Financial Sector (Collection of Data) (reporting standard) determination No. 32 of 2016 - Reporting standard RRS 392.0 - Housing Finance
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Turn the raw legal text into a practical explanation grounded in Financial Sector (Collection of Data) (reporting standard) determination No. 32 of 2016 - Reporting standard RRS 392.0 - Housing Finance.
The purpose of this survey is to provide monthly statistics on the provision of secured finance to individuals for owner-occupied housing. The statistics are used by APRA for regulatory purposes, and may be provided to the Reserve Bank of Australia (RBA) and the Australian Bureau of Statistics (ABS) for policy and statistical purposes. Published aggregate statistics from this collection are used for policy formulation by economists, State and Federal Governments and the housing industry.
A separate form for housing finance in all eight states should be completed:
• RRF 392.0.1 Housing Finance in NSW;
• RRF 392.0.2 Housing Finance in VIC;
• RRF 392.0.3 Housing Finance in QLD;
• RRF 392.0.4 Housing Finance in SA;
• RRF 392.0.5 Housing Finance in WA;
• RRF 392.0.6 Housing Finance in TAS;
• RRF 392.0.7 Housing Finance in NT; and
• RRF 392.0.8 Housing Finance in ACT.
General directions and notes
Reporting entity
This form is to be completed for the Domestic books reporting entity. Report only those commitments where the legal lender on the loan contract is the company listed on the form. Commitments by subsidiary or related entities (e.g. special purpose trusts) should be reported separately.
Reporting period
The information provided should be for the calendar month up to and including the last day of the month. This form is to be reported as at the last day of the reporting period. All Registered Financial Corporations (RFCs) should submit the completed form to APRA within 10 business days of the end of the month.
Unit of measurement
All RFCs are asked to complete the form in thousands of Australian dollars rounded to the nearest whole number (no decimal place).
Amounts denominated in foreign currency are to be converted to AUD using the spot exchange rate effective as at the reporting date.
Basis of preparation
Unless otherwise specifically stated, information reported on this form should comply with Australian accounting standards.
Definitions
A separate form for housing finance in all eight states should be completed. Where the entity has no activity in any state, check the “nil form” box. This form requests details of new commitments to provide secured housing finance to individuals for the purchase or construction of dwellings for owner-occupation, and for alterations and additions to existing owner-occupied dwellings. Only the Australian activities of the business should be included on the form. If exact figures are not available please provide careful estimates. Please note that the items listed under ‘Include’ and ‘Exclude’ are examples and should not be taken as a complete list of items to be included or excluded.
What is a “commitment”?
A commitment is a firm offer to provide finance which has been accepted by the client. A commitment exists once the home loan application has been approved, and a loan contract or letter of offer has been issued to the borrower. A commitment to lend will therefore exist only after the property has been found and valued and mortgage insurance arranged (where relevant).
Report only those commitments where the legal lender on the loan contract is the company listed on the form. Commitments by subsidiary or related entities (e.g. special purpose trusts) should be reported separately.
Only secured commitments are to be reported - whether secured by mortgage, secured personal loan, contract of sale or other security.
With transactions involving a change of residence, you should treat the discharge of the existing housing loan and the commitment to a new loan as separate events, and report the total value of the new loan as a new commitment.
Include:
• finance to your employees for dwellings for owner-occupation;
• new lending commitments which have also been cancelled during the current month;
• commitments to provide bridging finance for housing;
• supplementary commitments (value only) where the original approval was not large enough to complete the purchase (where possible these supplementary commitments should be reported according to the purpose classification of the original approval);
• commitments to refinance existing loans where the original lender was not this institution. These commitments should be reported in Question 9; and
• for secured revolving credit loans report the component (drawdown) of the original credit which is for owner-occupied housing.
Exclude:
• commitments made to individuals for dwellings which are not for occupation by the owner and are not secured should be reported on RRF 394.0 Personal Finance (RRF 394.0);
• commitments made to owner-occupiers for repairs and maintenance, swimming pools and other home improvements not involving building should be reported on RRF 394.0; and
• commitments to refinance existing loans where there is no change in the property offered as security and this institution was the original lender (e.g. refinance from a variable rate loan to a fixed rate loan).
What is a “dwelling”?
A dwelling is a place of residence which is:
• contained in a building which is an immobile structure;
• private (i.e. not generally accessible to the public); and
• self contained (i.e. includes bathing and cooking facilities).
Specific instructions
Part A: Summary of commitments to individuals for dwellings
Part A aims to measure the stock of undrawn lending commitments for your business at the end of the month. It does this beginning with the previous month's closing level of undrawn commitments, and then accounting for the movement in the stock of undrawn lending commitments during the month. Additions to the stock of undrawn commitments can only be made by new commitments during the month, while reductions in the stock of undrawn commitments can only occur through advances and cancellations of those new commitments.
Report only actual cash outflows during the month for loans advanced by instalments.
Repayments on secured revolving credit home loans should not be reported as an increase in the stock of undrawn commitments. The treatment of secured revolving credit home loans (home equity loans) for Part A is problematic - see the section Home Equity Loan Guidelines for more detail.
1a. Lending commitments not drawn at beginning of month
Equals previous month’s lending commitments not drawn at end of month (1e).
1e. Lending commitments not drawn at end of month
(1e)= (1a)+(1b)-(1c)-(1d).
Part B: New commitments for home loans – By purpose
Part B seeks to measure the total number and value of new lending commitments for owner-occupied housing finance made during the month, broken down by the purpose of the commitment.
2. Finance for construction of dwellings Include:
• only those commitments that will be advanced by way of progress payments.
3. Finance for the purchase of newly erected dwellings
A newly erected dwelling is one that has been completed for less than 12 months at the time of the lodgement of the loan application, and in which the borrower will be the first occupant.
4. Finance for purchase of established dwellings
An established dwelling is one that has been previously occupied or has been completed for more than 12 months at the time of the lodgement of the loan application.
Exclude:
• commitments for the purpose of refinancing (discharging) existing loans (include in Question 5).
5. Commitments to refinance existing home loans
A refinanced lending commitment is one that refinances an existing loan on the same residence (i.e. security unchanged), where the refinancing lender is not the original lender. It does not include the situation where an institution refinances its own loan, or where the refinancing is for the purpose of a change of residence. These are considered as new lending commitments.
Include:
• only those loans where the original lender is other than this institution.
Exclude:
• all loans where there is no change in security and this institution was the original lender.
7. Finance for alterations and/or additions to dwellings
Alterations and additions refer to any structural or non-structural change that is integral to the dwelling.
Include:
• all secured loans for structural and non-structural changes to dwellings (e.g.
• all unsecured loans for structural and non-structural changes to dwellings; and
• all loans for repairs and maintenance, swimming pools and other home improvements not involving building.
8. Total new lending commitments (sum of question 6 and 7)
The total value of Question 8 should equal Question 1b.
Part C: New commitments for home loans – By type of loan and borrower
Part C requests the value of total new housing commitments broken down by the type of loan that has been arranged, with a further split of these items into first home buyer loans and others.
A first home buyer is a borrower entering the home ownership market for the first time.
Three types of loans are requested in Part C:
9. Fixed rate home loans
A fixed rate home loan is one which has an interest rate that cannot be varied for at least the first 2 years of the loan.
Exclude:
• all loans which are for alterations and additions (include in Question 7); and
• all capped loans (where the interest rate may vary within the first 2 years).
10. Secured revolving credit home loans
Commonly known as home equity loans, where the loan is secured by the borrowers equity in the home, has no fixed term, is effectively a line of credit, and the borrower is obliged to repay interest only. Report the entire value of the commitment only where the primary purpose of the commitment (i.e. greater than 50%) - is for the purchase of an owner-occupied dwelling.
(see Home equity Loan Guidelines for more details on the treatment of these loans).
Exclude:
• all loans which are for alterations and additions (include in Question 7).
11. Other home loans
All other secured home loans for owner-occupied not already classified as either of the two loan types above.
Include:
• standard variable rate loans.
Exclude:
• all loans which are for alterations and additions (include in Question 7).
Where there is a finance commitment with a mix of loan types, report the commitment's loan type according to the primary loan type of the commitment. Never report a commitment to purchase a single dwelling, where there is a fixed and variable component, as two or more commitments.
12. Total home loans (sum of Questions 9 to 11)
The total of Question 12 should equal Question 6.
Part D: Comments
13. Please provide comments
• on any of the information you have supplied on this form;
• on any questions which caused problems; and
• if you would like to suggest improvements to this form.
Home equity loans - Guidelines
Introduction
The increasing use of home equity loan products by individual (household sector) borrowers as a source of funding has necessitated some additional clarity in how these products should be treated in reporting to RRF 392.0 Housing Finance (RRF 392.0)and RRF 394.0. Please contact the APRA for further advice on these guidelines.
Home equity loans
A home equity loan is a secured revolving credit facility which is secured by the borrower's equity in the home. In effect, the assets of the borrower (in equity in the home) are freed up so as other activities may be funded.
A home equity loan may be taken to fund a range of activities, including the purchase of a property (for owner occupation), the refinancing of the borrower's existing home (as for all home loan refinancing, this would only be reported if the refinancing involved changing the lender), or any other activity - investment purchases (shares or property), household consumption spending (cars, boats, holidays) or working capital for a small business. A feature of home equity loans which causes reporting difficulties for lenders is that often the borrower intends to use the home equity loan for a combination of the purposes mentioned.
Reporting of home equity loans on RRF 392.0 and RRF 394.0
• Attach one of two major (or primary) purposes to each home equity loan commitment- either "Housing" (for Owner-Occupation) or "Other" (than housing for owner-occupation).
• Primary purpose "Housing" commitments to be reported under Question 10 (Part
C) - secured revolving home loans - on RRF 392.0.
• Primary purpose "Other" commitments to be reported as secured personal revolving credit (Question 15) on RRF 394.0, with all drawdowns, re-payments and re-borrowing of principal in subsequent months to be reflected in the value of credit used (Question 17).
• Where it is not possible to isolate the credit used (Question 17) for RRF 394.0 on a sub-group of all home equity loan commitments, then some manipulation must be undertaken to ensure the reported value of credit used is conceptually consistent with the total value of used and unused credit (Question 16), and previously reported values of new revolving credit commitments on RRF 394.0.
The intention of the table which forms Question 1a-1e on RRF 392.0 is to monitor the total "stock" of all commitments not advanced. New commitments to lend are added to the stock while advances of commitments and cancellations are removed from the stock. With a fixed term amortising loan, the commitment is either advanced when the finance is settled, or the commitment lapses and is cancelled. Where only part of the initial commitment is advanced, then it may be necessary to report a value advanced and a value cancelled, so that the (previously reported) commitment is wholly removed from the stock of all commitments not advanced. Some lenders may not cancel lapsed commitments until many months after the commitment is made. We prefer that lapsed commitments are reported as cancellations as regularly as possible. Once a commitment is cancelled or advanced, it plays no further role in the table in Questions 1a-1e of RRF 392.0.
The treatment of home equity loan commitments in Questions 1a-1e is problematic. Given that a home equity loan commitment will be reported for RRF 392.0 only if its primary purpose is the purchase of owner-occupied housing, it is reasonable to assume that the majority of the commitment will be advanced in a comparable timeframe as for a regular standard variable loan commitment. As for all new commitments, the new home equity loan commitment should be added to the stock of undrawn commitments (Question 1b). Any amount advanced (for the purchase of owner-occupied housing) in the same or subsequent months should be reported as an advance (Question 1c); at the same time the balance of the commitment (if any) reported as a cancellation (Question 1d). The home equity loan commitment (like all housing finance commitments) will take no further part in reporting to RRF 392.0.
Where it is impossible to identify the timing of the drawdown of a home equity loan for the purchase of owner-occupied housing, it is acceptable to assume that the entire value of the commitment is drawn down in the month of the commitment, so that the internal consistency of the Question 1 is preserved.
Specific loan products - Guidelines
Mortgage backed overdrafts (revolving credit home equity loans)
The lending institution approves an overdraft limit secured by the borrower's equity in the dwelling.
Reporting instructions
In general, these loans should appear as housing finance commitments on RRF 392.0 where the primary purpose of the loan is to purchase owner-occupied housing, or as "Secured Revolving Credit" on RRF 394.0, where the primary purpose of the loan is for other uses. See III. Home Equity Loans - Guidelines for more details regarding the treatment of this loan type.
Secured fixed term loans
Secured by the borrower's equity in the dwelling.
Reporting instructions
If the purpose of the loan is for personal use, the loan should be reported on RRF 394.0 as fixed term loans under the appropriate purpose of the loan classification e.g. "Purchase of: Motor cars...". If the loan is for business purposes, then the loan is recorded under the appropriate item on RRF 391.0 Commercial Finance (RRF 391.0) (see investment housing below for exceptions).
Combined loans
A combined housing and personal loan.
Reporting instructions
If an existing owner-occupied housing loan is combined with an existing personal loan within the same institution, then the housing component is not regarded as new finance or refinancing, and should not be reported as new lending; where the original personal loan is paid out, the new personal loan is recorded in the item "Refinancing" in RRF 394.0
If an existing owner-occupied housing loan is combined with a new personal loan at the same financial institution, then the housing component is not regarded as new finance or refinancing and should not be reported as new lending. The new personal loan is reported on RRF 394.0 and classified to the appropriate purpose of the loan e.g. "Purchase of: Motor Cars...".
If an existing owner-occupied housing loan and an existing personal loan(s) are combined and refinanced at a different financial institution, then the housing component is recorded as refinancing on RRF 392.0 and the personal loan is recorded in the item "Debt consolidation" on RRF 394.0
If a commitment for a new owner-occupied housing loan is combined with other existing personal debts and loans (previous borrowings from the same institution), then the new housing loan is reported on RRF 392.0 in the appropriate classification (construction, new or established), and the personal loan component is recorded in the item "Refinancing" on RRF 394.0.
Fixed rate and variable rate mix in home loans
A standard variable interest rate home loan, but the borrower can nominate any percentage of the borrowing as a fixed interest rate loan. Interest charged on this part of the loan remains at the fixed rate for the nominated period, the remainder of the loan attracts the standard variable interest rate.
Reporting instructions
Report the entire commitment according to its primary type of loan in Question 9 of RRF 392.0. Mixed loans for a single property should always be reported as one commitment only.
Investment housing
The appropriate classification of commitments for investment housing is dependent on the nature of the borrower and the purpose of the loan.
Reporting instructions
Commitments to individuals for loans for housing investment purposes should be recorded on RRF 394.0 in the item "Loans for personal investment purposes - Dwellings for rent/resale".
Where the borrower is a company or the primary business of the borrower is housing investment, then the commitment should be recorded on RRF 391.0 as "Construction Finance - Erection of dwellings for rental/resale" or "Finance for the purchase of land and buildings - Dwellings for rental/resale" (where appropriate).
Commitments to refinance personal loans for housing investment purposes should be recorded in the item "Loans for personal investment purposes - Dwellings for rent/resale" on RRF 394.0. Likewise, refinancing of loans for other personal investment purposes should be reported in the item "Other - include ...shares and other investment assets" on RRF 394.0. Note that the refinancing of other (non investment) personal loans should be reported in the item "Refinancing" on RRF 394.0. Commitments to refinance personal loans where your institution was the original lender should be included.
Interest offset arrangements and redraw facilities on fixed term loans
Interest on customer's savings are offset against interest owed on a mortgage so that the mortgage can be paid off at a faster rate. Some or all of the repayments in excess of the original rate can be withdrawn.
Reporting instructions
If the borrower only withdraws the excess of repayments then there is no new finance associated with these arrangements, and no new commitments should be reported for any lending activity collections.
Where more than the excess repayments are redrawn, this is considered a new lending commitment and should be reported for the relevant questions on RRF 394.0 e.g. "Purchase of: Motor Cars...".
Portable home loans
Mortgage mobility is being offered by a number of lenders as a service to their clients. The resulting security substitution is likely to involve a client transferring their mortgage from an existing owner-occupied residence to another owner-occupied residence but could also involve investment properties.
Reporting instructions
In cases where a client exercises the option under their existing loan agreement to transfer their mortgage to another security, the transaction should be reported as a new loan commitment (as if the borrower were a new borrower).
Note that if the new commitment is a fixed term commitment and includes a portion to be used for personal or investment purposes, then the that portion of the new commitment should be reported in the appropriate fixed lending purpose on RRF 394.0 or RRF 391.0.
If the new commitment is a revolving credit home equity loan, then refer to III. Home Equity Loans – Guidelines for specific guidelines on this loan type.
Commonly asked questions
Q1. Should the gross or net value of bridging finance commitments be reported?
The total, or gross, value of bridging finance commitments should be reported. For example, if you make a commitment for bridging finance for $150 000 and your client anticipates repaying $100 000 upon the sale of their previous residence, then the full, or gross, value of the commitment should be reported, i.e. $150 000, not the anticipated or actual net.
Q2. How is a commitment to a "First Home Buyer" defined in Part C of RRF 392.0?
Commitments should be classified to the category "First Home Buyers" if none of the borrowing parties to the commitment has previously drawn down on housing finance for owner occupation. Commitments should be classified to "All Other" if any of the borrowing parties to the commitment has previously drawn down on housing finance for owner-occupation.
Q3. Do I report all fixed rate loans against "Fixed Rate" in Part C of RRF 392.0?
No. Fixed rate home loans (Question 9) include only those commitments whose rate of interest is fixed at the start of the loan and will remain fixed for at least the first two years of the loan.
Q4. Who should report commitments originated by mortgage managers and mortgage brokers?
All commitments where the lender identified on the form label is the legal lender on the loan contract, and only those commitments, should be reported on RRF 392.0 or RRF 394.0 (where relevant). For example, where the lender is a bank, report all and only those commitments made where the bank is the legal lender on the loan contract. Where a non-bank subsidiary is the legal lender on the loan contract, those commitments should be reported on a separate form (please contact APRA for additional guidance). In this way, all commitments will be counted once and once only.