5.8 Security

• Sale of the security is the alternative means of clearing the loan debt should the borrower/s not be able to fulfil their repayment obligations. Therefore, it is vital that the security is readily saleable to avoid a protracted selling period.

5.8.1 Security Location Guide

• The Genworth Security Location Guide identifies property locations by postcode for a range of LMI Products for varying loan types and loan amounts
• The postcodes are broken up into groups based on population figures obtained from the most recent census data, as well as other factors including the geographic spread of the postcode, sales activity, and home prices.

Note: Genworth will consider any proposal under Standard LMI product, up to 95% LVR where the security property is located in any postcode in Australia that is not included in the Genworth Security Location Guide.

5.8.2 Security Property Minimum Requirements

• Must be zoned for residential use
• A house, villa, home unit, townhouse, duplex, or vacant land
• Acceptable land tenures include:
  • Freehold - including Strata, Group and Community titles (Community Title properties in NSW and VIC are only acceptable if the development has been fully completed.)
  • Crown Leasehold
  • Residential Area Rights and Residence Licences (Victoria only).
• Power is connected
• Must have direct vehicular access
• Readily saleable with no adverse features such as:
  • Affected by any government or state planning scheme
  • In need of repair or has been poorly maintained
  • Reduced marketability due to location.
• At least 50 m in living area, excluding balconies and car space (For good quality properties located in a desirable and high demand capital city metropolitan location, the minimum living area is 40 m.)
• Other security types may be accepted, subject to limitations.

5.8.3 Security Concentration

• Where a borrower/guarantor is providing security that consists of multiple properties located within a concentrated area, Genworth will limit the exposure to the borrower/s to a maximum of 4 units or 25% of a development, whichever is the lower.

5.8.4 Security Exceptions

• Where a loan is secured by one of the following typically higher risk security types, the application may be considered based on the merits and strength of the borrower's overall position:
  • Known flood height level is higher than the floor level
  • Multiple occupancy security (more than two dwellings on the title)
  • Display home
  • Located on an island without sealed road connection to mainland
  • Security boundary located within 50 metres of High Voltage Transmission Lines
  • Part of a development that has been converted from another usage
  • Vacant Land exceeding 2.2 hectares (5 acres/22,000 m)
  • Studio Apartment or bed-sitter (no separate bedroom)
  • Serviced apartments
  • Properties that are unique, or have restrictive usage.

5.8.5 Unacceptable Securities

• Income producing rural properties
• Properties designed, zoned, or used for commercial purposes (excluding residential home units in a commercially zoned development)
• Properties to be constructed by an owner-builder (in whole or part), where the LVR exceeds 50% of the lesser of the cost price or valuation
• Crown Land (other than the ACT)
• Leasehold properties (other than Crown Land in the ACT)
• Purple Title (WA), or Moiety Title (SA)
• Company Title
• Company Share Title (VIC)
• Improved site with land size larger than 40 hectares
• Under a "time share" arrangement
• Land subject to licence to occupy
• Limited Title (any defects)
• Mobile or temporary homes
• Boarding house/hostels
• Land/Improvements contaminated
• Properties with "Lease of Life" covenants on title
• A strata title home unit less than 40 m
• Properties subject to the Western Lands Act
• Properties subject to 'mines subsidence'.

5.8.6 Rural/Rural Residential Securities

• Rural residential properties must:
  • have water and power connected
  • not be income producing.
• There are many types of local council zonings on property. For the purpose of this Underwriting Policy:
  • A property with residential improvements between 2.2 hectares and 10 hectares in size is considered rural-residential
  • A property with residential improvements between 10 hectares and 40 hectares is considered rural.
• The maximum loan amount and LVR per security are limited as follows:

• Genworth will consider good quality proposals in locations outside those noted above on a case-by-case basis.

Note: Valuations must not include any non-residential improvements ie: barns, orchards, stables etc.

5.8.7 Vacant Land

• This is a form of security where the land is devoid of any improvements. The vacant unimproved land may be zoned residential, rural-residential or rural
• Proposals in locations other than Category 1, 2 and 3 postcodes may be eligible for LMI cover subject to the overall strength of the proposal and in line with the Maximum Loan Amount Matrix
• Security must conform to the following:
  • Land size not to exceed 2.2 hectares (5 acres/22,000m²)
  • The property must have all weather road access
  • Electricity must be connected to property.

5.8.8 Stratum Title (VIC) Home Units

• May be considered up to a maximum LVR of 85 % (depending on strength of application).

5.8.9 High Density Apartments

• A High Density Apartment is a strata titled home unit or apartment located within a postcode defined as a High Density Location as per the Genworth Security Location Guide, and part of a development comprising more than 35 apartments. The following conditions and restrictions apply to these types of security:
• Maximum LVR of 80% may be considered
• Valuation should include comparable sales outside the development, and details of any resales within the development
• Security must be in a prime location
• LVR and concentration restrictions may apply to individual developments
• Up to 50% of gross rental accepted for servicing
• A minimum floor size of 50 m² (40 m² in high demand locations) in living area, excluding balconies and car space.
• Should be a 'High Net Worth' Borrower
• Houses within high-density locations are exempt from this policy, as are home unit developments comprising a total of 35 apartments or less
• Each proposal will be considered by Genworth on individual merit.

The following security types and borrowers are not acceptable:

• Loans to First Home Buyers (other than those eligible under the Graduate Package). Refer to section 5.4.3 for further details
• Serviced apartments, or apartments that are subject to a management agreement
• Strata title hotel/motel room.

5.8.10 Display Homes

• It is not unusual for a builder to construct a home for advertising/display purposes, and subsequently offer the home for sale to a property investor on a leaseback arrangement, often at above market rental rates
• In most cases Genworth would regard such an arrangement as a standard residential investment lease, and would assess rental income at normal market rates
• If the subject property is situated within a designated "exhibition village", and the active life of that village has more than 6 months to run, LMI is only available in the following circumstances:
  • There is no reliance on rental income from the security, or
  • A bank (or similarly recognised) guarantee is provided to the Lender by or on behalf of the borrower for an amount equal to the total rent payable from the date of commencement of the loan until the date the exhibition village will cease to operate.

5.8.11 Transportable Homes

• This term is often applied to a range of pre-fabricated kit style dwellings, which, once properly erected and connected to power and water, are not significantly different to a traditional dwelling
• For mortgage insurance purposes, the construction of a pre-fabricated dwelling must be undertaken by a qualified and licensed builder under the Lender's normal progress payments and progress inspection criteria
• Transportable or pre-fabricated homes should not be confused with any form of "Mobile" or temporary home, which may or may not be permanently affixed to a building site. Mobile homes of any type are not an acceptable security for mortgage insurance.

5.8.12 Relocated Homes

• This type of security is where an existing dwelling is purchased and then re-located onto another block of land. Re-located homes should not be confused with "Transportable" or "Kit" homes
• From an LMI perspective, insurance may be available, subject to normal underwriting criteria, however, we are not able to fully assess such a proposal until the house has been installed onto the new location and all services are connected. An on-completion inspection and report from a qualified valuer must confirm that the house has been installed and that the property meets our acceptable security criteria. The Lender will be required to ensure the property complies with Local Government Authority requirements.

5.8.13 New Houses and Land Packages

• Genworth will consider new house and land packages subject to the following:
  • Valuers are required to comment on the fact that the security is a house and land package, and must document details of any rebates and/or incentives
  • Where builder rebates and/or incentives are noted, the value of the rebate and/or incentive will be discounted from the purchase price.

5.8.14 Seconds Mortgages

• A second mortgage is where a borrower obtains an Additional Loan using an already mortgaged property as security
• A loan secured by a second mortgage can be obtained from the existing first mortgagee, or from another Lender that accepts second mortgage security
• Genworth considers proposals for loans secured by second mortgage security as either;
  • a stand alone (or separate) loan;
  • additional security for a loan for which another security property is provided as a first mortgage (most securitisation warehouses require at least 1 property to be a first mortgage).
• The additional risk with second mortgage security is that should both mortgages not perform, the first mortgagee controls the recovery process for the property, and has first rights of recovery. Additional legal costs, etc may also be incurred during recovery
• Loans with a second mortgage that require insurance, where the original first mortgage, or any other collateral security is not insured with Genworth, or where the second mortgage loan is behind a first mortgage to another Lender, the premium is calculated on the total of the uninsured loans at the new LVR
• Where Genworth insures the second mortgage only, maximum LVR is 70%.

5.8.15 Third Party Mortgages/Guarantees

• There are instances in which it may be commercially viable to agree to insure certain loans that are supported by a third party security
• The third party mortgage table below sets out those instances where Genworth is prepared to offer LMI, notwithstanding that the insurance does not cover unenforceable securities

5.8.16 Non Arms Length Transactions

• This relates to the sale of a property where a registered Real Estate Agent is NOT acting for the vendor
• This also includes advantageous/favourable purchases to a family member at a discounted price or where a vendor is selling the property at a discounted price to a person to whom he/she is indebted.

5.8.17 Cross Collateralisation

• Cross collateralisation of loans is quite common and allows Lenders to use equity in all properties held as security by that Lender, to secure all debts outstanding for the same borrower
• For all cross collateralised proposals, the following must apply:
  • Security property must be common to all loans under the cross-collateralised structure
  • Each mortgagor under the cross collateralised structure must either be a debtor or guarantor
  • Any guarantor on any loan within the cross collateralised structure will be required to guarantee all loans within the cross collateralised structure
  • In the case of a third party loan, any loan where any borrower is not a mortgagor, that borrower must have a direct relationship to a mortgagor with respect to control (ie company where a mortgagor is a director) - Refer to section 5.8.15 Third Party Mortgages/Guarantees for acceptable structures.
• In terms of processing such proposals, the following is to apply:
  • Each loan must be presented with a separate LMI proposal form
  • Each loan must be presented with a separate loan application form outlining the proposed structure
  • A cover page or memo must be attached outlining the scenario, connection to other proposals and total exposure
  • Bureau reports must be provided to confirm any directorships of companies
  • All other standard underwriting parameters are to apply.
• A common acceptable scenario is noted below as an example:

5.8.18 New Properties in Queensland

• More in depth analysis is required in relation to new units or houses in Queensland, where the builder/developer or a related party is the vendor, to ensure the sale prices are not over-inflated and to minimise the possibility of fraud.

• The following additional checks apply to this security type:
  • A copy of the Section 27c Certificate must be supplied to Genworth and the valuer for all purchases of brand new property in Queensland
  • The valuer must confirm in the valuation report that they have sighted the Section 27c Certificate and the total commission involved in the transaction.

5.8.19 Loans to SMSF Trustees

Refer to section 5.4.2 Trustee/s of a Self Managed Superannuation Fund for special requirements in relation to loans to SMSF Trustees. In addition to the above general requirements regarding the security property and the parameters described in section 5.4.2, loans made to SMSF Trustees must only be secured by a “single asset” comprising a security property on a single title (not two or more separate titles) and the loan must not cover any additional assets purchased at the time that the property is purchased such as furnishings or other items which are not fixtures.