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APRA taps banks for more mortgage data

The prudential regulator is requesting additional information from Australian banks after observing “a significant gap” in its ability to monitor mortgage lending and risk.

APRA yesterday released a discussion paper in which it proposes to revise the residential mortgage lending reporting requirements for banks.

“While the quality of loan underwriting in the residential mortgage lending market has improved, APRA is continuing to maintain its close monitoring of investor lending and other areas that may contribute to risks in the housing lending market,” it said.

One key source of information is ARS 320.8, a reporting standard that requires ADIs with more than $1 billion in residential term loans to report 99 data items each quarter on a reporting form (ARF 320.8), using the Direct-to-APRA (D2A) reporting software each quarter.

Banks are required to report on their housing lending activity, including information on the loan purpose (either owner-occupied or investment loans), balances of existing loans, new loan approvals and features of loans.

“ARF 320.8 was introduced in 2008 and has not been updated since then,” the regulator said. “There is now a significant gap in APRA’s ability to monitor the credit risk and lending practices of ADIs. Only 31 of the 109 locally incorporated ADIs are required to submit ARF 320.8.

“Many of the loan characteristics that are factors for assessing credit risk are not covered, such as portfolio loan-to-valuation ratio LVR breakdowns, loan performance, security type and borrower serviceability.”

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In addition, APRA has released for consultation revisions to its mortgage lending guidance, including fresh updates on serviceability requirements.

In a statement yesterday, APRA announced that it has released for consultation a revised Prudential Practice Guide APG 223 Residential mortgage lending (APG 223).

The report sets out APRA's expectations for prudent residential mortgage lending practices, including guidance on addressing credit risk within ADIs’ risk management framework, applying sound loan origination criteria and appropriate security valuation methods, managing hardship loans and establishing a robust stress-testing framework.

“In December 2014, APRA announced further steps to reinforce sound residential mortgage lending practices,” the regulator said in a letter to banks.

“Since that time, APRA has been working closely with ADIs to improve practices in relation to residential mortgage lending standards, particularly in the area of assessing borrower serviceability.”

Following on from this, APRA is proposing to incorporate amendments into APG 223 which provide more detailed guidance on areas such as

• quantitative serviceability parameters including the application of interest rate buffers and floors, haircuts for non-salary income such as rental income, treatment of interest-only loans and estimation of living expenses; and

• other qualitative measures including meeting responsible lending obligations, monitoring serviceability policy overrides, and treatment of self-managed superannuation fund loans and other specific loan types.

“This guidance is consistent with expectations for prudent practices communicated to ADIs through APRA’s supervisory process over the last two years. As a result, it is not expected to require material change to ADIs’ existing lending practices,” APRA said.

[Related: Mortgage lending on APRA radar amid 'heightened risks']

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