loan should be escalated to a higher DLA with

clear mitigants as to why the loan is being endorsed.

It is the responsibility of the decisioning officer to:

Assess all loan applications and ensure that the appropriate level of risk

analysis is carried out,

Decision credit submissions within Delegated Lending Authority (DLA)

where required,

Overview credit submissions approved within DLA, and

Provide coaching to client facing officers on submission preparation,

where necessary.

In assessing any loan, MyState can request for addition information over and above what is stated in this document.

A credit facility must be drawn down within 90 days of the date MSB has signed

the offer and loan contract. Where continuation is sought at the expiry of this

term, the approval of an officer holding the necessary delegation as to approve

the loan in the first instance must reaffirm the approval. It should be noted that

depending on individual circumstances reconfirmation of information may be

required to confirm the integrity of the initial approval.


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6. Servicing Assessment Under the principles of responsible lending, for a loan not to be unsuitable for a

borrower, the borrower must have the capacity to repay the loan without

experiencing significant hardship.

Borrowers must demonstrate that they can repay their loan commitments and

meet ongoing living expenses.

In the assessment of servicing, it is critical to as best able, ensure that the

servicing position as detailed, and on which the loan is assessed, is

representative of the position going forward. While personal circumstances may

change, assessment of affordability should not rely on historic information when

we are aware of a change or pending change in circumstances.

Responsible lending dictates that it is critical that customer stated living

expenses are obtained and not solely based on benchmarking. Applicants will

be required to complete an estimation of their current spending with an

extensive ‘unpacked’ list of expenses to be completed. MSB utilises the higher

of the clients estimated spending, and the Melbourne Institute benchmarking

model, in assessing the serviceability of application. In addition, the client’s

discretionary expenditure (Rental Expense and Medicare Surcharge) outside of

these general expenses is included in the assessment so as not to impact on

the borrower’s way of life which could constitute hardship.

To meet MSB’s servicing requirements the Net Disposable Income ratio must

be a minimum 1.00 times cover and also a positive minimum surplus.

Loans where the Net Disposable Income ratio is < 1.00 are not encouraged.

Any exception for applications where the Net Disposable Income ratio is < 1.00

must be supported by clear mitigants and presented to a DLA 4 or above for

review. A reduction in the prescribed floor rate and/or buffer rate to achieve

serviceability is not acceptable, nor is it an acceptable mitigant.

Additional servicing requirements -

Minimum servicing requirement for Investment Loans is $200 per month

High LVR’s we have the following servicing requirements - specifically

mortgage loans above 90% LVR. Eligibility criteria are based on servicing

times cover and employment.

1. Where LVR is greater than 95%:

i. No lending available

2. Where LVR is above 90% and up to and including 95%:

i. No exposure to less than 1.10 times NDI irrespective of years in

current employment; and


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ii. 1.10-1.20 times NDI only for greater than 2 years in current

employment

Please note it is current employment, not same industry. It should

also be noted that there are no exceptions to the above criteria.

Off The Plan - MyState will only consider Off the Plan purchase property

as security which is not within a High Risk Postcode Category A location

and where the minimum servicing result is no less than 1.00 time NDI. Off

the Plan Investment servicing result is no less than 1.20 times NDI and

with a minimum $200 per month surplus cash..

6.1. Interest Rate Floor

In the assessment of servicing capacity for residentially secured facilities,

MSB adopts an interest rate floor to ensure that in times of extremely low

interest rates the assessment rate inclusive of the interest rate buffer is

still reflective of what is a reasonable market position.

The interest rate floor is set by the RCC with input from Treasury.

The current interest rate floor is 5.00%.

6.2. Interest Rate Buffer The servicing assessment of a loan application requires a level of

contingency to be added to serviceability to accommodate interest rate

movements for existing mortgage secured debt facilities that are not being

repaid. The amount is calculated on the current debt (including redraw) or

the account limit. The buffer is to be applied to all mortgage secured debt

facilities, both internal and external.

The current interest rate servicing buffer for MSB residentially secured

consumer loan facilities is 2.25%.

6.3. Assessment Rate MSB residentially secured loan applications for new funding (including

refinance) are to be assessed at a rate of the higher of:

The interest rate floor PLUS the interest rate buffer; or

The actual product rate PLUS the interest rate buffer.

As such, the proposed loan is not to be assessed at less than 7.25%.


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7. Employment Requirements The following is considered an acceptable status of employment:

Type of Employment Requirements

Permanent full time and part time employees

Minimum of 6 months with the current

employer, or have held at least 2 years

continuous previous experience within

the same industry.

Must have completed any probationary

period.

PAYG Employees on Contract Must have been in their current role for a

period of no less than six months, and be

able to provide evidence that the contract

will be ongoing.

100% of Contract income may be

accepted.

Where a dependent contractor is

considered skilled professional/office

based, i.e. nurses, teachers, IT

professionals, etc., the contractor must

have 3 years experience in the same

industry, and the contract must have a

minimum of 3 months left to run or

evidence of a new contract. A dependent

contractor is defined as a contractor with

a single income source and where the

employer administers superannuation

and PAYG tax requirements.

Casual employees and/or second job

Must have held their position for a

minimum of 12 months with their current

employment.

Applicants employed by family Minimum of 6 months in the current

position or 12 months continuous

previous experience within the same

industry.

Self employed Have been trading for a minimum of 2

years.

Independent Contractors who invoice

their employer for payment should be

treated as ‘self employed’.


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7.1. Verifying Income The following documents are required for verification of income.

PAYG (Full Time/ Permanent Part Time/ Second Job)

Most recent computer generated payslip which contains at least 2

months year-to-date figures, or three months statements from a Financial

Institution showing regular salary credits, with the name of the employer

evident, or two of:

- Employer letter (on letterhead with ABN etc.) showing net income,

gross income, frequency of payment, role or position, length of

employment, the basis of employment (e.g. full/part time, casual)

and the breakdown of the salary package (if applicable).

- Employer contract showing net income, gross income and

frequency of payment.

- Latest PAYG payment summary or tax assessment notice.

- One computer generated payslip.

If LVR over 80% and Mortgage Insurance is required then income

verification documents are required as per QBE policy. Payslips provided

MUST have 3 months year-to-date income and taxation figures noted. If

3 months YTD not provided then secondary documents, as per QBE

policy, must be provided.

PAYG: Overtime: A maximum of 80% of overtime may be accepted for

servicing purposes based on the pay cycle average of the YTD total.

Payslip contains a minimum 3 months income and where the overtime in

the period aligns with the average of the YTD overtime paid. Where the

payslip does not include 3 months YTD, a comparison should be made to

either the prior years last payslip, group certificate or letter from the

employer.

If LVR over 80% and Mortgage Insurance is required and overtime

calculation is required, QBE will accept use of 80% of overtime as per

our procedure as an exception and is to be signed off by appropriate

DLA3 or DLA4. Overtime must have been a consistent part of the

borrowers income for the past 6 months and will be ongoing and proof

provided.

PAYG: Penalty Payments/ Shift Allowances: 100% of assessed work

based allowances and penalties may be utilised for servicing purposes

based on the pay cycle average of the YTD total. The payslip must

contain a minimum of 3 months income and evidence that the overtime

on the payslip aligns with the average of the YTD.


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If LVR over 80% and Mortgage Insurance is required and shift allowance

and penalty payments are required, QBE will accept use of 100% of

allowances as per our procedure as an exception and is to be signed off

by appropriate DLA3 or DLA4. Allowances must have been a consistent

part of the borrowers income for the past 6 months and will be ongoing

and proof provided.

PAYG: Commission: On the basis that the terms of payment and

potential payment remain the same, 100% of the lower of the average of

the last two years or the last years can be utilised. Evidenced by group

certificate, employer letter or similar document.

PAYG: Bonus: On the basis that the terms of payment and potential

payment remain the same, then 80% of the lower of the average of the

last two years or the last year’s bonus income is utilised for servicing

assessment.

Casual Income

Casual Income to be calculated utilising the ‘Year To Date’ calculator

which will project income for 46 weeks (this covers unpaid annual leave

of 4 weeks and sick leave of 2 weeks). This is to be compared to

previous years PAYG summary/Taxation Return to ensure similar

income to be received.

Self Employed

Financial statements, tax returns and Notice of Assessment (where

applicable) for all individuals/partnerships/companies/trusts associated

with the transaction.

To meet the responsible lending guidelines we require the most recent,

relevant and up to date financial documents as per the following

examples.

Up to the 5th of June 2018, which is the current Australian Taxation Office

final lodgment date, we will accept the 2015/16 returns. I.e. 2016/17

returns may not have been completed.

After 5th of June 2018 we would require 2016/17 returns

Please Note: We will only accept the previous years financials if the most

recent have NOT been completed and not to avoid provision.

If utilising the prior years financials we will also require an accountants

letter confirming


P a g e | 19

Ability to service the debt compared to last year’s financials

Accountant must be a regular accountant for the borrower

Servicing may be based on one year, but discrepancies between

the Profit and Loss for the two years must be considered and

appropriate comments made.

The financial commitments of related entities are to be considered in any

assessment if income/addbacks are being used to demonstrate

servicing.

Sole Traders/Partnerships – 100% of business income stated on

applicants’ individual tax return may be used.

Companies – 100% of undistributed profit for most recent financial year

may used, as long as the Director(s) are the applicants.

Add backs – 100% of depreciation and interest may be added back as

long as the Director(s) are the applicants.

In all cases above, the loan commitments of the company/business need

to be included in servicing calculations.

In the scenario where an applicant is a joint Director of a company, or in

a partnership with an unrelated third party, the surplus undistributed profit

and addbacks from the most recent financial year after the loan

commitments of the company have been taken into account may be

utilised. The percentage of the surplus that can be utilised is to align with

the shareholding held by the client in the entity. Applicant must hold a

minimum 50% shareholding in the company or partnership.

Should a loss be recorded in business/company financials, this is to be

deducted from the overall income used.

If LVR over 80% and Mortgage Insurance is required then assessment

as per QBE policy is to apply. 2 years financials are to be provided and

use the lesser of Average of ‘total taxable income’ from last 2 previous

financial years or the current year.

Salary Packaging/Sacrifice

Provided the borrower’s total package is available as cash at the

borrower’s option, then the total package can be treated as gross income

(less compulsory superannuation contributions) for servicing purposes.

Company Vehicle Allowance

A fixed amount of $5,000 pa will be added to the non taxable income of

PAYG applicants where a borrower can evidence use of a fully


P a g e | 20

maintained company vehicle.

Letter from employer or employment contract confirming the benefit is

required.

A ‘vehicle’ for the purposes of allowing inclusion of the ‘company vehicle

allowance’ is classed as a standard non commercial passenger vehicle.

Rental Income

For existing investment properties: (One of the following)

Tax Return (providing the property is still held as an asset by the same

parties), or

1 month rental statement from the property manager where it can be

clearly identified what the regular (weekly/fortnightly/monthly) rental

amount received is. Where the regular rental amount cannot be

determined from 1 month rental statement due to timing of 4 or 5 weeks

payments in a single month, then 3 months rental statements are to be

obtained. or

Transaction statements which clearly identify the deposit as rental

associated with the specific property evidencing stable payments for the

prior 6 months, or

Lease Agreement.

If purchasing new owner occupied and renting out current owner

occupied:

Written rental appraisal from a recognised property manager, or

Rental Assessment from a panel Valuer.

The lower figure of the rental appraisal or the rental assessment from the

panel valuer is to be utilised.

For properties being purchased as an investment: (One of the

following)

Lease Agreement, rental statements and transaction statements as per

above if the property is already tenanted when purchased, or

Written rental appraisal from a recognised property manager, or

Rental Assessment from a panel Valuer.

The lower figure of the rental appraisal or the rental assessment from the

panel valuer is to be utilised if the property being purchased is not


P a g e | 21

currently tenanted.

Generally 80% of annual rental figure can be used in servicing.

For borrowers who are leaving, or have left, their principle place of

residence to move in with relatives:

It is important to determine the validity of a borrower’s current living

situation when determining inclusion of rental income for a borrowers

only owned property.

Where a borrower has stated that they are living with relatives, and their

only owned property is now classified as an investment property, the

following should be obtained/considered:

An arm’s length lease with a term of no less than 12 months

should be obtained for the investment property

Rental statements and transaction statements showing payments

are being received

Furthermore, notional rent should be included in the servicing calculation.

Care needs to be taken where the situation of the borrower/s does not

match their stated living situation. The reasonableness and sustainability

of proposed living arrangements giving consideration to the family

structure and accommodation capacity should be considered.

Negative Gearing

The tax benefit gained from negative gearing may be included for

servicing assessment where the application being assessed relates to an

owner occupied mortgage loan, and the negative gearing benefit relates

to existing investment debts and associated properties held. If new loan

being written is for Investment then deductible interest is not to be used.

Servicing is assessed on debt at the higher of the assessment rate of

7.25% or actual rate plus 2.25%. Tax benefit is based on the actual

product rate applicable to the loan at time of assessment before

application of buffer. The tax benefit gained from debt over residential

investment property may be included for servicing assessment where the

resultant loan for MSB/Rock is for Owner Occupied only.

Interest and Dividends

Lesser of the average return for the past 2 years or the return from the

last year.

80% of the interest from an ADI or dividends from a shareholding can be


P a g e | 22

used as income.

Pensions and Government Allowances

Letter from Government Department, Fund Manager or income provider

(e.g. Centrelink), which lists the benefit amount and frequency. 100% can

be utilised for servicing on the basis that the pension is of a permanent

nature and irrevocable.

Exception – Overseas Pension: the foreign currency income is to be

sensitised (discounted) by 10% at the current exchange rate, that is, 90%

can be utilised for servicing assessment.

Family Allowance

Letter from Government Department (e.g. Centrelink office), which lists

the benefit amount and frequency. Payments must be payable for the

next 5 years (ie. Only for dependent/s 13 years of age and under).

Child Maintenance/Support

Can be used as income where the maintenance agreement is registered

with the Child Support Agency and where 3 months of consistent

payments can be evidenced from bank statement, and is considered a

permanent payment for no less than the next 5 years (age of oldest child

13).

Other Income (eg: AirBnB, Bed & Breakfast etc.)

Property should have been used for this purpose for a minimum of 12

months. Income needs to be evidenced in the borrower’s tax return.

Reliance on projections not acceptable.

Maternity/Paternity Leave:

Actual income while on Maternity leave, when the application is received,

can be used if it is from the borrower’s employer or the government.

There must be a clear intention to return to work and this has been

acknowledged in writing by the employer. Care should also be taken to

cover employment status when applicant returns to work (i.e. Full

time/Part Time.) that the income amount used will continue. The lower

income amount while on leave or when returned to work (and this

includes where no income is being received) is to be used for servicing.

In cases where the maternity leave pay period has ceased or where no

maternity leave payment is being received, no income allowance can be


P a g e | 23

used.

7.2. Unacceptable Income Short term or irregular sources of income are not acceptable for use

within the servicing calculation. These include:

Board,

Worker’s Compensation,

Unemployment benefits/ Newstart Allowance,

Austudy,

Youth Allowance

Entertainment Allowance,

Travel Allowance,

Meal Allowance,

Overseas income - rental, investment or dividends

Foreign currency loans,

Retained/previous years’ company or business profits, and

Shares given as a bonus

7.3. Employment Verification Verification of employment by way of a telephone call to the employer is

required where one or more of the following applies:

Lenders Mortgage Insurance is required if borrower is new to bank. Not

required from LMI perspective if any of the following:

An existing customer with 3 months transaction account history

with MSB, or

Employed by Local, State or Federal Government. Or

Top 200 ASX Company

A guarantor to the loan exists

The supporting income verification documents as per above, are not

available;

An independent source is to be used to obtain the employer’s contact

details (such as the White Pages, etc). Reliance on contact details

supplied by the borrower or a third party should not be relied upon. MSB

needs to be able to ensure that the person they are speaking with to verify

employment has not been ‘coached’ to supply inaccurate data. The

employer’s contact details should be recorded on the Income Verification

form (LNS240).


P a g e | 24

When verifying employment, the following questions should be asked of

the employer:

Name of payroll officer

Type of employment (Full time, Part Time, Casual)

Minimum income per pay period (and if this is a gross or net figure)

Date employment started

Job title

This information should be collated on the LNS240 Employment

Verification form. All areas of this form should be completed.

For LMI insured or applications that do not satisfy the above situations, all

employment must be confirmed with the employer.

Where a genuine business case can be established to seek an exception

to the above, then an officer holding the appropriate level of delegation

can decision the same.

7.4. Self employed applicants – Guarantees from related entities If income from an unrelated third party is required to demonstrate

servicing, a guarantee from these entities is required to capture the

income stream.

Third party income includes the following:

Company addbacks and undistributed profit.

Trust Distributions to beneficiaries who are not a party to the loan.

Individuals whose income we are relying on to demonstrate servicing.

The following table outlines when a third party guarantee is required:

Income source

Use of:

Income stated on

applicants personal tax

returns, or

Proposed or existing

rental in the name of

applicants (not trust asset

income), or

Addbacks or undistributed

profit from a company or

other entity, and the

No guarantee required from related

entities.


P a g e | 25

where director(s) are the

applicants.

Use of addbacks or undistributed

profit from a company or other

entity, and the director(s) are not

the applicants.

Guarantee required from the

company or other entity.

Trust distributions to adult or

company beneficiaries of a Trust

who are not a party to the loan.


beneficiary/company.

Use of an individuals income

who is not a party to the loan


individual.

Should addbacks and/or income from related entities be used to

demonstrate servicing, all loan commitments for those entities are to be

included in the servicing calculation to ensure the income relied upon for

servicing is available. Refer to ‘11.1 Verifying Income’ for parameters.

8. Commitments and Expenditure

8.1. Living Expenses MSB requires the borrower(s) to provide a figure that adequately

represents their general living expenses.

Where the basic living expense provided by the borrower is less than the

MSB benchmark for the borrower type (based on marital status,

dependents etc.) MSB benchmark for assessment purposes will apply.

This will be undertaken automatically in the servicing assessment.

MSB benchmark is the Income/Geographic Model supplied by Melbourne

Institute of Applied Economic and Social Research (Melbourne Institute).

Melbourne Institute offers two separate models (smoothed and smoothed

per child accounting) and based on their recommendation we have

elected to use the first version (smoothed) which calculates expenses

based on applicants postcode, income and family structure.

Melbourne Institute’s model is based on family structure to incorporate number of dependents: Single/Couple Single/Couple plus 1 dependent Single/Couple plus 2 dependents


P a g e | 26

Single/Couple plus 3 or more dependents

The higher of the Benchmark Living Expenses or the customer advised

living expenditure provides a minimum allocation for living expenses. The

living expense benchmark does not include the following

Rental Expenditure or Notional Rent if applicable

Medicare Levy Surcharge if applicable

If the customer incurs the above expenses these should be captured in

addition to the living expenses

The table below provides a guide to what is required to be included for

customer stated expenses:

Food

Clothing and Personal Care

Personal/Entertainment/Recreation

Telephone and Internet

Public and Private Education/Childcare

Motor Vehicle/Transport

Electricity/Gas - Utilities

Rates - Owner Occupied and Investment

Home/Personal Insurance

Other Expenses

8.2. Dependants For the purposes of servicing, a dependant is defined as:

A spouse or life partner

Child under 18 and primary care is provided by the applicant.

Child over 18 who is a full time study and does not earn independent

income.

Parents living with the applicant/s who do not support themselves

financially.

The table below provides clarification for scenarios that fall outside the

above parameters:

If the person is… Then….

A minor, and a Carer is in receipt

of allowance or similar benefit for

caring for the person

Include as dependant


P a g e | 27

Is not a minor, and a benefit is

payable to the Carer

Exclude as dependant

Single borrower with non applicant

spouse/partner

Include as dependant

Exception: Evidence of

spouse/partners income is obtained

to verify they are self supporting.

Paying child support/maintenance Include actual confirmed child

maintenance amount in expenses

or if unable to be confirmed include

as a dependent.

9. Loans Commitments The following is to be used for calculation of liabilities and other expenses:

Existing Commitments

Existing OFI Home Loans not

being refinanced

Applicant stated repayments. Available

Redraw to be included in repayment*

Personal Loans Applicant stated repayments

Credit Cards/Store Cards 3% of the limit monthly

Notional Rent Higher of actual board or notional rent of

$150 per applicant per week to be

applied if term of living arrangements

less than 5 years

Interest Only Based on the maximum loan term minus

I/O period*

Lines of Credit Based on an amortising loan term of 30

years*

Rental payments during

construction

25% of 12 month rental if construction

period is more than six months. No

expense if less than six months.

Joint expenses 100% of commitment

Business/Company commitments Where Director(s) are applicants and

undistributed profit/addbacks are utilised

in servicing:

All business company loan

commitments are to be included in

servicing calculation.

Where a partnership/business is held

with an unrelated third party (not a party

to the loan):

Analysis is to be undertaken to


P a g e | 28

ensure there is no reliance on

business income being utilised in

the servicing calculation to meet

company loan commitments.

*Buffers are to be applied to existing mortgage liabilities (see point 10.3 above).

In all cases above, where the advised loan commitments appear outside of the

market further enquiry should be made by the assessing officer.

9.1. Exit Strategy Where the applicant is 55 years of age or older, the security property is

owner occupied, and the loan term exceeds the government retirement

age (currently 67), lending officers must outline, in the form of a

repayment or exit strategy, how the loan will be serviced or repaid from

the time that the borrower retires.

Exit strategies must be ‘Owned’ by the borrower and must be accepted by

the borrower and not advocated without the borrowers consent by a

lender or 3rd party. This is to ensure that the borrowers understand their

responsibilities and acceptance of the strategy and that it suits their future

objectives.

10. Valuation Acceptance Valuations are to be accepted in line with the MSB Valuation Standard. It is the

responsibility of the assessing officer to review the valuation and ensure it is

acceptable for security purposes.

10.1. Identification of property Assessing officer is to ensure: Address of property matches application Certificate of title details align with title search

10.2. Risk assessment and acceptance Should any of the following be evident from perusal of valuation, the

assessing officer is to investigate and mitigate acceptance where

necessary:

Zoning of the property does not align with what is acceptable for

residential lending.

Covenants or easements on the title that may restrict our mortgage or

intended usage of the property.

Selling period of more than six months.

For construction, cost to complete aligns with fixed price contract held.


P a g e | 29

Valuations with four of more ‘3’ risk ratings, and/or any ‘4’ or ‘5’ risk

ratings.

Any adverse comments made by the valuer in relation to the property.

The assessing officer is to confirm acceptance of the valuation by

recording the following on the valuation. Acceptance of the valuation

indicates that the assessing officer has satisfied the requirements

above:

‘Valuation accepted’

Signature

Date

10.3. High Density Apartments High density is described as any home unit or apartment which is within

a unit complex as follows:

Melbourne, Brisbane or Sydney – 6 levels or more and/or containing 50

units or more

All other areas – 4 levels or more and/or containing 30 units or more

10.4. High LVR Home Loans In line with MSB’s Risk Appetite Statement, there are criteria that should

be adhered to when assessing high LVR mortgage loans – specifically

mortgage loans above 90% LVR. Eligibility criteria are based on servicing

times cover and employment.

The following criteria are to be utilised when determining eligibility for

loans in this LVR bracket:

1. Where LVR is greater than 95%:

No lending available

2. Where LVR is above 90% and up to and including 95%:

No exposure to less than 1.10 times NDI irrespective of years in current

employment; and

1.10-1.20 times NDI only for greater than 2 years in current

employment

Please note it is current employment, not same industry. It should also

be noted that there are no exceptions to the above criteria.

Off The Plan


P a g e | 30

MyState will only consider Off the Plan purchase property as security

which is not within a High Risk Postcode Category A location and where

the minimum servicing result is no less than 1.00 time NDI. Off the Plan

Investment servicing result is greater than 1.20 times NDI and with a

minimum $200 per month surplus cash

10.5. High LVR Non Genuine Savings MSB will not accept any loan with an LVR of 95%. This includes where

non genuine savings are evident and also includes where the LMI

premium is capitalised.

Genuine savings is defined as a demonstrable savings pattern

established over a minimum period of 3 months in the name of at least

one borrower prior to the loan application being received.

Genuine savings can be from any of the following sources: Accumulated savings (savings account) Sale proceeds of shares or managed funds (net any tax due) Equity in or from real estate After tax bonuses from employer (provided amount is excluded from

income for NSR capacity assessment) Non preserved superannuation contributions (provided the borrower

has access to funds in cash form, and minimum employment conditions are met - as outlined in section 6.1 of QBE LMI manual )

Additional loan repayments that are available in redraw

Not considered acceptable forms of genuine savings Government grants / rebates (including First Home Owners Grant) Gifts (not from immediate family members) Inheritance (not from immediate family members) Advance on wages/commission Barter Card or other swap negotiations Builder discount/finance or any form of incentive Proceeds from gambling Proceeds from illegal activities Rental discounts Vendor gift / discount / finance / rebate or any form of incentive Advantageous / favourable purchases Lender finance of 5% deposit Borrowed funds (e.g. personal loan)

If Application is for a First Home Buyer and requires LMI cover refer LMI policy for acceptable genuine savings options.


P a g e | 31

10.6. Maximum LVR based on Loan Purpose The following table outlines maximum LVR’s acceptable based on the

valuation method adopted. This should be read and accepted in

conjunction with the Group Valuation Standard.

With increases to existing loans the term for reliance on existing formal API valuation is as follows: Reliance on existing formal API valuation is 12 months. The use of existing formal valuations greater than 12 months and up to

3 years where the LVR does not exceed 80%, and where the valuation is supported by an up to date AVM with an estimate of value of not less than the valuation being relied upon, and has a forecast standard deviation of not greater than 12%.

This approach would not be utilised for any circumstances other than where a formal API valuation is held, and does not apply where, a purchase contract was originally utilised. The utilisation of the existing valuation would also be underpinned by: There being no reasonable cause to question the ongoing validity of the

valuation in the market at the time of application; and In relation to the variation as detailed above, that the security property

is not located in a high risk postcode.

Loan Purpose Max LVR Uninsured

Max LVR including LMI Capitalisation

Purchase of a new or existing residential property

Owner Occupied Refer to the Valuations HUB matrix

for acceptable valuation type (14.7.1)

80% 95%

Investment Lending o Max LVR

80%

N/A

Purchase of a new or existing rural property

Licenced Valuation

70% 90%

AVM o Max Loan $150K - see Valuation

Standard for information regarding acceptance of AVM

50% N/A


P a g e | 32

Refinance of a home loan/s - owner occupied

Refer to the Valuations HUB matrix for acceptable valuation type (14.7.1)

80%

90% + LMI

Refinance of a home loan/s and any non-mortgage related debt/s

80% 90% + LMI

Refinance of a home loan/s - Investment

Refer to the Valuations HUB matrix for acceptable valuation type (15.5.1)

80% N/A

Construction of residential property with a registered builder

80% 95% or maximum 90% inclusive of

LMI if non genuine savings

Guarantor to a Parental Guarantee Loan

70% N/A

Equity Release/Cash Out

80% 90% + LMI

Serviced Apartments (including time share)

50%

NRAS – Licenced Valuation (Residential only)

50%

10.6.1. Valuations HUB

The Valuations HUB is the methodology to determine the correct valuation

type and is not a change to the acceptable LVR’s.

To assess the correct valuation type the HUB evaluates the loan details

input with the following matrix to determine the most appropriate form of

valuation required for the transaction. The Maximum LVR referenced in

the tables below must be read in conjunction with the LVR stated in 14.6


P a g e | 33

Purchase of property Purchase of property

LVR Over 70% up to 80% LVR up to 70%

Less than

10%

10% to less

than 15%

15% to less

than 20%

Greater

than 20%

Less than

10%

10% to less

than 15%

15% to less

than 20%

Greater

than 20%

Less

than 5%AVM AVM AVM

Full

Valuation

Less

than 5%AVM AVM AVM EVR

5% to

less than

10%

AVM AVMFull

Valuation

Full

Valuation

5% to

less than

10%

AVM AVM AVM EVR

10% to

less than

15%

AVMFull

Valuation

Full

Valuation

Full

Valuation

10% to

less than

15%

AVM AVM EVR EVR

Greater

than 15%

Full

Valuation

Full

Valuation

Full

Valuation

Full

Valuation

Greater

than 15%AVM EVR EVR EVR

Standard Deviation from AVM

Va

ria

tio

n b

etw

ee

n C

OS

an

d A

VM


Va

ria

tio

n b

etw

ee

n C

OS

an

d A

VM

Refinance - Owner Occupied Refinance - Owner Occupied


Less than

10%

10% to less

than 15%

15% to less

than 20%

Greater

than 20%

Less than

10%

10% to less

than 15%

15% to less

than 20%

Greater

than 20%

Less

than 5%AVM AVM EVR

Full

Valuation

Less


5% to

less than

10%

AVM AVM EVRFull

Valuation

5% to

less than

10%

AVM AVM AVM EVR

10% to

less than

30%

AVM EVRFull

Valuation

Full

Valuation

10% to

less than

30%

AVM AVM EVR EVR

Greater

than 30%EVR

Full

Valuation

Full

Valuation

Full

Valuation

Greater

than 30%AVM EVR EVR

Full

Valuation

Standard Deviation from AVMC

ash

Ou

t P

erc

en

tag

e


Ca

sh

ou

t p

erc

en

tag

e


P a g e | 34

Refinance - Investment Refinance - Investment


Less than

10%

10% to less

than 15%

15% to less

than 20%

Greater

than 20%

Less than

10%

10% to less

than 15%

15% to less

than 20%

Greater

than 20%

Less

than 5%AVM AVM EVR

Full

Valuation

Less

than 5%AVM AVM EVR EVR

5% to

less than

10%

AVM EVRFull

Valuation

Full

Valuation

5% to

less than

10%

AVM AVM EVR EVR

10% to

less than

30%

EVRFull

Valuation

Full

Valuation

Full

Valuation

10% to

less than

30%

AVM AVM EVRFull

Valuation

Greater

than 30%

Full

Valuation

Full

Valuation

Full

Valuation

Full

Valuation

Greater

than 30%AVM EVR EVR

Full

Valuation


Ca

sh O

ut

Pe

rce

nta

ge


Ca

sh o

ut

pe

rce

nta

ge

Internal Top-Ups (Owner Occupied Loans) Internal Top-Ups (Owner Occupied Loans)


Less than

10%

10% to less

than 15%

15% to less

than 20%

Greater

than 20%

Less than

10%

10% to less

than 15%

15% to less

than 20%

Greater

than 20%

Less

than 5%AVM AVM EVR

Full

Valuation

Less


5% to

less than

10%

AVM AVM EVRFull

Valuation

5% to

less than

10%

AVM AVM AVM EVR

10% to

less than

30%

AVM EVR EVRFull

Valuation

10% to

less than

30%

AVM AVM AVM EVR

Greater

than 30%EVR

Full

Valuation

Full

Valuation

Full

Valuation

Greater

than 30%AVM EVR EVR

Full

Valuation

Ca

sh O

ut

Pe

rce

nta

ge


Ca

sh o

ut

pe

rce

nta

ge



P a g e | 35

There are a number of exclusions that will mandate a full API valuation or

are ineligible securities. If indicated within the HUB questionnaire it will

refer back to procedures. These are a combination of internal and

external. The list of exclusions are below:

An applicant is an overseas citizen without an Australian residency Visa

Bridging Finance

Company Title

Construction completed within the last 12 months

Converted Warehouse

Development Site where the Estimated Value is on the basis of a

subdivision

Display Home if NOT for Owner Occupied purpose

Family Guarantee

Living area less than 50m2 including balcony and carpark

Living area under 40m2 excluding balcony and carpark

Multiple Dwellings on a Single Title (n.b. 3 or more properties are

classed as commercial property)

NRAS

Non-residential e.g. commercial, mixed use

Not Habitable e.g. no kitchen, bathroom

Off The Plan

Private sale

Property Being Purchased IS NOT Arm's Length / Or is Without

Intervention of a Real Estate Agent

Properties larger than 40 hectares/or income producing

Internal Top-Ups (Investment Loans) Internal Top-Ups (Investment Loans)


Less than

10%

10% to less

than 15%

15% to less

than 20%

Greater

than 20%

Less than

10%

10% to less

than 15%

15% to less

than 20%

Greater

than 20%

Less

than 5%AVM AVM EVR

Full

Valuation

Less

than 5%AVM AVM EVR EVR

5% to

less than

10%

AVM EVR EVRFull

Valuation

5% to

less than

10%

AVM AVM EVR EVR

10% to

less than

30%

EVR EVRFull

Valuation

Full

Valuation

10% to

less than

30%

AVM AVM EVR EVR

Greater

than 30%

Full

Valuation

Full

Valuation

Full

Valuation

Full

Valuation

Greater

than 30%AVM EVR EVR

Full

Valuation


Ca

sh

Ou

t P

erc

en

tag

e


Ca

sh

ou

t p

erc

en

tag

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P a g e | 36

Relocated dwelling or Kit home

Second Mortgage

Self Managed Superannuation Fund

Senior Access

Serviced / Managed Apartment

Student Style Accommodation

10.7. Ineligible Security The following table outlines certain types of securities that are considered

ineligible by MSB.

Retirement Village Units Commercial Property Development

(more than 2 dwellings in a

development)

Commercial Usage

Properties

Recreational or special use

properties

Converting from another

purpose

Transportable or relocatable homes

Hotel/Motel

Redevelopment

Properties larger than 40 hectares

Income Producing

Property (apart from rent),

including Boarding

Houses

Unique Properties

Mixed Usage Properties Second mortgage security (unless

pledged as part of a Parental

Guarantee loan).

Any dwelling or home unit

with a living area under

40m2 excluding balcony

and carpark – Must have

individual bedroom and

bathroom

Any dwelling or home unit with a

living area under 50m2 including

balcony and carpark– Must have

individual bedroom and bathroom

Off the Plan purchase

property in High Risk

Postcode Category A

Display Homes – Unless

purchase is for Owner Occupied

purpose and residential valuation

as per vacant possession.

Split contracts where

value not allocated to land


P a g e | 37

10.8. Luxury Property Threshold The establishment of luxury property thresholds applicable to differing

property types and geographic locations manages the concentration risk

associated with high value properties.

State

Property Value of land,

Units, Apartments,

Townhouses etc.

Property value

of Houses

LVR

NSW $2.0m $3.0m 70%

VIC $1.5m $2.5m 70%

WA / NT / ACT /

QLD / SA

$1.25 $2.0m 70%

TAS $1.0m $1.5m 70%

It is noted that these represent a guide, and would generally relate to the

capital cities in each State. Accordingly they may be tempered and

reduced based on the specific location, property type and any adverse

valuation ratings identified.

Capacity to lend at a LVR higher than that detailed above would rest with

an officer holding a DLA 4.

10.9. Parental Guarantee Threshold The maximum loan facility for applications assessed under the Parental

Guarantee loan structure is as follows:

Location Maximum Loan Max LVR

Melbourne, Sydney,

Brisbane

$1,000,000 80%

Other $600,000 80%

*Refer above for maximum LVR on actual guarantors LVR which is 70%

10.10. High Risk Postcode Register Increased risk has been linked to certain postcodes and to maintain

control a register with affected postcodes is available on the Intranet.

Restricted postcodes are areas where significant deterioration in credit

risk has been observed or is considered to have heightened risk going

forward.

A maximum LVR of 70% without LMI is to be applied to postcodes within

Category A of the register.. Furthermore, a maximum individual borrowing

limit to MSB of no more than $500k is to be enforced upon Category A

postcodes. Category B postcodes will need to be scrutinised to ensure


P a g e | 38

suitability but with no LVR restriction at this time. The remaining

postcodes will be within Category C.

Off The Plan

MyState will only consider Off the Plan purchase property as security

which is not within a High Risk Postcode Category A location and where

the minimum servicing result is no less than 1.00 time NDI. Investment

remains the same at 1.20 times NDI and with a minimum $200 per month

surplus cash.

Refer to the High Risk Postcode Register, Appendix A.

Additions or deletions to this register will be approved via the RCC.

10.11. Residential Unit / Subdivision Concentration Limits These limits apply where there are multiple properties within

subdivisions, home unit/apartment developments and like properties.

There is a distinction in the application of the limits between:

Existing established completed dwellings; and

New developments, including subdivision home and land packages,

and off the plan etc.

The following limits apply across all loan types:

Developments of up to 4 units/lots 100%

Developments of 5 to 10 units/lots 4 units

Developments of 11 to 20 units/lots 4 units or 20% of the development

whichever is greater

Developments of greater than 20

lots

4 units or 15% of the development

whichever is greater

Postcode Category

Max LVR $ Threshold

Off the Plan Exception High Density

A 70% 500,000 N/A LMI NO

B 80%

NDA 1.20 times

LMI

O/Occ 80%

(O/Occ now 1.00 times) Inv 70%

C (Other) 95%

NDA 1.20 times

O/Occ 80%

(O/Occ now 1.00 times) Inv 70%


P a g e | 39

11. Parental Guarantee Only Parents can be Guarantors under this program

Guarantors must agree to execute a guarantee limited to an amount

which is no less than that required to achieve Maximum LVR not requiring

Lenders Mortgage Insurance for applicable property types as per

Mortgage Lending Procedures Section 14.6, plus an allowance for costs

First or Second mortgage security only, accepted over property in the

names of the Guarantor(s)

Term Deposits are also accepted for security with 100% LVR available The guarantor(s) must be able to establish their ability to meet minimum

servicing capacity requirements as per Mortgage Lending Procedures

Section 10, inclusive of a commitment for the guarantee debt.

Loan/s are to be either a single application in borrowers name(s) (multiple

splits allowed) with both properties as security or 2 loans with the main

loan secured by the property owned by the borrowers and the guarantor

loan secured by borrowers property and guarantors property.

Principal & Interest repayment basis only. No interest only (construction

excepted)

Limited to purchase of owner occupied property or refinance of existing

owner occupied home loan debt. No additional funding allowed.

Vacant land that is to be used for construction of owner occupied property is also accepted as long as construction to be completed within satisfactory time frame.ie 12 months ot completion

Borrowings limited to coverage of full property purchase price or cost of

land purchase and construction plus 50% Stamp Duty & Government

costs to a maximum of 105% of borrowers property value

Borrowers must evidence own funds sufficient to cover remainder of costs

to complete

Borrowers must meet the following minimum employment and servicing

requirements

Minimum of 6 months with the current employer, Or

At least 2 years continuous previous experience within the same

industry.

Must be beyond any probationary period.

Serving requirement - 1.20 times NDI and over

No servicing support from guarantors will be accepted

Full valuations to be conducted on all properties offered as security for the

loan

Guarantors must seek independent legal advice prior to executing any

loan documentation


P a g e | 40

12. Construction Loans MyState will only look to provide finance to construct residential buildings

where:

The construction is underpinned by a fixed price contract with a registered

builder, or

As an owner-builder.

Building on a ‘cost plus’ or other basis will not be considered.

The following applies to all construction loans:

A formal valuation is required initially with an ‘as is’ and ‘on completion’

value.

The borrower is to contribute their own funds at the initial settlement

stage before any loan funds are drawn. Client is to be advised of this at

approval.

Release of funds against unimproved vacant land (prior to construction)

must not exceed the approved LVR of the application.

Buildings under construction are to be covered by insurance and

evidence of the cover noting MyState interest as First Mortgagee is to be

held. This policy must be obtained before settlement.

Exception - where there is delay between funding of the land acquisition

and the commencement of construction. It is the responsibility of the

submitting/processing officer to obtain evidence in these instances.

Construction is to be completed within 12 months from the first draw

down.

The LVR after a release of a progress payment is not to exceed the

approved LVR %.

Certificate of Currency and Certificates of Completion are required prior

to the last draw down.

At final drawdown, the loan will be transferred to an applicable Interest

only product for the remainder of the initial 12 months Interest only

period and upon expiry will be transferred to P&I..

12.1. Fixed Price Contract Fixed price construction loans are where a builder is contracted to build

and complete the dwelling. The contract will be noted on a standard HIA

approved contract.

Applicant is to provide the following additional documents for construction

loans with fixed price contracts:


P a g e | 41

An executed copy of the building contract

A copy of council approved plans and specifications – Required prior to

first progress payment.

The only exception to not obtaining these documents is in the instance

where there is significant time between the settlement of the land

component and entering into a contract with a builder.

12.2. Progress Payments Progress payments are:

To be made in line with the schedule of payments within the fixed price

contract.

If Council Approved Plans were not provided for initial ‘As if Complete’

valuation then ‘Progress’ valuation to be noted that “Council Approved

Plans have been received and verified they are in accordance with the

draft construction documents supplied and relied upon in the

construction ‘As If Complete’ valuation.

If the valuer notifies that the build progress does not match the initial

TBE report the ValFirm will advise and request authorisation to amend

original ‘As If Complete’ valuation and then subsequently issue the

‘Progress’ valuation.

Any variation from the original ‘As If Complete’ valuation will require the

loan to be re-assessed by the original lender/underwriter to confirm that

changes do not affect the approved loan. Variations are:

LVR increases to above 80%

Variance between valuations of greater than 5%

To be authorised by the borrower(s) stating that the work has been

completed and is to a satisfactory standard of quality. The borrower

must have the capacity to inspect, or may delegate to a suitably

qualified expert (such as a valuer or quantity surveyor).

External progress payment inspections are to be undertaken in the

following circumstances:

Fixed price contract under $750,000

(including FHOG applications)

Base Stage

On completion

Fixed price contract over $750,000 (including

FHOG applications)

All stages

Where drawdown percentages vary from the

standard detailed in this document

All stages

The final progress draw should not be made until the Certificate of

Completion is obtained.


P a g e | 42

A copy of all draw down requests is to be held on the loan file.

The normal benchmark for progress payments is as follows and fixed

price contract payments should align with these percentages:

5% Deposit

10% Base

15% Frame

35% Lockup

25% Fixing

10% Completion

Any significant departure from the above should be discussed with the

borrower and the possible implications of not being able to satisfy cost to

complete requirements.

Calculations should be completed to ensure there is no shortfall in funds,

or issues with the requested LVR, where a building contract is ‘front end

loaded’.

Borrowers will typically either need equity in their land, or funds to put

towards the construction initially, where the percentages above are higher

in the first few stages.

12.3. Borrower/Builder Relationship Fixed Price contracts where the building entity is a direct relation to the

borrower are to be considered on an Owner Builder basis. Direct relation

is defined as:

The applicant is a director/shareholder of the building entity

The applicant is part of the immediate family of the ownership of the

building entity. Immediate family is defined as:

Parent

Child

Sibling

Grandparent

13. Owner Builders MyState do not offer construction loans for Owner Builders

14. Non-Arms Length Transactions/Favourable Sales This relates to the sale of a property where a registered Real Estate agent is

not acting for the vendor and where the vendor is selling the property at a


P a g e | 43

discounted price to a friend, associate or family member. In these instances

the below changes to our normal loans policy apply:

Security Applicable only for a single residential property or

vacant land (up to 90% LVR)

Deposit/Equity Should the purchase price be 85% or more of the

valuation amount, the borrower is required to contribute

5% genuine savings. If the purchase price is 85% or

less there is no genuine savings requirement.

Additional

Requirements

Obtain in writing details of the transaction from the

vendor. Ensure the Valuer has noted the purchase

price and nature of the transaction.

Other LMI premium and LVR calculation is to be based on the

valuation figure.

15. Assets Where an applicant’s balance sheet does not align with their overall situation or

disclosed liabilities, the lending officer should make reasonable enquiries and

obtain evidence of ownership of any significant assets detailed in the Statement

of Position. For example, superannuation statements to prove balance of super

held, copy of rates notice to prove ownership of any property held etc.

In terms of the requirement, a ‘significant asset’ is considered any single asset

or group of assets that the assessing officer considers unusual that the

applicant would hold if there is no corresponding debt.

16. Credit Checks The credit report of borrower(s) and if applicable, guarantor(s) is to be reviewed

as part of the assessment process of an application. Should the following be

noted on the report, then the application should be declined:

Undischarged bankrupt

Current Part IX debt agreement

16.1. Unpaid Defaults/Judgements Where a default is showing as unpaid on a borrower(s) credit file, further

investigation should be undertaken to determine if the default remains

unpaid.

Should the applicant advise the default has been paid, evidence of this

should be obtained and kept on file – see paid defaults for further

guidance under these circumstances.


P a g e | 44

Unpaid defaults are not acceptable and any loan with an outstanding

default should be declined.

16.2. Paid Defaults/Discharged Bankrupts Paid defaults and/or discharged bankruptcies are to be investigated

thoroughly. A full explanation and suitable mitigants are to be provided by

the assessing officer to an appropriate DLA holder if recommended for

approval.

Applications involving discharged bankrupts and/or paid defaults to other

financial institutions will be assessed on a case by case basis, however,

the overall financial position of the borrower should be strong.

A borrower is to be discharged from bankruptcy for at least 2 years, with

no further derogatories recorded against them before MSB will give

consideration to providing any finance.

In circumstances where an application with a paid Telco or Utility default

exists, and the loan is being recommended, a satisfactory explanation and

mitigants should be escalated to an appropriate DLA holder.

In all circumstances where an application with a paid default to another

financial institution or discharged bankruptcy is being recommended,

satisfactory explanation and mitigants should be escalated to a DLA 3 or

higher for review.

16.3. Credit Enquiries All credit enquiries are to be referenced to the statement of position

provided by the borrower(s) to ensure there are no discrepancies. Should

any doubt exist over the accuracy of information held, then the two most

recent months’ statements from the clients main transaction account is to

be obtained and perused for undisclosed debts.

17. Refinance and Debt Consolidation Where the purpose of the loan is to refinance existing debts or debt

consolidation, confirmation of the outstanding balance, and evidence of

acceptable conduct on the loan/s being refinanced is to be evidenced by:

Credit and store cards The most recent statement showing credit limit and

previous month’s transactions.

Any other loans Most recent 3 consecutive months’ worth of

statements


P a g e | 45

If this evidence is not available, the lending officer must perform other forms

of verification to confirm the credit limit, outstanding balance and acceptable

performance on all facilities.

Extreme care should be exercised where the level of debt consolidation is

restricted by the maximum loan amount due to LVR or alike, as residual debt

can be the cause of future default.

18. Cash Out Verification Requirements The following table provides cash out guidelines. If any doubt to the accuracy of

the purpose of funds exists, the assessing officer is to undertake further

enquiry:

Amount Requirements

Up to $50,000 No details required.

$50,000 - $350,000 Applicants are required to provide

specific details as to the purpose or use

of the funds. This should include a level

of granularity to identify the specific

purpose, including in the case of ‘future

investment’, the nature of the asset class

being invested in.

Over $350,000 High level detail required in line with the

following:

Investment in shares/managed funds –

letter from accountant/financial planner

stating the purpose/use of funds.

Purchase of property – a copy of

executed contract of sale, or a statutory

declaration from the applicant stating the

details of the proposed property

purchase i.e. purpose, amount, LVR,

anticipated costs. Funds to be controlled

by applicant.

Please note: If the cash out is for structural work or major renovations to the

security property, then procedure relating to construction loans is to apply. The

above cash out procedure does not apply to situations where our security


P a g e | 46

position could potentially be compromised by substandard completion of

improvements to the property.

In addition, non-structural improvements to an existing residential dwelling held

as security (or being taken as security) by MSB where the finance sought is >

$100,000 and does not involve council approval then the applicant will be

required to sign a declaration stating:

“The cash out funds will be utilized on improvements of a non-structural basis

and do not require council approval”

19. Loans Reliant on Foreign Income for Servicing where the Borrower is not living and working in Australia Where the borrower is not living and working in Australia. Applicable for:

Australian citizen; and

Permanent resident.

MyState will not accept consumer applications for finance where the applicant

is not living and working in Australia and is reliant to any extent on income

derived from overseas in servicing assessment. Exceptions to this can only be

approved by officer holding DLA4.

MyState currently does not provide residential investment loans for

applications reliant on foreign income.

19.1. Loans Reliant on Foreign Income for Servicing where the Borrower resides in Australia

Where a borrower lives and works in Australia but is in receipt of foreign

income, for example such as a foreign pension, the foreign currency

income is to be sensitised (discounted) by 10% at the current exchange

rate, that is 90% can be utilised for servicing assessment. The foreign

income should be taxed as applicable to the nature of the payment.

Rental income from overseas property is not considered eligible for use in

loan servicing.

20. Redraw A redraw facility allows the client to ‘borrow back’ funds that are in advance of

their minimum contracted repayment amount. The minimum redraw amount

and multiples thereafter is as per the Product Parameters. This facility is

available on Consumer Variable rate Home Loans.


P a g e | 47

The full amount of available redraw is available to the borrower subject to

Product Parameters, however borrowers should be reminded of the next

contractual repayment and due date.

21. Top Ups A top up allows a customer to borrow additional funds using their existing Home

Loan without taking out a separate loan, allowing access to equity that has

been built up, and saving time and paperwork.

MSB offers a top up facility where the existing loan is rewritten over a new term

to cater for the applicants additional monetary requirements. The Top Up loan

must meet all the underwriting criteria as a new loan.

22. Loan Maintenance/Variations

22.1. Variable to Fixed Rate/Fixed Rate to Variable Rate requests Requests for switches between variable and fixed rates may be

processed without referral as long as the original contracted term is not

being altered. This is subject to the constraints of IO if applicable.

22.2. Principal and Interest to Interest Only/Interest Only to Interest Only Existing borrowings:

A full assessment of affordability over the remaining P&I term is required.

(Current term - proposed Interest Only period)

The following is to be obtained from client:

1. Signed request received from client (MyState document used for this

purpose)

2. Balance sheet outlining assets and liabilities to be obtained

3. Income details to be obtained from client

A servicing calculation is to be undertaken with information provided to

ensure client can meet all commitments and loan repayment over the

remaining P&I term as per the contract.

If… Then…

Servicing is evident over remaining

P& I term including all

commitments

Request may be processed without

referral

Servicing cannot be demonstrated

over remaining P&I term including

The request is to be declined


P a g e | 48

all commitments

22.3. Interest Only to Principal and Interest Requests may be processed without referral as long as the original

contracted term is not being altered.


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Appendix A

High Risk Postcode Register

Postcodes that are considered a higher risk within Category A and Category B – All postcodes not listed are classified as Category C MSB Apartments Category:

Lending specifically for apartments in these postcodes to be limited to 70% LVR without LMI coverage for both Owner Occupied and Investment.

The following Postcodes have different LVR’s depending on purpose (2066, 2600, 2601 and 2604)

o Maximum 80% LVR for Owner Occupied o Maximum 70% LVR for Investment

Category A Suburb

Category B Suburb Apartment

Postcodes Suburb

6390 Bannister

2000 Dawes Point 2000 The Rocks

6429 Boorabbin

2008 Chippendale 2007 Ultimo

6436 Menzies

2017 Waterloo 2015 Eveleigh

6437 Leinster

2019 Banksmeadow 2017 Zetland

6438 Lake Darlot

2020 Mascot 2018 Rosebery

6440 Bandya

2037 Forest Lodge 2019 Botany

6442 Kambalda East

2067 Chatswood

2020 Sydney International Airport

6642 Angelo River

2112 Denistone East 2022 Queens Park

6646 Lake Carnegie

2118 Carlingford 2048 Stanmore

6710 Cane

2127 Homebush Bay 2065 Wollstonecraft

6713 Dampier

2140 Homebush 2066 ** Riverview

6714 Antonymyre

2141 Berala 2067 Chatswood West

6716 Fortescue

2142 Camellia 2112 Ryde

6718 Roebourne

2144 Auburn 2113 North Ryde

6720 Cossack

2146 Old Toongabbie 2114 West Ryde

6721 Indee

2150 Harris Park 2121 North Epping

6722 Boodarie

2153 Baulkham Hills 2127 Newington

6725 Bilingurr

2166 Cabramatta 2135 Strathfield

6728 Camballin

2168 Ashcroft 2136 Strathfield South

6751 Chichester

2194 Campsie 2137 North Strathfield

6753 Newman

2195 Lakemba 2138 Rhodes

6754 Paraburdoo

2199 Yagoona 2140 Homebush West

6758 Nullagine

2205 Arncliffe 2142 South Granville

6760 Marble Bar

2208 Kingsgrove

2150 Parramatta Westfield

4210 Guanaba 2209 Beverly Hills 2151 North Rocks

4211 Carrara 2210 Lugarno 2154 Castle Hill

4413 Baking Board

2211 Padstow 2155 Rouse Hill

4415 Columboola

2220 Hurstville 2193 Hurlstone Park

4420 Broadmere

2222 Penshurst 2194 Campsie

4455 Ballaroo

2566 Bow Bowing 2195 Wiley Park

4521 Campbells Pocket

2767 Doonside 2204 Marrickville South

4581 Eurong

2769 The Ponds 2205 Wolli Creek

4660 Abington

3000 Melbourne 2216 Rockdale

4674 Baffle Creek

3004 Melbourne 2220 Hurstville Westfield

4678 Bororen

3006 Southbank 2600 ** Yarralumla

4715 Biloela

3008 Docklands 2601 ** Canberra

4717 Blackwater

3067 Abbotsford 2604 ** Narrabundah

4720 Emerald

4000 Brisbane 3000 Melbourne

4737 Armstrong Beach

4006 Bowen Hills 3002 East Melbourne

4738 Ilbilbie

4010 Albion 3003 West Melbourne


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4740 Alexandra

4032 Chermside 3004 Melbourne

4741 Ball Bay

4101 Highgate Hill 3006 Southbank

4742 Burton

4102 Buranda 3008 Docklands

4743 Glenden

4215 Australia Fair 3051 North Melbourne

4744 Moranbah 4680 Gladstone 3052 Parkville

4745 Dysart

5000 Adelaide 3053 Carlton South

4746 May Downs

5001 Adelaide 3054 Princes Hill

4800 Andromache

6000 Perth 3057 Brunswick East

4804 Collinsville

6003 Highgate 3066 Collingwood North

4805 Binbee

6004 East Perth 3067 Abbotsford

4820 Alabama Hill

6005 Kings Park 3108 Doncaster

5600 Cultana

6100 Burswood 3109 The Pines

5601 Iron Knob

6103 Rivervale 3121 Richmond South

5608 Whyalla Norrie

800 Darwin 3122 Hawthorn West

5609 Whyalla Jenkins

3123 Hawthorn East

5725 Olympic Dam

3128 Wattle Park

885 Alyangula

3141 South Yarra

7030 Brighton

3145 Malvern East

7155 Kettering

3175 Dunearn

7255 Whitemark

3182 St Kilda West

7256 Currie

3183 St Kilda East

7467 Lake Margaret 3205 South Melbourne

7468 Macquarie Heads 3206 Middle Park

7469 Granville Harbour

3207 Port Melbourne

7470 Rosebery

4000 Spring Hill

7255 Flinders Island

4005 New Farm

7256 King Island

4006 Newstead

4007 Hamilton Central

4010 Albion

4032 Chermside West

4101 West End

4102 Woolloongabba

4120 Stones Corner

5000 Sturt Street

6000 Perth

6004 East Perth

6005 West Perth

6008 Subiaco East

6010 Swanbourne

6051 Maylands

6100 Victoria Park

6105 Perth Airport

Caveat for postcode 7030 – its included, however discretion can be exercised with more substantial / built up parts of the postcode including Bridgewater, Brighton, Granton and Gagebrook.


P a g e | 51

Appendix B

Classification of Loan Purpose

Introduction

Understanding the reasons why our customers borrow, the mix of debt, the ultimate

and predominant purpose of their borrowings and how these borrowings are

classified is critical for a number of reasons:

Determine that the loan purpose is acceptable as per our policies

Able to meet our NCCP and Responsible Lending obligations

Understand the ratio of particular loan purposes and exposures in these

sections to better manage risk

Report correct information to our shareholders and to our prudential

regulators

To this end it is vitally important that we show a high degree of accuracy and

consistency when recording information to ensure data of loan purposes is correct

and consistent.

Loan Purpose Classification Categories

The purpose of a loan will fall into one of 3 main categories. NB: A full description of Loan Purpose Classifications as per APRA Reporting

Standard (ARS 223.0) is located on the last page of this document

3. INVESTMENT:

Means a loan for the purpose of housing, where the funds are used for a residential property that is not owner-occupied.

Holiday or vacation homes and part-time residences that are not the

borrower’s or borrowers’ principal place of residence are considered as

investment

Purchase of vacant land on which it is intended to build an investment

property is considered as investment

Part-time residences that are the borrower’s or borrowers’ principal place of

residence are not considered as investment. These should be reported under

owner-occupied

*Please Note: Using an owner occupied property as the security for a loan for an investment property purchase does not make the loan an owner occupied loan.

4. OWNER OCCUPIED:


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Means a loan for the purpose of housing, where the funds are used for a residential property that is occupied or to be occupied by the borrower(s) as their principal place of residence.

Dwellings and residential land that are vacant while under construction, but

that the borrower intends to occupy as a principal place of residence are

considered as owner occupied

Part-time residences that are the borrower’s or borrowers’ principal place of

residence are considered as owner occupied.

Part-time residences that are not the borrower’s or borrowers’ principal place

of residence are not considered as owner occupied. These should be reported

as investment

*Please Note: Using an investment property as the security for a loan for an owner occupied property purchase does not make the loan an investment loan.

5. NON – HOUSING PURPOSE

Defined as a loan secured by residential property where the funds are not used for the purchase, renovation or development of residential property. For example, personal loans, furniture, motor vehicle or funds used for the investment in shares etc secured by residential property.

Establishing the Predominant Loan Purpose Where finance is to be used for more than one purpose (owner-occupied, investment or non-housing purposes), the entire amount of the finance should be classified according to the predominant purpose (i.e. the purpose for which the largest share of the funds will be used). NB: Where there is more than one purpose, the predominant purpose would

apply

Where there is any doubt or ambiguity about whether a loan is for an owner-occupied or investment property, please refer to the Credit Risk team. Example 1:

In this case, as the predominant purpose is the refinance of the existing home loan

and only a single loan is sought, then this would be classified as Owner Occupied

Example 2:

New Cash on Hand (LOC) facility $300,000 To be used to: Purchase Shares $200,000 Complete Home Improvements $100,000

To refinance an existing other bank home loan $100,000 To purchase a new car $ 20,000 Cash out for deposit on an investment property $ 80,000 $200,000


P a g e | 53

In this case as the predominant purpose is the purchase of shares, then this would

be classified as Non-Housing

Example 3:

Predominant purpose is Investment even though the owner occupied property is the

loan security

Example 4:

Although the main purposes of the loan is to purchase vacant land, as the borrowers

have advised their intention to build an investment property on the land, the

predominant purpose would be considered Investment

Where there are instances of no evident predominant purpose (ie: the amounts

sought for each stated purpose are the same) then the purpose is to be applied as

per the following APRA Reporting Guidance:

Owner Occupied & Non- Housing - classify as Non-Housing

Owner Occupied & Investment - classify as Investment

Investment & Non- Housing - classify as Investment

The three categories are assessed in isolation, not two aggregated to compare to the third (ie NOT owner occupied and non housing added to compare to investment.) Example 1:

Classified as Investment

Example 2:

Refinance of existing MyState Home Loan $ 20,000 Purchase Investment Property $300,000 $320,000 *Only existing owner occupied property valued at $800,000 used as security

To refinance an existing other bank home loan $100,000 Cash out for deposit on an investment property $100,000 $200,000

Refinance of Existing MyState Home Loan $ 80,000 Loan to purchase vacant land $250,000 $330,000 Both the borrowers existing home and the land will be used a loan security (Borrower advises that they intend on using own funds to build a duplex for investment purposes on the land)


P a g e | 54

Classified as Non-Housing

Example 3:

Classified as Investment Loan Top-up The top up amount and the reason for the top up should also be considered in deciding the loan purpose. The top up amount should be considered versus the paid down balance of the original loan and not the original loan balance. The classification categories listed above should be considered when evaluating the overall purpose. This should be done in conjunction with the existing loan balance and the predominant purpose established. Instances may arise where the loan purpose is materially altered due to the purpose and amount of the top up sought. Example 1 below shows where the purpose will not be materially altered and Example 2 show where purpose would be materially altered. Example 1: Initially this loan would be classified as Owner Occupied and as the residual amount owing is more than the top up sought the overall purpose would not change. Example 2:

Initially this loan would be classified as Owner Occupied, however as the residual

amount owing is less than the loan top up sought, the loan would be reclassified as

Complete home improvements to owner occupied property $100,000 Purchase shares $100,000 $200,000

Refinance of an existing MyState investment loan $100,000 Cash out to purchase shares $100,000 $200,000

Existing MyState Loan Original loan of $200,000 to purchase owner occupied property & paid down to $100,000 Existing Loan: $100,000 Purchase new Vehicle: $ 80,000 $180,000

Existing MyState Loan Original loan of $200,000 to purchase owner occupied property and paid down to $60,000. Existing Loan: $ 60,000 Purchase New Vehicle: $ 80,000 $140,000


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Non-Housing with a Bancs classification as Motor Vehicle New. The fact that the

original loan amount of $200,000 is greater than the total amount now sought would

not affect the need to reclassify the loan purpose.

Please note that when assessing predominant purpose for loans where an existing

advance position is to be retained, then the advance funds would be deemed to be a

part of the existing facility.

Example:

Initially this loan would be classified as Owner Occupied and as the existing loan,

inclusive of advance position, is more than the top up sought, the overall purpose

would not change

Multiple Top Ups over time

The assessment of predominant purpose is made based on the prevailing existing

loan purpose, the purpose of additional funds sought and the ratio of these specific

amounts. The predominant purpose assessment is not affected by any prior loan

increases and the purpose of those funds as the assessment of predominant

purpose would have been made then for that transaction.

Example:

Single Loan Vs Loan Splits

There must also be some distinction made between single loans with multiple

purposes and loans where there are separate splits for the related purposes. Where

splits are involved then purposes are classed individually according to the relevant

split.

Example:

Total loan amount sought $250,000 split as: (a)Refinance of an existing other bank home loan $100,000 (b)Cash out for deposit on investment property $150,000

Existing MyState Loan Original loan of $200,000 to purchase owner occupied property and paid down to $60,000 with a current advance position of $40,000 Existing Loan $100,000 ($60,000 balance + $40,000 advance) Purchase New Vehicle $ 80,000 $180,000

Initial loan sought for $200,000 to purchase an owner occupied property with purpose assessed as Owner Occupied. Borrower then pays this loan down to $170,000 and seeks a top up of $40,000 (total loan $210,000) to install a swimming pool. Assessment made at this point that predominant purpose is still Owner Occupied. Borrower then pays this increased loan down to $120,000 and then seeks to borrow $50,000 to purchase a car and $50,000 to purchase shares. As the existing loan purpose is Owner Occupied and the existing loan amount is greater than the additional funds sought, the predominant loan purpose would remain

Owner Occupied.


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In this instance rather than classify both loan amounts as investment, (a) would be

classified as Owner Occupied and (b) classified as Investment.

Refinance Vs Top Up

For the purposes of assessment of loan purpose, where an existing loan is being

repaid in full from the proceeds of a new loan due to increased borrowing and loan

term being sought over a period greater than the remaining term on the existing loan,

then as an interim approach if the existing purpose is the predominant purpose, then

the existing purpose will be carried forward. It should be noted that this position will

be reassessed when we have additional granularity in the purpose drop downs to

distinguish between internal and external refinance.

Where increased funds are to be added to the existing loan with no change to the

terms other than the loan amount and revised repayment amount due to increase,

then this is to be determined as a top up.

It is also important to ensure that the relevant purpose in all cases is completely

clarified to ensure the loan is correctly classed.

Some examples may be:

A borrower is seeking to raise funds for home improvements to an investment

property using only their owner occupied property as the loan security. Simply

stating the purpose as home improvements may imply that the improvements are to

be done to the borrowers owner occupied property which might result in an incorrect

classification of the ultimate loan purpose.

Similarly if a borrower is seeking to purchase vacant land, it would need to be

confirmed whether the intention was to build an owner occupied or investment

property on the land as this would ultimately determine the loan purpose at

origination.

LendFast Loan Information Screen “Radio Button”

The “radio buttons” for the selection field in the LendFast Loan Information Screen

question “Are funds to be used predominantly for investment purposes?” are non

interactive with another field in LendFast. To clarify, this means that if you select the

button indicating that the loan IS to be used predominantly for investment purposes,

this will not influence other purpose fields in LendFast, there is no interlinkage and

thus the importance of having these input correct through out and not reliant on other

areas of input.


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Loan Purpose Sub-Classes

For the capturing of loan purposes in Lendfast the following lists apply. For easier

reference, these have been grouped under the appropriate Loan Purpose

Classification:

Subclasses marked may be used across all 3 classifications as noted.

Please Note: The list of sub-classes noted as Non-Housing also includes purposes

for use with Personal Loans as well as Home Loans.

Investment

Owner Occupied Non-Housing

Line of Credit Line of Credit Line of Credit

Purchase Land Purchase Land

Debt Consolidation* Debt Consolidation* Debt Consolidation*

Debt Minimisation Debt Minimisation Debt Minimisation

Home Deposits Home Deposits

Buy Home - Investment Buy Home – Established (1st buyer)

Business Capital

Refinance Investment Mortgage

Buy Home – Established (not 1st buyer)

Buy Commercial R/E

Off-the-plan - Investor Buy home – new (1st buyer)

Buy Commercial Vehicle

Refinance Investment Mortgage

Buy Home – new (not 1st buyer)

Buy Plant and Equipment

Purchase of invest property assessed under foreign income (non off-the-plan)

Off-the-plan – Owner Occupied

Dental Expenses

Purchase of invest property (off-the-plan) assessed under foreign income

Refinance Home Mortgage

Purchase Vehicle - Used

Refinance of invest property assessed under foreign income

Purchase of o/o property assessed under foreign income (non off-the-plan)

Purchase Vehicle - New

Home construction - investment

Refinance of o/o property assessed under foreign income

Recreation Expenses

Purchase of o/o property (off-the-plan) assessed under foreign income

Purchase Trailer

Home Construction Purchase Computer

Purchase Motorcycle

Purchase Shares

Travel Requirements

Wedding Expenses


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Wealth Creation

Education Expenses

Holiday Expenses

Household Items

Legal Fees

Medical Expenses

Miscellaneous

Motor Vehicle Expenses

Overdraft

Pay Tax

Property Settlement (matrimonial)

Purchase Business

*When selecting Debt Consolidations as the loan purpose it would need to be clearly

established that this is the actual purpose. A borrower refinancing a large home loan

and consolidating much smaller personal loan and credit card debts, whilst being a

consolidation of debt would generally still be considered as a refinance of home

mortgage for the purposes of determining loan purpose. Debt Consolidation as a

loan purpose would in almost all cases not be used for residential mortgage lending

and be reserved for personal loan borrowings only.

For the capturing of loan purposes in Bancs the following lists apply. For easier

reference, these have been grouped under the appropriate Loan Purpose

Classification:

Subclasses marked may be used across all 3 classifications as noted.

Investment Owner Occupied Non-Housing

Land Purchase Land Purchase

Debt Consolidation Debt Consolidation Debt Consolidation

Construction Investment Housing

Owner Occupied Housing

Motor Vehicle New

Investment Housing

Construction Owner Occ Housing

Motor Vehicle Used

Refinance Investment Refinance Housing Motor Vehicle Other

Alt/Addn Investment Housing

Alt/Addn Owner Occupied Housing

Motor Cycles/Scooters

Boats Caravans Trailers

Furniture & Personal Goods

Other Personal Investment

Travel & Holidays

Refinancing Other

Other


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Classifying Loan Purposes

Customers may seek to borrow for a multitude of different reasons.

Below is a list of common purposes where a borrower may seek a loan for a single

purpose:

Loan Purpose Classification Bancs Classification

Purchase owner occupied property

Owner occupied Owner Occupied Housing

Purchase investment property

Investment Investment Housing

Purchase holiday home Investment Investment Housing

Purchase vacant land (for future owner occupied purposes)

Owner Occupied Land Purchase

Purchase vacant land (for future investment purposes)

Investment Construction Investment Housing#

Land & Construction of owner occupied property

Owner Occupied Construction Owner Occ Housing

Land & Construction of investment property

Investment Construction Investment Housing

Land & Construction of holiday home

Investment Construction Investment Housing

Purchase new car Non-Housing Motor Vehicle New

Refinance Owner occupied home loan

Owner occupied Refinance Housing

Refinance investment loan*

Investment Refinance Investment

Purchase shares Non-housing Other Personal Investment

Cash out for deposit on investment property

Investment Investment Housing

Installation of a swimming pool, shed, landscaping to an owner occupied property

Owner Occupied Alt/Addn Owner Occupied Housing

Installation of swimming pool, shed, landscaping to an investment property

Investment Alt/Addn Investment Housing

*Currently do not offer refinance of investment loans

#To be confirmed

Guidance re transition between properties and Contract for Sale clauses:

1. Where a borrower is purchasing a property for owner occupation, MyState will

allow a transitional period of tenancy where the property being purchased is

subject to an existing lease. The remaining lease term must not exceed 3

months from the date of settlement and the borrower must make a specific

declaration that they are buying the property for owner occupation


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commencing at the expiry of the current lease period not greater than 3

months from loan settlement. In addition, no rental income for the property is

to be used in the loan assessment.

2. Where a contract for sale for a property being purchased includes a reference

to letting pool, rental management agreement or any other arrangement that

implies that the property is for rent, then the borrower must make a specific

declaration that they are buying the property for owner occupation as at

settlement (unless encumbered by an existing lease as per terms of 1 above).

This does not override the need to the contract clause requiring letting pool

etc to be deleted / overridden by another clause in the contract.

3. Where a contract for sale for a property being purchased includes a reference

to letting pool, rental management agreement or any other arrangement that

implies that the property is for rent, the contract should be reviewed for any

overriding clause OR the purchasers solicitor contacted to verify the same.

4. Where a clause or check box or alike in the contract that indicates the

property is for rental / letting pool etc is deleted, the deletion should be

correctly initialled by all parties to the contract and the solicitor for the

purchaser must verify that this has been done / the copy is true and correct.

5. Broker notes should be expansive to aid in the assessment of such loans and

to minimise reverting to the broker for additional detail.

Owner Occupied Loans for Trusts:

Loans involving a singular trust may be considered as being owner occupied where

the following exists:

1. Directors and shareholders of any trustee company (if applicable), individual

trustees and adult beneficiaries are all part of the same family unit and

propose to live in the property;

2. Income from the property is not used in the assessment of the application;

and

3. A declaration from the trustees is made that the property is to be utilised by

the family as their sole place of residence.

Any ambiguity in ownership from a vanilla situation should see the loan being treated

as investment. Similarly, MyState should not support any transaction where there is

any view that the transaction or its structure has been established to avoid legal

intent.


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SMSF are automatically precluded from owner occupation.

These loans cannot be securitised and pricing will reflect the same.

Ongoing Review and Re-classification

Whilst reasonable steps should be taken to ensure the purpose is correct at loan

origination, it is also important that, if the purpose of the loan changes over time, it is

correctly reclassified.

Under normal circumstances where the original single loan has been classified by

predominant purpose, there should be no reason to reclassify as any repayment, be

it P&I or IO would be applied proportionately.

Similarly loan splits which carry their own separate repayments would be unaffected.

Situations where a review or reclassification may arise would include:

Where a borrower has notified us that they have converted their home to an

investment property or where they are notifying us that they are no longer

living in the property as there principal residence.

Where a borrower is seeking to complete a large redraw on their home loan

which is in excess of the residual amount owing, the outcome being a material

change to the predominant loan purpose.

Full description of Loan Purpose as defined by APRA.

Investment Means a loan for the purpose of housing, where the funds are used for a residential property that is not owner-occupied. Where the loan is for a residential property that is different to the residential property offered as security, this definition refers to the occupation status of the residential property for which the loan has been obtained (not the occupation status of the property used as security). It includes:

holiday or vacation homes and part-time residences that are not the borrower’s or borrowers’ principal place of residence.

Purchase of vacant land on which it is intended to build an investment property

o It excludes: part-time residences that are the borrower’s or borrowers’

principal place of residence. These should be reported under owner-occupied.

Owner Means a loan for the purpose of housing, where the funds


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Occupied are used for a residential property that is occupied or to be occupied by the borrower(s) as their principal place of residence. Where the loan is for a residential property that is different to the residential property against which the loan is secured, this definition refers to the occupation status of the residential property for which the loan has been obtained (not the occupation status of the residential property used as security). It includes:

dwellings and residential land that are vacant while under construction, but that the borrower intends to occupy as a principal place of residence;

part-time residences that are the borrower’s or borrowers’ principal place of residence. It excludes:

part-time residences that are not the borrower’s or borrowers’ principal place of residence. These should be reported as investment.

Non-Housing

Defined as a loan secured by residential property where the funds are not used for the purchase, renovation or development of residential property. For example, furniture, car/boat/caravan, holiday or funds used for the investment in shares etc secured by residential property.