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guideNew ZealandSeptember 2009

Guidelines Applying for Lenders Mortgage Insurance

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CONTENTS

Contents 2

Introduction 3

lmiADVANTAGE™ 4

1. Borrowers 4

2. Genuine Savings & Equity 6

3. Employment 7

4. Income 8

5. Servicing capacity 11

6. Maximum insured loan amounts by location classification and LVR 12

6.1 Improved residential property 12

6.2 Vacant land 12

6.3 Agreements for sale and purchase 13

6.4 Location guide 14

6.5 Location wizard 14

6.6 Property risk assessment 15

7. Security 15

8. Loan types and purposes – with maximum LVR 18

9. Your duty of disclosure 22

10. Applying for Lenders’ Mortgage Insurance 23

11. Valuation requirements 24

12. LMI premium rates 24

13. Additional loans (increase to a loan under an existing policy) 24

14. Capitalisation of premium 26

15. LMI premium refunds 26

16. Terminated LMI policies 26

Guidelines Applying for Lenders Mortgage Insurance – September 2009

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INTRODUCTION About QBE Lenders’ Mortgage Insurance Limited (QBE LMI) QBE Lenders’ Mortgage Insurance Limited is one of the largest mortgage insurers in New Zealand and

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

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

What is Mortgage Insurance? Lenders Mortgage Insurance (LMI) covers the lender in the event of the borrower defaulting on their loan.

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

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

recoup this shortfall from the borrower. The lender applies for LMI not the borrower and the insurance

should not be confused with Mortgage Protection Insurance.

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

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

IMPORTANT NOTICE How to use this lmiGuide The lmiGUIDE is designed to be used as a guide to assist you in completing applications for and relating

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

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

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

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

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

Guide should be directed to your Portfolio Manager or Senior Relationship Manager. QBE LMI reserves

the right to vary our products, terms and conditions and our underwriting criteria from time to time without

notice.

QBE LMI Website Log on to www.qbelmi.co.nz for the following services:

LMI Self Assessment Calculator

Location Wizard

Forms

QBE LMI Residential Property Market Overview

Latest QBE LMI News


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lmiADVANTAGE™

1. Borrowers Acceptable Borrowers

QBE LMI will insure residential mortgage loans made to:

New Zealand & Australian citizens

A person holding entitlement to indefinitely reside in New Zealand or

Australia

Companies registered in New Zealand

Trusts registered in New Zealand

Individuals over 18 years

Borrowers & Guarantors

Eligible Individual Borrowers must be both:

Aged 18 years or over; and

Either a Citizen or Permanent Resident of New Zealand (NZ) or

Australia.

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

or Australia for tax purposes, and is:

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

than New Zealand or Australia

A person who has been granted indefinite New Zealand or Australian

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

Australia.

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

additional conditions:

• The loan purpose is to purchase residential investment property

within New Zealand.

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

exceed 90% net surplus ratio (NSR).

• The Maximum Loan Amounts are subject to location restrictions.

Maximum LVR 75% LVR 75.01% - 80% LVR

Single Security $500,000 $300,000

Non-Resident Borrowers

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

QBE LMI standard underwriting guidelines.


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Company Borrowers (Inclusive Guarantors)

The Company must be registered in New Zealand.

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

unconditional, unlimited and irrevocable Guarantee and Indemnity (joint and

several if more than one) of each director of the company.

Directors must be:

Citizens or Permanent Residents of New Zealand; and

Living in New Zealand for tax purposes.

Trustee Company Borrowers (Inclusive Guarantors)

The Trust Company must be registered in New Zealand.

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

company’s corporate capacity and trustee capacity. In addition, QBE LMI

requires an unconditional, unlimited and irrevocable Guarantee and

indemnity from all directors of the Trustee company. In the case of a unit

trust guarantees are required from all unit holders.

Trustees must be:

Citizens or Permanent Residents of New Zealand; and

Domiciled in New Zealand for tax purposes.

Trustee Borrowers

(Inclusive Guarantors)

The Trust must be formed in New Zealand.

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

Where the Trustee(s) is/are providing a guarantee, the guarantee must be an unconditional, unlimited and irrevocable guarantee and indemnity from all of the Trustees. A Professional Trustee (being a person who is not a beneficiary under the Trust) may have their liability limited to the assets of the Trust. Trustees must be:

Citizens or Permanent Residents of New Zealand

Domiciled in New Zealand for tax purposes

Maximum Exposure per Borrower

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

$2,000,000.

This is subject to a maximum exposure against a single security of

$1,000,000.

Maximum exposure for Business Loans is $500,000.

Unacceptable Borrowers

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

Bankrupt borrowers and / or borrowers with No Asset Procedure listing

Companies with non-resident directors

Overseas Nationals (e.g. American citizen)


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2. Genuine Savings & Equity

Genuine Savings The borrower must provide at least 5% of the purchase price from Genuine

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

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

acceptable to QBE LMI.

Definition of Genuine Savings

Genuine Savings is defined as a demonstrable savings pattern established over a minimum period of 3 months prior to the loan application being received.

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

• Accumulated savings (savings account),

• Sale of Shares (net any tax due),

• Equity from real estate (additional borrowings or sale),

• Non preserved superannuation contributions (provided the Borrower has access to funds in cash form).

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

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

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

Advantageous Purchase)

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

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

Advantageous Purchase

An advantageous purchase can be considered a ‘Gifted Equity ' when the

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

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

Spouse / Defacto

Parents / Children

Siblings, and

Grandparents / Grandchildren.

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

nature of the sale and the sale price. The LVR is determined using the

valuation amount.

Example:

Parents agree to sell a property valued at $300,000 to their son for a

reduced price of $280,000. QBE LMI recognizes the value of the security as

$300,000.

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

Savings. Advantageous Purchase is not a substitute for Genuine Savings.


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

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

Savings.

All repayments are to be included in calculating the Borrowers capacity to

repay.

Unacceptable Equity

The following are not considered acceptable equity:

Gifts

Inheritance

Advance on wages/commission,

Barter Card or other swap negotiations,

Builder discount/finance or any form of incentive,

Proceeds from Gambling,

Rental discounts,

Vendor discount/finance or any form of incentive,

Advantageous / Favourable purchases,

Lender finance of 5% deposit.

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

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

continuous employment within the same industry.

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

continuous employment within the same industry.

The term to renewal of the existing contract must not be

less than 12 months unless written evidence as to the

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

PAYE (Permanent Part-time -principal employment)

Minimum 6 months in current position.

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

Self-Employed Borrowers (Business Owners / Contractors / Commission Agents) & Borrowers Employed by Family

Minimum 2 years in the same business.


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4. Income Permanent Income

100%.

PAYE (Contract)

Must be supported by the last 2 years tax summaries.

Overtime

100% if a condition of employment.

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

Second Job / Casual

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

Acceptance should also have regard to the nature of the work, length of time

in that job and the number of hours worked.

Commission

Acceptable if confirmed for last 2 years from current employer.

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

Rental Income

80% of the gross rental income.

Boarder / Flatmate Income

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

Maximum $100 per week in total

Vehicle Allowance

50% of Vehicle Allowance can be used provided it is a condition of

employment and can be verified. Any corresponding lease or hire purchase

payments must be included in the servicing calculation. It must be taxable.

Mileage Reimbursement

Mileage reimbursement is unacceptable income.


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Salary Packaging

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

option, then the package can be treated as gross income for loan servicing

purposes.

Fully Maintained Company Vehicle

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

Work & Income NZ (WINZ) Domestic Purposes Benefit & Widows Benefit

100% - Benefit payments must be supported by:

• A current letter from the Ministry of Social Development showing a

breakdown of the income provided - Base benefit & Accommodation

Allowance can be used.

• Maximum NSR 90% - no exceptions.

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

Working for Families Tax Credits

100% - Family Tax Credit, In Work Tax Credit & Minimum Family Tax Credit

payments are acceptable.

The following supporting information is required:

• A current Certificate of Entitlement or Personal Tax Summary for the

current financial year showing the amount payable, the names and

date of birth for the eligible child or children.

• The maximum age of the child or children is 13 years old – where

there are children above 13 years old and the individual entitlement

is not known, the amount paid is to be divided by the number of

children and the ineligible portion deducted.



Accident Compensation Commission (ACC)

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

from ACC.


Child Support

100% - Child Support payments must be paid through the Inland Revenue

and be available for a minimum of 5 years.


• Inland Revenue advice showing the amount payable, the names and

date of birth for the eligible child or children;

• The maximum age of the child or children is 13 years old – where

there are children above 13 years old and the individual entitlement is

not known, the amount paid is to be divided by the number of children


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and the ineligible portion deducted.

• 6 months current bank statements confirming receipt of payments.


Private arrangements are not acceptable under any circumstances. If using Child Support in loan servicing, no other Work & Income New Zealand (WINZ) benefits are to be used. For loan servicing, Child Support income is considered a non-taxable

income.

Self-Employed Income

Self-employed borrowers must consistently demonstrate sufficient income to

meet commitments from the last 2 year’s taxable income.


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

Statements signed by a Chartered Accountant or Qualified Taxation

Specialist.

Consideration should be given to the date an application is received and

the current financial period. Interim accounts should be provided where

the business is in the second half of its financial year.

The level of self-employed income to be used in the servicing calculation is

to be assessed in the following way:

Where the Borrower’s income has decreased in the second

year, the second year’s income is to be used.

Where the Borrower’s income has increased in the second year, the

average of the 2 years is to be used.

Acceptable Forms of Self-Employed Income

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

impact:

Director’s salaries (where applicable and not already included in

servicing calculations);

Voluntary Directors’ superannuation contributions (where applicable);

Allowable depreciation is limited to 30% of total assessable income

depending on type of asset, economic life of asset and accounting

method used;

Interest on loans being re-financed;

Non-recurring expenses (where confirmed).

Borrowers Employed by Family

Where the Borrower is employed by family or through a family owned or

family controlled company, letters of employment or pay slips must be

supported by 2 years Inland Revenue Department (IRD) summaries

confirming the level of income to be used in servicing.


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Student Loans

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

when assessing servicing.

Income Exclusions

Unemployment, Sickness & Invalids Benefit

Student Allowance

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

5. Servicing Capacity

QBE LMI Assessment Interest Rate

The QBE LMI Assessment Interest Rate is reviewed regularly and

adjusted in line with market rate movements.

Split Loans

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

rates, QBE LMI’s Assessment Interest Rate is to apply for the total loan

amount.

Living Allowances

These vary according to a borrowers’ family unit and are updated

annually.

Net Surplus Ratio (NSR)

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

of the borrower’s net (after tax) income.

The maximum NSR limits are:

Loans amounts Max NSR

Up to and including $750,000 100%

Greater than $750,000 95%

When assessing applications in excess of 95% NSR, consideration

should be given to the long term affordability & overall risk of the

proposal.

Eligible Non-Residents

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

Zealand Dollars must not exceed 90% NSR as determined under QBE

LMI’s Servicing Capacity Calculator.

You can calculate the NSR using the QBE LMI Self Assessment Calculator at www.qbelmi.co.nz


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6. Maximum Insured Loan Amounts By Location Classification & LVR Maximum loan amounts are subject to Location Classifications and LVR. Locations (e.g. suburbs or

towns) are grouped according to risk, and are defined under 4 categories:

Metropolitan – Auckland

Metropolitan - Other

Regional

National

These classifications are further differentiated by Improved Residential Property and Vacant Land

6.1 Improved Residential Property

Maximum LVR 80% 85% 90% 95%

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

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

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

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

If the Borrower is Non Resident for tax purposes the following additional restrictions in terms of maximum

LVR & exposure apply:

Maximum LVR 75% 80%

Limit - single property in any location: Metropolitan – Auckland Metropolitan – Other Regional National

$500,000 $300,000

6.2 Vacant Land

Maximum LVR 80% 85% 90% 95%

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

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

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

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


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Note

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

maximum Insured Loan amount limits for that location.

6.3 Agreements for Sale & Purchase Property must be ‘on the market’ Sale to be ‘arms length’ through a licensed real estate agent and confirmed by telephone call to

principal of the firm No more than 3 months old

Exclusions – Lifestyle properties (rural zoning), construction, new (previously unoccupied) properties,

vacant land, private sales, mortgagee sales Turn Key properties, and properties located in Regional

& National locations. Maximum LVR and Loan Amount

Max LVR 90%

Product lmiADVANTAGE™

Metropolitan – Auckland $500,000

Metropolitan – Other $350,000

Regional N/A

National N/A


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6.4 Location Guide METROPOLITAN – AUCKLAND Warkworth to Waiuku (exceptions may apply)

METROPOLITAN – OTHER

NORTH ISLAND

SOUTH ISLAND

Hamilton

Cambridge

Tauranga

Mt Maunganui

Papamoa

Taupo

Wellington

Nelson

Christchurch

Kaiapoi

Rangiora

Queenstown

Arrowtown

REGIONAL NORTH ISLAND

SOUTH ISLAND

Kerikeri

Russell

Paihia

Whangarei

Coromandel Peninsula

(exceptions may apply)

Matamata

Te Awamutu

Te Puke

Rotorua

Whakatane

Gisborne

Napier

Hastings

New Plymouth

Wanganui

Masterton

Palmerston North

Feilding

Levin

Blenheim

Ashburton

Timaru

Oamaru

Dunedin

Wanaka

Invercargill

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

areas outlined in the tables above.

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

www.qbelmi.co.nz/locationwizardnz


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6.6 Property Risk Assessment Saleability of security property

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

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

Level of real estate activity

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

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

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

a 6 month period.

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

quality of the security.

Local economic and market conditions

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

within a location may be required.

Condition of the property

Properties in a poor condition are not acceptable

Other factors considered

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

Minimum floor size

The minimum floor size is 50 m2

7. Security

Acceptable Securities Subject to maximum Location, LVR and Insured Loan amounts above

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

Maximum LVR

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

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

road, power, sewage & water.

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

95%

Vacant Land (Residential zoning with all services connected):

Registered Valuation required

Line of Credit loan not acceptable

95%


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

accommodation units. The following additional conditions apply:

Minimum size 50 square metres

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

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

Car space preferred but not essential.

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

development.

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

the development and one within

Limited to Auckland, Wellington, Christchurch, Tauranga, Mt Maunganui, and

Queenstown.

80%

Inner City Apartments

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

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

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

Car space preferred but not essential.

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

development.

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

the development.

Limited to Auckland, Wellington, Christchurch, Tauranga, Mt Maunganui, and

Queenstown.

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

70%

Lifestyle / Rural Block– with Dwelling Acceptable where the principal intended use is as a residential property:

Maximum 10 hectares

With minimum services of – Tanked Water, Septic Tanks, Electricity, and Gravel

Road Access.

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

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

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

Stables, Barns)

Registered Valuation is required.

90%


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Unacceptable Securities

The following are unacceptable: Property located outside New Zealand (North, South Islands & Waiheke Island only)

Commercial or industrial property

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

speculative land purchases or land accumulation for development

Rural Vacant Land

Properties less than 50sqm (including balconies and parking)

Serviced Apartment

Exhibition home

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

Unit in a strata hotel/motel

Unit in a retirement or Over 55’s complex

Resort style dwellings

Mobile Homes

Studios and bed sitters

Conversions (including warehouse conversions)

Unit developments where the development is held as security on one title and the number of

dwellings exceeds 4 units

Leasehold properties

“Off the Plan” Purchases

Boarding House

Student Accommodation

Time-share properties

Company title

Properties identified as being affected by leaky building syndrome

Properties affected by:

- contamination

- flood impact

- land slip

- mine subsidence

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

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

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

enforceability.


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8. Loan Types and Purposes – with Maximum LVR

Loan Types Residential first mortgages Maximum LVR

Amortising Loans (Principal & Interest)

Principal & Interest (P&I) Loans;

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

a total period not exceeding 30 years;

Maximum insured term is 30 years.

95%

Line of Credit Loans

Line of Credit (LOC) Loans with contractual monthly

payments that cover accrued interest are eligible –

subject to the following additional criteria;

Maximum loan amount - $500,000;

Maximum insured term - 25 years;

Maximum LVR is the lesser of maximum LVR or the

LVR limit set for Security Type and Location.

Acceptable security:

Must be owner occupied or investment residential

housing;

Vacant land is not acceptable

Note Where interest is capitalized, the maximum LVR is the

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

Location.

90%

Loan Purpose

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

Maximum LVR

Residential Owner Occupied or Investment Purchase or Construction

95%

All Other Purposes (except purchase or construction)

90%

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

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

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

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

card debts.

90%


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

a top-up requires LMI.

The following additional guidelines apply:

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

refinanced.

Statements (6 continuous months including the month preceding application to

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

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

payments, late fees or default charges.

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

Out criteria is to apply.

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

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

The following additional guidelines apply:

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

other debts being consolidated.

Statements (6 continuous months including the month preceding application to

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

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

payments, late fees or default charges.

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

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

Out criteria is to apply.

90%

Cash Out / Equity Release A loan where the proceeds are being either fully or in part released directly to the

borrower, regardless of the stated purpose.

Maximum LVR and Loan Amount :

LVR Cash Out Limit

Up to 90% $50,000

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

There is supporting documentation evidencing use of funds; OR

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

90%

Examples of acceptable supporting documentation are:

Builder’s quote

Purchase contract

Confirmation from a Financial Planner or Accountant as to the intended use of

funds.


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95%

Construction Loans Before the initial loan advance, the borrower must have:

Entered a fixed price contract accepted by the Lender; and

Obtained all the necessary consents and approvals from relevant statutory and

other authorities.

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

Registered Valuation

Builder preferably a Registered Master Builder

During construction:

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

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

certificates from a Valuer instructed by the Lender;

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

and

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

improvements can be completed in accordance with the plans and specifications

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

Before the final loan advance:

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

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

and

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

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

Cost overruns:

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

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

Cost overruns are not insured.

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

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

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

retaining walls etc).

Line of Credit loans not acceptable


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Business Loans Limited to funding borrower’s current business.

Maximum exposure is limited to $500,000.

Construction purposes are unacceptable.

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

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

signed by a Chartered Accountant or Qualified Taxation Specialist.

Unacceptable loan purposes:

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

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

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

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

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

management or track record is not evident.

85%

Unacceptable loan types and purposes: Development Loans (irrespective of how many units are involved), including refinance of property

development loans.

Owner Builders & “labour only” building contracts.

Builder programs.

Payment of Taxation liabilities.

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

Refinance of Vendor Finance loans.

Off the plan purchases.

Second mortgages.

Shared equity loans.

Reverse Mortgages.

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

borrower nor a guarantor in the loan structure proposed.

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

Rural Construction Loans.


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GUIDELINES APPLYING FOR LENDERS

MORTGAGE INSURANCE 9. Your Duty of Disclosure Before you enter into a contract of insurance with QBE LMI, you have a duty to disclose to us every

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

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

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

reinstate a contract of insurance.

Your duty however does not require disclosure of a matter:

• That diminishes the risks to be undertaken by QBE LMI;

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

• That is of common knowledge;

• Where compliance with your duty is waived by QBE LMI.

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

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

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

beginning.

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

Poor conduct on borrowers loans (where known to Lender);

Borrowers applications previously referred to or declined by another mortgage insurer;

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

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

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

Liabilities not disclosed by borrower in application;

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

Advantageous purchases;

Borrower is employed by family members;

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

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

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

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

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

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

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

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


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

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

the insured loan;

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

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

10. Applying for Lenders Mortgage Insurance When submitting an application for QBE Lenders’ Mortgage Insurance, you will need to submit the

following:

• lmiAPPLICATION

• Lenders Application Form – fully completed, signed & dated

• Valuation Report

• Full explanation for any adverse features on any Veda Advantage report

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

requests from the other LMI provider

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

term of the loan.

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

self explanatory:

Lender / Funder: Name of Lending Organisation / Wholesale Funder

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

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

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

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

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

guidelines applicable by product, location and amount of loan

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

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

Term: Term of loan / remaining term of existing loan

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

above


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11. Valuation Requirements

Registered Valuations

When a full Valuation is required, the Report must:

Be completed and signed by a Registered Valuer who is SPINZ or FPINZ or ANZIV

or SNZPI qualified and holds a current practicing certificate

Contain not less than 3 comparable sales within the last 6 months

Be addressed to the lender and mortgage insurer

Be no more than 6 months old

Be valued on a current market value basis

12. LMI Premium Rates Lenders should contact QBE LMI;

Mortgage Managers and Originators should contact your Funder.

13. Additional Loans (Increases to a loan under an existing policy) EASY INCREASE Process The EASY INCREASE process applies for increases on existing lmiADVANTAGE™ policies only, where

the following criteria are met:

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

repayment history.

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

GUIDE).

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

lmiLOCATION GUIDE).


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

described above, you only need to submit the following:

1. QBE LMI application;

2. Updated Lender’s application form;

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

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

In addition to items 1 – 4 above, the following must continue to be retained by the Lender until the loan is repaid: Original property valuation report;

Original pay slips and employment confirmation (for PAYE borrowers);

Loan statements (if the original application involved refinancing);

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

The following are unacceptable under ‘Easy Increase’ processing:

High Density securities as defined in the lmiGUIDE.

Vacant Land securities.

Refinance or debt consolidation loan purposes.

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

guidelines

Self employed borrowers

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

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

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

Valuations

No valuation is required where –

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

defined by the QBE LMI Location Guide; and

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

(excluding capitalized LMI premium).

Valuations are required in all other instances.

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

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


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Premium applicable to an increase in LMI policy exposure – calculation of the premium payable where cover is required for an additional loan amount on a previously insured mortgage. The process is as follows:

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

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

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

Note: Minimum premium of $300 applies.

14. Capitalisation of Premium

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

Insured Loan Amount without any additional fee on the premium.

The maximum LVR by product is as follows:

lmiADVANTAGE™: 95% (excluding premium capitalisation);

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

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

15. LMI Premium Refunds No refunds apply.

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

days of the loan being terminated/repaid.

talk soonNEW ZEALAND

AucklandLevel 11, AMP Centre29 Customs Street WestP O Box 44Auckland 1140PH: 64 9 373 4300FAX: 64 9 302 0066

AUSTRALIA

SydneyLevel 21, 50 Bridge StreetSydney NSW 2000PO Box R1547Royal Exchange NSW 1225PH: 61 2 9231 7777FAX: 61 2 9251 5550

MelbourneLevel 34, 385 Bourke StreetMelbourne VIC 3000GPO Box 2966Melbourne VIC 3001PH: 61 3 9607 9777 FAX: 61 3 9670 5179

BrisbaneLevel 1, 12 Creek StreetBrisbane QLD 4000GPO Box 1278Brisbane QLD 4001PH: 61 7 3292 1700FAX: 61 7 3221 0200

AdelaideLevel 1, 70 Pirie StreetAdelaide SA 5000GPO Box 2404Adelaide SA 5001PH: 61 8 8359 3270FAX: 61 8 8359 3290

PerthLevel 3, 89 St Georges Terrace Perth WA 6000PH: 61 8 9211 5900FAX: 61 8 9481 6045

www.qbelmi.com

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