guidelines applying for lenders mortgage insurance

Guidelines Applying for Lenders Mortgage Insurance

2

CONTENTS

Contents 2

Introduction 3

lmiADVANTAGE™ 4

1. Borrowers 4

2. Genuine Savings & Equity 6

3. Employment 8

4. Income 8

5. Servicing capacity 11

6. Location classification and LVR 12

7. Maximum insured loan amounts by LVR 13

8. Valuation Requirements 14

9. Agreement for Sale & Purchase 16

10. Security 17

11. Loan types and purposes – with maximum LVR 20

12. Additional Loans 25

13. Applying for Lenders’ Mortgage Insurance 27

14. The Application Process 29

15. LMI premium rates 30

16. Capitalisation of premium 30

17. LMI premium refunds 30

18. Terminated LMI policies 30

Guidelines Applying for Lenders Mortgage Insurance – March 2012

3

INTRODUCTION

About QBE Lenders’ Mortgage Insurance Limited (QBE LMI)

QBE Lenders’ Mortgage Insurance Limited is one of the largest mortgage insurers in New Zealand and

Australia. Although the business names have changed over time, QBE LMI has been operating

continuously in the Australian mortgage insurance market since 1965 and in New Zealand since 1988.

What is Mortgage Insurance?

Lenders Mortgage Insurance (LMI) covers the lender in the event of the borrower defaulting on his/her

loan. If the property is subsequently sold and the amount from the sale is insufficient to pay off the loan in

full, this insurance will cover the lender for the shortfall. The insurer may then exercise its legal right to

recoup this shortfall from the borrower.

The lender applies for LMI, not the borrower, and the insurance should not be confused with Mortgage

Protection Insurance.

The fee for LMI is paid as a once only fee at loan settlement and varies depending on the amount of

money being borrowed and loan to valuation ratio (LVR).

How to use this lmiGuide

The lmiGUIDE is designed to be used as a guide to assist you in completing applications for and relating

to LMI. It contains information on some common underwriting questions that we receive from time to

time. Whilst it is not a comprehensive list of QBE LMI’s requirements, each application for LMI must at a

minimum satisfy these requirements. When you submit a LMI application with supporting material as

required, it will be individually assessed based on QBE LMI’s full underwriting criteria. Your attention is

also directed to the requirement to comply with your duty of disclosure. Any queries not covered in this

lmiGUIDE should be directed to your Portfolio Manager or Senior Partnership Manager. QBE LMI

reserves the right to vary our products, terms and conditions, and our underwriting criteria from time to

time without notice.

QBE LMI Website

Log on to www.qbelmi.com for the following services:

Servicing Capacity Calculator

Location Wizard

Forms

QBE LMI Residential Property Market Overview

Latest QBE LMI News.


4

lmiADVANTAGE™

1. Borrowers

Acceptable Borrowers

QBE LMI will insure residential mortgage loans made to:

Individuals,

Companies, or

Trusts.

Borrowers &

Guarantors

Eligible Individual borrowers and guarantors must be both aged 18 years or over; and :

A New Zealand or Australian citizen who is living in New Zealand or Australia; or

A person who has been granted indefinite New Zealand or Australian residency living and working in New Zealand or Australia.

Non-Resident

Borrowers

An acceptable non-resident is a person not living or working in New Zealand

or Australia for tax purposes, and is:

A New Zealand or Australian citizen who is living in a country other

than New Zealand or Australia

A person who has been granted indefinite New Zealand or Australian

residency living and working in a country other than New Zealand or

Australia.

All QBE LMI underwriting guidelines are to be applied with the following

additional conditions:

The loan purpose is to purchase residential investment property (not

vacant land) within New Zealand.

Borrower’s income is to be converted to NZ dollars and must not

exceed 90% net servicing ratio (NSR).

The Maximum Loan Amounts are subject to location restrictions.

Maximum Exposure & LVR 75% 75.01% - 80%

Single Security $500,000 $300,000

Note: Australians living in Australia who are borrowing in New Zealand meet

QBE LMI standard underwriting guidelines.


5

Borrowers Continued

Company Borrowers

(Inclusive Guarantors)

The Company must be registered in New Zealand.

Where the borrower is a Private Company, QBE LMI requires an unconditional,

unlimited and irrevocable Guarantee and Indemnity (joint and several if more

than one) of each director of the company.

Directors must meet the Borrowers & Guarantor eligibility criteria above; and

Be domiciled in New Zealand for tax purposes

Trustee Company

Borrowers


The Trust Company must be registered in New Zealand.

Where the Trustee is a company the mortgage is to be given in the company’s

corporate capacity and trustee capacity. In addition, QBE LMI requires an

unconditional, unlimited and irrevocable Guarantee and Indemnity from all

directors of the Trustee company. In the case of a unit trust, guarantees are

required from all unit holders.

Trustees must meet the Borrowers & Guarantor eligibility criteria above; and

Be domiciled in New Zealand for tax purposes.

Trustee Borrowers


The Trust must be formed in New Zealand

Where the Trustee(s) is/are the borrower, the trustee(s) must be liable both in his/her personal capacity and in their capacity as a trustee of the Trust.

Where the Trustee(s) is/are providing a guarantee, the guarantee must be an unconditional, unlimited and irrevocable guarantee and indemnity from all of the Trustees.

A Professional Trustee (being a person who is not a beneficiary under the Trust) may have their liability limited to the assets of the Trust.

Trustees must meet the Borrowers & Guarantor eligibility criteria above;

and

Be domiciled in New Zealand for tax purposes.

Maximum Exposure per

Borrower

The Maximum aggregate exposure for any one Borrower with QBE LMI is

$2,000,000.

This is subject to a maximum exposure against a single security of $1,000,000.

Maximum exposure for Business Loans is $500,000.

Unacceptable

Borrowers

Minors (even where the loan includes a Guarantor who is not a Minor)

Bankrupt borrowers and/or borrowers with No Asset Procedure listing

Companies with directors & Trusts with Trustees living and working in a

country other than New Zealand

Overseas Nationals (e.g. American citizen).


6

2. Genuine Savings & Equity Genuine Savings The borrower must provide at least 5% of the purchase price from Genuine

Savings for Loan-to-Value Ratios greater than 85%.

The source of funds to complete the transaction must be disclosed and

acceptable to QBE LMI.

Definition of Genuine

Savings

Genuine Savings is defined as a demonstrable savings pattern

established over a minimum period of 3 months prior to the loan

application being received.

Genuine Savings in the name of at least 1 Borrower can be from the

following sources:

Accumulated savings (savings account),

Sale of Shares (net any tax due),

Equity from real estate (additional borrowings or sale),

Superannuation funds(1) that a borrower can withdraw.

After-tax bonuses from employer (provided the amount is excluded from income for NSR capacity assessment)

Lump sums (term deposits) must be saved in the name of at least 1 of the Borrowers for a minimum of 6 months prior to the loan application being received.

(1) Borrower and employer KiwiSaver® contributions are acceptable.

The following savings will not be considered to be Genuine Savings:

Gifts

Inheritance

Advance on wages/commission

Barter Card or other swap negotiations

Builder discount/finance or any form of incentive

Proceeds from gambling

Rental discounts

Vendor discount/finance or any form of incentive

Advantageous/favourable purchases

Lender finance of 5% deposit.

Gifted Equity Where funds to complete the transaction include a non repayable gift this is

acceptable provided it is received from an immediate family member (see

Advantageous Purchase)

Borrowers must provide at least 5% of the purchase price from Genuine

Savings. Gifted Equity is not a substitute for Genuine Savings.


7

Genuine Savings & Equity Continued

Advantageous

Purchase

An Advantageous Purchase can be considered a ‘Gifted Equity ' when the

property to be purchased is from an immediate family member or the estate

of an immediate family member. Immediate family members are limited to:

Spouse / Defacto

Parents / Children

Siblings, and

Grandparents / Grandchildren.

In these circumstances a valuation is required and must refer to both the nature of the sale and the sale

price. The LVR is determined using the valuation amount.

Example:

Parents agree to sell a property valued at $300,000 to their son for a reduced price of $280,000. QBE

LMI recognizes the value of the security as $300,000.

Borrowers must provide at least 5% of the purchase price from Genuine Savings. Advantageous

Purchase is not a substitute for Genuine Savings.

Borrowed Equity This is an acceptable type of contribution provided that it is fully disclosed

and the borrowers provide at least 5% of the purchase price from Genuine

Savings.

All repayments are to be included in calculating the Borrower's capacity to

repay.


8

3. Employment Any probationary or agreed trial period in current position must have been completed.

PAYE (Permanent Full-time) Minimum 6 months in current position or 2 years

continuous employment within the same industry.

PAYE (Contract) Minimum 6 months in current position or 2 years

continuous employment within the same industry.

The term to renewal of the existing contract must not be

less than 12 months unless written evidence as to the

entering into of a new contract is obtained by the Lender.

PAYE (Permanent Part-time, principal

employment)

Minimum 6 months in current position.

PAYE (Second Job / Part-time) Minimum 12 months in current position.

Self-Employed Borrowers (Business

Owners / Contractors / Commission

Agents) & Borrowers Employed by

Family

Minimum 2 years in the same business.

4. Income Permanent Income 100%.

PAYE (Contract) Must be supported by the last 2 years tax summaries.

Second Job /

Part-time

100% of income if employed for a minimum of 12 months.

Acceptance should also have regard to the nature of the work, length of time in that job and the number of hours worked.

Overtime 100% if a condition of employment.

50% if confirmed as being regular for 12 months from the same employer.

Commission Acceptable if confirmed for the last 2 years from current employer.

Use the latest year’s income or the average – whichever is the lowest.

Salary Packaging Provided the borrower’s total package is available in cash at the borrower’s option, then the package can be treated as gross income for loan servicing purposes.

Vehicle Allowance 50% of Vehicle Allowance can be used provided it is a condition of employment and can be verified. Any corresponding lease or hire purchase payments must be included in the servicing calculation. It must be taxable.


9

Income Continued

Fully Maintained Company Vehicle

$4,000 can be added to the net income figure for servicing calculations.

Self-Employed Income

Self-employed borrowers must consistently demonstrate sufficient income to meet commitments from the last 2 year’s taxable income.

The following supporting information is required:

2 years full financials including Balance Sheet and Profit & Loss Statements signed by a Chartered Accountant or Qualified Taxation Specialist.

Consideration should be given to the date an application is received and the current financial period. Interim accounts should be provided where the business is in the second half of its financial year.

The level of self-employed income to be used in the servicing calculation is to be assessed in the following way:

Where the Borrower’s income has decreased in the second year, the second year’s income is to be used.

Where the Borrower’s income has increased in the second year, the average of the 2 years is to be used.

Acceptable Forms of Self-Employed Income

Net profit (before tax) plus allowable add backs that have a cash flow impact:

Directors' salaries (where applicable and not already included in servicing calculations);

Voluntary Directors’ superannuation contributions (where applicable);

Allowable depreciation is limited to 30% of total assessable income depending on type of asset, economic life of asset and accounting method used;

Interest on loans being re-financed;

Non-recurring expenses (where confirmed).

Borrowers Employed by Family

Where the Borrower is employed by family or through a family owned or family controlled company, letters of employment or pay slips must be supported by 2 years Inland Revenue Department (IRD) summaries confirming the level of income to be used in servicing.

Rental Income 80% of the gross rental income.

Boarder / Flatmate Income

No more than 2 at $100 per week discounted by 50%

Maximum $100 per week in total

Accident Compensation Commission (ACC)

100% - must be permanent income for life and supported by a current letter from ACC.

For loan servicing, benefit income is considered a non-taxable income.

Work & Income NZ (WINZ):

Domestic Purposes Benefit

Widow's Benefit

100% - benefit payments must be supported by:

A current letter from the Ministry of Social Development showing a breakdown of the income provided - Base benefit & Accommodation Allowance can be used.

Maximum NSR 90% - no exceptions.



10

Income Continued

Working for Families Tax Credits

100% - Family Tax Credit, In Work Tax Credit & Minimum Family Tax Credit payments are acceptable.


A current Certificate of Entitlement or Personal Tax Summary for the current financial year showing the amount payable, the names and date of birth for the eligible child or children.

The maximum age of the child or children is 13 years old – where there are children above 13 years old and the individual entitlement is not known, the amount paid is to be divided by the number of children and the ineligible portion deducted.



Child Support 100% - Child Support payments must be paid through the Inland Revenue and be available for a minimum of 5 years.


Inland Revenue advice showing the amount payable, the names and date of birth for the eligible child or children;

The maximum age of the child or children is 13 years old – where there are children above 13 years old and the individual entitlement is not known, the amount paid is to be divided by the number of children and the ineligible portion deducted.

6 months current bank statements confirming receipt of payments.


Private arrangements are not acceptable under any circumstances.

If using Child Support in loan servicing, no other Work & Income New Zealand (WINZ) benefits are to be used.

For loan servicing, Child Support income is considered a non-taxable income.

Income Exclusions The following types of income are unacceptable:

Unemployment, Sickness & Invalid's Benefit

Student Allowance

Overseas Income (e.g. Interest & dividend, rental)

Mileage Reimbursement

Non-taxable Allowances

Earnings that are undeclared to the Inland Revenue Department (NZ) or Australian Tax Office (Australia)


11

5. Servicing Capacity

QBE LMI

Assessment

Interest Rate

The QBE LMI Assessment Interest Rate is reviewed regularly and adjusted in line

with market rate movements.

A borrower’s capacity to repay will be determined using the QBE LMI Assessment

Rate, unless the lender's actual loan product rate is higher, regardless of loan

product selected. In instances where the lender's product rate is higher, then the

higher rate will be used.

Split Loans

Where the total loan amount is split between fixed and floating interest rates, QBE

LMI’s Assessment Interest Rate is to apply for the total loan amount.

Living

Allowances

These vary according to a borrower's family unit and are updated annually.

Other Commitments

These vary according to a borrower's individual circumstances.

Additional costs such as private school fees must be included here.

Other Commitments

Student loan repayments are to be deducted from the gross income figure when

assessing servicing.

Net Servicing

Ratio (NSR)

Net Servicing Ratio (NSR) is the ratio of all commitments as a percentage of the

borrower’s net (after tax) income.

The maximum NSR limits are:

Loan Amounts Max

NSR

Up to and including $750,000 100%

Greater than $750,000 95%

When assessing applications in excess of 95% NSR, consideration should be

given to the long term affordability & overall risk of the proposal.

Eligible Non-

Residents

Where a borrower is a Non-Resident their income converted to New Zealand

Dollars must not exceed 90% NSR as determined under QBE LMI’s Servicing

Capacity Calculator.

You can calculate the NSR using the QBE LMI Servicing Capacity Calculator at www.qbelmi.com


12

6. Location Classification & LVR Maximum loan amounts are subject to Location Classifications and Loan to Value Ratio (LVR). Locations

(e.g. suburbs or towns) are grouped according to risk. There are four location classifications. These are:

METROPOLITAN – AUCKLAND

Warkworth to Waiuku(2)

METROPOLITAN – OTHER

North Island

Hamilton Cambridge Tauranga Mt Maunganui Papamoa Taupo Wellington

South Island

Nelson Christchurch(3) Kaiapoi(3) Rangiora(3) Queenstown Arrowtown

REGIONAL

North Island

Kerikeri Russell Paihia Whangarei Coromandel Peninsula(2)

Matamata Te Awamutu

Te Puke

Rotorua Whakatane Gisborne Napier Hastings New Plymouth

Wanganui Masterton

Palmerston North

Fielding Levin

South Island

Blenheim Ashburton Timaru Oamaru Dunedin Wanaka Invercargill

(2) Limit exceptions may apply in these locations

(3) Security properties within the Canterbury region will be assessed on a case by case basis and maybe subject to the criteria published in the policy update on

11 March 2011. These conditions will remain in place until further notice.

NATIONAL

National is a category for all residential locations across New Zealand where a location is outside the

areas outlined in the tables above.


13

7. Maximum Insured Loan Amounts By LVR

Location classifications are further differentiated by Improved Residential Property and Vacant Land.

The LVR is calculated by dividing the loan amount by the lesser of the valuation amount or purchase

price x 100. Example: (loan amount $220,000 / valuation amount of $250,000) x 100 = 88% LVR.

7.1 Improved Residential Property

Maximum LVR 80% 85% 90% 95%

Metropolitan – Auckland $1,000,000 $1,000,000 $850,000 $700,000

Metropolitan - Other $1,000,000 $900,000 $750,000 $600,000

Regional $700,000 $650,000 $500,000 $450,000

National $500,000 $400,000 $300,000 $200,000

7.2 Vacant Land

Maximum LVR 80% 85% 90% 95%

Metropolitan – Auckland $400,000 $400,000 $400,000 $400,000

Metropolitan – Other $300,000 $300,000 $300,000 $300,000

Regional $200,000 $200,000 $200,000 $200,000

National $200,000 $200,000 $200,000 Not Available

Note

Where multiple securities are taken, no single property can exceed QBE LMI’s standard LVR and

maximum Insured Loan amount limits for that location.

7.3 Non Resident Borrower

If the Borrower is non resident for tax purposes the following additional restrictions in terms of maximum

loan to value ratio & exposure apply:

Maximum Exposure & LVR 75% 75.01% - 80%

Residential Investment - Single Security (not vacant land)

$500,000 $300,000

Location Wizard

We also have an interactive 'Location Wizard' that allows you to perform the same search on-line at

www.qbelmi.com


14

8. Valuation Requirements When a full Valuation is required, the Report must:

Be completed and signed by a Registered Valuer who holds a practicing certificate with one of the following memberships:

ANZIV FNZIV SPINZ FPINZ

Completed in accordance with the NZ Institute of Valuers Code of Ethics and Practice Standards.

Be valued on a current market value basis.

Be no more than six (6) months old. Identify the property by way of legal description and physical address. Valuer must comment on the legal size of the property, zoning and condition/description of the property. Provide a description of the location and services available to the land such as water and sewerage. Provide comment on any essential repairs. Be based on a reasonable selling period, no greater than 3-6 months, unless the Valuer has made specific comments regarding an extended selling period.

Contain evidence of not less than 3 comparable sales within the last 6 months, unless the Valuer has provided comment to justify use of older sales.

For developments, two of the settled sales must be from outside of the subject development.

Provide a value of the property, split between land, improvements, and site developments. Make comment on any features that are deemed unique and/or would negatively impact marketability. Provide photographs of the property. Include the name of the instructing party. Be addressed to the lender and QBE Lender's Mortgage Insurance Limited.


15

8.1 Property Risk Assessment

Saleability of the

property

The property must be capable of sale within a reasonable time frame.

As a guide, sale periods should not exceed 3 months.

Level of real

estate activity

An active market must be evident for the type of property being offered. This can

be validated by the comparable sales provided in the valuation report.

Inactivity in a local market may be evidenced by a lack of comparable sales within

a 6 month period.

Allowances may be made dependent on the LVR, quality of the borrower and

quality of the security.

Local economic

and market

conditions

In certain instances an analysis of the current economic and market conditions

within a location may be required.

Condition of the

property

Properties in a poor condition are not acceptable.

Other factors

considered

Other factors considered include security type, land size and zoning.

Minimum floor

size

The minimum floor size is 50 m2.


16

9. Agreements for Sale & Purchase

A Sale & Purchase Agreement may be used to support evidence of the purchase price provided the

conditions detailed below are satisfied. If the conditions for use of the Sale & Purchase Agreement are

not satisfied, a registered valuation is required.

Where a Sale & Purchase Agreement is to be used to support evidence of the purchase price, then:

The maximum LVR is 90%

The security property must have a minimum purchase price of $100,000

The sale must be an ‘On the market’ transaction with a licensed real estate agent involved in the

advertising marketing and negotiation of the security property

The sale and purchase agreement must be no more than 3 months old at the date of loan

application

The sale must be an ‘Arms' length transaction’ through a licensed real estate agent

The lender must confirm by a telephone call to the principal of the real estate agency named in

the Sale & Purchase Agreement who verifies the listing, the address and relevant details of the

security property and the purchase price. Evidence of this telephone verification must be

recorded on the lender's file.

Maximum Insured Loan Amounts by Location Classification

Location Classification Maximum Loan Amount

Metropolitan – Auckland $500,000

Metropolitan – Other $350,000

Regional & National Use of S&P Agreement not acceptable

Exclusions from use of a Sale & Purchase Agreement – lifestyle properties (rural zoning), construction,

new (previously unoccupied) properties, vacant land, private sales, mortgagee sales, turn key properties,

apartments /multi-unit properties regardless of size,and properties located in Regional and National

locations.


17

10. Security Acceptable securities are subject to maximum Location, LVR and loan amount as previously shown in

Section 7.

Valuation reports for certain property types have additional requirements these are specified below.

Freehold residentially zoned property (including cross lease & unit titles):

Established, or to be constructed, house on a single section serviced by all weather

road, power, sewerage & water.

Established, or to be constructed, unit title dwelling in a residential development.

Maximum LVR

95%

Vacant Land (Residential zoning with all services connected):

Registered Valuation required

Line of Credit loan not acceptable

95%

High Density Securities

Any security located in a building having 4 or more floors and more than 30

accommodation units. The following additional conditions apply:

Minimum size 50 square metres

Minimum of one bedroom (separate from living areas). Configuration to include

bedroom(s), lounge/dining, kitchen/laundry, bathroom or bathroom/laundry

Car space preferred but not essential

Exposure to be restricted to less than 10% of apartments in any one high-density

development

Valuation report is required and must contain two recent comparable sales outside

the development and one within

Limited to Auckland, Wellington, Christchurch(3), Tauranga, Mt Maunganui, and

Queenstown.

80%

Inner City Apartments

High Density guidelines apply in addition to: Minimum size 50 square metres

Minimum of one bedroom (separate from living areas). Configuration to include

bedroom(s), lounge/dining, kitchen/laundry, bathroom or bathroom/laundry

Car space preferred but not essential

Exposure to be restricted to less than 10% of apartments in any one high-density

development

Valuation report is required and must contain two recent comparable sales outside

the development

Limited to Auckland, Wellington, Christchurch(4), Tauranga, Mt Maunganui, and

Queenstown

Must be established - no ‘off the plan’ purchases or rental guarantees.

70%

(3) Security properties within the Canterbury region will be assessed on a case by case basis and maybe subject to the criteria published in the policy update on 11 March 2011. These conditions will remain in place until further notice.


18

Security Continued

Lifestyle / Rural Block– with Dwelling

Acceptable where the principal intended use is as a residential property:

Maximum 10 hectares

With minimum services of – tanked water, septic tanks, electricity, and gravel

road access

Improvements must represent a minimum of 50% of the property value

Specialist properties are to be avoided (e.g. Kennels)

Specialist Improvements are to be excluded from the property value (e.g.

Stables, Barns)

Registered Valuation is required.

Maximum LVR

90%

Unacceptable Securities

The following properties are unacceptable:

Property located outside New Zealand (North, South Islands & Waiheke Island are acceptable)

Housing NZ Leases

NZ Historic Trust Properties

Commercial or industrial property

Vacant Land where the Borrower has no intention to construct a dwelling at a future time (i.e. no

speculative land purchases or land accumulation for development)

Rural Vacant Land

Properties less than 50sqm (excluding balconies and parking)

Serviced Apartments

Exhibition home

Specialist rural property (e.g. farm, vineyard etc)

Unit in a strata hotel/motel

Unit in a retirement or Over 55’s complex

Resort style dwellings

Mobile Homes

Studios and bed sitters

Conversions (including warehouse conversions)

Unit developments where the number of dwellings exceeds 4 units on one title

Leasehold properties

“Off the Plan” Purchases

Boarding House

Student Accommodation

Time-share properties


19

Unacceptable Securities Continued

Company title

Properties identified as being affected by leaky building syndrome

Properties affected by:

- contamination

- flood impact

- land slip

- mine subsidence

Security properties located in areas designated by local government authorities as being affected by

landslip, flooding or a mine subsidence will be considered on a case by case basis

Maori land, land subject to the Treaty of Waitangi Memorials or Acts which impact on mortgage

enforceability.


20

11. Loan Types and Purposes – with Maximum LVR Loan Types Residential first mortgages Maximum LVR

Amortising Loans

(Principal & Interest)

Principal & Interest (P&I) Loans

Interest Only (max 10 years) converting to P&I - with

a total period not exceeding 30 years

Maximum insured term is 30 years.

95%

Line of Credit Loans

(LOC)

Line of Credit Loans with contractual monthly payments

that cover accrued interest are eligible – subject to the

following additional criteria:

Maximum loan amount - $500,000

Maximum insured term - 25 years

Maximum LVR is the lesser of maximum LVR or

the LVR limit set for Security Type and Location.

Acceptable security:

Must be owner occupied or investment

residential housing;

Vacant land is not acceptable

Note

Where interest is capitalized, the maximum LVR is the

lesser of 75% or the LVR limit set for Security Type and

Location.

90%


21

Loan Purpose

Maximum Insured Loan amount and LVR remain subject to Location Classification (as above)

Maximum LVR

Residential Owner Occupied or Investment Purchase or Construction

95%

All Other Purposes (except purchase or construction)

90%

Refinance of Home Loan(5)

A Refinance Loan is where the loan purpose is to pay out an existing home loan

(usually through another Lender) using the same security property. Refinance Loans

may, in addition to the home loan being refinanced, include other loan purposes such

as funds for the purchase of an investment or the refinancing of personal loans, credit

card debts.

It may also cover instances where a Lender has had an uninsured loan but because of

a top-up requires LMI.

The following additional guidelines apply:

Provide statements for the existing home loan and any other debts being

refinanced.

Statements (6 continuous months including the month preceding application to

date on all loans being re-financed) to be obtained by the Lender and must show

consistent repayment history with no evidence of arrears, late or reversed

payments, late fees or default charges.

Where the funds are being either fully or in part released directly to the borrower,

'Cash Out' criteria is to apply.

90%

(5) Refinance of security properties located in the Canterbury Region area bound by the Rakaia River to the South and the Hurunui River to the North of

Christchurch (through to the Southern Alps) is not available until further notice.


22

Loan Purpose Continued Maximum LVR

Debt Consolidation(6)

The purpose of a Debt Consolidation Loan is to repay a borrower’s other debts. This

may arise only as a top up or Additional Loan to be insured under an existing policy.

The following additional guidelines apply:

Confirm conduct on the existing loan is satisfactory and provide statements for the

other debts being consolidated

Statements (6 continuous months including the month preceding application to

date on all loans being re-financed) to be obtained by the Lender and must show

consistent repayment history with no evidence of arrears, late or reversed

payments, late fees or default charges

The aggregate amount of debt being consolidated should not exceed $50,000.

Where the funds are being either fully or in part released directly to the borrower,

'Cash Out' criteria is to apply.

90%

Cash Out / Equity Release(6)

A loan where the proceeds are being either fully or in part released directly to the

borrower, regardless of the stated purpose. Maximum LVR and Loan Amount :

90%

LVR Cash Out Limit

Up to 90% $50,000

Applications in excess of the above parameters may be considered provided:

There is supporting documentation evidencing use of funds; OR

The Lender is to exercise control over the release of funds.

Examples of acceptable supporting documentation are:

Builder’s quote

Purchase contract

Confirmation from a Financial Planner or Accountant as to the

intended use of funds.

(6) Security properties located in the Canterbury Region area bound by the Rakaia River to the South and the Hurunui River to the North of Christchurch (through

to the Southern Alps) will be considered on a case by case basis.


23


Construction Loans(7)

Before the initial loan advance, the borrower must have:

Entered a fixed price contract accepted by the Lender; and

Obtained all the necessary consents and approvals from relevant statutory and

other authorities

Borrowers’ equity is to be used prior to insured loan funds being advanced.

Registered Valuation

Builder preferably a Registered Master Builder.

During construction:

If the loan amount is advanced progressively, the progress advances do not

exceed increases in the value of the mortgaged property confirmed by inspection

certificates from a Valuer instructed by the Lender

The improvements are completed within twelve months of the initial loan advance

and

An amount of the principal is retained by the Lender at all times to ensure that the

improvements can be completed in accordance with the plans and specifications

incorporated within the fixed price building contract accepted by the Lender.

Before the final loan advance:

The Lender receives a final inspection certificate from a Valuer confirming that the

completion of improvements is in accordance with the plans and specifications;

and

A code of compliance / certificate occupancy is issued by each relevant authority

certifying that the improvements comply with approvals issued by the authorities.

Cost overruns:

The Lender must ensure that cost overruns are paid immediately they are

identified and prior to any further progress advances by the Lender.

Cost overruns are not insured.

NOTE

Any additional funds borrowed within the construction loan (e.g. landscaping, pool,

etc) are not to be released until construction of the dwelling has been completed,

unless such works are required to allow construction to be completed (e.g.

retaining walls, etc).

Line of Credit loans not acceptable

95%

(7) Construction within the Christchurch region will be considered on a case by case basis to a maximum LVR of 90%.


24


Business Loans

Limited to funding borrower’s current business

Maximum exposure is limited to $500,000

Construction purposes are unacceptable

Legal fee’s payable on any claim are limited to a maximum of $50,000

2 years full financials including Balance Sheet and Profit & Loss Statements

signed by a Chartered Accountant or Qualified Taxation Specialist.

Unacceptable loan purposes:

Part or all of the proceeds are for the purpose of payment of a taxation liability

Part or all of the proceeds are to be used for the refinance of a business overdraft,

bills or line of credit facilities totaling more than $50,000

Part or all of the proceeds will be used for the purchase or expansion of a

business outside the core business expertise of the borrower and where the

management or track record is not evident.

85%

Unacceptable Loan Types and Purpose

Development Loans (irrespective of how many units are involved), including refinance of property

development loans

Owner Builders & 'labour only' building contracts

Builder programs

Payment of Taxation liabilities

Private Mortgages or refinance of a Private Mortgage (including Solicitor’s and WRAP loans)

Refinance of Vendor Finance loans

Off the plan purchases

Second mortgages

Shared equity loans

Reverse Mortgages

Third party Mortgages i.e. where any security offered has one or more Mortgagor/s who is neither a

borrower nor a guarantor in the loan structure proposed

Loans where another LMI is insuring any mortgage over proposed QBE LMI security.

Rural Construction Loans.


25

12. Additional Loans (Increases to a loan under an existing policy)

The EASY INCREASE process applies for increases on existing lmiADVANTAGE® policies only, where

the following criteria are met:

Existing loan must be insured by QBE LMI for at least 12 months and have a satisfactory loan

repayment history

Total Insured Loan must not exceed $500,000 (or such lesser amount as indicated on lmiLOCATION

GUIDE)

A maximum LVR of 90% (excluding capitalised LMI premium or lesser LVR as indicated on

lmiLOCATION GUIDE).

If you wish to increase cover on an existing QBE LMI policy and the existing policy meets the criteria

described above, you only need to submit the following:

1. QBE LMI application

2. Updated Lender’s application form

3. Copy of the property valuation report (when required – see below)

4. A signed borrower(s) declaration stating no change in financial position is held by the Lender.

In addition to items 1 – 4 above, the following must continue to be retained by the Lender until the

loan is repaid:

Original property valuation report

Original pay slips and employment confirmation (for PAYE borrowers)

Loan statements (if the original application involved refinancing)

Fixed price building contract and council approved plans (for construction purpose only).

The following are unacceptable under ‘Easy Increase’ processing:

High Density securities as defined in Section 10

Vacant Land securities

Refinance or debt consolidation loan purposes

Policies previously insured under lmiSELF CERTIFIED® (previously known as pmiLOWDOC®)

guidelines.

Self employed borrowers

Where a higher income is required to meet serviceability then the lender must assess updated financials

as per QBE LMI Underwriting Guidelines. Otherwise, QBE LMI will rely upon previously evidenced

income if there has been no change in employment since the last full application.


26

EASY INCREASE PROCESS Continued

Valuations

No valuation is required where –

o the security property is in a QBE LMI acceptable Metropolitan or Regional Location as

defined by the QBE LMI Location Guide; and

o the existing valuation is not more than 2 years old where the new LVR does not exceed 90%

(excluding capitalized LMI premium).

Valuations are required in all other instances.

Please note: If the above criteria is not met, a full LMI application is required.

Occasionally QBE LMI may request additional information to assist with the LMI decision.

Premium applicable to an increase in LMI policy exposure – calculation of the premium payable where

cover is required for an additional loan amount on a previously insured mortgage.

The process is as follows:

The LVR is calculated on the new total exposure (determined by adding the additional loan amount to the outstanding loan balance or scheduled balance if the existing loan is a Line of Credit or has a redraw option) and the total security value.

The premium rate applicable to the new LVR and new Total Exposure amount is then applied to the new Total Exposure amount.

The premium payable will be the premium calculated as above, less the Premium previously paid.

Note: Minimum premium of $300 applies.


27

13 APPLYING FOR LENDERS MORTGAGE

INSURANCE 13a Your Duty of Disclosure

Before you enter into a contract of insurance with QBE LMI, you have a duty to disclose to us every

matter that you know or could reasonably be expected to know , is relevant to QBE LMI’s decision

whether to accept the risk of insurance and if so on what terms.

You have the same duty to disclose those matters to QBE LMI before you renew, extend, vary or

reinstate a contract of insurance. Your duty however does not require disclosure of a matter:

That diminishes the risks to be undertaken by QBE LMI

That QBE LMI knows, or, in the ordinary course of business ought to know

That is of common knowledge

Where compliance with your duty is waived by QBE LMI.

If you fail to comply with your duty of disclosure, QBE LMI may be entitled to reduce our liability under the

contract in respect of a claim, or may cancel the contract.

If your non-disclosure is fraudulent, QBE LMI may also have the option of avoiding the contract from its

beginning.

13b Your Duty of Disclosure

Information that must be disclosed to QBE LMI includes, but is not limited to:

Poor conduct on borrower's loans (where known to Lender)

Borrowers applications previously referred to or declined by another mortgage insurer

Outstanding statutory obligations e.g. Unpaid Council Rates or Body Corporate levies, Tax etc

Adverse Veda Advantage or credit history of borrower or any business of which the borrower is a

related party e.g. a Company where the borrower is also a Director

Liabilities not disclosed by borrower in application

If the Borrower is not a citizen or a permanent resident of New Zealand or Australia

Advantageous purchases

Borrower is employed by family members

Non-compliance with the terms of the Lenders/Funders standard credit policy

Any relationships between any parties to the transaction, including but not limited to:

o Broker / Introducer has a personal, business or employment relationship with Borrower, Vendor,

Legal Representatives, Vendors Agent, Valuers or any other party to the insured loan

o Vendor has a personal, business or employment relationship with Borrower, Broker, Legal

Representatives, Vendors Agent, Valuers or any other party to the insured loan


28

Your Duty of Disclosure Continued

o Borrower has a personal, business or employment relationship with Broker, Vendor, Legal

Representatives, Vendors Agent, Valuers or any other party to the insured loan

o Legal Representatives for any party to the proposed transaction has a personal, business or

employment relationship with Borrower, Vendor, Broker, Vendors Agent, Valuers or any other

party to the insured loan

o Vendors Agent has a personal, business or employment relationship with Borrower, Vendor,

Broker / Introducer, Legal Representatives, Valuers or any other party to the insured loan.


29

14. The Application Process When submitting an application for QBE Lenders’ Mortgage Insurance, you will need to submit the

following:

lmiAPPLICATION

Lender's Application Form – fully completed, signed & dated

Valuation Report

Full explanation for any adverse features on any Veda Advantage report

If application has been referred to another LMI provider, a full copy of any decisions / additional

requests from the other LMI provider

All supporting information & documentary evidence is to be retained on the Borrower’s lending file for the

term of the loan.

14a Completing the lmiAPPLICATION

The following is intended as a reference to clarify QBE LMI’s requirements where the question itself is not

self explanatory:

Lender / Funder: Name of Lending Organisation / Wholesale Funder

Reference: Your reference number (optional)

3rd Party Introducer: Name of 3rd party introducer who submitted application to You (if applicable) eg Broker.

Loan Interviewer: Name of the person who interviewed the borrower/s

Contact: Person QBE LMI is to contact with any questions / enquiries in relation to the

application (may be Loan Writer or Contact in centralised credit office)

Add LMI Fee: Is the LMI premium to be capitalised? This remains subject to maximum LVR

guidelines applicable by product, location and amount of loan

Type: Is this a new or additional loan? If additional to an existing loan QBE LMI needs to

identify the policy by its number and confirm if the 'Easy Increase' process is to apply

Term: Term of loan / remaining term of existing loan

Duty of Disclosure All applications require compliance with QBE LMI’s Duty of Disclosure as outlined

above in Section 13a and 13b.


30

15. LMI Premium Rates

Lenders should contact QBE LMI;

Mortgage Managers and Originators should contact your Funder.

16. Capitalisation of Premium

QBE LMI will allow Lenders to add a borrower’s LMI cost to the amount borrowed and will include it in the

Insured Loan Amount without any additional fee on the premium.

The maximum LVR is:

lmiADVANTAGE®: 95% (excluding premium capitalisation)

The maximum LVR available remains subject to conditions by Location Category, maximum Insured Loan

Amount, and type of loan, purpose and acceptable security – outlined above.

17. LMI Premium Refunds No refunds apply.

18. Terminated LMI Policies It is the responsibility of the Lender to advise QBE LMI of the repayment of any Insured Loan within 30

days of the loan being terminated/repaid.

New address for back page :

Auckland

Level 11

AMP Centre

29 Customs Street West

P O Box 44

Auckland 1140

PH: 09 308 8696

FAX: 09 980 3419

guidelines applying for lenders mortgage insurance

Documents