APRA has delayed the commencement of new mortgage reporting standards, and watered down some requirements. On the other hand they are seeking to introduced the requirement for lenders to report on debt-to-income ratios for the first time, or at least looking at the cost benefit. Some would say, about time too, but many would not be able to comply, so do not hold your breath! Meantime, APRA says ad hoc requests will continue.
APRA received six submissions to their proposals to revise residential mortgage lending requirements. No submissions objected to the proposals, but some did raise concerns with timelines, data availability and specific definitions.
So APRA has revised the requirements.
Specifically, the start date has been delayed. APRA has deferred the first reporting period for the new reporting requirements to: for ADIs that currently report on ARF 320.8, the period ending 31 March 2018; and for ADIs that do not report on ARF 320.8, the period ending 30 September 2018.
APRA will accept data submitted for the first two reporting periods from these dates on a best endeavours basis. However, APRA expects ADIs will be able to provide accurate, reliable information from the first reporting period. All information provided on ARF 223.0 must be subject to processes and controls developed by the ADI for the internal review and authorisation of that information. These systems, processes and controls are to assure the completeness and reliability of the information provided.
The requirements to classify owner-occupied and investor loans based on security, and to report loans to household trusts has been removed.
Based on feedback, APRA believes the costs of reporting loans to household trusts outweighs the benefits, and has removed the concept.
APRA says it expects that a prudent ADI with material exposures to residential mortgage lending would invest in management information systems that allow for appropriate assessment of residential mortgage lending risk exposures.
They warn that as part of its supervisory monitoring, APRA requests information from ADIs regarding residential mortgage lending on an ad hoc basis. Four submissions to the consultation asked if these requests will continue. ARF 223.0 is designed to replace these data requests, and APRA intends to either significantly reduce or cease the regular requests for individual ADIs once reporting on ARF 223.0 commences. However, given the risks identified in the housing market, ad hoc requests will continue to be a necessary part of APRA’s prudential supervision from time to time.
On the upside (in terms of reporting), in March 2017, APRA noted heightened industry risks relating to residential mortgage lending, and the need to monitor residential mortgage lending more generally. APRA therefore proposes including additional data items to ARF 223.0 regarding:
- borrower’s debt-to-income ratios;
- additional information on increases in lending; and
- lending to private unincorporated business.
These items are highlighted on the updated ARF 223.0. To improve the quality of regulation, the Australian Government requires all proposals to undergo a preliminary assessment to establish whether it is likely that there will be business compliance costs. In order to perform a comprehensive cost-benefit analysis, APRA welcomes information from interested parties.
