ing bank (australia) limited “ibal” risk management … guidelines... · 2017-01-24 · this...

ING Bank (Australia) Limited “IBAL” Risk Management Underwriting Guidelines

Priority Commercial Mortgage (PCM) Version 15

Priority Commercial Mortgage Underwriting Guidelines Version 15 January 2017 ING DIRECT is a division of ING Bank (Australia) Limited ABN 24 000 893 292

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1 OVERVIEW ........................................................................................................................................................................ 5 2 APPROVAL PROCESS ......................................................................................................................................................... 6 3 ELIGIBLE BORROWERS ...................................................................................................................................................... 7

3.1 PAYG .................................................................................................................................................................. 8 3.2 SELF-EMPLOYED – SOLE TRADERS AND PARTNERSHIP ........................................................................................ 8 3.3 COMPANIES ....................................................................................................................................................... 8 3.4 TRUSTS AND TRUSTEES ...................................................................................................................................... 8 3.5 SPECIFIC RISK FOR OTHER BORROWERS ............................................................................................................ 10

3.5.1 Borrowers of convenience ...................................................................................................................... 10 3.5.2 "Straight" third-party security ................................................................................................................ 11 3.5.3 Sophisticated Investors .......................................................................................................................... 11 3.5.4 Non English Speaking Borrowers ............................................................................................................ 12 3.5.5 Retirees/ Mature Ages Applicants ........................................................................................................... 12 3.5.6 Power of Attorney .................................................................................................................................. 12

3.5.6.1 Definition ......................................................................................................................................... 13 3.5.6.2 Existing Borrowers - Loan Account Transactions ............................................................................. 13

3.5.7 Diplomats ............................................................................................................................................... 13 4 PURPOSE ......................................................................................................................................................................... 14

4.1 ACCEPTABLE PURPOSE ..................................................................................................................................... 14 4.1.1 Refinance ................................................................................................................................................ 14

4.1.1.1 Private Mortgages ............................................................................................................................ 15 4.2 UNACCEPTABLE PURPOSE ................................................................................................................................ 15

5 MAXIMUM LOAN TERMS AND AMOUNT ........................................................................................................................... 15 5.1 MAXIMUM TOTAL EXPOSURES .......................................................................................................................... 15 5.2 MAXIMUM TERMS AND REPAYMENT ARRANGEMENTS ...................................................................................... 15 5.3 AMORTISATION ................................................................................................................................................ 15

6 FUNDS TO COMPLETE, GENUINE SAVINGS AND GIFTS ..................................................................................................... 15 6.1 FUNDS TO COMPLETE ....................................................................................................................................... 15 6.2 GIFTS................................................................................................................................................................ 16

7 INCOME TYPES ................................................................................................................................................................ 16 7.1 PAYG INCOME EARNERS-MINIMUM EMPLOYMENT REQUIREMENT ..................................................................... 16 7.2 SMALL BUSINESS/COMPANY (SELF-EMPLOYED) INCOMES ................................................................................. 16 7.3 OTHER INCOMES .............................................................................................................................................. 17

7.3.1 Superannuation ...................................................................................................................................... 17 7.3.2 Other Investment Incomes ..................................................................................................................... 17

7.4 UNACCEPTABLE INCOME TYPES ........................................................................................................................ 18 8 INCOME VERIFICATION .................................................................................................................................................... 18

8.1 PHONE VERIFICATION....................................................................................................................................... 22 9 COMMITMENTS AND LIVING EXPENSES ........................................................................................................................... 23

9.1 RESIDENTIAL MORTGAGE LOANS ..................................................................................................................... 23 9.1.1 Personal Loans and other Loans ............................................................................................................ 23 9.1.2 Credit Card Repayment .......................................................................................................................... 23 9.1.3 Consideration of Negative Gearing on Tax ............................................................................................. 24 9.1.4 Margin Loans .......................................................................................................................................... 24 9.1.5 Vendor Finance....................................................................................................................................... 24

9.2 EXPENSES ........................................................................................................................................................ 25 9.2.1 Living Expenses ...................................................................................................................................... 25 9.2.2 Living Rent Free ...................................................................................................................................... 25 9.2.3 Orange Everyday Account ..................................................................................................................... 26

10 SERVICEABILITY .............................................................................................................................................................. 26 10.1 REQUIREMENTS (INCLUDING MIXED RESIDENTIAL/ COMMERCIAL LOANS) ........................................................ 26 10.2 EXCEPTIONS ..................................................................................................................................................... 27

11 CREDIT CHECK REPORTS .................................................................................................................................................. 27 12 SECURITY ........................................................................................................................................................................ 29

12.1 ACCEPTABLE SECURITY .................................................................................................................................... 29 12.1.1 First Mortgages ....................................................................................................................................... 29

12.2 “IN ONE LINE” VALUE ....................................................................................................................................... 30 12.3 LENDING AGAINST “ADDED VALUE” ................................................................................................................. 30 12.4 TYPES OF COLLATERAL ..................................................................................................................................... 30


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12.4.1 Favourable Purchases ............................................................................................................................. 30 12.4.1.1 Requirements ................................................................................................................................ 31

12.4.2 Security Property with Floor Area < 50m2 .............................................................................................. 31 12.4.3 Leasehold Property (Crown Lease) ......................................................................................................... 31 12.4.4 Deed of Charge ....................................................................................................................................... 31 12.4.5 Second Mortgages .................................................................................................................................. 31 12.4.6 Specialised Security Property ................................................................................................................. 32 12.4.7 Vacant Land/Broad acres ....................................................................................................................... 32 12.4.8 General Security Agreement .................................................................................................................. 33 12.4.9 Queensland Securities ............................................................................................................................ 33 12.4.10 Guarantees ............................................................................................................................................. 34 12.4.11 Information about obtaining legal and financial advice ......................................................................... 35

12.5 UNACCEPTABLE SECURITY ................................................................................................................................ 36 12.6 CONCENTRATION LIMIT .................................................................................................................................... 37

13 SECURITY PROPERTY LOCATIONS .................................................................................................................................... 38 14 MAXIMUM LVR ................................................................................................................................................................ 39 15 VALUATIONS ................................................................................................................................................................... 39

15.1 OVERVIEW ....................................................................................................................................................... 39 15.2 VALUERS’ STANDING INSTRUCTIONS ................................................................................................................ 39 15.3 VALUERS .......................................................................................................................................................... 40

15.3.1 Contents of Valuation ............................................................................................................................. 41 15.3.2 Land Description ..................................................................................................................................... 41 15.3.3 Location Description ............................................................................................................................... 41 15.3.4 Property Improvements Description ...................................................................................................... 41 15.3.5 Marketability .......................................................................................................................................... 42 15.3.6 Sign-off and Acceptance of a Valuation ................................................................................................. 42

15.3.6.1 Environmental Risk Issues .............................................................................................................. 43 15.3.6.2 Activities on the Property............................................................................................................... 43 15.3.6.3 Substances ..................................................................................................................................... 43 15.3.6.4 Waste ............................................................................................................................................ 43 15.3.6.5 Noise .............................................................................................................................................. 44 15.3.6.6 Restrictions on Approval ................................................................................................................ 44 15.3.6.7 Valuation Appeals Process (Managed by Operations) ................................................................... 44

15.4 GENERAL INSURANCE ...................................................................................................................................... 44 15.5 VARIATIONS BETWEEN PURCHASE PRICE AND VALUATION .............................................................................. 45 15.6 SECOND OPINION VALUATION ......................................................................................................................... 45

16 VARIATIONS .................................................................................................................................................................... 45 16.1 FULL DISCHARGES ............................................................................................................................................ 45 16.2 PARTIAL RELEASE............................................................................................................................................. 45 16.3 CHANGE OF REPAYMENT TYPE ......................................................................................................................... 46 16.4 RENEWAL OF EXPIRING FACILITIES ................................................................................................................... 46 16.5 SUBSTITUTION OF SECURITY ............................................................................................................................. 47 16.6 CONSENTS ....................................................................................................................................................... 47

16.6.1 Consent to a Second Mortgage .............................................................................................................. 47 16.6.2 Other Consents ....................................................................................................................................... 47

17 ANNUAL REVIEWS .......................................................................................................................................................... 47 17.1 REVIEW REQUIREMENTS .................................................................................................................................. 47 17.2 REVIEW FORMATS ............................................................................................................................................ 48

18 ARREARS MANAGEMENT ................................................................................................................................................ 50 19 LEGISLATION ................................................................................................................................................................... 50

19.1 NATIONAL CREDIT CODE .................................................................................................................................. 50 19.1.1 Introduction ............................................................................................................................................ 50 19.1.2 Regulated and Unregulated Loans ......................................................................................................... 51

19.1.2.1 Relationship of the Code of Conduct .............................................................................................. 52 19.1.2.2 Predominant purpose .................................................................................................................... 52 19.1.2.3 Accurate assessment..................................................................................................................... 53 19.1.2.4 Natural Persons ............................................................................................................................. 53 19.1.2.5 Strata corporations ........................................................................................................................ 53 19.1.2.6 When Does the NCC Not Apply? ..................................................................................................... 53


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19.1.3 Disclosure ............................................................................................................................................... 53 19.1.3.1 Advertising ..................................................................................................................................... 53 19.1.3.2 Compliance with Disclosure Requirements .................................................................................... 54

19.1.4 Account Servicing ................................................................................................................................... 54 19.1.5 Nomination Forms .................................................................................................................................. 54 19.1.6 Statements and Account Information .................................................................................................... 55 19.1.7 Fees and Charges ................................................................................................................................... 55

19.1.7.1 Commission ................................................................................................................................... 55 19.1.8 Sales Force Requirements ...................................................................................................................... 56

19.1.8.1 Interest Rates ................................................................................................................................. 56 19.1.8.2 Interest Restrictions ....................................................................................................................... 56 19.1.8.3 Quoting interest rates .................................................................................................................... 56 19.1.8.4 Default interest rates ..................................................................................................................... 56 19.1.8.5 Requirements for interest rate changes ........................................................................................ 57 19.1.8.6 Application to the court ................................................................................................................. 57

19.1.9 Changes to Fees, Charges and Repayments .......................................................................................... 57 19.1.9.1 Requirements for changes to fees or charges ............................................................................... 57 19.1.9.2 Requirements for changes to repayment amount ........................................................................ 57

19.1.10 Avoiding False and Misleading Representation ...................................................................................... 57 19.1.10.1 Selling Restrictions ....................................................................................................................... 58 19.1.10.2 Calling at Homes by Arrangement Only ...................................................................................... 58

19.1.11 Credit Related Insurance ........................................................................................................................ 58 19.1.12 Unjust Transactions under the NCC ........................................................................................................ 58 19.1.13 Credit Contracts ...................................................................................................................................... 59

19.1.13.1 Changes to Credit Contracts ........................................................................................................ 59 19.1.13.2 Requirements for Changes to Credit Contracts ............................................................................ 59

19.1.14 Managing Hardship, Disputed and Defaulted Accounts ......................................................................... 59 19.1.14.1 Hardship Accounts ....................................................................................................................... 59 19.1.14.2 Disputed Accounts ....................................................................................................................... 60 19.1.14.3 Defaults........................................................................................................................................ 60

19.1.15 Enforcement Proceedings ...................................................................................................................... 61 19.1.15.1 Postponement ............................................................................................................................. 62

19.2 NATIONAL CONSUMER CREDIT PROTECTION ACT 2009 .................................................................................... 62 19.3 ANTI MONEY LAUNDERING AND COUNTER-TERRORISM FINANCING (AMLCTF) ACT 2006 .................................. 63 19.4 VERIFICATION OF IDENTITY (VOI) ...................................................................................................................... 65 19.5 PRIVACY ACT .................................................................................................................................................... 65 19.6 CODE OF BANKING PRACTICE ........................................................................................................................... 66 19.7 TRADE PRACTICES ACT ..................................................................................................................................... 66


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1 OVERVIEW IBAL Underwriting Guidelines provide the preferred framework to ensure an acceptable standard of loan application assessment is achieved. This document is designed to provide information and guidelines to enable approved and authorised IBAL staff to achieve and maintain the preferred standard when writing loans for IBAL. It provides an overview of IBAL lending guidelines, legislative requirements and acceptance procedures when assessing a loan application. This document contains the preferred parameters and guidelines which staff are required to follow in their business activities. These guidelines have passed through an appropriate approval process and IBAL Risk Management Department is the business owner of this underwriting guidelines document. All Customer Operations (CO) (and Mortgages (M)/DIRECT Mortgages (DM) where relevant) staff are expected to adhere to these underwriting guidelines when making an assessment. Deviations from these Underwriting Guidelines are to be considered /approved on a case by case basis by appropriate Delegated Lending Authority holders for credit worthy applications in line with a common sense risk based approach to decision making, subject to proper mitigation which needs to be documented. Primary motivation should focus on the financial strength of the applicant and ability to service, not the underlying collateral. When making an assessment and/or mitigating deviations to the underwriting guidelines due consideration is to be given to the following key principles: • Who is the borrower? (be comfortable with the borrower’s financial position, income (salary, self-

employed, casual etc.), employment history, repayment history and equity contribution to the transaction and willingness to pay).

• What does the borrower want? (what is the loan amount, relative to their income and financial position, and what type of loan facility is sought i.e. principal & interest, interest only, revolving etc?)

• What will the borrower do with the money/loan? (Is the purpose for owner occupation, investment or other worthwhile purpose?)

• How will the borrower repay? (by what means will the borrower pay us back and can a satisfactory servicing/repayment capacity be demonstrated over the term of loan? Debt serviceability and ability to pay)

• What happens if the borrower does not pay? (if the borrower fails to repay as anticipated consider our collateral position and how we will recovery our loan amount?)

Refer to CO Delegated Lending Authority (DLA) for further details. Please note that this document is the property of IBAL and is strictly for the use of CO, M, & DM staff only. No part of this document may be reproduced without the prior authorisation of IBAL RM. This document will be reviewed and updated at least annually (see below), and it is recommended that this document be read in conjunction with Underwriting Guidelines Change Advices which may be issued from time to time and which communicate IBAL new or revised credit policies.


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The annual review process involves: - • Consultation with CO/M/DM • Consultation with ING Direct Head Office Risk Management (Amsterdam) • Approval by Chief Risk Officer (CRO) The following general guidelines define what an acceptable exposure is for IBAL: • Unless there is good substantiation of credit risk (with the appropriate level of approval), all loan

applications must comply with these underwriting guidelines. • Each loan application must have a legitimate legal purpose, both within the word and the spirit

of the law. • All loan applications must be completed on an “arms-length” basis. There must be no

concessions on acceptable commercial pricing, loan terms and/or loan structure that could compromise the profitability and/or the capital of IBAL.

• Each CO staff involved in approving credits should be able to reasonably substantiate the client’s creditworthiness in presenting a credit proposal.

• Each CO staff is expected to assess all loan applications in a prudent manner and ensure that each applicant has the requisite capacity to service all his/her commitments and the requisite authority/capacity to grant supporting securities.

• All new credit applications and loan variations are subject to appropriate approvals. Refer to CO DLA for further details.

• CO/M/DM staff must not engage in conduct where IBAL considers that they are seeking to refinance loans at a rate or in a manner that may constitute ‘churning’. They must not engage in conduct where the major reason for seeking to refinance is the generation of loan application fees rather than the servicing of their customers’ needs.

• CO/M/DM staff must act efficiently, honestly and fairly in their dealings with applicants. • CO/M/DM staff must ensure that customers are not disadvantaged by any conflict of interest

that they have with respect to the loans being considered by the customer. • CO/M/DM staff must conduct all loan activities in accordance with IBAL's responsible lending

obligations under the National Consumer Credit Protection Act 2009, including: • providing a credit guide to customers; • making an assessment of unsuitability of the credit contract or any credit limit increase

under a credit contract before entering into it; and • ensuring that IBAL does not enter into a credit contract, or increase the credit limit of a credit

contract, with a debtor if that contract or credit increase is unsuitable. All CO staff with DLA must adhere to the Terms & Conditions of that delegation. 2 APPROVAL PROCESS Loan applications meeting specified credit criteria can only be approved by CO staff with the appropriate level of DLA. In line with ING Global Policy an approval is valid for up to 3 months. After this period a new assessment is required. Any loan drawdown must also comply with the time limits covered by the Letter of Offer and the Terms & Conditions. If a loan application is within a CO assessor’s DLA, only this person’s sign-off is required. However, if a loan application falls outside a CO assessor’s DLA, the person needs to refer this application to an appropriate DLA Holder, their Team Leader or RM (whichever is applicable).


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Refer to the latest CO DLA for the list of CO staff with authority to approve deviations to this Underwriting Guidelines Manual. Policy exceptions can only be approved by Risk Management. NOTE: In recommending a proposal be approved by a higher DLA, the DLA recommending approval must be satisfied that the proposal is worthy of approval and highlight any deficiencies, deviations or exceptions. If that DLA Holder is not prepared to recommend the proposal, they can decline the application even if it is outside their authority. Policy Exceptions Many criteria in these Underwriting Guidelines originate from the “Retail Credit Risk Sub-Policy”, which every DLA Holder should review and fully understand. The approval of any loan that is outside the criteria detailed in the “Retail Credit Risk Sub-Policy” is defined as a policy exception. Policy Exceptions can only be approved by Risk Management. Refer “Retail Credit Risk Sub-Policy” for full details on policy exceptions monitoring and reporting requirements Underwriting Guideline Deviations The approval of loans outside these Underwriting Guidelines and not contained in the Retail Credit Risk Sub-Policy are defined as deviations. A deviation can be approved by an appropriately authorised DLA Holder. (CO staff should refer to their DLA for further details.) Deviations to these Underwriting Guidelines (by specifically authorised staff under their Delegated Lending Authority) are only allowed when offset by other risk factors – noting:

• Deviations are only allowed if there are mitigating factors. • At approval the mitigating factors must be recorded.

Multiple deviations on any one deal should be avoided. Aggregate Exposure Calculation When determining whether a proposal is within the maximum amount authorised for a DLA, all pre-existing IBAL (Residential, Priority Commercial and Commercial Property Finance) & Mortgage Management (MM) (where able to identify) exposures must be added at 100% of the approved limit, notwithstanding differences in the borrower mix (new and pre-existing).

3 ELIGIBLE BORROWERS Applicants and guarantors must be either Australian citizens or permanent residents who reside in Australia and must be at least 18 years of age (a minor is not permitted to be a borrower, guarantor or mortgagor). Loan applications which involve overseas residents or residents in Australia holding a visa other than that of a permanent resident (e.g. foreign residents living and working in Australia) are outside these guidelines. No deviation is permitted. Any applicant and guarantor who does not satisfy the criteria outlined in this section should be treated as outside underwriting guidelines.


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Not for profit organisations and Self-managed Superannuation Funds, are not eligible borrowers or guarantors. Given the nature of the product offering, it is not the Banks preference to consider complex and intertwined income structures which traditionally would be suited to a relationship or corporate partnership arrangement. Applications that do involve an unreasonable level of complexity can be considered on a case by case basis however reference should first be made to the appropriate State Sales Managers and if needed Risk Management to establish whether the deal is worth pursuing and a viable opportunity for the Bank.

3.1 PAYG Individuals who are employed by unrelated entities are defined as Pay as you go (PAYG) Income Earners. Their employer will normally withhold the appropriate amount of income tax, with the employee receiving a net salary. Reference should be made to the minimum employment requirement under Section 7.1 and the verification requirements under Section 8.

3.2 Self-employed – Sole Traders and Partnership An applicant who derives their income from a business which is owned solely or jointly with other parties. A self-employed person can operate as a sole trader, partnership or through a company/trust structure. The applicant should have been self-employed in the current situation for at least 24 months.

3.3 Companies In order to limit risks involved in lending to companies, the following guidelines must be applied to all company applicants: • Obtain Australian Business Number (ABN) for GST purposes, if required; • Obtain Veda Advantage report on all directors who are also shareholders (if a private company).

Highlight any defaults, legal judgements etc. (if any) and attach a full explanation; • Consider the requirement to obtain personal guarantees from directors/shareholders. In cases

where these guarantees are required, it is normal to obtain personal guarantees from all directors who are also shareholders (if a private company);

• Preferred a minimum operating period of two consecutive years. Companies operating less than two consecutive years must show that management has the experience and skill to promote the company in its proposed line of business (cashflow projections for the next 12 months may also be required);

The above conditions are also applicable to any company related to: • The borrowing company; and • Guarantors of the borrowing company.

3.4 Trusts and Trustees The two types of trusts usually encountered by lenders are: • Unit Trust: Beneficiaries hold defined units which identify their entitlement in the trust; or


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• Discretionary Trust: Trustee at its discretion can select the beneficiaries and determine the level of their entitlements; potential beneficiaries have no property and hold no units.

NOTE: IBAL does not lend to Hybrid Trusts. Whether or not a trust is a separate legal entity varies from state to state (see “Requirements” below). A trust is always required however to have a trustee. The trustee is the legal owner of the trust assets and has a right of indemnity out of the trust assets. The following guidelines can be used to assist staff in ensuring that parties to a loan or security transaction are correctly identified where IBAL advances monies or takes security or a guarantee from entity acting in a capacity as a trustee of a trust as well as in its own capacity: Requirements States which recognise a Trust as a legal entity e.g. Queensland & Tasmania A Trust may be the registered proprietor i.e. on the title deed. Our loans in this instance should be setup as: • Trustee (ABC Pty Ltd) as trustee for the Trust (ABC Family Trust) as registered proprietor and

borrower, • Special conditions in the loan contract “trustee is liable in its own right and as trustee for the

XXXX trust”. States which do not recognise a Trust as a legal entity e.g. NSW Trust is not allowed to be the registered proprietor – the trustee must be the registered proprietor. Our loans in this instance should be setup as: • Trustee only (ABC Pty Ltd) as registered proprietor and borrower, • Special conditions in the loan contract “trustee is liable in its own right and as trustee for the

XXXX trust”. In all instances we should obtain a copy of the Trust Deed to ensure the Trust is authorised to do what is being requested. It is mandatory for a special condition that IBAL Solicitors are to be provided with a copy of the Trust Deed for perusal. Guarantors Where IBAL takes a guarantee from an entity/individual in its own capacity and as trustee of a trust, the “Security” section of the Loan Offer letter should refer to guarantor as: “ABC Pty Ltd in its own capacity and as trustee for the ABC Trust”. Independent legal advice may be required where a third party exists. Where it makes sense to do so and it adds value to the assessment adult beneficiaries/unit holders should be guarantors. The following guidelines are also applicable to trustees:


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• Ensure that the trustee has the ability to service the loan; • Obtain Trust Deed and refer documents to a panel solicitor to identify if trustee can borrow

and/or guarantee on behalf of trust and beneficiaries in accordance with the trust deed; • Obtain Veda Advantage reports on the trustee and adult beneficiary(s)/unit holders(s) who are to

act as guarantors. Highlight any defaults, judgements etc. (if any) and attach a full explanation; • The Trust should have been established for at least 1 year, otherwise evidence must be provided

that trustee has the experience and skill to promote the trust in its proposed business activities in the best interests of the beneficiaries;

3.5 Specific Risk for Other Borrowers

3.5.1 Borrowers of convenience Borrowers of convenience arise where borrowers wish to buy real estate, but their income is insufficient to satisfy servicing. In some cases an "artificial" borrower is introduced. Such a person is treated as an "artificial" borrower or borrower of convenience because he/she derives little/no benefit from the transaction however may be represented on title (i.e. usually the transactions make little sense and ownership may be less than 20%). These transactions cannot be approved for 2 reasons: • Clause 26.1 of the Code of Banking Practice states that "We will not accept a person as co-debtor

… where it is clear … that the person will not receive any direct benefit". • Section 76 of the NCC provides that one of the considerations which can be taken into account in

determining whether a transaction is unjust is whether "at the time the contract … was entered into … the credit provider knew, or could have ascertained by reasonable enquiry of the debtor at the time, that the debtor could not pay in accordance with its terms or not without substantial hardship". (IBAL will only consider guarantors income for professional partnerships Sophisticated Investors (Section 3.5.3) or from related Companies/Trust).

Example: Borrowers A, B, and C apply for a loan for A and B to buy a property. C is clearly a borrower of convenience and the loan cannot be approved. A transaction can only be considered where C is deriving a benefit. The benefit can only be established if: • The purpose of the transaction is for owner occupation, full or part-time; or • The purpose of the transaction is for an investment property to be purchased in all names

(subject to a maximum of 5 parties). Where the ownership is not equal, each shareholding should be a minimum of 20%. Note: Where borrowers are married or in a de-facto relationship and apply for a loan to buy a property with an ownership split of less than 20% (e.g. 99 to 1). This may be considered acceptable where the transaction makes sense. Refer Sophisticated Investors (Section 3.5.3) if party A or B is to have no ownership of the property. Also refer to Section 12.4.11 Information about obtaining legal and financial advice.


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3.5.2 "Straight" third-party security The borrowers apply for a loan on the basis of security provided by: • the borrowers and a third-party; or • A third-party only. The borrowers satisfy IBAL servicing requirements (i.e. there is no reliance on the third-party's income to satisfy IBAL servicing criteria). In this case the third-party must be a guarantor and a requirement to obtain independent legal advice should be considered. (Refer to Section 12.4.11 for Information about obtaining legal and financial advice). The guarantor must be a parent, child, de facto/spouse, company, Aunt or Uncle, or Parent-in-law of the borrower. (An assessment of the financial strength and assets & liabilities of the third party mortgagor must evidence that the mortgagor/guarantor will not suffer substantial hardship if the security is called upon. The preferred security should not be an owner- occupier home.) Example: Mr Jones is borrower. The security is a mortgage over the investment property being purchased by Mr Jones, and also the owner occupied home owned by Mr & Mrs Jones/Mrs Jones solely.

3.5.3 Sophisticated Investors Sometimes for asset protection and/or taxation planning the ownership of real estate is vested in one party solely or one party has less than equal share in the ownership. Example: A and B are married. The loan (in A’s name only) is to enable A to purchase a property (in A’s name only). B is a "professional" and B's income will be taken into account to satisfy servicing. To consider an application structured this way: • All parties must be related by marriage or de-facto relationship. Relationship of parent/child is

not acceptable. • At least one of the parties must be

o a "professional" (i.e. involved in business or commerce requiring a degree of commercial sophistication) or

o considered by IBAL as a “sophisticated” investor, and as a result the ownership has been structured in line with financial, estate or family planning (structure make sense and not just to fit within these underwriting guidelines).

In these cases, the income of the professional or investor can be taken into account in assessing the servicing position. We recommend all guarantors seek independent legal advice. Other Rules • All people providing security who are not borrowers must be guarantors. • Generally, where the guarantor is an individual, the guarantee must be signed personally by the

individual and not by a power of attorney. • A Credit Advantage report must be conducted on all individual and company guarantors.


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• If there are multiple guarantors, each guarantee must be provided on a joint and several basis. • A minor (a person under the age of 18) is unacceptable as a guarantor or third-party security

provider. • All guarantors must be Australian residents.

3.5.4 Non English Speaking Borrowers The following conditions must be met: • A qualified professional translation service is required to be used to interpret the documentation

and an appropriate certificate provided • The translator must be independent of the borrower

3.5.5 Retirees/ Mature Ages Applicants The following conditions must be met: • Servicing criteria must be met • Repayment capability is demonstrated over the term of the loan at approval; and • An acceptable exit strategy is advised and evident at the time of approval. Note: For mature age applicants who will rely on income to repay the loan once they retire, their asset and liability position should also be carefully assessed to determine sustainability of income or how the debt will be paid in the future – i.e. can the debt be cleared by the following which must be evidenced: • Normal income cash flows, or • By sale of investment assets (e.g. shares/bonds/managed funds), or • By payout from part of their superannuation, or • Realisation of equity in other real estate investment. In addition, the following documentary evidence may be required to support an exit strategy: • Superannuation/Annuities statements; • Savings history; and • Proof of asset and investment ownership (e.g. property, shares, managed fund investments etc.) Income derived from a superannuation annuity may be assessed at 100% for the purpose of determining the loan serviceability.

3.5.6 Power of Attorney This section applies to:-

• New borrowers • Existing borrowers where the original borrowing was approved on a first party basis but we

are asked to approve further borrowings under a POA executed by the borrower at a later date

• Guarantors • Third party security providers

Security documents can only be executed under a Power of Attorney (POA) for finance on behalf of a Donor, IBAL does not wish to expose itself to any reputational risk in the event that the attorney is not acting in the best interests of the Donor.


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The only deviation to this policy is where it can be confirmed that borrowers/guarantors/third party security providers are overseas at the time of requiring security documentation executed. This is subject to:

• Borrower/guarantor/third party security provider to confirm by facsimile the execution of the documents by POA

• ING Solicitor to ensure the POA is registered. (N.B. In limited cases registration is not mandatory in Victoria)

• POA to specifically allow for execution of mortgages. • The identification of attorney through the normal process.

Authority to accept documents under power of attorney will be restricted to either:

• Managers and Team Leaders in the Credit Assessment Teams • Senior DLA holders (i.e. Level 4 and above).

It is not IBAL policy to approve borrowings where the request for borrowing and the execution of all relevant security documents comes from an attorney acting under a POA. Also, whilst an attorney can legally apply for finance on behalf of a Donor, IBAL does not wish to expose itself to any reputational risk in the event that the attorney is not acting in the best interests of the Donor.

3.5.6.1 Definition A Power of Attorney (POA) is a document that appoints one person (the attorney) to act on behalf of another person (Donor). Any lawful action taken by the attorney under the POA is binding on the Donor. There are currently two types of POA in Australia:-

• A standard POA which can be used to cover a variety of transactions, including dealing in property and loan applications. This can be revoked at any time and also ceases when the Donor loses his or her faculties.

• An enduring POA which continues even after the Donor loses his or her faculties. POA’s need to be registered in accordance with the laws of the state of residence of the person giving the POA.

3.5.6.2 Existing Borrowers - Loan Account Transactions Where IBAL is asked to carry out normal administration tasks (e.g. account balances, rollover of fixed rate loans, release of security etc.) for a borrower under a POA given by the borrower to a third party, IBAL must sight the original of the POA and verify that it is registered as required under the various state laws. The POA must be produced on each occasion a request is made to deal with a borrower’s account together with a Statutory Declaration from the attorney stating that the POA has not been revoked. (Withdrawn/cancelled/expired)

3.5.7 Diplomats IBAL does not lend to foreign diplomats. No deviation permitted.


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4 PURPOSE

4.1 Acceptable Purpose IBAL will consider loans for any worthwhile purpose including: - • Purchase or refinance of owner occupied or investment property • Investment purposes • Commercial/ Business purposes • Equity reimbursement • Cash-out is to be restricted to no more than 20% of the security value unless we are satisfied

with the stated purpose of the funds. Loans that are regulated by the National Credit Code (NCC) which is defined in Section 19.1, must be documented using NCC compliant documentation and pass servicing on a fully disclosed basis, as detailed in Section 10.1. Where a loan being considered is partly for business or investment purposes, and partly for residential investment purposes (or for personal domestic or household purposes) then the requirements of the NCC need to be considered. e.g. Part of the loan proceeds are to be used to purchase a shop premises, and part are to be used to purchase a residential investment property. In such a situation, if more than 50% of the loan proceeds are to be used to purchase the shop premises, the NCC will not apply.

4.1.1 Refinance An existing loan can be refinanced up to 75% LVR. This can include equity release, cash out or debt consolidation. Any debt consolidation should be thoroughly assessed to ensure that the borrower(s) are not consolidating their debts in order to provide a short-term remedy to their financial difficulties. Care should be taken where credit card balances are hardcore and/or where multiple unsecured facilities are to be consolidated especially when equity position is minimal or repayments are interest only The following conditions must also be met for all refinance applications: • In all cases the cash out component is to be limited to 20% of the security value. • An applicant has to provide the latest available bank statements of all the loans to be refinanced

evidencing good repayment history – bank statements must cover at least 6 months transactions, with the last transaction being no more than 1 month old at the time of assessment. Current loan account balance must be provided in the form of either an interim bank statement or account balance print-out clearly stating account name, account number, approved limit and current loan account balance (ATM receipts are not acceptable for this purpose).

• Bank Statements for a trading account may also be required on a case by case basis. • No concurrent request for a 2nd mortgage will be allowed.


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• Where an adverse credit listing exists including evidence of arrears on rates or the loan/s being refinanced (see Section 11 Credit Check Reports for definition), approval can only be given by an IBAL DLA holder with full deviations authority, suitably mitigated.

• Specific attention must be paid where more than 6 separate credit enquiries are listed within the last 12 months. The credit assessor is to review the Credit Check Report, and satisfy themselves that the customer is a suitable risk and these activities do not adversely affect the applicant(s) creditworthiness, if necessary by seeking additional information/explanation.

4.1.1.1 Private Mortgages Private Mortgages are those mortgages not provided by Banks, Credit Unions, Building Societies (that would appear on APRA’s list of Authorised Deposit-taking Institutions) & Mortgage Managers. Private mortgagees do not generally provide loan statements. For those refinances where we are taking over a private mortgage, a letter from the mortgagee, plus the latest Council rates notice for the subject property are required.

4.2 Unacceptable Purpose Unacceptable Purposes:- • Consolidation of more than four unsecured debts (including leases / hire purchase). • Refinance of loans where there is evidence of arrears/overdue payments/direct debit: cheque

returns. • Any property development, including of a commercial or speculative nature • “Takeout” of property development finance where servicing is reliant solely on the sale of asset

5 MAXIMUM LOAN TERMS AND AMOUNT

5.1 Maximum total exposures • Preferred minimum loan amount is $250,000. • Maximum one obligor exposure up to $5 million. • We will consider lower loans amounts for commercial property secured transactions when taken

in conjunction with other residentially secured loans.

5.2 Maximum Terms and Repayment Arrangements Loans approved under these guidelines have a maximum loan term of 20 years. Repayment arrangements can include: P & I up to 20 years, with full amortisation Interest only period: up to 5 years (at a time)

5.3 Amortisation ING has the right at its discretion to seek amortisation/debt reduction depending on the nature/structure of the transaction.

6 FUNDS TO COMPLETE, GENUINE SAVINGS AND GIFTS

6.1 Funds to Complete For all property purchases we must be satisfied that the customer has sufficient funds to complete the purchase, including costs. (e.g. Bank Statement, Letter from Solicitor, evidence of funds available in a line of credit, evidence of real estate sale price/existing debt). Borrowers who have saved a deposit are more likely to be prepared for their new loan and have demonstrated a willingness to meet ongoing repayments.


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6.2 Gifts Any gift that provides borrower(s) with their deposit (equity) must be supported by completion of the ING DIRECT Gift Policy Statutory Declaration (or equivalent) from the gift provider, stating that the monies are a non-refundable, non-repayable gift. NOTE: This form must be used as it contains the necessary Privacy Act requirements. Assessors must be comfortable with the genuineness of any gift and if doubt exists may need additional support: • a copy of a Bank account statement (not Internet or ATM produced) in the name of either the gift

provider or the Applicant; clearly showing the amount of the gift; • a Solicitor’s letter confirming the funds are held in their trust account.

7 INCOME TYPES There are basically 3 broad income groups: • Pay-As-You-Go (PAYG) Income Earners ; • Small Business / Company (Self-employed); and • Investors where major income sources include, inter alia, rental incomes and incomes derived

from other investment activities. Consideration needs to be given to the percentage of base income versus variable income types used to satisfy serviceability test. Primary focus should be on base income with care to be exercised when a significant percentage of variable income is required.

7.1 PAYG Income Earners-Minimum Employment Requirement NOTE: Full time employment is 38 hours per week (or Award / industry equivalent)

• Minimum 3 months with current employer ; or • Minimum 2 years in a similar role/industry utilising a similar skill set

Note: The above requirements apply to permanent full time employees, for employees on different terms, such as part-time refer to Section 8 Income Verification Probation Where borrower is still on probation, care should be exercised to establish history of employment/income to mitigate accepting the probation period. Possible mitigants to consider (but not limited to): • The borrower is in a similar role/industry and/or has accepted a promotion, • Increase in base income is considered reasonable, say up to 20%. • 12 months good conduct on existing loans

7.2 Small Business/Company (Self-employed) Incomes This type of income is acceptable if the applicants are sole owners, partners or proprietors of small business, or there is a clear agreement regarding partnership income/distribution of profits. In the case of shared income, only the borrower’s share should be included. This may also include the net income of any company that is a family investment company and/or a trustee company for a family trust fund.


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A minimum of the last 2 financial years’ incomes (i.e. defined as 1 July to 30 June the following year) should be taken into account when assessing the loan serviceability of a self-employed applicant. The most recent year’s financials are to be no older than 19 months. If the applicant has a share of a large business / corporation where there may be significant issues of capital expenditure, working capital and more complex accounting, the business income should not be included for the purpose of calculating loan serviceability. Unless a specific case can be made, a borrower’s loan serviceability should be derived on the basis of remuneration received from the company, e.g. salary, director’s fees, dividends, etc. to identify recurring incomes or distributed incomes from the business/company to the owner. In assessing company net profit, attention must be given to the following points: • Net profit is income received in the normal course of business. • When the profit before tax figure is used, then the current company tax rate should apply to

derive the after-tax position. • There must be no double counting, e.g. net profit is derived after deduction of Director/Consulting

fees, salaries or other forms of remuneration paid to shareholders/partners/directors in the business.

• The net profit used for the assessment of loan serviceability should reflect a company’s true cashflow position, rather than purely an “accounting” profit in the context of accrual accounting.

Applications outside of the above criteria must be referred to appropriately authorised DLA Holders for sign-off.

7.3 Other Incomes Proof of all other incomes, such as superannuation, pensions, annuities, income from property investments, income from share portfolios or income from other family investments must be substantiated at the time of application. For those applicants who will rely on this income to repay the loan once they retire, their asset and liability position should also be carefully assessed to determine how the debt will be cleared in the future – i.e. can the debt be cleared by: • Normal income cash flows, or • By sale of investment assets (e.g. shares/bonds/managed funds), or • By superannuation payout, or • Realisation of equity in other real estate investment. • DLA Holder needs to undertake a “reality check” to ensure the proposed return on investment

used for servicing is reasonable and sustainable given current market conditions and based on average returns over the last few years

7.3.1 Superannuation Income derived from a superannuation annuity may be assessed at 100% for the purposes of determining loan serviceability.

7.3.2 Other Investment Incomes Investment incomes (e.g. share portfolio and annuities other than superannuation) are assessed at 80%. • These additional requirements must also be met:


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• Evidence of investment income must be provided; • Must have similar income for the last 24 months; • Evidenced by the last 2 years’ tax returns: and • A common sense approach should be applied to this income to ensure that the returns are

accepted at a reasonable level, based on long term average (e.g. say 4%pa of current share portfolio).

7.4 Unacceptable Income Types The following income types are not allowed in calculation of loan serviceability: • Social Security Payments (e.g. unemployment benefits, new start, aged pension, Carers

Allowance); • Maintenance / Child Support that cannot be verified with the Child Support Agency or where

verified has less than 5 years to run. (Section 8) • Undeclared cash income not evidenced in tax returns (e.g. Boarder income and sub-letting); • Irregular income (e.g. odd jobs, income outside the types detailed in Section 8); • Drawings / directors loans are not acceptable as it is a reduction of capital and not income. • Income from any illegal pursuit. • Family Allowance Please note the following in confirmation of incomes: • Applications where reliance is placed on incomes of guarantors or third-party borrowers must be

referred to appropriately authorised DLA Holder for consideration. • If sufficient documentation is not provided or if any doubt exists regarding the information

provided, contact the originator of the document to confirm details of income. • Please ensure that all Tax File Numbers are removed from copies taken and kept on file. • Tax agent or accountant prepared tax returns are acceptable. The return must show the

following: • Tax agent reference number • Name and address of tax agent or accountant • Accountant or tax agent disclaimer.

8 INCOME VERIFICATION Incomes covered in this section Permanent Full Time Bonus/Commission Shift/Overtime Car Benefits Allowances Salary Sacrifice Salary Packaging Maternity Leave Rental Income Self-Employed Permanent Part-time Second Job Contract Income Casual Employment Child Maintenance Veterans Affairs/War Widows/Carers Pensions Overseas Income Where any doubt or question exists to the authenticity/validity of the verification documentation, employment verification via telephone is to be completed (refer Section 8.1). Notwithstanding the following sections, where the borrower (s) is employed by family, or through a family owned or family controlled company, payslips must be supported by taxation returns and ATO assessment notices NOTE: Changes to the percentage of income used for servicing is not allowed.


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Income Type (% of income accepted for Servicing)

Verification Required (DLA holders with full deviations authority have the flexibility to accept less than the

minimum below but all income used for servicing must be verified.)

Permanent Full Time (100%)

• Where using base income only, verification is using the latest 2 payslips (no older than 60 days)

OR • Three months bank statements showing a regular salary credit, with the name of the

employer OR

• Provide latest payslip, preferably with YTD figures (less than 1 month old); and • Provide last year’s tax return or assessment notice or group certificate. (As a minimum payslips should show the borrower’s name, employer’s name and ABN.)

Bonus/Commission (80%)

When expected to be a regular component of a borrower’s salary. • Regular monthly/quarterly basis, income to be evidenced for 12 months. • Annual/irregular payments, income to be evidenced over 2 years. Note: Bonus / Commission payments should be limited to no more than double an applicant’s base income and if a significant increase from one year to the next is evident, an explanation of the cause(s) should be obtained and retained on file.

Shift/Overtime (80%)

When expected to be a regular component of a borrower’s salary and if evidenced over 12 months (all types of industries).

Car Benefits If the applicant’s employer is providing a fully maintained car (not part of packaged income) then a maximum of $3,500 per annum (post tax) can be included in loan serviceability calculations. This benefit must be evidenced by the Employment Contract or letter from employer.

Allowances- PAYG income (80%)

Allowances are acceptable however when utilising allowances for servicing purposes, care must be exercised to identify allowances that are associated with reimbursement of expenses (e.g. tool, uniform, entertainment), where generally these allowances would be 100% offset against an expense versus allowances to compensate for specialties of the occupation. (e.g. remote living allowance) Example: Military / Service Allowance is considered acceptable as this allowance compensates a member of the armed forces for the unique requirements that service life may impose on an individual and his or her family. Allowances must not exceed 25% of the applicant’s salary income.

Salary Sacrifice Care must be taken to understand whether salary sacrifice is voluntary or no, either from documentation already held (e.g. Payslip, etc.) or a letter from the employer. Many PAYG employees are able to salary sacrifice amounts for superannuation – if a borrower says he can cease doing this to be able to meet servicing criteria, this must then be added to the taxable portion of their income. (as there will be no benefits moving forward). Some occupations e.g. Clergy, Health, Charity workers can elect to have only a portion of their income “salary sacrificed” i.e. deducted before tax. The “deducted” payments can be allocated for mortgage payments, utility bills or the like. If a borrower presents with a


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portion of their income “salary sacrificed”, this portion can be inserted into the Tax Free Income box of the servicing calculator so as not to be included in the income to be taxed.

Salary Packaging

Total package excluding the compulsory employer superannuation contributions can be used as the gross income. Unless clearly indicated on documentation already held (e.g. Voluntary Superannuation on Payslip etc.) all non-cash components of the package are subject to confirmation via letter from the employer that the borrower has the option to convert these items to cash.

Maternity Leave While the applicant is on maternity leave, their normal salary can be included in servicing when they are returning to work within the next 3 months and supported by the following:

• A recent payslip (One month before maternity leave was taken) • A letter from employer outlining the terms of the maternity leave including your

return date, future employment terms (part time or full time, for example) and salary upon return.

An estimate of childcare and other related costs and evidence that this has been factored into your expenses

Rental Income (65%)

Rental incomes are assessed at 65% of current gross or anticipated receipts. Acceptable evidence is:

• Current lease agreement, or • Rental statement, or • letter from licensed real estate agents, or • panel valuer’s estimates of the likely rental income.

Some commercial leases require tenants to pay for outgoings, when the tenant is responsible for 100% of the outgoings, 85% of the rental income can be used for servicing; to allow for possible vacancy periods. All rental income used in servicing should exclude GST. When rent is derived from a share in an investment property then only the borrower’s share of rental income is allowed. Caution should be applied where rental guarantees are involved or when the rental income appears high when compared to the value of the property. We need to be comfortable the income is sustainable, in line with the general market and not linked to any short term venture ( eg mining, display homes)

Self-Employed

• Latest 2 years' personal tax returns, and • Latest 2 years' financial statements (including Profit & Loss Statement and Balance

Sheet) or business, company tax returns Most recent year’s financials are not to be older than 19 months Credit assessors to request a copy of the latest ATO assessment notice (or if not applicable, evidence of tax return lodgement) if there is suspicion of the integrity of the submitted tax returns. The purpose of requesting this additional documentation is to


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(Variance in income) (Add-backs)

validate that, firstly, the return was lodged and, secondly, the taxable income was akin to the declared amount in the corresponding tax return. IBAL reserves the right to request interim financials and/or Business Activity Statements if the need arises. An average of the last two years income will be the default position for use in serviceability calculation. A credit assessor will need to consider the following when making their credit assessment to determine whether the default position is appropriate given the circumstances presented by the borrower Where the variance between the last two years is ≤ 20% it is acceptable to consider the most recent year’s income figure in servicing if required. Where the income has decrease from the previous year without satisfactory explanation, it is appropriate to adopt the most recent year's income in your servicing assessment.. Note: Where the business/company’s income has increased/decreased substantially over the last 2 financial years (i.e. variance of greater than 20%), an explanation of the cause(s) should be obtained and retained on file to support the treatment of income used in the serviceability calculation.. The following add-backs are permitted in loan serviceability calculation: • Incomes/Salaries (not already included in calculation of personal gross incomes); • Interest paid (as evidenced within the Profit and Loss Statement) can be used as an

add-back where the associated debt repayments are included in the applicants servicing position (ie Include repayment/commitment on debts and allow add-back of interest on the same debts);

• Superannuation contributions in excess of statutory level; • Depreciation (where underpinning the replacement cost of an “essential asset that

assists in the generation of business income”, an appropriate haircut may be considered on a case by case basis);

• Non-recurring expenses (explanation required from company accountant as to the nature of the expenses).

Note: When adding back “excess Superannuation”, “interest paid on debts no longer current” and other “non-recurring expenses”, these should be added back as “Taxable Income” for the company in the servicing spreadsheet. The following are examples of add-backs not permitted under these underwriting guidelines: • Rentals paid for leased assets that the company does not own; • Revaluation of assets; • Research and Development. For additional information refer Section 7.2


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Permanent Part-time Incomes (100%)

As per Permanent Full Time income earners.

Second Job (100%) As per Permanent Full Time income earners, when their term with the current employer is 12 months or greater.

Contract Incomes (100%)

If they have worked in the same role/industry utilising a similar skill set for a minimum of 2 years, as per Permanent Full Time

Casual Employment (100%)

• Evidence of income as per PAYG (Base Income) • Caution should be exercised where casual income is the sole source of income • Minimum 6 months in current employment; or • Minimum 2 years in the same role/industry utilising a similar skill set.

• Child Maintenance Income (80%)

• Verification that the maintenance agreement is registered with the Child Support Agency

• Maximum age of maintained child to be 13 years old and evidence that agreement has at least 5 years to run. (to age 18).

• Evidence of consistent payments through the past six months bank statements. • Should be considered supplementary income and only used to mitigate a marginal

servicing position Veterans Affairs/ War Widows/ Carers Pensions (100%)

Veterans Affairs/War Widows/Carers Pensions incomes are subject to:- • Satisfactory evidence from relevant Government Department. • These payments should only be considered as supplementary income source to the

application, where the main stream of income is from any of the following: • PAYG • Self-Employed • Rental income • Investment income

Other government payments such as unemployment (e.g. New Start) and sickness benefits are unacceptable for the purposes of determining serviceability.

Income generated from overseas employment and paid in foreign currencies (80%)

• Only applies to PAYG income for Australians who are non-residents (E.g. Expats) • Most recent tax returns from country of residence together with evidence of

employment and salary/income payments (Bank statements/pay slips/employment letter) to confirm income.

• Last 2 years tax returns to confirm Australian income (if applicable).

8.1 Phone Verification Where any doubt or question exists to the authenticity/validity of the verification documentation detailed in Section 8 the following actions should be completed:

a) Obtain the employer’s telephone number from an independent source. E.g. White/Yellow pages

b) Call the employer and speak to the appropriate representative, to confirm the applicant’s :- • Employment status (.i.e. full time, part time, casual etc.)


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• Length of employment • Occupation or role • If possible income details (.i.e. base, overtime etc.)

c) All material aspects of the discussion, including name and position of person providing confirmation are to be documented and retained with the loan application.

d) Credit assessors are then able to compare for consistency; the results of the telephone call and information/evidence provided within the application by the applicant.

e) Where an employer refuses to confirm any details or if inconsistencies exist assessors should • Seek an explanation and/or request additional evidence; or • Accept, noting mitigants/reasons. NB Although not a deviation, only a DLA Holder

with the level of some deviations can take this action.

9 COMMITMENTS AND LIVING EXPENSES

9.1 Residential Mortgage Loans This section is applicable for:

• mortgage loans being applied for; • all existing IBAL & MM mortgage loans; • other (non-IBAL) existing mortgage loans.

All the applicant’s mortgage loans must be included in the servicing calculation and assessed on a Principal & Interest basis, over a maximum of 30 years, at the IBAL Assessment Rate. Consideration should be given to the impact of any interest only period granted during a loan term and the customers’ ability to repay the principal over the remaining loan term. The IBAL Assessment Rate is the higher of the Mortgage Simplifier Rate (Broker), Reference Rate (MM), plus a buffer (currently 2.25%) for future interest rate increases, OR the floor assessment rate (currently 8%). Any pre-existing loan where the new applicant is a co-borrower can be factored into the servicing calculation based on 50% of the pre-existing loan where we obtain current evidence that the co-borrower can service the remaining 50% of repayments. For existing IBAL & MM loans this could include referring to the original assessment when there is no reason to doubt this position has changed. If the above cannot be satisfied the existing debts and repayments should be factored into the servicing assessment of the new loan at 100% (i.e. joint and severally).

9.1.1 Personal Loans and other Loans All personal loans and other regular loan commitments are to be included in the serviceability assessment as per their contracted repayment arrangements

9.1.2 Credit Card Repayment IBAL issued Credit Cards For applicants with an owner occupied home loan, repayments must be calculated based on a 3 year term and 2 years if only investment loans are held. The credit card assessment rate is the higher of the Credit Card Revolver Rate, plus a buffer of 2% or the floor assessment rate of 15%. Non-IBAL issued Credit Cards


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Credit Card expenses are to be assessed at 3% of the limit per month.

9.1.3 Consideration of Negative Gearing on Tax When completing the Servicing Calculator, assessors should exercise care so that any negative gearing benefit is provided to the correct entity, (e.g. the company or individuals) Where it is advised that the ownership of the investment property (either existing or to be purchased) is not in equal shares, the “Max Allowable Deductible Payments” field within the Servicing Calculator can be amended to reflect the actual % ownership. (i.e. the benefit apportioned according to ownership). Ownership will need to be confirmed as a condition of approval where the “Max Allowable Deductible Payments” is amended. Note: There is no requirement to explore or condition the ownership of an investment property where serviceability can be demonstrated using the default negative gearing methodology ; which apportions the negative gearing benefit equally between all borrowers (i.e. equal split).

9.1.4 Margin Loans A margin loan commitment can be excluded from the serviceability test where investment income derived from shares supporting the margin loan is not included in the servicing test. Where any investment income derived from shares supporting the margin loan is required for servicing purposes and/or a credit assessor has concerns over the impact the margin loan may have on the borrowers financial position or ability to service their commitments, the following treatment can be adopted; • an interest only repayment on the full Margin Loan limit calculated at the IBAL assessment rate

to be included as a commitment and • include investment income confirmed in line with the current underwriting guidelines (Refer

Section 7.3.2 Other Investment Incomes) • negative gearing benefits can be attributed to the Margin Loan limit, where required.

9.1.5 Vendor Finance Occasionally vendors will assist purchasers (our Borrower) by offering a portion of the purchase price under Vendor Finance arrangement. This means that not only does the purchaser have an obligation to IBAL, but also to the vendor. These arrangements are not normally reflected in the Contract of Sale, and so will not be readily identifiable unless we seek evidence of funds to complete (refer Section 6.1). The arrangement is usually secured by either the lodgement of a Caveat or second mortgage on title. IBAL is not generally accepting of these arrangements as it weakens the equity/savings position, it may limit the Borrower’s ability to repay our loan, and also our ability to realise our security property if the need arises. Unless the arrangement is of a formal nature, with regular repayments which can be included and meet our servicing requirements, and we have a Deed of Priority in place, applications where Vendor Finance is involved are outside guidelines.


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9.2 Expenses As a guide, total commitments should include expense items such as the following: • All existing debt repayments (in joint or individual names) • Hire purchase/lease repayments • Rent or board that will still be payable after loan approval • Maintenance payments, irrespective of whether a court order exists • HECS debts • Taxation liabilities- Care should exercised when dealing with applicants with significant taxation

liabilities. • Living expenses

9.2.1 Living Expenses Customer living expenses are calculated using the higher of Customer Declared Living expenses or ING DIRECT’s Living Expense Benchmark. The benchmark is subject to annual review or on an ad-hoc basis as the need arises. ING DIRECT’s Living Expenses Benchmark do not include current Rental Expenses.

9.2.2 Living Rent Free Where applicants declare they are to live “rent free” in an unrelated property to that being purchased/refinanced, care should be taken when assessing affordability and judgement will need to be exercised in these circumstances. An allowance for rent or board being paid may be included in loan serviceability assessments where rental income is required to service the loan and one of the following circumstances can be identified: • The applicants have been living/renting independently for a period of time, prior to purchasing

the proposed property • The applicants have indicated that they are now/will be residing with parents rent-free • Applicants have indicated living rent free to be an indefinite arrangement • Where the rent free arrangement does not make sense or would not appear sustainable In these circumstances you should include a rent/board allowance when assessing loan serviceability. The following allowance can be used as a guide: 1. Sole applicant - $910.00 per month ($210.00 per week). 2. Two applicants - $1,084.00 per month ($250.00 per week). 3. Two applicants and dependant children - $1,734.00 per month ($400.00 per week). Please note the above guide is only an estimation and does not factor in issues such as differences in geographical locations and economic factors. It is not the intention of this underwriting guideline to disadvantage the “first time purchaser”, where the transaction makes sense, that is a young person purchasing an investment property for the first


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time, who presently resides at home with parents and equity contribution towards the purchase, is evident and verified.

9.2.3 Orange Everyday Account Where the applicant has an Orange Everyday Account assessors should review the last three months of transactions for evidence of any undisclosed liabilities.

10 SERVICEABILITY An applicant must demonstrate that he/she can service the loan or that the business/incorporated borrower (if applicable) is a viable entity with an ongoing ability to service the loan commitments. If there is material doubt about the loan servicing capability (interest and principal repayment) of the applicant(s) ING will not lend based only on the security LVR coverage for a loan. (i.e. LVR does not mitigate a negative servicing position.) Loans approved under these underwriting guidelines must show servicing under either of these options.

10.1 Requirements (including mixed residential/ commercial loans) Principal and Interest Loan Repayments To pass serviceability, borrowers must meet a net income surplus test of a $1 minimum. The net surplus is calculated on the basis of Post tax income less total financial commitments (including living expenses for individuals who are borrowers and/or guarantors)= Net Surplus

• For commercial loans, the IBAL Assessment Rate is the higher of the customer rate plus a buffer of 2.25% or a ‘floor’ assessment rate of 8%. (Fixed rate loans treated in line with variable loans)

• Commercial loans are assessed on Principal & Interest (P&I) over a maximum loan term of 20 years.

• Other banks commercial loans are factored on principal and interest over 20 years, at the same Assessment Rate as IBAL commercial loans.

• Residential loans are assessed on Principal & Interest (P&I) basis over a maximum loan term of 30 years.

• For all Residential Mortgage Debts, the IBAL Assessment Rate is the higher of the customer rate, plus a buffer of 2.25% or the floor assessment rate of 8%.

• Living expenses are calculated using the Henderson Poverty Lines plus a buffer. (Applies to individual borrowers/guarantors)

Interest Only Loan Repayments Where interest only repayments are requested, servicing can be considered in line with the above, with the following changes:

• Commercial IBAL interest only loans can be assessed at interest only repayments. • For commercial IBAL interest only loans, the IBAL Assessment Rate is the higher of the

customer rate plus a buffer of 3.0% or a ‘floor’ assessment rate of 9.0%. • Commentary should include the borrower’s exit strategy once the interest only period is

expired.


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Where deemed appropriate by RM Debt Servicing can be considered on an interest coverage basis for legitimate SME customers that present a strong credit proposal. Interest Cover is to be a minimum of 1.3 times calculated as follows: The total of net operating revenue/rent after all operating expenses (including repairs and improvements in normal course of business) but before interest, tax, depreciation and amortisation divided by the projected annual interest expense (see “Plug rate” below). The Plug Rate will be the higher of a floor assessment rate of 8% or Commercial Variable Rate plus a minimum buffer of 2.0%. Higher interest cover of 1.5 times is required for owner occupied commercial transactions.

10.2 Exceptions As per the Retail Credit Sub-Policy, exceptions to the net serviceability test can only be considered by Risk Management.

11 CREDIT CHECK REPORTS Credit check reports are one of the items used to assess the credit worthiness of the applicants. It is therefore important to obtain a report on all applicants including cross referenced files. For small businesses, a report will be obtained on the applying company, related companies and all guarantors/directors. A signed Privacy Consent Form must be held in the file prior to requesting a credit check report on any applicant/guarantor. Credit check reports (not older than 1 month from the date of loan assessment) must be provided to the DLA Holder for all applicants and guarantors (whether they are individuals or companies). Where the borrower is self-employed, a satisfactory credit check report will be required for the borrower, any guarantors (if applicable) and all private companies or firms with which that person is associated (e.g. Company Director/Business proprietor). Where the borrower is a director of a public company (listed on ASX), it is not necessary to obtain a company Veda report. Where we are aware that an applicant has changed their name (marriage, professional/ stage name, etc.), then a credit check report must be obtained under all the applicant's names. Veda credit bureau report- listing of all loan and credit enquiries, defaults, legal judgements and credit disputes for individuals, small businesses and companies operating in Australia. Information includes company structure, directorships, and major shareholdings. The report includes links to the Australian Securities and Investment Commission (ASIC), Business Name Extracts, Telstra Electronic White Pages and Investigative Reports. The information on this report is maintained for up to 7 years after the lodgement date. Any adverse credit listing in the report will render the application outside these Underwriting Guidelines. Should an assessor believe an application is worthy of consideration as a deviation, then a full explanation regarding all listings and the status at the time of application will be required.


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For the purpose of these guidelines adverse credit is generally defined as: • Any arrears on loan statements for refinance (either current arrears or any time in the previous 6

months); • Any evidence of unexplained missed payments (additional/default interest, late payment fees,

and odd payment amounts when instalments are made by periodical payments). ; • Where there is evidence that the customer has been in hardship in the previous 12 months (Care

to be taken to ensure borrowers are financially stable); • Undischarged or recently discharged (less than 24 months) Bankrupts. Default listings on credit

check report (either borrowers or guarantors); • Unpaid debt listings on credit check report, or paid within the last six (6) months (note – these

must be treated on a case by case basis); • Any court judgements, actions, writ or summon; • Current winding up petitions; • Clearouts; • Liquidator appointed; • Receiver or Manager appointed; • Part X (ten) or scheme of arrangement; • Current Rate Arrears (where evident) Only an IBAL DLA Holder with full deviation authority can sign off an application with an adverse credit listing Suitable mitigants by way of additional information /explanation are to be recorded. If the report reflects Judgement, Bankruptcy or Liquidation, then this is generally not acceptable. Full explanation supported by documentary evidence for review and approval by an IBAL DLA Holder with full deviation authority will be required. NOTE: All borrowers must have a minimum of 24 months clear record since being discharged from Bankruptcy or Part X Arrangement. Where adverse credit is evident 12 months loan statement for any existing loans, may be beneficial. Equally, a large number of recent credit enquiries (i.e. more than 6 separate finance enquiries within 12 months. Note: Enquiries to a variety of lenders, for a similar amount, may be treated as one enquiry) should be treated with caution as this highlights the applicant is an active ‘credit seeker’ and may be higher risk. Please note the following: • If no satisfactory explanation is provided, the loan will be declined. • Care should be taken when defaults have been cleared just prior to lodging the application

because this could have been done just to advance the application. A credit check cannot be waived. Ban Period At an individual’s request a Ban Period can be placed on a person’s credit check report due to concerns regarding fraud. Instead of receiving a credit check report, a message indicating a ban is in place will be received. No loan assessment can occur until the ban period ends and a complete credit check report is received.


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12 SECURITY

12.1 Acceptable Security A Registered first mortgage over:

• Real property used for commercial purposes. . • Commercial properties greater than 50 sqm’s. Smaller properties can be considered refer to

Section 12.4.2 • Retail shop, where the security is within a complex that contains a minimum of 10 shops

(vacancy levels not to exceed 25%) located in an acceptable lending area (Refer Section 13) with no other adverse features

• Mixed zone securities – where predominately residential need to satisfy NCC requirements and document accordingly

• Residential Security – unless taken as supplementary security, need to satisfy NCC requirements and document accordingly

• Income producing non-specialised commercial investment real property (Property containing an element of specialisation will be considered if there are mitigating factors. E.g. low LVR or strong obligor)

• Panel beating and mechanical operations of a ‘clean’ nature (the latter subject to Risk Management approval)

• Childcare centres (minimum of 3yrs profitable operation or lease in place with an established childcare business). A charge over the business may be required where the childcare centre is owner occupied.

• Deed of Charge (refer Section 12.4.4)

Cash collateral is acceptable in short term scenario such as:

• An existing borrower is to substitute security property, but the current security property is to be released prior to the new security being perfected. IBAL will hold settlement proceeds as the security for the loan (at a maximum LVR of 100%) until the new security property is settled.

• The cash is to be lodged in a suitable IBAL deposit account (to be “Stopped”), with the necessary security documents (including Deed of Charge and Setoff) prepared by ING Panel Solicitors.

12.1.1 First Mortgages It is mandatory that IBAL holds a first registered mortgage as prime security in support of any commercial loan application. The property must be an acceptable security type and within the specified LVR guidelines. Any property not meeting specified criteria will need to be approved by an appropriate authority level. A second mortgage is only permitted as collateral (top-up) security. NOTE: For commercial units in some situations car spaces or garages attached to a unit may be on a different title to the actual residence. In these cases a Mortgage over the additional title should also be taken.


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12.2 “In One Line” Value Adopted in the case of multi-unit developments – generally represents a discount of around 15% to gross realisation value

12.3 Lending Against “Added Value” Lending against any future or potential value (i.e. rezoning or future subdivision) is not generally permitted.

12.4 Types of Collateral ACCEPTABLE UNACCEPTABLE WILL BE CONSIDERED ON A CASE BY

CASE BASIS

• Income producing fully tenanted non

specialised investment property.

• Owner occupied property used for

commercial purposes.

• Residential property

• Panel beating and mechanical

operations of a ‘clean’ nature (the

latter subject to Risk Management

approval,

• Childcare centres (minimum of 3yrs

profitable operation or lease in place

with an established childcare

business). A charge over the

business may be required where the

childcare centre is owner occupied.

• Commercial properties greater than

50 sq m’s

• General Security Agreement

• Deed of charge and setoff over cash

deposits

• Service station- Clean sites leased to

major brands (not independent)

• Vacant land/broad

acres unless it forms

top up, or collateral,

security

• Nursing Homes

• Hotels (Refer to CPF)

• Motels

• Caravan parks

• Hospitals

• Abattoirs

• Serviced apartments or offices

• Retail shops, with subject site to

consist of a minimum of 10

shops (vacancy levels not to

exceed 25%) located in an

established lending area with

no other adverse features

• Commercial retail properties

less than 50 sqm

• Property containing an element

of specialisation may be

considered if there are

mitigating factors (e.g. low

LVR).

• Residential unit blocks in

suburban/metropolitan

locations.

• Boarding houses- Major

metropolitan locations

12.4.1 Favourable Purchases A favourable purchase arises in circumstances where IBAL is asked to provide finance against a security property that is being “purchased” at a price below its perceived market value.


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These proposals most commonly arise in family situations where a parent or a close relative is selling a family property to a child or close relative in order to assist entry into the property market. Less frequently, this may also arise in as a result of a business relationship where, for example, a developer may sell a property to a business associate at a reduced price.

12.4.1.1 Requirements For IBAL to consider providing finance in the case of a favourable purchase, the following conditions must be satisfied: • Borrowers are required to provide a Statutory Declaration from the vendor stating that the

equity in the property is being gifted and is not subject to being repaid at any time in the future. See also Section 6.2 “Gifts”, for details of required evidence.

• IBAL will lend against the valuation. • All usual underwriting guideline requirements must be met (e.g. pass serviceability requirements,

clear credit bureau etc.). • Valuation is required in all cases. The valuer is to be advised of the nature of the transaction and

the proposed purchase price, and specifically that it is a favourable purchase. • The asset and liability position of the applicant is to be appropriate with the age and personal

circumstances of the applicant. • In the case of a business relationship, the applicant is to provide at least 10% cash contribution

to the purchase. • Debt consolidation is to be considered in terms of existing underwriting guidelines.

12.4.2 Security Property with Floor Area < 50m2 These properties are not preferred securities for IBAL, however can be considered on a case by case basis for worthwhile (strong) borrowers, where securities are deemed attractive.

12.4.3 Leasehold Property (Crown Lease) This is only applicable to property located in the ACT or other known leasehold properties. Lease term remaining must exceed term of the loan by at least 5 years, no matter what the requested loan structure is. The LVR applicable will be dependent on the Security LVR (type and location of security, etc.) in Section 14.

12.4.4 Deed of Charge IBAL’s preferred security is freehold property however cash collateral (held with ING) is accepted in short term scenario’s such as: • An existing borrower is to substitute security property, but the current security property is to be

released prior to the new security being perfected. IBAL will hold settlement proceeds as the security for the loan (at a maximum LVR of 100%) until the new security property is settled.

• The cash is to be lodged in a suitable IBAL deposit account (to be “Stopped”), with the necessary security documents (including Deed of Charge and Setoff) prepared by ING Panel Solicitors.

12.4.5 Second Mortgages (This section does not apply to borrowing’s that are supported by a second or subsequent mortgage behind an existing IBAL first mortgage as part of the cross collateralisation of an existing borrower’s debts).


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Second mortgages are not permissible as prime security for a loan. In addition, no concurrent request for a second mortgage will be allowed. i.e. where a borrower’s requirements exceed our Policy (e.g. Refinance) we would not be a part of a proposal where the remainder of the loans to be refinanced are left to another lender who requires a second mortgage behind IBAL. Refer also Section 9.1.6 Vendor Finance. IBAL will only accept second mortgages (where the first mortgage is to another lender) as collateral/top up security. The total amount available for borrowing is restricted by, postcode and other security restrictions. The calculation of the amount available for borrowing is to include one year’s simple interest on the other lender’s (first mortgage) debt as shown below. Viz:- Value of security $625,000 Total borrowing required: $500,000 1 Other lender’s debt (1st mortgage) $125,000 Add one year’s interest (7.24%) $ 9,050 2

Total amount to be applied $134,050 Available for IBAL loan $365,950 Total borrowing available $500,000 1 Assessed at 80% LVR – note postcode, product (Lo Doc etc.) and other product and security restrictions may apply. 2 Utilise Mortgage Simplifier Rate for Broker/Direct or Reference Rate for MM

The following considerations must be taken into account when contemplating a second mortgage as security: 1. Second mortgage securities often lead to delays in settlement and borrowers should be made

aware that any such delays can be outside IBAL control; and 2. Second mortgages should be registered on title to protect against subsequent charges being

registered and ranking in priority.

12.4.6 Specialised Security Property A property containing an element of specialisation may be considered if there are mitigating factors (e.g. strong borrower/equity position). Where regular monitoring will be required/expected as part of the proposal, this is deemed to be outside the scope of PCM.

12.4.7 Vacant Land/Broad acres Lending against vacant land is not considered acceptable security unless it forms part of top up, collateral security.


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12.4.8 General Security Agreement While not necessarily a normal part of general business, a General Security Agreement by a company over all its assets should be considered as additional security when lending to an incorporated applicant. Because of the specialised nature of this security, where a General Security Agreement is taken as security, no security value is to be extended to the assets pledged under it. A General Security Agreement over an asset of a company gives IBAL an equitable interest in that asset. IBAL would require a General Security Agreement over as many company assets as possible including: • plant machinery and equipment; • uncalled capital; • goodwill; • intellectual property rights; • shares; • inventory • receivables • marketable securities; and • Land. A General Security Agreement is a security interest which ‘floats’ over an asset of the company allowing the company to deal with the asset in the ordinary course of business without needing the financier’s consent each time. In the event of default by the company, it can crystallise at the option of IBAL and become a fixed charge over the assets at that time. For land, a caveat/mortgage should be lodged to ensure IBAL interest is protected against a subsequent legal interest. Notwithstanding the normal perceived security value that a General Security Agreement may provide, strategically it is very useful in default situations.

12.4.9 Queensland Securities The Department of Natural Resources in Qld have a paperless title system, meaning that the majority of properties in Qld do not have a Certificate of title issued unless specifically requested. Currently, the process for completion of documentation includes: • IBAL solicitors to lodge a settlement notice, preventing any other transaction (other than our

mortgage) for a period of two months (acts like a caveat). • Documentation issued, accompanied by a Witnessing Certificate that needs to be executed by

certain qualified people e.g. a Solicitor, Justice of the Peace. The witness has to identify the parties involved.

On the day of settlement, a title search is undertaken to ensure our dealing is the only one present – if not, then our funds are withdrawn. Action in relation to verification will therefore be necessarily decided upon by our Solicitors at documentation stage, depending upon whether or not the transaction is “paperless”.


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12.4.10 Guarantees A guarantee is a contractual promise given by a third party that makes the person liable in the event of default by the debtor. When reviewing the use of a guarantee the following should be taken into consideration as appropriate: • A practical and common sense approach is taken to the level of Guarantees required. • Joint & Several Guarantees from: The Shareholder Directors of the Borrowing Entity and any Corporate Shareholder of the Borrowing Entity Other Corporate Entities controlled by the Borrower or any Guarantor that provide servicing and/or security support The adult Beneficiaries/Unit Holders of any Trust controlled by the Borrowing Entity. (Guarantee from a beneficiary or unit holder can be waived if they are not providing servicing/or security support.) NOTE: Non-recourse lending is not permitted. Contents of a Guarantee The guarantee must incorporate the following provisions: • Guarantee obligation - an obligation on the guarantor to pay the money owing on demand if not

paid by the debtor. • Indemnity - if for any reason the debt is not recoverable against the debtor or the guarantor, the

guarantor must indemnify the financier for any loss. • Extent of guarantee - the guarantee should state that the liability of the guarantor would not be

affected by: • Any variations of the transaction or the documents between financier and debtor; • Failure by the financier to enforce any security held by the debtor or any other person; • The release of any security held by the financier for the guaranteed money; • The insolvency of any party to the transaction; • An increase in the amount guaranteed (in such instances the written consent of the

guarantor to the increase must be obtained); • The money or any part of it not being recoverable from the debtor or any co-guarantor; • A clause prohibiting the guarantor from exercising any right of set-off, or any right of

subrogation, or claiming the benefit of any security held by IBAL, or proving in liquidation or bankruptcy of the debtor before IBAL has been paid; and

• A clause under which the guarantor must pay all costs in relation to enforcement of the guarantee and requiring interest to be paid if the guaranteed money is not paid when due.

Guarantees for less than the Full Amount of the Debt Where there is a request for a limited guarantee, that is a transaction supported by a guarantee for an amount less than the total debt of the borrower, this does not comply with underwriting guidelines.


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Joint and Several Guarantees In a situation where an application is presented with multiple guarantors, each guarantee must be provided on a joint and several basis. If they are only provided on a several basis, this is considered to be outside underwriting guidelines. Guarantees from Companies Considerations when guarantees are taken from companies include: • Guarantees are to be obtained from owners or directors; • Directors’ conflicts – are any directors of the company under a conflict of interest in relation to

the execution of the guarantee? If so, do the Articles or Constitution allow the company to enter into a transaction where a director has an interest and permit this director to vote?

• ‘Uncommercial’ transaction - will the giving of the guarantee constitute an ‘uncommercial’ transaction under the Corporations Law?; and

• Trustee company - is the company a trustee? If so, does the trust deed allow the trustee to give guarantees and indemnities?

Where the borrowers are the shareholders and directors of the company, as a general rule, we do not require a guarantee from the company when there is little scope of recovering guaranteed debts from retained profits, as they are drawn as directors’ salaries or paid out as dividends. On the other hand, if it can be demonstrated that considerable reliance is placed on retained profits, then a guarantee from the company should be taken. General requirements • All people providing security who are not borrowers must be guarantors. • Income details and Assets & Liabilities should be provided by all guarantors. • Generally, where the guarantor is an individual, the guarantee must be signed personally by the

individual and not by a power of attorney. Refer Section 3.5.6.2 • A Credit Advantage report must be conducted on all individual and company guarantors. • If there are multiple guarantors, each guarantee must be provided on a joint and several basis. • A minor (a person under the age of 18) is unacceptable as a guarantor or third-party security

provider. • A guarantor should add weight to the application and therefore contribute to minimising or

improving risk • All guarantors must be Australian residents.

12.4.11 Information about obtaining legal and financial advice The advice can be given by a solicitor, accountant or financial adviser. There is no significant degree of difficulty obtaining advice from one of these sources, although often lawyers may refuse to give financial advice. This, of course, is inconvenient to guarantors who need to seek out someone separate to give financial advice. As financial advice is rarely requested, this is not a big problem in practice. The following table analyses the situation in relation to legal advice, which as noted above generally will apply only in relation to guarantors.


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PLACE STATUS NSW, ACT and VIC Law Society of New South Wales has prescribed a standard form.

Generally no problem obtaining. QLD, NT and TAS No prescribed form for legal advice. Generally no problem obtaining. SA The Law Society of South Australia recommends that practitioners do

not provide legal advice certificates. It is a rather extraordinary concept that a law society should advise lawyers that they should not give legal advice, but nonetheless this is what has happened. Generally, panel lawyers will have borrowers sign a Statutory Declaration stating that they have obtained legal advice, and there are lawyers who will provide legal advice.

WA The Law Society of Western Australia has prepared a standard legal advice certificate. Some lawyers refuse to give advice.

Legal Advice Legal advice should be recommended wherever a guarantor is considered vulnerable and/or of risk of significant loss should the borrower default. Where the guarantor has a history of guarantees or is considered financially strong and aware, the relative risk is reduced (Similarly where the guarantor is a profession such as accountant, solicitor, finance, etc.) Waiving Independent Legal Advice can be considered • If the guarantor is a company or trust owned by all the borrowers, legal advice can be waived. • Where the guarantor is considered financial astute and aware of obligations and/or obtaining a

benefit from the transaction. Examples of where parties not sufficiently the same • Borrower A, guarantor X Pty Limited, the shareholders and directors of which are A and B. A

requirement for advice is to be considered for B because B is not a borrower. • Borrower X Pty Limited (with A the sole director and shareholder) and A & B guarantor. A

requirement for advice is to be considered for B because B is not benefiting through the company.

Examples where advice can be waived, the parties are common • A and B borrower, X Pty Limited guarantor of which A and B are all the directors and

shareholders. Advice could not be waived if there was an additional shareholder and director C who was not a borrower as there would then not be sufficient commonality.

• Borrower X Pty Limited (sole director and shareholder A), guarantor A. Financial Advice Where the borrower or guarantor is elderly and/or in receipt of superannuation/annuities or government benefits (e.g. pension, family allowance), it is recommended they obtain independent financial advice to ensure the transaction does not adversely impact their entitlements (ie increased assets or income and the potential impact on means/asset testing).

12.5 Unacceptable Security The following security types are not acceptable under this Underwriting Guideline Manual:


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• Property occupied by life or protected tenant • Purpose built premises, restrictive or unusual usage property • Property that has adverse environmental issues from past/current uses (e.g. underground

storage tanks, chemical processes etc.) • Moiety Title (SA)- Typically covering maisonettes or attached cottages, means that the person

owns a share of the whole of the land and leases a defined portion of the land for himself or herself from the other owner or owners

• Properties requiring mortgagee execution of an Encumbrance and Deed of Consent document. Purple Title (WA)- They exist where the whole property i.e. land and buildings, are owned jointly by every owner and for a mortgage to be lodged all owners must agree and execute the mortgage documentation

• Vacant Land - stand alone • Properties registered under the Federal Governments National Rental Affordability Scheme

(NRAS). • Display Homes • Brothel • Leasehold that are not government backed • Residential units where living area <50 m2 If a panel valuer has negative comments or considers the security is located in a limited market, then the property is not desirable security and would require strong mitigants to proceed (e.g. Strong servicing with low LVR). The following security types are generally not accepted; however, they may be considered on a case by case basis, albeit at reduced Security LVR, depending on the strength of individual loan proposals. Applications involving these security types require appropriate authorised DLA Holders sign off. • Flood affected property:

Properties located in a 1% AEP – Annual Expedient Probability (previously 1:100 year flood zone) will be considered on a case by case basis, subject to Buildings insurance being obtained. Properties located within 2% and 5% AEP (previously 1:50 and 1:20 flood zones respectively) will not be considered. NOTE: Whenever information is provided with an application or valuation that indicates a property is located within a flood zone, evidence is to be sought from the Broker/Introducer/Borrower to confirm the property is acceptable in terms of this requirement.

• National trust or historic property • Heritage listed • Property that is poorly maintained or in need of significant repair • Property situated in unfavourable area with a limited life expectancy, poor resale prospect

and/or values

12.6 Concentration Limit Concentration limit is a form of control mechanism for the management of identified areas of risk exposures. IBAL monitors the concentration risk of collaterals monthly. For high density development or areas of new subdivision/ development, IBAL may prefer to limit its exposure.


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Where a credit assessor is aware of multiple applications in either scenario, particularly from the one source/ broker (e.g. via a marketing seminar), details should be submitted to RM for review.

13 SECURITY PROPERTY LOCATIONS Major target markets are major metropolitan areas and established regional areas. IBAL may seek amortisation or a lower LVR in some instances, depending on the nature and location of security Acceptable Lend Areas Acceptable Major Metropolitan Areas Maximum LVR is 75%

Acceptable Regional Areas Maximum LVR is 70%

NSW • Newcastle • Sydney • Wollongong VIC • Melbourne QLD • Brisbane SA • Adelaide WA • Perth TAS • Greater Hobart NT • Greater Darwin

NSW/ACT • Albury-Wodonga • Canberra • Canberra – Queanbeyan • Coffs Harbour • South Coast including Nowra-Bomaderry • Southern Highlands • Port Macquarie • Wagga Wagga VIC • Bendigo • Ballarat • Geelong • Latrobe Valley • Mildura • Shepparton QLD • Bundaberg • Cairns • Gladstone • Gold Coast – Tweed • Hervey Bay • Mackay • Rockhampton • Sunshine Coast • Toowoomba • Townsville WA • Bunbury • Mandurah TAS • Burnie – Devonport • Launceston


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While the above areas are the preferred target markets, security outside these areas can still be considered on a case by case basis as Regional Areas (Maximum LVR of 70%) if • They are located in designated industrial and retail commercial areas/parks (e.g Central Coast in

NSW and Busselton in WA) and/or • They are located in an established industrial/commercial market that services a wider local

population and where the collateral value can be confirmed with 3 comparable sales within that locality within the last 6-12 months.

14 MAXIMUM LVR LVR represents the loan amount as a percentage of the valuation amount. For a purchase the lower of the purchase price or valuation must be used. • Maximum 75% for acceptable security located in major metro area. • Maximum 70% for acceptable security located in regional areas. • Maximum LVR of 65% for childcare centres • When residential property is taken as collateral security, the maximum LVR against the

residential security is 80% (Refer RMUG Section 16 for specific security restrictions)

15 VALUATIONS

15.1 Overview An acceptable valuation is required in all cases to confirm the Banks security position. • By IBAL Panel Valuer with valuer to be instructed by the IBAL PCM Team. • Brokers/clients cannot instruct commercial valuers on IBAL behalf. • Valuations are to be net of GST • Childcare Centres are to be valued based on a “Freehold lessor’s interest”, to allow for rental

income as a child care centre. If an owner occupied centre, an additional cost should be allowed to find a tenant

• The lesser of current valuation or purchase price will be applied with the appropriate LVR calculation.

15.2 Valuers’ Standing Instructions

The Valuer will only accept Instructions to perform a Valuation from IBAL when the Valuer has local knowledge and competence in the geographical area of the property being valued. The purpose of each valuation is to determine the current market value and the suitability of the property for mortgage security purpose. The valuation is made on a fee simple in possession and unencumbered basis (unless otherwise stated) subject to any existing or agreed tenancies. Valuations are ordered via VMS or Valex to ensure requests are outsourced on a random basis to appropriate Valuers to avoid adverse selection or collaboration. Any other matters not mentioned below that may affect the value, leasing or sale of the property, or affect its value to IBAL as security, must be brought to the attention of IBAL.


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The valuation report must be signed and dated by the valuer who undertook the inspection / valuation. This valuer must be authorised by IBAL and must be a registered valuer. The valuer acknowledges that it will be responsible for ensuring all agreed standards are maintained by its employees, agents and subcontractors conducting valuations on behalf of the principal. It also acknowledges that its professional indemnity extends to all activities performed by its employees, agents and subcontractors. The valuer acknowledges that the valuation report will be relied upon in deciding to approve a loan facility for which the valuation was sought.

15.3 Valuers All valuers are to be accredited by IBAL. Requests for valuation will be forwarded to a panel of accredited commercial valuers. Upon a valuer’s inspection and assessment of a particular property, a formal report will be sent back to the requestor.

All documentation prepared by or on behalf of the Valuer in the course of providing the Services must:

(a) be prepared by valuers that are:

(i) current financial members of the Australian Property Institute (API) or other recognised valuation industry body as detailed or notified by IBAL;

(ii) registered or licensed in the state or territory in which the relevant property is located and be one of the following classifications of API members (or such equivalent classifications in any other recognised valuation industry body, as detailed or notified by IBAL) and hold Certified Practicing Valuer (CPV) status:

• Associate (AAPI) • Fellow (FAPI) • Life Fellow (LFAPI)

(iii) where the property is located in a state or territory in which a valuer is required by law to be licensed, the valuation must be by a licensed valuer.

(iv) where the property is located in a state or territory in which a valuer is not required by law to be licensed, the valuation must be by a valuer who is a member of the API.

(v) where valuation reports signed by PAAPI ( Provisional Members) and API members with less than 2 years full time post graduate valuation experience are only acceptable when countersigned by a valuer holding one of the above classifications (or equivalents).

(vi) residential property valuations will not be undertaken by a SAPI (Student) member of the API (or equivalent).

(b) be checked and approved for accuracy and compliance with this agreement by an authorised officer of the Valuer having regard to the requirements specified in this agreement and any instructions from IBAL, the Mortgagee or the Mortgage Managers.”


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Note: LVR represents the loan amount as a percentage of the valuation amount. For a purchase the lower of the purchase price or valuation must be used.

15.3.1 Contents of Valuation All valuations must be prepared in a fixed format agreed in advance with the RM Department

15.3.2 Land Description The description must include the following: • registered proprietor; • full address and title reference of the property, with comments on the size, shape and

dimensions of the land concerned; • physical characteristics of the land should also be reported; • identify and report on title encumbrances such as easements, covenants, rights of carriageway

and (where applicable) their effect on value of the property. Registered interest on the title must be noted;

• comments on adequacy of drainage, if susceptible to high flood risk or land slip, etc.; • any details as per the planning approvals or outstanding orders on the property.

15.3.3 Location Description The description must include the following: • Comments on location of the property, its appropriateness for the proposed use etc.; • Description of age and quality of surrounding properties and the status of the locality; • Comments on the zoning of the property, and whether existing or potential usage complies with

zoning. • Description of the property’s proximity to local facilities, amenities and services. • Comments on any general trends within the surrounding area such as traffic flows, transport

availability, population trends etc.

15.3.4 Property Improvements Description The description must include the following: • Description of the improvements such as size (gross area and net lettable floor dimension),

shape of the buildings, the architectural style, quality of finish, floor plan, age, condition and the general state of repair etc.;

• Comments on any additional improvements that have been carried out, note the age, quality of work and if there is any obvious non-compliance to local Council regulations. Otherwise note if there is any deterioration etc.;

• Comments on the suitability of the existing or proposed usage, i.e. is the property specialised in nature etc.;

• Comments on the adequacy of services connected or available to the property; • Comments on potential impacts by pest, rail, road, air, high voltage power lines etc.; • Comments on any special features that the property may have which could inhibit any

alternative use, or alternatively restrict its appeal to any subsequent purchaser; • Comments on any adverse features of the property and its value impact; • Comments on the layout of the building; and vehicular access etc.; • Make all necessary enquiries from statutory bodies to establish the existence of any outstanding

orders in relation to fire; and


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• Comments on whether there are any value rental guarantees or ‘perks’ (such as furniture packages etc.) provided by vendor. If so, exclude these factors; the valuation should be on vacant possession basis only.

15.3.5 Marketability • Comments on market absorption, supply and demand trends (willing buyer/seller), competitive

situation, and their impact upon the property are critical to its valuation; • Analysis (detailed if necessary) of the current and future market trends and supplementary

market study (if appropriate); and • Advice on the length of time required to either sell or let the property. • Where a Valuer indicates two tier marketing techniques are being used to sell the property, it

would be expected that the Market risk rating is either a “4” or a “5” (Section 15.3.6).

15.3.6 Sign-off and Acceptance of a Valuation The entire valuation will need to be read to fully consider/understand and if require mitigate the security’s risk. Some of the details contained in the valuation will include

• Property’s address and title details, which should be compared with evidence/details already held for the loan application.

• Any recent sale of the property • Level of Market Activity and recent direction • If two tier marketing exists • A number of comparable sales which should be “like for like” i.e. if valuing a factory the

comparable must be for similar properties located in the immediate suburb or surrounding areas. In principle the comparables should include both inferior and superior properties to support the security’s value.

• Valuer’s commentary that highlights derogatory/negative aspects that would affect marketability/saleability of the security.

All the information listed above together with other information provided in the value’s comments and throughout the report should be used to determine the acceptability of the property.

For New Business applications only (i.e. not increases/variations): • Valuations up to 90 days old can be accepted at time of assessment. • Valuations up to 6 months old can be accepted at time of settlement. (Common sense to prevail

as some flexibility may be required on rare occasions) Owner Occupied Property Valuations Where commercial security property is substantially owner occupied, the Valuer is instructed to provide an assessment of the differential in value of the property in a ‘vacant possession’ condition as compared to ‘tenanted at market rental’ condition. If a difference exists between the two methodologies, the valuer’s comments and reasoning should be reviewed before accepting the final conculsion (i.e. valuation amount).

Valuations in support of these securities need to be critically assessed with particular emphasis on the physical condition of the collateral, the saleability of the security and very importantly, the overall strength of the proposal. (E.g. prior credit history and capacity to repay)


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Authorised DLA holders must outline specific mitigants where they approve loans outside these underwriting guidelines.

15.3.6.1 Environmental Risk Issues One type of risk often overlooked in credit analysis is environmental risk. However, for some applicants this can be the most significant risk of all that IBAL will face. Environmental risk is defined as the risk: • of diminution in the value of an applicant’s debt servicing capacity arising from a contravention

of environmental protection laws or legally enforceable codes and standards relating to an industry;

• that IBAL may incur direct liability under environmental law as a consequence of its relationship with a “polluter” customer;

• that IBAL may be restricted in its capacity to enforce its security because of prospective environmental liability; and

• that IBAL may have its security interest postponed under an environmental order.

15.3.6.2 Activities on the Property Research is required to: • Check what activities are being or have been conducted on the property. • Check what was or is used in the conduct of those activities. • Check what records were or are kept of such activities including method of delivery of

contaminants to or from the property. • Ascertain whether required licences in order to operate the business are in place and whether

conditions are being complied with • If uncertain, obtain Certificate of Compliance from relevant government/local council authority

and state condition (if any) on letter of offer.

15.3.6.3 Substances Ascertain whether: • Any of the structures on the property contain asbestos, PCB’s, CFC’s, halons or any other toxic,

hazardous or polluting substances. • There are any toxic, hazardous or flammable substances stored on the property, if so: • How are/were such substances stored? • Are/were there any licences for the storage of such substances? • What records are there concerning substances stored on the property? There has been any prosecution or other legal action, or whether any prosecution or legal action is pending for breach of any licences or the escape of any substances from containers, etc. Is there evidence of spillage or leakage of these substances? This is particularly important for substances stored in underground storage tanks because of the potential for contamination of the soil, neighbouring properties and underground water contamination.

15.3.6.4 Waste Ascertain:


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• What waste is or was discharged in the course, or as a consequence, of activities on the property?

• What are or were the discharge points for any such waste? • Whether such discharges were permitted; • Whether there has been any prosecution or legal action or whether any is pending against the

owner concerning: • Breach of any consent, licence, authority, permit or agreement; • An offence against any pollution legislation; or • Any pollution by the owner; and • Whether any waste is generated or disposed of on the property.

15.3.6.5 Noise Ascertain whether the activity on the property involves emission of noise and if so: • Is the owner obliged to maintain and operate noise control equipment? • Have any licences, pollution control approvals, noise control notices, noise abatement orders or

noise abatement directions been given to the mortgagor? • Has there been or is there pending any prosecution or other legal action concerning, noise or the

breach of any licence, approval, notice, order or direction?

15.3.6.6 Restrictions on Approval If there is any previous or current evidence or reasonable concern of contamination and/or non-compliance with any of the above issues (17.2.6.1 to 17.2.6.5), the security does not comply with underwriting guidelines.

15.3.6.7 Valuation Appeals Process (Managed by Operations) • All appeals are to be presented to the Valuation Team ([email protected]) who

will then review the position and refer to valuers in need. Brokers & BDM’s are not to contact Valuers directly.

• Only variances greater than 10% from purchase price or customer’s estimated market value will be investigated under this process. Where the variation is less than 10% the valuation team will further investigate the valuation only under exceptional circumstances. These will be assessed on a case by case basis.

• If Borrowers/Brokers or Business Development Managers request that we review a valuation report, the Valuation Team requires the following information (in writing at all times):

• Full details of additional sales evidence (minimum 3 sales), which includes: Date sold (Must be a confirmed sale and no more than 6 months old) Address Amount sold Size and details of dwelling/land Details of selling agent along with phone numbers.

• Unless the above information is provided the valuation appeal cannot be progressed further as there is insufficient information to present to the valuer.

15.4 General Insurance It is a requirement under the mortgage memorandum that the security/building is insured and by signing the mortgage, the borrower/mortgagor confirms that they comply with the terms of the mortgage. Failure to do so is an event of default of the mortgage.


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15.5 Variations between Purchase Price and Valuation A significant variation between the Valuation and the Purchase Price (e.g. as a result of two tier marketing, or related party purchases) sign-off by authorised CO staff (refer to CO DLA) is mandatory. If the formal valuation amount is less than the purchase price of the subject property by 10% or more, the borrower needs to be promptly informed of the situation once identified and given the option to either proceed or withdraw the loan application and given the opportunity to seek independent advice before accepting IBAL loan offer. Variations of this nature could be the result of “two tier marketing”, which is the practise of having two prices or tiers in a real estate market, one for locals who know the market values in the area, and one price for other buyers, often from interstate or overseas, who are not aware of local market prices. Where a Valuation indicates two tier marketing techniques may be in use, additional care is to be taken to ensure the current market value is used in calculating the applicable LVR. Sign off by the appropriate CO DLA holder is required. Clause to be inserted in the loan approval and as a special condition in the letter of offer. “You acknowledge that the property at [address] has been valued at significantly less than the purchase price which we understand is $xxx,xxx. This valuation is for our internal use, and you are not entitled to rely on it. In the light of this information, we strongly recommend that you make independent enquiries as to the value of the property. It is common for valuers to value slightly below purchase price, and of course, the assessment by our valuer may have been unusually conservative or based on incomplete information. This underlines the importance of you making your own enquiries. By proceeding to drawdown the loan, you acknowledge you are aware of this issue and wish to borrow the loan despite this fact.”

15.6 Second Opinion Valuation Not permitted - under no circumstances should a valuation request be withdrawn from a valuer purely on the basis that the valuer was not coming up with a valuation figure to the expectation of an introducer/originator.

16 VARIATIONS

16.1 Full Discharges The release of ING DIRECT security can be approved by an authorised DLA Holder when sufficient funds are received to clear all loans secured by that security.

16.2 Partial Release Partial discharges can be approved provided the residual debt is within the approving DLA Holder’s limit. Servicing Serviceability is not required where LVR remains the same or decreases and is within product parameters.


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NB: Assessment of servicing should be considered where: Full sale proceeds are not being obtained Property being released is deriving rental return Doubt exists as to the validity of the transaction (E.g. non arm’s length sales, sales not

involving a Real Estate Agent) Where arrears history is evident (greater than 1 payment in arrears (greater than 30 days) in

the last 6 months) or where there is evidence that the customer has been in hardship in the previous 12 months (Care to be taken to ensure borrowers are financially stable)

Valuations Re-valuation on remaining security is required where LVR increases and is outside product parameters or; We are not obtaining full net sale proceeds or Doubt exists as to the validity of the transaction (E.g. non arm’s length sales, sales not

involving a Real Estate Agent)

16.3 Change of Repayment Type For loans originally approved with terms up to 20 years and where a change of repayment type is requested (e.g. principal & interest to interest only or extension of interest only period), the change can be considered/approved without updated financials and lease information when:

• All accounts operated by the applicants have been conducted in a satisfactory manner, with no greater than 1 payment in arrears (over 30 days) evident in the last 6 months or where there is evidence that the customer has been in hardship in the previous 12 months (Care to be taken to ensure borrowers are financially stable)

• Loan term as per original approval. • LVR based on the most recent valuation held must be no greater than 70%. • Existing valuation must be reviewed and revaluation considered based on strength of

applicants, security location, market conditions and any pertinent issues that may affect ING DIRECT’s position. Comments to be made on the expose/approval document.

16.4 Renewal of Expiring Facilities Where the loan term for an existing IBAL loan is about to expire an updated financial position is required to ensure the borrower’s position has not substantially diminished. This includes an assessment of the borrower’s financial position to ensure that the servicing and security position remain acceptable to IBAL. An approval for a new loan term can be considered on an abridged basis subject to: • Clean credit enquiries (CRAA). • All accounts operated by the applicants have been conducted in a satisfactory manner, with no greater than 1 payment in arrears (over 30 days) evident in the last 6 months or where there is evidence that the customer has been in hardship in the previous 12 months (Care to be taken to ensure borrowers are financially stable) In these cases requests for the most recent year’s financial statements and tax returns should be sufficient when supported by the satisfactory loan conduct.


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Also, the existing valuation must be reviewed and revaluation considered based on the strength of applicants, security location, market conditions and any pertinent issues that may affect ING DIRECT’s position. Comments need to be made on the expose/approval document.

16.5 Substitution of Security Full assessment is not required if No increase in LVR (normal valuation requirements to apply) No significant change in locality No change of employer for applicant No change in sources of income that were used in last approval .i.e. change or removal of

investment property income New security meets normal policy

A Full Assessment is to be considered where new security property is not in an Acceptable Lend Area. Refer Section 13- Security Property Locations

16.6 Consents Appropriately authorised DLA Holders can approve consents to second mortgages to other lenders and plans of sub-division or strata title of the Bank’s security for loans/exposures.

16.6.1 Consent to a Second Mortgage Consent by IBAL to a second mortgage by another financier/lender is permissible subject to obtaining the same approval as is required for an amended transaction. Considerations in consenting to a second mortgage are:

• In an open form without restriction to IBAL first mortgage • If requested to restrict IBAL first mortgage, care should be taken to ensure that the value of

the security will not be eroded • Retain priority for a minimum of principal and interest and interest outstanding at any time

plus any recovery costs (should include legal fees, disbursements and costs that may be incurred in the sale of any security)

• Refer to panel solicitors for the preparation of the priority agreement

16.6.2 Other Consents Consents to leases, sub-divisions, strata plans, etc. must have been signed off by the Bank’s lawyers as being in order for registration.

17 ANNUAL REVIEWS

17.1 Review Requirements PCM is a widely distributed portfolio with average loan size below $500k and regular monthly repayments. As such PCM asset base is best managed using portfolio level tools. These are summarised below: • Behaviour scoring. IBAL behaviour scoring tool, risk rates every account in the portfolio monthly.

This allows a constant and timely understanding of how the risk profile of the portfolio is developing. The tool is automated and allocates risk rating categories based on the behavioural


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Probability of Default (PD) model. This, along with the arrears levels are monitored monthly by Lending Operations, RM and the LCC.

• Payments monitoring. Our systems are able to identify and isolate any accounts where current payments are in arrears. Any differentiation in payment performance is reported monthly to our collections unit.

• Collections Unit. Collections and default management activity is channelled through the Collections Department. (Experienced collectors, whose mandate is to actively restore performance or recover the debt, populate this unit.)

Priority Commercial Mortgage (PCM) exposures must be reviewed in accordance with the following requirements:

Facility Type OOT Exposure

LVR Review Type Review Frequency

Term Loan and Commercial Equity Line of Credit

Up to $2.0m

All Portfolio managed / monitored.

N/A

Commercial Equity Line of Credit

Over $2.0m

All PCM Term Loan Review Every 3 years

Term Loan Over $2.0m to $5.0m

Up to 60% Portfolio managed/ monitored

N/A

Term Loan Over $2.0m to $5.0m

Over 60% • Annual Review Statement

• Annually

• PCM Term Loan Review • Every 3 years

Term Loan Over $5.0m Up to 60% Annual Review Statement

Annually

Term Loan Over $5.0m Over 60% PCM Term Loan Review

Annually

Bank Guarantees

All All Review to ensure security is still held and receipt of fees (By way of annual certification to LCC by Securities)

Annually

17.2 Review Formats Annual Review Statement A brief review of the file leading to confirmation of the following: - The loan has been conducted in a satisfactory manner, with no greater than 1 payment in arrears (over 30 days) evident in the last 6 months or where there is evidence that the customer has been in hardship in the previous 12 months (Care to be taken to ensure borrowers are financially stable) ;


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- The loan covenants are entered into the covenants register and are being complied with; and - There are no adverse features evident, including any material diminution in the value of the underlying security - For Lease Doc loans ensure we hold a copy of the current lease on file A statement to this effect is to be signed off by the DLA Holder and retained on the customers file. Should any of these conditions not be met then a PCM Term Loan Review is to be undertaken.” PCM Term Loan Review There are two types of PCM Term Loan Reviews, a “Short” and a “Full” review. Both types are presented on the same form but vary in depth of financial analysis and financial statement requirements. Short A “Short” PCM Term Loan Review, which includes the waiver of review of financial statements, should be undertaken if the following conditions are satisfied: 1. Interest cover of 1.5 based on the passing rental from the security property (i.e. loan is

essentially self- servicing) , and; 2. Security property is leased to an arms-length party on commercial terms. In these instances an updated lease, for expired leases, is to be provided. If the loan has any history of arrears in the last 12 months, an analyse of the rental payments (highlighting any rental arrears) should also be undertaken. Full A “Full” PCM Term Loan Review should be undertaken if the “Short” form conditions above are not satisfied or as otherwise required by RM. A full review includes financial statement analysis with a revised/updated serviceability test as detailed in Section 10 Revaluation In all cases, PCM loan documents are to include the right to request, at IBAL discretion, a revaluation, at the borrower’s expense, of the security property as part of each annual review. RM may agree to waive the revaluation requirement if it believes the property remains in good condition and there has been no significant adverse movement in prices since the last valuation. Note: For retail mortgage loans this is a standard clause in the loan “Terms and Conditions” and need not be added to the letter of offer. Annual Certification Before the February meeting of the Local Credit Committee (LCC) each year the Manager, Credit Assessment must certify to the LCC that all Annual Review Statements and PCM Term Loan Reviews due for the 12 months to 31 January have been completed. These annual certificates must incorporate the following terms:


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“Portfolio Compliance Certificate. All Annual Review Statements, PCM Term Loan Reviews required for the 12 month period to 31 January 20XX have been completed in accordance with the IBAL Review Policy. These reviews did not identify any areas of risk or breaches of loan covenants that have not been brought (in writing) to the attention of the Local Credit Committee or RM Department. No additional provision is recommended in relation to this portfolio.” Review Approval Reviews must be approved by authorised DLA holders.

18 ARREARS MANAGEMENT Active loans Arrears of active loans are managed by Lending Services – Collections under the same process as residential loans. Matured Loans When a loan has matured and we have received no instruction/information from the borrower, it may be necessary to commence legal action to have the loan refinanced.

19 LEGISLATION

19.1 National Credit Code

19.1.1 Introduction The National Credit Code (the NCC) applies from 1 July 2010. The National Credit Code (the NCC) regulates the provision of consumer credit throughout Australia. The NCC affects many of the interactions between IBAL and its customers. It is important that every employee and agent of IBAL (including introducers) knows how the NCC affects the policies, procedures and processes of IBAL. Ongoing compliance with the NCC is mandatory. Substantial civil penalties may be imposed for breaches of certain provisions of the legislation. In addition, criminal penalties may apply and loan contracts, mortgages and guarantees may be varied or set aside by court order. The NCC: • Is found in Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth), and regulates

the relationship between parties to consumer credit transactions. • Provides for upfront disclosure of relevant information in documents. • Regulates the ongoing conduct of the loan through to discharge (including interest and default

interest charging; content and timing requirements for statements of account; notice requirements for variations , fees/charges, terms and conditions, default notices and procedures).

• Provides avenues of protection and legal redress for borrowers and security providers. • Regulates other matters such as conduct of credit providers (including their employees and

agents), advertising and linked credit provider relationships.


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19.1.2 Regulated and Unregulated Loans Regarding IBAL products, the NCC regulates: • Credit provided to individuals or strata corporations where credit is to be used wholly or

predominantly: • for personal, domestic or household purposes; or • to purchase, renovate or improve residential property for investment purposes; or • to refinance credit that has been provided wholly or predominantly to purchase, renovate or

improve residential property for investment purposes • (together "NCC Purposes").

If credit is provided to a company, other than a strata corporation, then the credit is not regulated by the NCC. Credit Wholly or Predominantly for Non-NCC Purposes • It is presumed that the NCC applies to a loan if that is claimed in any proceedings unless

IBAL has been able to establish that it does not. One way for IBAL to assist its position in this regard is to take a declaration from the customer saying that the loan will be used wholly or predominantly for non-NCC Purposes.

• If credit applied for by an individual or strata corporation is wholly or predominantly for non-NCC purposes, then the applicant must indicate this by completing the declaration on the application form.

• When the applicant completes the declaration further inquiries must be made to verify whether the declaration is accurate in accordance with IBAL procedures in relation to non-NCC Purpose Declarations. The declaration cannot be relied on if IBAL (or the person who obtained the declaration from the applicant, including IBAL’s employees or agents) knew or had reason to believe, or would have known or had reason to believe if it had made reasonable inquiries about the purpose of the loan, that the credit was in fact to be applied wholly or predominantly for an NCC Purpose. It will also be ineffective if the debtor is able to establish to the contrary in any proceedings ultimately initiated in relation to the loan.

• A declaration is not required if the applicant is not an individual or strata corporation as the loan will be unregulated.

Credit Wholly or Predominantly for NCC Purposes • Credit to individuals or strata corporations that is wholly or predominantly for NCC purposes will

be regulated by the NCC. ‘Predominantly’ refers to the purpose for which more than half of the credit is intended to be used as at the date the credit contract is entered into. If the credit is to be used to obtain goods or services for use for different purposes, ‘predominantly’ refers to the purpose for which the goods or services are intended to be most used.

Determining the Purpose of Credit As set out above, credit is regulated under the NCC if it is provided wholly or predominantly:

• for personal, domestic or household purposes; or • to purchase, renovate or improve residential property for investment purposes or to refinance a

loan given for these purposes.

Personal, domestic or household purposes


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Even though the NCC does not define what constitutes personal, domestic or household use, it is self-explanatory and generally there should be no difficulty in deciding whether or not a loan is wholly or predominantly for personal, domestic or household purposes. For example, using credit: • To purchase a car for personal use or to fund a holiday would be wholly for personal, domestic or

household purposes. • To purchase a vehicle solely for use by a business would be wholly for investment or business

purposes. Where there is any doubt guidance should be obtained from Legal and Compliance.

19.1.2.1 Relationship of the Code of Conduct

The Introducer Code of Conduct outlines the key principles that govern the ethical standards and professional behaviour expected by IBAL. Each of these principles is consistent with the NCC, however the expectation that introducers will “Comply with the law and observe and abide by any duties and obligations imposed by a legislature” is particularly relevant.

19.1.2.2 Predominant purpose When there is no predominance in the purpose of a loan (that is, when exactly half the loan will be used for personal purposes and half for business or investment, excluding investment in residential property), the underwriting guideline is that the NCC will apply. The predominant purpose of a loan is determined at the time the credit contract is signed, even though it may change some time in the future. Examples of predominant purpose: A self-employed couple applies for a Personal Loan of $20,000 to buy a car. The car will sometimes be used in connection with their business, but will primarily be used as their family car. The credit provided by the loan will therefore be predominantly for personal purposes, so the NCC will apply. This is a regulated loan. A customer has applied for an Investment Property Loan of $70,000 to assist with the purchase of an investment villa on the Yarra River, which will be rented out (maybe staying in it for 4 weeks in a year). The credit provided will be predominantly for investment in residential property, so the NCC will apply. This is also a regulated loan. A customer has applied for an Investment Loan of $70,000 to purchase shares. The credit provided will be predominantly for investment purposes, so the NCC will not apply. This is a non-regulated loan. See also the discussion in Section 16.1.2 above.


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19.1.2.3 Accurate assessment Accurate assessment of whether the NCC will apply to a loan is vital. This initial assessment will determine the type of documentation that needs to be prepared, and how the loan is treated after drawdown. Incorrect assessment will lead IBAL to act in contravention of the NCC. The introducer must take care to accurately assess the loan purpose. If in any doubt whatsoever, matter should be discussed with IBAL.

19.1.2.4 Natural Persons The NCC regulates credit provided to natural persons when used wholly or predominantly for NCC Purposes. “Natural persons” means individuals and includes: • Individuals “trading as … (a business name)”, and • Individuals “as trustee for … (a family trust)”.

19.1.2.5 Strata corporations The NCC regulates credit provided to strata corporations when used wholly or predominantly for NCC Purposes. Although advances to strata corporations are rare, IBAL will need to treat a strata corporation borrower in the same way as a personal borrower. A loan to an incorporated strata body will be the only time a company borrowing may be regulated by the NCC.

19.1.2.6 When Does the NCC Not Apply? Certain types of facilities are specifically excluded from NCC regulation. However these facilities are generally not provided by IBAL.

19.1.3 Disclosure A major emphasis of the NCC is on providing customers with full and accurate disclosure of all particulars relevant to the credit contract. Each credit provider must give customers similar information so they can make a fair comparison of credit providers and products, and thus be able to make fully informed decisions when obtaining a loan. The NCC also requires that IBAL provide other information relevant to the customers after they sign their contract and during the term of the loan.

19.1.3.1 Advertising The NCC also seeks to protect customers from being misled by any credit-related advertising material by regulating advertisements that state or imply that consumer credit is available. The ASIC Act will also apply Any advertisement or publication that states or implies that consumer credit is available must comply with the requirements of the NCC. The use of any non-standard advertising or marketing material is prohibited. All marketing materials published with IBAL logo and/or name must be reviewed and signed off by the Legal Department.


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This also applies where material has been issued for introducer information only. When this occurs, it will be clearly stated that the information must not, under any circumstances, be issued to a customer.

19.1.3.2 Compliance with Disclosure Requirements IBAL and those acting as its introducers need to comply with the NCC. There are severe penalties for breaches of NCC requirements. Legal action in relation to breaches of key NCC requirements may be initiated by any party to a credit contract (including IBAL) or by ASIC. The credit contract must contain certain information which includes: • The amount of the credit limit; • The interest rate to be charged; • The method of interest calculation; • The total amount of interest which is payable (but only where the contract will be paid out within

7 years); • The minimum repayment • Any fees and charges payable; • Information regarding changes which affect interest, credit fees charges and repayments; • Information regarding any default interest rate; and • Information regarding any credit-related insurance financed under the contract. (This is not an exhaustive list of the matters that must be included under the NCC) The credit contract must not impose: • A fee or charge prohibited by the NCC; or • An interest charge or an amount of a fee or charge exceeding the amount that may be charged

under the NCC. A statement of account must contain certain information, which is detailed in Section 16.1.6 below. Compliance with these and all other requirements has to be incorporated into policies, procedures and systems wherever possible and form part of quality or hindsight review.

19.1.4 Account Servicing

19.1.5 Nomination Forms One aim of the NCC is to ensure that all debtors are kept fully informed about their loan account. Thus, IBAL must provide each debtor with a copy of all notices and documents required by the NCC throughout the life of their credit contract. However, when there are joint debtors, the NCC allows for: • notices or other documents to be given to one of the joint debtors, mortgagors or guarantors

nominated by them to receive the notice on their behalf; and • only one copy of notices or other documents to be given if the joint debtors, mortgagors or

guarantors reside at the same address and have consented to a single copy being given. A Nomination of One Party to Receive Notices (Nomination Form) is a formal document in which multiple debtors residing at the same address formally nominate one of them to receive notices and documents on behalf of them all.


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Nomination Form should be completed by multiple debtors: • Who reside at the same address • Who only wish to receive a single copy of notices and documents If a nomination to receive notices has not been completed, IBAL must send a copy of all correspondence to each debtor individually. Guarantors will generally not be offered the opportunity to complete a Nomination Form. However, if guarantors living at the same address specifically ask to be sent only one copy of notices and documents, IBAL will provide them with a Nomination Form for completion.

19.1.6 Statements and Account Information The NCC requires IBAL to periodically provide debtors with a statement of transactions on their loan account. The NCC also requires that statements contain certain information, including the opening and closing balances, fees and charges debited to the account, payments to and from the account, details of the interest debited to the account and the annual percentage rate(s) applied to the account during the statement period. This is not an exhaustive list of the matters that must be included... The account statement narratives should comply with provisions of the NCC. Additionally, the NCC gives customers the right to request information about their loan account from IBAL. The NCC specifies how quickly and in what manner IBAL must respond to these requests. The NCC specifies the maximum period for a statement of account.

19.1.7 Fees and Charges The NCC requires lenders to disclose the credit fees and charges payable under a customer’s credit contracts. IBAL is required to disclose in the credit contract the following information in relation to fees and charges which are currently payable or which may become payable in the future: • Name of the fee. • Amount of the fee or the method of calculation. • When the fee is payable. • Total amount of fees and charges (to the extent that the figure is ascertainable). Statements must contain details of the fees and charged debited to the debtor’s account during the statement period

19.1.7.1 Commission The NCC requires lenders to disclose in the credit contract details of any commissions to be paid by or to IBAL for the introduction of credit business or business financed by the contract. If such a commission is to be paid by or to IBAL, the credit contract must disclose: • A statement of this fact; • Who the commission is to be paid by; • Who the commission is to be paid to; and • The amount of the commission (if ascertainable). IBAL procedures provide for commission paid to brokers to be detailed in the letter of offer.


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Details of commission payable must also be disclosed at the time of application prior to the customer signing the Borrower’s Authority and Disclosure Acknowledgement. When financing credit related insurance as part of a regulated loan, NCC also requires the credit contract to disclose:

• The name of the insurer; • The amount of the insurance premium or, if not ascertainable, how it is calculated; • The type of insurance; • The term of the insurance contract; and • Details of any commission to be paid by the insurer.

19.1.8 Sales Force Requirements Complete and accurate information should be given to an applicant during the sales process.

19.1.8.1 Interest Rates The NCC requires that debtors are fully aware of interest charges and that they receive adequate notice of any changes that affect the cost of their borrowing.

19.1.8.2 Interest Restrictions The NCC requires that interest be calculated using the actual daily balance of loan accounts. IBAL must not: • Use other methods such as calculating interest based on the account balance at the beginning

or end of a month; • Impose a minimum interest charge in cases where only very low amounts of interest have been

accrued; or • Provide credit requiring interest to be payable in advance.

19.1.8.3 Quoting interest rates The NCC an advertisement that states the amount of any repayment must contain the annual percentage rate. Do not quote interest rates in any other way (e.g., an “effective” or “true” rate). Except for credit card an ad must also contain the relevant comparison rate if it contains an annual percentage rate.

19.1.8.4 Default interest rates A credit contract may provide for a default rate of interest, but the higher rate must be imposed only: • in the event of a payment default; • in respect to the amount in default; and • while the default continues. While the NCC does not specify a limit on default rates, contracts charging very high rates may be found unreasonable by a court. If the court finds a default rate unreasonable, it can take action by reducing the default rate.


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19.1.8.5 Requirements for interest rate changes If the interest rate is to change for an entire product group, IBAL should publish a notice in the newspaper before the change takes effect and send a notice to debtors with their next regular account statement. If IBAL changes the way it calculates or applies interest or changes an interest free period, written notice will be provided to each debtor at least 20 days before the change takes effect.

19.1.8.6 Application to the court A court can declare interest rate changes invalid, or can reduce them if it believes they are unconscionable.

19.1.9 Changes to Fees, Charges and Repayments IBAL must give debtors adequate notice before making any changes that affect the cost of their borrowing.

19.1.9.1 Requirements for changes to fees or charges If fees or charges are to change for an entire product group, IBAL will publish a notice in the newspaper 20 days before the change takes effect and send a notice to debtors with their next regular account statement. If IBAL changes the way it calculates or applies fees or charges, written notice will be provided to each debtor at least 20 days before the change takes effect. 20 days notice is also required if a new fee or charge is to be introduced. If the change reduces the debtor’s obligations, notice need only be given before or when the next statement of accounts is sent to the debtor after the change takes effect.

19.1.9.2 Requirements for changes to repayment amount Each debtor will be notified in writing of any changes to repayments at least 20 days before the change takes effect. This includes changes to amount, frequency, due date and method of calculation. If the change reduces the obligations of the debtor, notice need only be given with their next account statement after the change takes effect.

19.1.10 Avoiding False and Misleading Representation The NCC prohibits a person from making false or misleading representations in relation to credit contracts. The ASIC Act will also apply. In dealings with customers deciding whether to enter into a credit contract:. • Provide accurate advice in relation to the products and services that IBAL is able to offer. • Do not make any false or misleading statements about any of IBAL products, services or credit

contracts. • Do not attempt to sell IBAL consumer loan products unless you have a good understanding of

the product features and benefits.


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19.1.10.1 Selling Restrictions A customer must never be pressured in any way to enter into a credit contract. In particular: • Do not apply undue pressure, undue influence or unfair tactics attempting to get a person to

apply for or enter into a credit contract. • Do not act in any manner that a customer may consider as harassment. IBAL has obligations under the NCC not to pressure people into: • Applying for credit ; or • Providing security for a credit contract;

IBAL is not permitted to stipulate which insurance company people should use for consumer credit insurance or insurance over mortgaged property...

19.1.10.2 Calling at Homes by Arrangement Only The NCC stipulates that an employee or agent of IBAL must not call at a person’s residence without prior arrangement for the purpose of offering credit. A court might also consider cold calling at other locations, such as a person’s place of work, as harassment.

19.1.11 Credit Related Insurance Certain types of insurance are known in the NCC as “credit related insurance contracts”. This includes home buildings insurance over a property that is security for a regulated credit contract, and consumer credit insurance. IBAL may require that security property be covered by home building insurance but is unable to require the debtor or guarantor to take out home building insurance with a particular insurer. It is also very important that the introducer complies with this instruction in respect to credit related insurance.

19.1.12 Unjust Transactions under the NCC The NCC protects consumers against unjust transactions. A debtor, mortgagor or guarantor may apply to a court to “re-open” a transaction (such as a credit contract, mortgage or guarantee) which they consider unjust. The court will consider all relevant circumstances to determine whether or not a credit contract, mortgage or guarantee is unjust, including: • Whether the lender knew, or could have known by reasonable inquiry of the debtor at the time,

that the debtor could not pay on its terms or not without substantial hardship; • The relative bargaining power of the parties; • Whether the terms of the contract are justified; • Whether the contract or document was easily understandable; and • What measures IBAL took to ensure that the debtor and guarantor understood the transaction. When re-opening a transaction, the court may make orders such as: • Relieving the debtor and guarantor of the obligation to pay any amount it considers

unreasonable;


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• Setting aside any agreements in whole or in part; • Ordering IBAL to discharge the mortgage; or

19.1.13 Credit Contracts The letter of offer signed by IBAL is a loan offer to the applicant. When the applicant accepts this loan offer, it becomes part of the credit contract (along with the terms and conditions booklet and for home loans, the fee schedule). A credit contract is a written document: • Signed by both IBAL and the debtor; or • Signed by IBAL and accepted by the debtor in accordance with its terms (for example by

accessing credit using a credit card. A person cannot authorise IBAL, or any person associated with IBAL, to accept an offer of credit on their behalf. Introducers must not take any action that may be construed as entering a credit contract on behalf of a debtor, even if that person purports to authorise it.

19.1.13.1 Changes to Credit Contracts IBAL must give debtors adequate notice of any changes being made to their credit contract.

19.1.13.2 Requirements for Changes to Credit Contracts If all parties to a credit contract propose an increase in the amount of credit under the contract, IBAL must: • Before the agreement is made, give the debtor a written notice containing the information

prescribed under section 83 of the National Consumer Credit Protection Regulations 2010; • if the parties agree, give the debtor written notice setting out full particulars of the change no

later than 30 days after the date of agreement. This requirement does not apply to a change that defers or reduces the obligations of a debtor for a period not exceeding 90 days. If IBAL wishes to unilaterally change the terms of a credit contract (other than those changes covered in sections 16.7.5, 16.8.1 and 16.8.2 above), IBAL must provide written notice setting out the full particulars of the change to debtors at least 20 days before the change takes effect. If the change reduces the obligations of the debtor or extends the time for payment, IBAL needs to advise the debtor of the details of the change before or when the first statement is issued after the change takes effect.

19.1.14 Managing Hardship, Disputed and Defaulted Accounts The NCC affects IBAL interaction with customers when handling disputes and hardship cases or attempting to collect repayments due to default. The NCC requires IBAL to follow strict guidelines when giving a default notice to customers.

19.1.14.1 Hardship Accounts Debtors who are experiencing genuine difficulty give notice to IBAL of their inability to meet their obligations under their contract. IBAL will consider the circumstances of each individual case in considering whether or not to change the credit contract.


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After receiving a hardship notice an application, if IBAL does not require any further information, it must give the debtor a response within 21 days. IBAL may, within 21 days, give the debtor a notice requiring them to give IBAL further information within 21 days. If IBAL does not receive any information in compliance with that notice, it must give the debtor a response within 28 days after the date of the notice requiring further information. If IBAL does receive information in compliance with that notice, it must give the debtor a response within 21 days of receiving that information. In each case, the response must either:

• record the fact that IBAL and the debtor have agreed to change the credit contract; or • state that IBAL and the debtor have not agreed to change the credit contract, the reasons

why they have not agreed, the name and contact details of the external dispute resolution scheme of which IBAL is a member (the Financial Ombudsman Service), and the debtor's rights under that scheme.

If IBAL does not change a credit contract as a result of a hardship notice, the debtor may apply to the court to change the terms of the contract. The court may order IBAL to change the credit contract. IBAL may then apply to the court to vary or revoke such a court ordered charge.

19.1.14.2 Disputed Accounts If a debtor disputes in writing a particular liability entered against the debtor under a credit contract, IBAL must provide a written explanation of how the liability occurred. A debtor must give notice of a dispute to IBAL on or before the date the account becomes due under a continuing credit contract (such as a Credit Card) or otherwise within 30 days of receiving the statement of account which shows the disputed amount. IBAL will not begin enforcement proceedings relating to a default arising out of a disputed liability until 30 days after the written explanation of the liability has been given to the customer. If the customer is not satisfied with IBAL explanation, the customer may apply to a court for resolution of the dispute.

19.1.14.3 Defaults When a debtor is in default, IBAL must forward to the debtor(s) and guarantor(s) a default notice and allow the debtor a period of at least 30 days from the date of the default notice to remedy the default. This default notice will not usually be sent unless the default concerns multiple payments and the debtor has already been sent one or more letters requesting clearance of the arrears or excess. The default notice must contain a prominent heading at its top stating that it is a default notice and specify: • the default; and • the action necessary to remedy the default; and • a period for remedying the default (which must be at least 30 days); and


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• the date after which enforcement proceedings in relation to the default, and, if relevant, repossession of mortgaged property may begin if the default has not been remedied; and

• that repossession and sale of mortgaged property may not extinguish the debtor’s liability; and • that a subsequent default of the same kind that occurs during the period specified for remedying

the original default may be the subject of enforcement proceedings without further notice if it is not remedied within the period; and

• that, under the Privacy Act 1988, the debt may be included in a credit reporting agency’s credit information file about the debtor if: • the payment remains overdue for 60 days or more; and • IBAL has given a written notice to the debtor informing the debtor of the overdue payment

and requesting that the debtor pay the amount of the overdue payment; and • The amount of the debt is $150 or more; and

• the information set out in Form 12 or 12A (as relevant under regulation 86) to the National

Consumer Credit Regulations 2010; and • explanation for acceleration clauses that may exist, including stating the amount required to pay

out the accelerated contract. Default notices must be given to all parties regardless of whether a ‘nomination of one Party to Receive Notices’ form has been completed. No default notice is required if: • IBAL reasonably believes that it was induced by fraud on the part of the debtor or mortgagor to

enter the credit contract or mortgage; • IBAL has made reasonable attempts to locate the debtor or mortgagor without success; • The Court gave authority to IBAL to proceed with enforcement without a default notice; or • IBAL reasonably believes that the debtor or mortgagor has disposed, or intends to dispose, of the

mortgage goods without IBAL consent or that urgent action is necessary to protect the mortgaged property.

If Default is rectified: • The contract continues; • No further legal action is to be undertaken; and • No acceleration clause operates.

19.1.15 Enforcement Proceedings Enforcement proceedings begin when IBAL goes to a court for assistance in the collections process. This will usually be when IBAL lodges a statement of claim. IBAL will not begin enforcement proceedings against a debtor or mortgagor unless the debtor is in default under the credit contract or mortgage, a default notice has been sent to the debtor, and the default has not been remedied within the period specified in the notice. IBAL will forward to each debtor and any guarantor a default notice. IBAL may only recover from the debtor its reasonably incurred enforcement expense. The NCC has certain requirements that IBAL must observe when enforcing a NCC regulated contract or mortgage. These requirements provide the debtor, guarantor and mortgagor with the opportunity to remedy a default situation within a reasonable timeframe. The requirements of the


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NCC are in addition to any other laws relating to the enforcement of mortgages. The NCC does not prevent IBAL from giving notice under another law at the same time.

19.1.15.1 Postponement Under the NCC debtors, mortgagors and guarantors have the opportunity to request to negotiate a postponement of enforcement proceeding. A debtor, mortgagor or guarantor who has been given a default notice may request IBAL to negotiate to postpone enforcement proceedings. If applying for a postponement, the debtor must advise IBAL before the period stated in the default notice has expired. If a debtor, mortgagor or guarantor requests a negotiation for the postponement of enforcement proceedings, IBAL must give written notice within 21 days after receiving the request that:

• states whether or not IBAL agrees to negotiate; and • if IBAL does not agree, stating:

• the name of the external dispute resolution scheme of which IBAL is a member (the Financial Ombudsman Service);

• the person’s rights under that scheme; and • the reasons IBAL does not agree to negotiate.

If IBAL agrees to postpone enforcement proceedings, a notice will be sent to each debtor, mortgagor and guarantor detailing the conditions of the postponement and the consequences if the conditions are not complied with. A postponement makes any previous default notices void, but only while the conditions of the postponement are adhered to by the debtor, mortgagor and guarantor. Note: Do not make any informal arrangements with a debtor/guarantor regarding postponement of enforcement proceedings. Any arrangements agreed must be formally documented. If the debtor, mortgagor or guarantor is unable to negotiate a postponement of enforcement proceedings with IBAL, they may apply to a court for a postponement. The court may order or refuse postponement or may stay enforcement until it reaches a decision. IBAL may apply to the court for variation of any court order to stay enforcement proceedings.

19.2 National Consumer Credit Protection Act 2009 This Act contains specific provisions relating to credit card contracts, and which will be relevant to credit cards. In particular: • a Key Facts Sheet must be included in an application form for a credit card contract, and IBAL

must not enter into a credit card contract unless a Key Facts Sheet has been given; • IBAL must not write to debtors under credit card contracts offering to increase the credit limit of

their contract or inviting the debtor to apply for such an increase unless it has the debtor’s express consent for it to do so and that consent has not been withdrawn. The debtor must be informed of certain matters before providing their consent;


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• IBAL must take reasonable steps to notify a debtor within 2 business days if it becomes aware that the debtor has used his or her credit card in excess of the credit limit for the contract, unless the debtor has paid the amount of the excess within that time;

• IBAL must not impose fees or charges or a higher rate of interest on the debtor if the credit card has been used in excess of the credit limit unless it has the debtor’s express consent to do so; and

• IBAL must apply payments made under credit card contracts against so much as remains owing of the closing balance shown in the last statement of account, first to the part of the balance to which the highest rate applies, next to the part of the balance to which the next highest rate applies, and so on, unless the consumer, after having been advised of the fact that they may be liable to pay a greater amount or rate of interest, has requested IBAL to apply a payment against a particular amount owed and IBAL has agreed to that request.

19.3 Anti Money Laundering and Counter-Terrorism Financing (AMLCTF) ACT 2006 Australia has implemented laws to improve Australia’s existing anti-money laundering and counter-terrorism financing system. The Act makes it harder for criminals to use the profits of crime and terrorists to receive money to carry out terrorist acts. The legislation is aimed at preventing criminally derived funds from being washed through the banking system and at reducing the risk of IBAL being used to finance terrorist activities. The AML/CTF laws are a major step towards:

• enabling Australia’s financial sector to maintain international business relationships; • preventing and detecting money laundering and terrorism financing by meeting the needs of

law enforcement agencies for targeted information about possible criminal activity; and • bringing Australia into line with international standards, including standards set by the

Financial Action Task Force (FATF). The AML/CTF Act covers the financial sector, gambling sector, bullion dealers and other professionals or businesses (‘reporting entities’) that provide particular ‘designated services’. The AML/CTF Act imposes a number of obligations on reporting entities when they provide designated services, including:

• customer identification and verification of identity; • record-keeping; • establishing and maintaining an AML/CTF program; • ongoing customer due diligence; and • reporting (suspicious matters, threshold transactions and international funds transfer

instructions). The requirements The purpose of the AML/CTF Act is the regulation of financial transactions to help detect and prevent money laundering and terrorism financing. The AML/CTF legislative package (AML/CTF Act, Rules and AUSTRAC guidelines) places obligations on providers of financial services which are at risk of exposure to money laundering or terrorism financing.


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The cornerstone of the AML/CTF regime is that businesses know their customers. The regime requires reporting entities such as IBAL to carry out customer identification and verification of that identification. This means carrying out customer ‘due diligence’ which also requires us to monitor customer transactions on an ongoing basis. Effect on IBAL The AML/CTF Act obligations apply whenever we provide a ‘designated service’, including, but not limited to:

• opening an account; • accepting money on deposit; • making a loan; • issuing a debit card; and • sending and receiving instructions on electronic funds transfers.

Obligations that impact IBAL include:

• the collection and verification of identification documents for all new customers; • requirements to monitor customer transactions to identify, mitigate and manage the risk that the provision of the designated service may involve or facilitate money laundering or terrorism financing; • the supply of originator information in domestic and international funds transfer instructions; • ‘suspicious matter’ reporting; • reporting on international funds transfer instructions; • reporting on transactions which exceed thresholds set in the AML/CTF Act or Rules; and • detailed record keeping obligations.

There are a number of benefits for IBAL due to the introduction of the AML/CTF Act:

• higher level of awareness and understanding of money laundering risks and trends by all staff;

• analysis of the money laundering and terrorism financing risks IBAL reasonably faces with the aim of reducing risk;

• reduced risk of legal issues or reputation damage related to allowing money launderers or terrorists to bank with IBAL. It also reduces risk of financial loss to the business through fraudulent activity;

• reduced risk of financial loss though fraudulent applications and falsified identification; • improved efficiency in account opening process by reducing the need to handle paper to successfully open accounts;

• better understanding of who our customers are.

Should a credit assessor come across a suspicious matter it should be reported to the Financial Crimes Team or the AML Compliance Officer immediately. For example, a loan application is submitted with falsified documents relating to the identity of the client. As we are unable to verify the identity of the customer it should be referred to the Financial Crimes Team to investigate the matter and lodge a suspicious matter report. This should be done regardless if the application has been approved or not. Care must be taken not to disclose the existence of a suspicion or the fact that a suspicious matter report has been lodged to anybody else.


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19.4 Verification of Identity (VOI) A number of states have imposed stronger identification requirements for anyone dealing with property. Some states will require a face to face (F2F) verification of the mortgagor, collection of prescribed customer identification documents, and lodgement of a declaration by the mortgagee (or its agent). In those states the requirements may apply to any mortgage of property located in that particular state or a person signing on behalf of a mortgagor (e.g. Director of a company) regardless of where the mortgagor lives. Where required, verification of the mortgagor (or person signing on behalf of the mortgagor) would ideally occur immediately prior to or at the signing of the mortgage. IBAL will continue with its existing process of completing the verification of identity at loan application stage. If a borrower does not undertake a F2F with either an IBAL employee, the broker or at Australia Post, ING will not accept the loan application. These identification requirements generally apply to the following documents lodged for registration:

Document Type Party Required to be Identified in Accordance with this Practice

Transfer of Land Seller/Transferor Mortgage Mortgagor

Request for Duplicate Certificate of Title

Registered Proprietor and Applicant

Replacement Duplicate Certificate of Title

Registered Proprietor and Applicant

Transmission Executor/Administrator, Applicant Survivorship Survivor, Applicant Power of Attorney Donor

Further information is contained in the procedure portal for IBAL and the Documents & Procedures Manual for MMs.

19.5 Privacy Act The Privacy Act 1988 is designed to control the collection, storage and use of personal and credit information about individuals. To ensure compliance with the Privacy Act, all lending authorities must: Obtain a Credit Information Authority (Contained within the Application Form) as this will enable IBAL to obtain a credit check report from each person who is a party to the loan (including guarantors); and If information provided by an applicant includes their Tax File Number (TFN), the TFN must be removed or masked immediately upon receipt.


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19.6 Code of Banking Practice The Code of Banking Practice sets standards of disclosure and conduct that IBAL and other member banks of the Australian Bankers’ Association have agreed to observe when dealing with their customers. IBAL subscribes to the Code of Banking Practice. The Code of Banking Practice is intended to: • Describe standards of good practice and service; • Promote disclosure of information relevant and useful to applicant(s); • Promote informed and effective relationships between IBAL and applicant(s)/customers; and • Require banks to have procedures for resolution of disputes with customers. The major terms of the Code of Banking Practice are: • IBAL must exercise the care and skill of a diligent and prudent banker in selecting and applying

its credit assessment methods and in forming its opinion about an applicant’s ability to repay the credit to be provided.

IBAL must also: • Disclose to applicant(s) all fees, charges and costs; • Keep applicant(s)’ information confidential; and • Recommend that guarantor(s) obtains independent legal and financial advice; and

19.7 Trade Practices Act The ASIC Act is a Commonwealth Act that provides for consumer protection in relation to financial services. The main provisions of the ASIC Act in this regard relate to: • unfair contract terms; • unconscionable conduct; • misleading or deceptive conduct; and • false or misleading representations. The ASIC Act prohibits IBAL from sending a person a credit card unless it is in accordance with a written request from that person or is in renewal or replacement of, or in substitution for, a card of the same kind previously sent to the person. This will be relevant to credit card accounts.